Contracts Flashcards
(146 cards)
1
Q
What are the seven defenses to contract formation?
A
misunderstanding
incapacity
mistake
fraud/misrepresentation/nondisclosure
duress
illegality
unconscionability
2
Q
Elements of Misunderstanding
A
Arises when each party attaches a different meaning to the same words. Must show:
1. the parties use a material term that is open to 2 or more interpretations
2. each side attaches a different meaning to the term
3. neither party knows, or should know of the confusion
3
Q
Who lacks the capacity to make a contract?
A
minors
people who are mentally ill - the person cannot understand the nature and consequences of their actions; or the person cannot act in a reasonable manner in relation to the transaction
very intoxicated people
4
Q
what happens if you make a contract with a person who lacks capacity?
A
Contract is voidable - incapacitated party can disaffirm
BUT contract for necessities - the party without capacity must still pay fair value
5
Q
What is mistake?
A
a belief that is not in accord with a present fact
mutual mistake (affecting both parties) and unilateral mistake (affecting one party)
6
Q
Elements of mutual mistake
A
Allows the adversely affected party to rescind if:
a. there is a mistake of fact, existing at the time that the deal is made;
b. the mistake relates to a basic assumption of the contract and has a material impact on the deal; and
c. the impacted party did not bare the risk of mistake
7
Q
Elements of Unilateral Mistake
A
Only the adversely affected party can rescind if
a. can prove all the elements o mutual mistake AND
b. either - 1. the mistake would make the contract unconscionable OR 2. the other side knew of, or had reason to know of, or caused the mistake
8
Q
What is a contract?
A
a legally binding agreement - agreement PLUS special legal basis for enforcing the promise
9
Q
When does common law apply?
A
When a contract deals with real estate or services
10
Q
When does Article II of the UCC apply?
A
when the contract deals with goods
11
Q
What are you dealing with in mixed contracts?
A
Rule 1: all or nothing rule - must fall into one universe or the other (except divisible contracts - the agreement is divided into two mini-contracts)
Rule 2: the determinative purpose - does a good or service play a bigger role?
12
Q
Formation Elements
A
Agreement (offer and acceptance)
Consideration
Defenses to formation
Statute of Frauds (enforceability)
13
Q
Agreement elements
A
offer and acceptance
14
Q
what is an offer?
A
a manifestation of a willingness to enter into a agreement that creates a power of acceptance
15
Q
How do you create a legal offer?
A
governed by the objective test - appearance of words and actions matter
whether an offeror displays an objectively serious intent to be bound
Must be directed to a specific offeree
16
Q
How specific must an offer be?
A
common law - all essential terms must be covered in the agreement
UCC - more willing to fill the gaps. the only essential term is the quantity of what you’re selling
17
Q
What is an invitation to deal?
A
a preliminary communication that reserves a final right of approval with the speaker.
does not convey a power of acceptance to the other side
18
Q
what is an advertisement?
A
usually understood as an invitation to deal.
Exceptions:
- reward advertisements
advertisements that are very specific and leave nothing open to negotiation, including how acceptance can occur
19
Q
Six ways to terminate an offer
A
- the offeror revokes the offer by express communication to the offeree
- constructive revocation - the offeree learns that the offeror has taken an action that is absolutely inconsistent with a continuing ability to contract
- the offeree rejects the offer
- the offeree makes a counter-offer
- the offeror dies
- a reasonable amount of time passes
20
Q
four ways irrevocable offers can arise
A
- option
- firm offer
- unilateral contract
- detrimental reliance
21
Q
What is a firm offer?
A
a merchant in the UCC universe can make a firm offer to buy or sell goods
merchant - a business person
Firm offer must be written, signed by the offeror, and contain an explicit promise not to revoke
time period - either as long as stated in the offer OR for a reasonable time period not to extend 90 days
22
Q
what is a unilateral contract?
A
arises from a promise that requests acceptance by an action of the promisee
because a unilateral contract can be accepted only by performance, the law gives the promisee the right to finish
***offeree is not required to complete performance and can stop at any time
23
Q
what is detrimental reliance?
