Contracts Flashcards
(22 cards)
Offer; Termination of Offer
5 ways to terminate
Requirements
* Intent to K
* Essential terms (CL—parties, subject matter, price, and quantity; UCC—just quantity)
* Communication to identified offeree—offeree must know of offer and have power to accept
Termination of Offer
* Death/mental incapacity of either party
* Destruction or illegality—subject matter destroyed or becomes illegal
* Lapse of time—when offer says or after reasonable time
* Rejection (including counteroffer and when offeree takes action absolutely inconsistent with continuing ability to K)
* Express revocation
Irrevocable Offers
CL (3) versus UCC
Common law
* Option K: offeror promises to keep offer open for consideration
* Partial performance: for unilateraal K, offeree beings to perform. Offer held open for reasonable time
* Promissory estoppel (“detrimental reliance”): offeror could reasonably foresee reliance on offer, and offeree reasonably and detrimentally relies on it
UCC
* Firm offer: merchant gives written and signed assurance that offer will remain open. Note: period of irrevocability cannot exceed three months unless the offeree gives consideration
Acceptance; Means of Acceptance
Mailbox Rule
Bilateral versus Unilateral Contract
Notice of Acceptance
Means of Acceptance – address silence, asking a seller to ship goods, and actions or gestures. Notice of Acceptance – whether notifying offeror is necessary
Objective manifestation by offeree to be bound by offer—but offeree must know about offer
Means of Acceptance
* Silence is not acceptance unless offeree has reason to be believe it should be or previous dealings make it reasonable that offeree msut give notice of intent not to accept
* Asking seller to ship goods invites acceptance by promise to ship or by prompt shipment
* Shipping nonconforming goods is acceptance and breach unless timely notify buyer that goods are accomodation (which operates as counteroffer). Buyer may then accept/reject
* Actions or gestures alone can be acceptance (“implied-in-fact” K)
Mailbox Rule (acceptance effective when sent—even if offeror has not received yet)
* Acceptance sent before rejection = acceptance will control unless offeror receives rejection first and detrimentally relies on it
* Rejection sent before acceptance = first received by offerror will control
* Offers and revocations = effective upon receipt. Acceptance sent before revocation received controls
Bilateral versus Unilateral Contract
* Bilateral K: promise by one party is exchanged for promise by the other. Offer requiring promise to accept offer will be accepted with return promise or by starting perfromance (which operates as promise to render complete performance)
* Unilateral K: promise for act of other party. Acceptance requires complete performance. But once party begins performance, offer irrevocable for reasonable time (unless offer states otherwise)
Notice of Acceptance
* For unilateral K, offeree need not notify offeror after completing performance unless offeree has reason to know offeror would not learn about performance within reasonable time or offer requires. If notice warranted but not given, offeror’s duty to perform is discharged unless (1) offeree exercised diligence to give notice; (2) offeror learned about performance within reasonable time; or (3) offer states notification not required
* For bilateral K, notice of acceptance required. And under UCC, if acceptance made by starting performance, notice must be given within reasonable time or offer will lapse
Counteroffers
Common Law
* Mirror-image rule: offer is rejected. Reply treated as counteroffer
UCC (battle of forms): definite and timely expression of acceptance counts as acceptance even if additional or different terms
≥1 party is a nonmerchant
* Offer accepted unless reply expressly required assent to additional/different terms
* Additional/different terms treated as proposed additions to K
All parties are merchants
* Offer accepted unless reply expressly required assent to new/revised terms
* Additional terms become part of K unless (1) offer expressly required assent to new terms; (2) new terms materially alter K; or (3) offeror objects within reasonable time
* Different terms cancel each other out under knockout rule and replaced with gap fillers
Consideration; Adequacy of Consideration
Modifications; Accord and Satisfaction;
Promises Binding Without Consideration
voidable duty; material-benefit rule; estoppel
Address debt barred by SOL/material-benefit rule/promissory estoppel.