A
when an offeree reasonably and detrimentally relies on the offer in some forseeable manner
24
Q
What is acceptance?
A
a manifestation of a willingness to enter into the agreement by the offeree
governed by the objective test
the offeree must accept the offer according to the rules of the offeror
25
What are the acceptance rules?
1. the offer must be specifically directed to the person trying to accept it
2. even with an open-to-all offer, you must know about that offer in order to accept it
3. you must normally communicate your acceptance to the other party in order for it to become effective
26
what is the mailbox rule?
RULE: an acceptance by mail is effective when the letter is sent
Does not apply:
1. if the offeree send somethign else back first
2. other types of communciations
3. to option contracts
4. unclear if it applies to other media
27
when is acceptance without communication allowed?
- unilateral reward offers or contests
- unilateral offer in which the parties are geographically close
- a past history of silence serving as acceptance
- the offer says that acceptance must come by silence and the offeree intends to accept the offer by silence
28
what are implied in fact contracts?
acceptance without writing or speaking, through gestures or actions
29
UCC 2-207 definition of acceptance
a definite and seasonable expression of acceptance [or a written confirmation] which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional upon assent to the additional or different terms
30
What is the common law mirror rule?
The terms in the acceptance must match the offer exactly, otherwise it’s a counter offer
a conditional acceptance is another form of counteroffer
31
What is allowed as an additional term under 2-207
the new term in the acceptance may control, but only if all of the following are true
1. both parties are merchants
2. the new term does not materially alter the deal
3. the initial offer did not expressly limit acceptance to its terms
4. the offeror does not reject or object within a reasonable time
32
What is the knock-out rule?
arises when the acceptance has a different term from the inital offer
minority - when the different term does not govern under 2-207, the initial offer controls the terms
majority - knock out both of the different terms; neither term will govern and gap-fillers will control
33
What is acceptance based on conduct?
when parties fail to make a contract but still act as though there is an agreement
34
What is the UCC confirming memo?
arises when the parties have a contract and one party sending a confirming memo with additional terms
35
What is consideration?
a deal in which the parties exchange promises involving a legal detriment or benefit
gifts do not count as bargained for consideration
36
what questions do you ask to determine if there was consideration?
Who is making the promise that needs to be supported by law?
is there a benefit to the promisor or a detriment to the promisee?
was this bargained for?
37
Nominal Consideration
a pretense of consideration is insufficient
a difference in conomic value between the items exchanged is not grounds for finding inadequate consideration
as long as there is enough value, consideration will be adequate
38
What is an illusory promise?
a promisor must clearly commit to the deal or there is not consideration (there must be a way for the promisor to breach)
39
what is not an illusory promise?
satisfaction contracts
output and requirements contracts
40
promising not to sue?
settling a legal claim can be sufficient consideration, but only if: a. the plaintiff has a good faith belief in the validity of the claim; or b. there is reason to doubt the validity of the claim due to uncertain law
41
What is the pre-existing duty rule for contract modification?
a promise to do something that you are already legally obligated to do is not consideration
42
Exceptions to the contract modification
1. a change in performance
2. a third party promising to pay; or
3. unforeseen difficulties that would excuse performance
43
modification under the UCC
ask whether the modification is made in good faith. if so, it is binding even without new consideration
44
what is reliance? (promisory estoppel)
can arise when one party makes a promise, and the other party relies on that promise to take some action
45
elements of reliance
1. a promise is made that would be reasonably expected to induce reliance
2. the promisee does indeed take detrimental action in reliance on the promise; and
3. injustice can only be avoided by enforcement of the promise
46
what is a quasi-contract?
arises when you would have made a contract if you could have, but you could not, or when one party conferred a benefit on another party, and it would be fair to pay for that benefit
47
quasi-contract elements
1. the plaintiff confers a measurable benefit
2. the plaintiff reasonably expected to get paid; and
3. it would be unfair to let the defendant keep the benefit without paying
48
what is the half-theory
moral obligation plus subsequent promise
49
what is misrepresentation?
a statement at the time of contracting that is not true
can be intentional or accidental
50
what are the elements of misrepresentation?
1. a misrepresentation of a present fact
2. that is material OR fradulent
3. that is made under circumstances in which it is justifiable to rely on the misrepresentation
51
what is fraud in the execution?
you trick someone into signing something that they do not even know is a contract
52
what is nondisclosure?
the other party does not learn the truth about something, but now you just remain quiet
Except: a fiduciary relationship or active concealment
53
what is duress?
an improper threat that deprives a party from making a meaningful choice to contract
54
what is economic duress?
arises when one party makes threats to induce another party to contract, or modify a contract
55
illegality defense
illegal contracts are unenforceable. but, a contact entered in furtherance of an illegal act (that is not itself illegal) will still be enforced
56
what is unconscionability?
everything seems fine, but a court simply looks at the deal and says, "No, this shocks my conscience. its unconscionable"
two kinds - procedural and substantive
57
what is procedural unconscionability?
a defect in the bargain process itself, usually a hidden term or an absence of meaningful choice
58
what is substantive unconscionability?
a rip-off in some term of the contract
59
Does the statute of frauds apply to this type of contract?
Marriage - made in consideration of marriage
suretyship - promising to guarantee the debt of another
one year - a contract that by its terms CANNOT be performed within one year from its making
UCC -$500 or more
real property - sale of an interest in real property
60
What are the exceptions?
Main purpose exception - if the main purpose in agreeing to pay the debt of another is for the surety's own economic advantage
narrow interpretation of one year - whether there is no possible way for the contract to be performed within one year of entering into the contract
only contracts to transfer real property (i.e. building a house is not in SOF)
61
How can you satisfy the statute of frauds?
by performance or by writing
62
Service contracts under the statute of frauds?
full performance of a services contract by EITHER SIDE satisfies the statute of frauds.
part performance does not
63
How can a writing satisfy the statute of frauds?
doesnt need to have both signatures
doesnt have to be a formal contract
must cover the fundamental facts:
1. show that a contract has been made
2. identify the parties
3. contain the essential elements of the deal
64
how does real estate satisfy the statute of frauds?
a signed writing will satisfy
part performance can satisfy if any two of the following three are met
1. possession
2. payment
3. improvements to the land
65
how is the statute of frauds satisfied under the UCC?
a. signed writing - no need to mention price, but must mention quantity
b. part performance - but only satisfies for the quantity delivered and accepted
c. custom-made goods (exempted from SOF) - can satisfy as soon as it makes a substantial beginning toward manufacturing the goods
d. a judicial admission
e. confirming memo - failure to object to a confirming memo within 10 days satisfies but only if both parties are merchants
66
what is the equal dignity rule?
must have a signed writing to authorize an agent to form a contract that is in SOF world
67
how does contract modification satisfy SOF?
ask whether the deal, with the alleged modification, would be in SOF world
- if so, the SOF requirements must be met for the modification
- if not, there is no SOF requirement, even though the initial deal was in SOF world
a good faith modification to a contract for the sale of goods that already falls within and satisfies the SOF generally does not need to be in writing unless it affects either 1. the subject matter of the contract or 2. the quantity of goods to be sold
68
what is the parol evidence rule?
if the parties have reduced their contract to a comprehensive writing, then earlier statements or writings related to this agreement are not part of the deal under the PER
69
Have the parties created an integrated writing?
complete integration - the contract expresses all terms of the agreement
partial integration - there is a final writing, but some terms are not included
70
how do you distinguish an agreement that is not integrated from one that is completely or partially integrated?
look for a merger clause (evidence of complete integration)
courts may ask whether, under the circumstances, an extrinsic term of the agreement would naturally be omitted from the writing - if so, may not violate the PER and can be introduced as evidence if it does not contradict the writing
BUT UCC is more forgiving - presumes that a writing is, at most, only a partial integration, unless the parties would have certainly included the disputed term in the writing
71
when doesnt the PER bar earlier evidence?