Consideration exists where legal detriment to promissee that is bargained for by promisor
Following are not consideration:
* Settlement of legal claim (sufficient only when promising party beliveved ion good faith that claim/defense was valid)
* Preexisting-duty rule (but consideration if promisor gave something in addition to what already owed or varied duty in some way)
* Past consideration (but modern trend to enforce certain promises under material-benefit rule)
* Illusory promise
Modifications
* Common law requires new consideration unless (1) existing K rescinded, and new K is made; (2) unanticipated difficulties, and modification is fair and equitable; or (3) new obligations on both sides
* UCC requires only good faith to modify
Accord and Satisfaction
* Accord = agreement where contracting party agrees to accept different performance from another party to satisfy that other party’s existing duty
* Satisfaction = performance of accord, which discharges original K and accord K (original K not discharged until satisfaction complete)
* When claim subject to dispute, can be discharged if (1) tender negotiable instrument, (2) instrument accompanied by statement indicating tendered in full satisfaction, and (3) claimant obtained payment
Promises Binding Without Consideration
* New promise to pay debt barred by SOL
* When party performs unrequested service (e.g., emergency services), modern tend to apply material-benefit rule, which allows performing party to enforce PROMISE (cf. quasi-K) of payment for material benefits received—only to extend necessary to prevent injustice
* Promissory estoppel—promise binding if: (1) Promisor should reasonably expect it to induce action by promisee; (2) Promise does induce action; and (3) Enforcing promise only way to avoid injustice
Defenses to Formation Part 1: Mistake, Misunderstanding, and Misrepresentation
Address each theory’s elements, and the effect of fault for misrep/cure/and reformation
Enforceability
* Defense to formation or enforcement may render K:
* Void—As if no K existed
* Voidable—A valid K that exists unless and until one party takes affirmative steps to avoid
* Unenforceable—A valid K that cannot be enforced against party who refuses to perform
Mistake
- Mutual mistake when both parties wrong about essential element of K
- Is reformation available? Yes—neither party can avoid K; No—voidable by adversely affected party who did not bear risk of mistake
- Unilateral mistake when only one party wrong about essential element of K
- Enforcement would be unconscionable or other party caused or knew of mistake? Yes—voidable by mistaken party who did not bear risk of mistake; No—not voidable
Misunderstanding when both parties believe they are agreeing to same material terms but actually agree to different terms. Who knows (or has reason to know) about understanding:
* No party = No K
* One party = K formed based on unknowing party’s understanding of material term
* Both parties = No K unless parties intended same meaning
* But one party may waive misunderstanding and choose to enforce according to other party’s understanding
Misrepresentation—untrue assertion of fact about present event/past circumstance. Affirmative conduct to conceal a fact/nondisclosure of known fact is tantamount to assertion that fact does not exist
Fraudulent misrepresentation requires proof that
* (1) Misrepresentation was fraudulent (made knowingly or recklessly with intent to mislead);
* (2) The adversely affected party justifiably relied on misrepresentation; and
* (3) Misrep induced assent to K
* Void or voidable depends on whether misrep caused fraud in factum (void) or fraud in inducement (voidable)
Nonfraudulent misrepresentation renders K voidable by adversely affected party if: (1) Misrepresentation was material; (2) Party justifiably relied on misrepresentation; and (3) Party induced to enter K because of it
Other considerations
* Effect of party’s fault: unless amounts to bad faith, party’s fault before entering into K does not make party’s reliance unjustified
* Cure—K not voidable if misrepresentation cured before deceived party has avoided K
* Avoidance or reformation—deceived party can avoid K or ask court to reform it
Defenses to Formation Part 2: Undue Influence, Duress, Capacity to Contract
Undue influence—nonparty causes; Duress—void/voidable?