1. evidence relevant to a defense against contract formation
2. even if a writing is completely integrated, a party can introduce evidence of a second separate deal
3. even if completely integrated, might be able to introduce evidence of a prior communication that is designed to interpret an ambiguous term in the final agreement
72
what is a warranty?
a promise about a term of the contract that explicitly shifts risk to the party making the promise
can disclaim all warranties
73
What is an express warranty?
a promise that affirms or describes the goods and is party of the basis of the bargain unless it is merely the seller's opinion
74
what is an implied warranty of merchantability?
warrants that the goods are fit for ordinary commercial purpose
triggered only when the seller is a merchant dealing in the goods at issue
can be disclaimed but must include VERY CONSPICUOUS language and the term merchantability
75
what is an implied warranty for fitness for a particular purpose?
warrants that the foods will satisfy this special purpose
triggered when a buyer relies on a seller's expertise to select a special type of good that will be used for a special purpose
can be disclaimed - if conspicuous and in writing
nonmerchant can extend the warrant by implication as long as the buyer relies on seller's expertise
76
what are conditions?
another way to shift risk by stating that one party's contractual obligation will only kick in if some future event takes place
can be express or implied
77
what is an express condition?
created by language in the contract - "only if" "provided that" etc
must be strictly satisfied unless the condition is somehow excused
78
how are express conditions satisfied?
objective standard - if most reasonable people would be satisfied, then the condition is met
contracts involving aesthetic taste - subjective standard (can breach if they claim dissatisfaction in bad faith)
79
what is a waiver?
party receiving the protection of the condition may waive the condition by words or conduct
a condition will be waived if the other party wrongfully interferes with or hinders the occurrence of the condition
80
What is the constructive condition of exchange?
one party's performance is conditioned on the other side's performance
81
constructive condition of exchange in the common law universe?
doctrine of substantial performance states that a party will satisfy the CCE if there is not a material breach "a big deal"
82
Substantial performance
only works to satisfy the CCE if the failure is not willful
if payment must be made, nonbreaching party can recover damages for the deficiency
83
what is divisibility for substantial performance?
if a contract is clearly divisible, then it will be broken into mini-contracts for the purposes of determining if there has been substantial performance
84
how does performance work in the UCC universe?
requires perfect tender, except when the contract explicitly changes the default rule
85
what are the two main obligations of perfect tender?
perfect goods and perfect delivery
86
Under the UCC, when is revocation of acceptance allowed?
the buyer may revoke an acceptnace of the food if the goods seem ok when delivered by a defect is discovered within a reasonable time
87
what is the seller's right to cure?
if the seller fails to tender perfect goods and time is left on the contract or the seller has reasonable grounds to believe that the buyer would accept a replacement, then the buyer must give the seller a chance to cure
88
delivery under the UCC
default method is a single delivery of goods
allows for installment contracts - buyer can reject a specific delivery that is not perfect only when there is substantial impairment in the installment that cannot be cured
89
what are the methods of tender?
1. tender at seller's place of business
2. shipment contract
3. destination contract
90
what is tender at seller's place of business?
if the goods are to be tendered at the seller's place of business, then the seller just needs to give the goods to the buyer
91
92
what is a destination contract?
FOB buyer's place of business
if a destination contract, then the seller must get the goods to the buyer business and notify the buyer
93
what is the risk of loss problem?
arises when there is a goods contract followed by damage or destruction of the goods before the buyer receives them
94
who bears the loss in the risk of loss problem?
1. check whether the parties have already dealt with the risk problem in the contract
2. if not, ask whether either party has breached
3. if there is no breach, and the goods are being shipped, what type of contract?
---- if shipment, then buyer
---- if destination, then seller
4. in all other cases, ask whether seller was a merchant?
--- if yes, loss is with seller until buyer receives goods
---- if no, loss moves to buyer when seller tenders
95
what are the different excuses?
1. impossibility and impracticality
2. death after a contract
3. frustration of purpose
4. performance is excused because the initial contract has been modified or cancelled
96
what is impossibility and impracticability?