Undue Influence
* Unfair persuasion to enter into K. Can happen when person in position of trust, confidence, or dominance uses position to convince another to enter into K not in that party’s best interest
* Victim may void K
* Nonparty to K causes undue influence, victim may void K unless nonvictim gave value or materially relied on K in good faith without knowledge of undue influence
Duress
* Improper threat that deprives party of meaningful choice
* K is void when duress through physical compulsion and voidable in other instances. Always improper:
* Threats to commit crime/tort
* Threats of criminal prosecution
* Threats of civil litigation made in bath faith
Capacity
* Parties to a K must be competent (i.e., have the legal capacity to K)
* Infancy—Voidable by infant, except for reasonable value of necessities
* Mental illness—Adjudicated = Void; Not adjudicated = Voidable
* Guardianship—Void, except person under guardianship may be liable for reasonable value of necessities
* Intoxication—Voidable by intoxicated party if party unable to understand nature/consequences and other party should have known
Defenses to Enforcement
3
Illegality—If a K contemplated illegal contact, it is void; If a K becomes illegal after it is formed, performance is dicharged. Exceptions:
* Promisee justifiably ignorant & promisor knew of illegality
* If a K does not involve illegal consideration/performance & substantial performance + promisee is unaware of the illegal purpsoe that the other party intends to make of that performance
* Promisee knows of the illegal use if substantial perfrmance + no grave social harm + no additional acts that facilitate illegal use
Restitution Damages
* Both parties excusably ignorant
* Less culpable than other party
* Withdrew from K and di not engage in serious misconduct
Illegal Ks generally void as against public policy. If K illegal when formed, then it is void. If K illegal after it is formed, then duty to perform discharged. But exceptions:
* Expectation damages
* Justifiably ignorant of illegality if promisor knew about illegality
* Substantial performance and no illegal purpose or
* K can be easily separated into legal and illegal parts
* Restitution Damages
* Both parties excusably ignorant
* Less culpable than other party or
* Withdrew from K and did not engage in serious misconduct
Unconscionability—So unfair that no reasonable person would agree to it
Public Policy (e.g., restraints on marriage)
Quasi-Contracts
Don’t confuse with implied-in-fact K. Difference between material benefit rule seems to be that quasi-K doesn’t have promise
When P conferred benefit on D with reasonable expectation of compensation and court implies K to prevent unjust enrichment, resulting agreement called quasi-K. Restitutionary recovery available if:
* P conferred measurable benefit on D
* P acted without gratuitous intent and
* Allowing D to keep benefits would be unfair (because either D had opportunity to decline benefit but knowingly accepted it; P had reasonable excuse for not giving D such opportunity
Warranties In Sale-Of-Goods Contracts
Main requirement for implied warranty/what applies to both
Express warranties: Any affirmation, promise, or sample given by seller regarding goods that is part of basis of the bargain. Disclaimers that grossly conflict with express warranties are ignored
Implied Warranties Under the UCC
Merchantability
* Warrants goods reasonably fit for ordinary purpose
* Implied only if seller is a merchant
* Disclaimers: orally or in a conspicuous writing
Fitness for particular purpose
* Warrants goods fit for particular purpose
* Implied if seller has reason to know buyer is relying on seller’s skill or judgment to select goods
* Disclaimer: general language in conspicuous writing
Disclaimer: both implied warranties
* “As is” language/clear statement that no implied warranty
* Buyer’s inspection of goods
* Course of dealing or performance
* Trade usage
Discharge
Address failure of particular source of supply and failure oaf agreed-upon method of transpo. Address TPB in context of recission
Impracticability
* Party’s duty to perform can be discharged by impracticability. The defense is available if:
* Performance becomes illegal after K made;
* Subject matter of K (e.g., the goods) destroyed;
* Performing party is personal-services K dies or becomes incapacitated; or
* Performance becomes impracticable
* Following conditions must also be met: (1) Unforeseeable event happened, (2) Non-occurence of event was basic assumption on which K was made; (3) Party seeking discharge not at fault
Failure of a Particular Source of Supply
If K provides that specific source of supply be used and that source of supply fails, performance is discharged (cf. Failure of Agreed-Upon Method of Transportation)
Frustration of Purpose
* Unexpected event destroys one party’s purpose for making K. Event need not be completetly unforeseeable, but frustration must be severe enough to fall outside assumed risks of K
Release
* Writing discharges another party from existing duty. For CL Ks, release must be supported by consideration.
* Under UCC, written waiver or renunciation signed/delivered is effective without consideration
Mutual Recission
* Surrender of rights under original K by each party is consideration. But K with third-party beneficiaries cannot be rescinded if beneficiaries’ rights have already vested
Destruction or Injury to Identified Goods
Goods identified at time K made destroyed through no fault of either party and before risk of loss passes to buyer, K is avoided. No need to perform and no breach for nonperformance even if goods only damages unless buyer chooses to take goods at reduced price
Third-Party Beneficiary Contracts
When rights vest; who can enforce
Types of TTBs
Intended beneficiary
* Nonparty who owed obligation/debt by promisee, which K parties intended to satisfy through K (TTB can sue either party)
* Nonparty upon whom K parties intended to confer gift (TTB can sue promisor†)
* Intended beneficiary’s rights vest when beneficiary:
* (1) Detrimentally relies on rights created;
* (2) Manifests consent to K at one party’s request; or
* (3) Files lawsuit to enforce K. But promisor can raise defenses against TTP that promisor had against original promisee
Incidental beneficiary
* Nonparty whom K parties did not intend to directly benefit from K
† If foreseaable that intended beneficiary of gift would reasonably rely on promise and beneficiary does justifiably rely to his detriment, then intended beneficiary may also ssue promisee to recover reliance damages
Assignment of Rights and Delegation of Duties
When not allowed. Effect of consideration. Prohibition. Sale-of-goods
Assignment
* Transfer of rights under K. Almost all K rights can be assigned. But assignment now allowed if:
* (1) It materially increases obligor’s duty/risk; or
* (2) It materially reduces obligor’s chance of obtaining performance
* Note that K prohibition does not affect assignment but only bars delegation of duties
Type
* Gratuitous—revocable unless:
* obligor already performed
* document symbolizing assigned right delivered
* written & signed assignment delivered
* promissory estoppel applies
- For value—irrevocable
Delegation is transfer of duties and obligations. Most duties / obligations can be delegated. But not allowed when party to K has substantial interest in having delegating party perform
* Accepting amounts to promise by delegatee to perform, which is enforceable if delegatee received consideration / substitute. But delegator not released unless novation
* Delegation in sale-of-goods K may be treated as reasonable grounds for insecurity, so party may demand assurances. But if K allows, then other party must accept conforming performance
Statute of Frauds
UCC requirements versus CL and exceptions where applicable
Ks that fall within SOF unenforceable unless evidenced by writing signed by party to be charged and contains essential elements of deal. Ks that fall within SOF:
* Marriage
* Suretyship: K to answer for someone else’s debt or duty
* One year: K that cannot be performed within year from its making
* UCC: K for sale of goods for $500 or more
* UCC requires memo that (1) indicates K made; (2) identifies parties; (3) contains quantity term; and (4) signed by party to be charged
* But NO writing required for (1) substantial beginning in manufacture/commitments for specially manufactured goods not suitable in OCB, (2) partial payment made, (3) receipt and acceptance of goods, or (4) failure to object to confirmatory memo within 10 days (when both parties merchants))
* Real property: K to transfer interest in real property (But part performance when 2/3 of: possessing, payment, or improvements to land)
Parol Evidence Rule
Address intent of parties and exceptions
Prevents party to written K from presenting extrinsic evidence that contradicts terms of K as written. Applies only to writing that is integrated—meaning parties intended it to be final agreement (in full or in part)
- Complete integration: Writing is final expression of parties’ agreement as to all terms—Parol evidence inadmissible to supplement or contradict writing
- Partial integration: Writing final expression of parties’ agreement as to some terms—parol evidence inadmissible to contradict writing
Intent of parties determines whether total, partial, or no integration
* CL—Court may look only to writing (“four corners”)
* Second Restatement—If term would “naturally be omitted” and not contradictory, it can be introduced
* UCC—Assumes K is partial integration and allows most outside terms
Parol evidence rule does NOT apply to communications that occur after written K executed when party is:
* Raising defense to K formation or enforcement
* Proving condition precedent to existence of K
* Interpreting or clarifying an ambiguity in the K or
* Under the UCC, explaining or supplementing even apparently unambiguous terms with evidence of course of performance or dealings or trade usage
Conditions and Performance; Rule; Types of Conditions;
Divisible or Installment Contracts
Suspension or Excuse of Considtions
Types of K conditions. UCC seller obligations and methods of tender. Right to inspect. Divisble or installment Ks at CL and under UCC. When can party waive conditions. Address wrongful interfearance. Estoppel if . . .