- performance becomes illegal after the contract is formed
- the subject matter of the contract is destroyed
- in a services contract with a "special person" the performing party dies or is incapacitated
look for something that hinders the ability to perform, not just the cost to perform
look for an unforeseen circumstance in which the non-occurrence of the event was a basic assumption of the contract, and the party seeking discharge was not at fault
97
how does death after a contract operate?
dying does not normally excuse liability on a contract that has been made - the estate will normally be on the hook for any contractual obligations
ask whether there is someting special about the person performing on the contract, such that it makes no sense to continue if they die
98
what is frustration of purpose?
performance can still occur, but something has happened to undermine the entire reason for the creation of the contract
very rare - event must be extreme and not previously allocated to one of the parties
99
when is performance excused because the initial contract has been modified or canceled?
both parties can agree to just walk away from the contract so long as there is some performance remaining from each side, otherwise there is no consideration for the modification
called rescission by mutual agreement
100
what is accord and satisfaction?
the parties to an earlier contract agree that performance will be satisfied instead by the completion of a different performance
if the accord is not performed, the other side can sue on either the original obligation or the new promise
101
what is the accord?
the new performance
102
what is the satisfaction?
the excusal of the initial performance obligation
103
what is the difference between accord and satisfaction and modification?
if the party has to perform an option to satisfy a contract obligation by doing something else, then its accord and satisfaction
in a modification, it is clearer that the parties have changed the performance obligation
104
what is novation?
arises when BOTH parties agree that a substitute person will take over the contractual obligations
if there is a valid novation, then the original promisor will be excused from performance
105
What are the remedies for breach?
anticipatory repudiation
money damages
mitigation
specific performance
106
what is anticipatory repudiation
remedies when the other side says they are not going to perform on the contract before performance is due
107
what options does the nonbreaching party have if a party clearly and unequivocally repudiates?
1. treat the repudiation as a breach and sue immediately for damages. BUT, if you have completed the entire performance and are only waiting for payment, you cannot sue early
2. ignore the repudiation, demand performance, and see what happens
108
can a party retract its repudiation?
as long as the other side has not commenced a lawsuit, or acted in reliance on the repudiation
109
anticipatory repudiation under the UCC
reasonable grounds for insecurity about the other side's performance allows you to demand an adequate assurance of performance
if the party fails to respond within a reasonable time, you can treat this as repudiation
110
what are expectation damages?
goal is to put a party in the same economic position it would be in if the contract had been performed as promised
111
how do you measure expectation damages?
compare the value of the performance without the breach to the value of the performance with the breach
112
how to do measure expectation damages under the UCC?
work through the same formula as the common law
113
what are the limits to expectation damages?
1. must be proven with reasonable certainty. also arises with an unproven business venture - trouble proving lost profits from a consistent sales track record
2. unforeseeable consequential damages
3. mitigation
114
what are unforeseeable consequential damages?
Not recoverable unless the breaching party had some reason to know about the possibility of these special damages at the time of contracting
115
what are the two types of unforeseeable consequential damages?
1. general damages - the type of loss that almost anyone would incur from a breach - includes incidental damages
2. consequential damages - losses that are unique or special to this plaintiff
116
what is mitigation?
a breached-against party must take reasonable steps to reduce damages from breach
if a party refuses to mitigate, the law will calculate damages as if they party did mitigate
defendant bears the burden of proving a mitigation failure
mitigation efforts must be reasonably similar to the original contract
117
what are lost volume profits?
if the paying party breaches, then normally the selling aprty needs to mitigate by reselling the goods or services to another person. But if the seller is a retailer who sells this type of produce all the time, the seller might try to argue for LVP
118
what is incomplete performance?
if the paying party breaches in a partially completed building contract, the builder cannot continue to work on the job just to run up damages
119
what is the formula for incomplete damages?
Expectation damages = contract price - amount already paid - amount that would be needed to finish the job
120
what is economic waste?
a plaintiff is unable to get cost-to-complete damages if it dramatically overcompensates them
121
what is diminution in market value?
how much lower is the market value of what you got versus what you wanted?
the breaching party normally must have acted in an innocent and unintentional manner for DMV damages
122
what are reliance damages?
goal is to put a party in the same economic position that it would be in if the contract had never been created in the first place
ask what loss has the plaintiff incurred that would never have taken place but for the breached contract
123
can a party recover both expectation and reliance damages?