Rule
* The failure of a condition relieves a party of the obligation to perform
* The failure of a party to perform a promise constitutes breach
Types of Contract Conditions
* (1) Express: Set forth in K. Must be complied with fully
* (2) Implied-in-law: Supplied by court if reasonable under circumstances. Substantial performance sufficient
* (3) Implied-in-fact: Nature of agreement suggests parties intended to include but failed to expressly include. Substantial performance sufficient
* Satisfaction of Conditions: Reasonable-person standard to determine whether condition satisfied. But subjective if aesthetic taste
Performance of Contractual Duty
* Substantial performance is completion of all but the nonmaterial terms of a K
* But substantial performance will NOT suffice for express conditions in a K
* The UCC, however, requires perfect tender. Substantial performance will not suffice, except for installment Ks
Divisible or Installment Contracts
* Under CL, if a K is clearly divisible, then it will be broken into mini-Ks for purpose of determining if there has been substantial perfromance
* Under UCC, Perfect-tender does not apply to installment Ks. Right to reject is determined by “substantial conformity” standard, under which buyer may:
* Reject shipment if nonconformity substantially impairs value of that shipment to buyer and cannot be cured or
* Cancel K if nonconformity substantially impairs value of entire K
Suspension or Excuse of Conditions
* Party receiving protection of condition may waive by words/conduct. But material condition may be reinstated. Nonmaterial condition reinstated only if waiving party communicates retraction before condition due and other party has not detrimentally relied
* If party wrongfully prevents/interferes with occurrence, then condition excused and interfering party has absolute duty to perform
* Party who waives condition may be estopped from using condition as defense if other party reasonably relied on waiver
Breach of Contract; Anticipatory Repudiation; Prospective Inability to Perform
Material versus minor distinction. Applicability to UCC. Where repudiation applies and what nonbreaching promisee may do. Retraction of repudiation.
- Under CL, a material breach allows nonbreaching party to withhold performance. A breach is material when nonbreaching party does not receive the substantial benefit of its bargain. The party who commits a material breach cannot sue for K damages but would ordinarily be entitled to fair value of benefit conferred on nonbreaching party
- Minor breach arises after breaching party has substantially performed. Nonbreaching party can pursue remedies but must still perform
- Under UCC, seller must strictly perform. Doctrine of material breach only applies in context of installment Ks
Anticipatory Repudiation:
* Applies to bilateral Ks. Can be made by words/conduct and must be clear and unequivocal. Nonbreaching promisee may then:
* Treat as breach
* Ignore and demand performance or
* Wait for actual breach
* Retraction allowed only if other party has not cancelled K or materially changed his position
Prospective Inability to Perform
* If reasonable grounds for insecurity, party can demand assurances. Performance may be suspended until assurances provided. Failure to give within reasonable time can be treated as repudiation
* Under UCC, demand must be in writing, and reasonable time limited to 30 days
Damages
Recovery by breaching/nonbreaching party for restitution; expectation damages formula + common scenarios; reliance
Compensatory damages meant to compensate for actual economic loss:
* Put nonbreaching party in as good a position as performance would’ve done (i.e., expectation damages)
* Plus compensate for consequential and incidental damages (if any)
* Less damages nonbreaching party could have avoided or mitigated
* Alternatively, nonbreaching party might recover liquidated damages, reliance damages, or restitutionary relief
Expectation Damages
* Loss in value (what was promised less what was received) + Other loss (including consequential and incidental damages) – Cost avoided (by discontinuing performance) – Loss avoided (by mitigating damages)
* Partial performance: recover for work performed + expectation damages for work not yet performed
* Construction Ks: cost of correcting defect
* Sale of goods: difference between value of goods as warranted and actual value of nonconforming goods
* UCC breach-of-warranty damages: difference between value of goods accepted and value as warranted. Repair costs often used to determine difference
Consequential Damages
* Direct damages necessary/usual result of D’s wrongful act, while consequential damages arise out of special circumstances unique to parties. Must be reasonably foreseeable. Must be proved with reasonable certainty
* Lost profits/lost opportunities unlikely but possible
Incidental Damages
* Seller’s breach—think expenses incurred in inspection, transportation, cover expenses, etc.
* Buyer’s breach—expenses incurred in stopping delivery, transportation, etc.
Liquidated Damages—Meant to reflect reasonable estimate of actual damages. Enforceable if
* Parties intended to agree in advance
* Stipulated amount reasonable at time of K, bearing relation to damages that might be sustained and
* Actual damages uncertain in amount and difficult to prove
Other Damages
* Punitive—rare but may be allowed if breaching conduct also tort
* Nominal—if no damages alleged/proved
* Attorney’s fees—generally not recoverable
Mitigating Damages
* Nonbreaching party must avoid or mitigate by taking steps that do not involve undue risk, expense, or inconvenience (reasonable conduct standard)
Restitution and Reliance
* Restitution seeks to restore P a benefit conferred on D through part performance or reliance
* Not available if nonbreaching party has fully performed and breaching party’s only remaining performance obligation is to pay definite sum of money
* Re: P who has not substantially performed and is in breach cannot recover under K, but P can recover in restitution for any benefit conferred, less D’s damages for breach. But breaching party cannot recover if breach willful or if K provides nonbreaching party may retain value of performance as liquidated damages
* Reliance recoverable if nonbreaching party incurred expense in reasonable reliance on breaching party’s promise to perform
Specific Performance—when damages inadequate. RE is per se unique. Note that laches or unclean hands may be raised by breaching party
Standard Money Damages
Expectation damages—standard measure of money damages
* Puts the parties in the economic positiotn they would be in if the K had been performed (i.e., if the breach never occured)
Reliance damages—alternative measure used when expectation damages are too speculative
* Designed to compensate P based on the value of his performance and put P in the position he would have been in had the K never been formed
Consequential damages—foreseeable losses indirectly resulting from a breach; recoverable if:
* The natural and probably consequences of breach
* Contemplayed by the parties at K formation or
* Otherwise foreseeable
Incidental damages—commercially reaonably expenses incurred by the non-breaching party in UCC Ks (e.g., costs of inspecting, returning, storing, reselling goods)
Under the UCC, only buyers can collect consequential damages
Restitution, Liquidated Damages, & Duty to Mitigate
Restitution damages—arise when a party has been unjustly enriched
* Awarded based on value of the benfit conferred
* Party cannot recover both expectation damages and restitution damages
Liquidated Damages—agreed-upon K provisions that stipulate specified damages upon the occurrence of a breach
* Requirements—liquidated damages provisions are valid only if:
* Damages are difficult to predict at time of K formation and
* The provision is a reasonably estimate of actual damages
Duty to mitigate—nonbreaching party must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience (reasonable conduct standard)
Remedies Under the UCC
Buyer’s Remedies Under the UCC: No tender; Nonconforming tender; Conforming tender
✦Buyer’s Remedies✦
No tender (breach by seller)
* Cancel an installment K if the breach goes to the entire K
* Damages
* FMV of goods at the time of breach minus K price, or
* Buyer’s cost of covering/replacing goods minus K price
* Demand specific performance for unique goods
Nonconforming tender (breach by seller)
* Inspect and then accept or reject all or part of the goods
* Buyer must pay for accepted goods minus any damages (i.e., FMV of the goods actually delivered)
* Seller can cure breach by tendering goods if time remains to perform
* A rightful rejection entitles buyer to the remedies listed above
✦Seller’s Remedies✦
Breach by buyer & buyer has goods:
* Damages = K price (arises if goods are: kept by buyer, destroyed after ROL passes to buyer, or returned and seller is unable to resell)
Breach by buyer & seller has goods—either:
* K price minus market price at the time of deliver, or
* K price minus resale price plus provable lost profits
Conversion—FMV of goods at the time of the conversion
Risk of Loss
Shipment by carrier—K type determines ROL:
* Shipment Ks—seller only obligated to ship goods to buyer
* ROL passes to buyer when seller delivers goods to carrier
* Destination Ks—seller obligated to ensure goods reach buyer
* ROL passes to buyer only when buyer takes delivery
Non-carrier delivery—goods not shipped by common carrier
* Merchant seller—ROL passes to buyer when he takes physical possession
* Non-merchant seller—ROL passe to buyer upon tender of delivery
Goods destroyed before ROL passes—K is avoided when goods identified at the time the K is made are destroyed through no fault of either party and before ROL passes to buyer
“FOB [location]”—seller bears risk of getting goods to named location, at which point ROL passes to buyer