No, they must choose one or the other
124
what are restitution damages?
goal is to give the plaintiff an amount equal to the economic benefit that the plaintiff conferred on the defendant
can be equal to reliance damages, but doesn't have to be
125
what are liquidated damages?
stated in the contract as an explicitly negotiated amount due on breach
courts will only award punitive damages if
1. the amount of liquidated damages was reasonable at the time of contracting; and
2. actual damages from breach would be uncertain in amount and difficult to prove
126
are there punitive damages in contract law?
No
127
when is specific performance awarded in contracts?
Awarded only when monetary damages are considered inadequate for some reason
presumptively available for real estate transactions; presumptively not available for personal service contracts
UCC - only for unique goods
128
what is the right of reclamation?
arises when an unpaid seller tries to reclaim goods that were sold on credit when the buyer is insolvent
129
what are the elements of right of reclamation?
1. the buyer is insolvent at the time of receipt of the goods
2. the seller must demand the return of the goods within 10 days of receipt (or within a reasonable time if the buyer misrepresented his solvency to the seller in writing within three months before delivery); and
3. the buyer still has the goods
130
what are third-party beneficiary contracts?
whether a third party can sue to enforce a contract made by two other people
131
who are the parties to a third-party beneficiary contract?
promisor - the person making the promise that the outsider is trying to enforce
promisee - a contractual counterparty to that promise; this person could presumably enforce the contract, but is not doing so
third-party beneficiary - the outsider suing the promisor for breach
132
what are the types of third parties?
intended beneficiary - has right to sue
incidental beneficiary - can't sue
133
how do you determine whether a third-party is an intended or incidental beneficiary?
ask whether the initial counterparties intended to convey enforcement rights to the third party in the event of a breach
134
what is a creditor beneficiary?
arises when the promisee strikes a deal with the promisor in order to repay some earlier debt to the third party
135
what is a donee beneficiary?
arises when there is no preexisting obligation, but the promisee clearly intends to confer a gift of enforcement on a third party
136
how do you revoke third party rights?
ask whether the third party knows about the promise and has changed position in reasonable reliance on the promise
the promisor can assert any contract defense against the third party that they would be entitled to assert against the promisee
137
when does a third party not lose enforcement rights?
when the following causes the right to vest:
1. the beneficiary detrimentally relies on the rights (like promissory estoppel)
2. the beneficiary manifests assent to the contract
3. the beneficiary filed a lawsuit to enforce the contract
138
what is assignment?
the transfer of rights under a contract
139
what is delegation?
the transfer of duties under a contract
140
how do you distinguish an assignment from a third party beneficiary contract?
two steps in an assignment:
1. formation of a contract
2. transfer of the benefits of the contract from an original counterparty to some third party
141
when can contracts benefits be assigned?
almost all contract benefits can be assigned in whole or in part, unless the contract explicitly prohibits or invalidates assignments
142
what occurs when a contract states that the benefits are not assignable?
must determine whether the contract prohibits assignments or invalidates assignments
143
What happens if the contract prohibits assignments?
the assigning party has breached when they make the assignment, but the third party can still recover from the guarantor
the power to assign persists, even if the right to assign does not
144
what happens if contract invalidates assignments?
the third party cannot recover because there is no power or right to assign
145
what happens if someone assigns the same rights twice?
depends on whether the assignee has paid consideration for the rights:
- if the rights are assigned without consideration: the assignment is generally recovable and the last assignment controls
- if rights are assigned with consideration, then the first assignment for consideration is typically irrevocable and will hold BUT a later assignment will take prioerity if the second assignee does not know of the initial assignment and is first to pbtain payment or a judgment
146
when does delegation occur?
when a party to a contract "outsources" their duties under contract
generally acceptable as long as the contract does not prohibit delegation and as long as the other party does not have some special interest in having a specific individual perform
a delegatee is generally not liable for breach unless they receive consideration from the delegating party
