Contracts Flashcards
(118 cards)
1
Q
Merchant
A
A person who regularly deals in the type of goods involved in the transaction.
In some instances, any business person within a transaction of a commercial nature.
2
Q
Who Lacks Capacity to Make a Contract?
A
(1) Minors (under the age of 18)
(2) Mentally ill
(3) Intoxicated
(4) Under Guardianship
3
Q
Offer
A
Offer is (1) an objective manifestation of a willingness by the offeree to enter into an agreement, that (2) creates the power of acceptance in the offeree
4
Q
Bilateral Offer
A
A bilateral offer can be accepted:
(1) with a return promise or
(2) by starting performance - which operates as an implied promise to render complete performance.
5
Q
Unilateral Offer
A
Unilateral Offer can be accepted only by completing performance.
It cannot be revoked if offeree started to perform.
6
Q
Objective Theory
A
Under the objective theory of contracts, a party’s intent to contract is judged by outward objective facts as interpreted by a reasonable person
(Not a party’s subjective intent of beliefs)
7
Q
UCC Quantity
A
The quantity term must specify the amount that is certain or capable of being made certain by reference to objective facts
8
Q
Option Contracts
A
An option is a promise to keep an offer open for a specified period of time, but the offeree must give separate consideration.
(No consideration, means options can be revoked unless its a firm offer)
9
Q
Firm Offer
A
Unrevokable offer for a set period of time, without requiring consideration, is ok if:
(1) Offeror is a merchant / business person
(2) Assurance offer remains open is in writing and signed
(3) Reasonable time, not exceeding 90 days. if exceeding 90 days, offeror is free to revoke.
10
Q
Illusory Promise
A
An illusory promose imposes no obligation on or causes no legal detriment to the offeror, and thus acceptance does not form a contract.
But such an offer will become legally binding if:
(1) circumstances change such that the offer imposes obligations on both parties AND
(2) the offer is accepted after the changes circumstances
(if I want to . . . .) vs. (“as soon as I’m able to” is a condition prec
11
Q
Revocation
A
An offer can be terminated if the offeror revokes the offer prior to acceptance.
Revokation is effective when recieved.
12
Q
Constructive Revocation
A
If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, then the offer is automatically revoked.
13
Q
Operation of Law
A
A offer can be terminated with the subject matter of the offer is destroyed.
14
Q
Death of Offeror
A
If offeror dies before the offer is accepted, the offer will be terminated
15
Q
Lapse of Time
A
If an offer is not accepted within a reasonable amount of time, it will be deemd to be terminated
16
Q
Acceptance
A
An acceptance is an objective manifestation by the offeree to be **bound **by the terms of the offer
17
Q
Manner of Acceptance
A
Any reasonable means of acceptance is fine, unless the offer limits the means
18
Q
Silent Acceptance
A
Silence is generally not acceptance, unless the offeree has reason to believe that silence will constitute an acceptance
19
Q
Mirror Image Rule
A
Under Common Law, the acceptance must mirror the terms of the offer. Any changes is a rejection / counter offer.
20
Q
Acceptance of Irrevocable Offer
(Options)
A
For irrevokable offers, acceptance is effective when it is **recieved **by the offeror. The mailbox rule does not apply.
21
Q
UCC New / Additional Term with One Non-Merchant
A
If one party is a non-merchant, acceptance from the offeree with changes / additions will be a valid acceptance.
However, the contract will not include the changes / additions unless the offeror agrees to them.
22
Q
UCC New / Additional Term Between Two Merchants
A
New terms within an acceptance is part of the deal only if:
(1) Both parties are mechants
(2) New term does not materially alter deal
(3) Initial offer does not expressly limit acceptance of new term
(4) Offeror does not reject new term within reasonable time
23
Q
UCC Reject Goods Then Conversion
A
If a buyer wrongfully converts rejected goods (not pays, then sells), the seller is entitled to recover the fair market value of the goods at the time of the conversion.
24
Q
Knock-Out Rule
A
Applies to the UCC -
Majority rule: neither term will govern & gap-fill using UCC
Minority rule: initial offer controls
25
UCC Agreement with No Price
When an agreement reflects an intent to be bound only if the price is subsequently set, no contract is formed until the price is set.
26
Bad Faith During Contract Formation
While acting in bad faith during contract negotiations may have consequences, bad faith alone is not a defense to contract formation.
27
Mailbox Rule
Under the mailbox rule, acceptance is typically valid when sent.
If a rejection is sent, then an acceptance is sent - the first one to arrive will govern.
28
Consideration
Consideration requires a bargained-for change in the legal position between parties, meaning both sides must have a legal detriment.
A legal detriment can take the form of a promise to do/not do something, or performance/refraining from performance.
29
Pre Existing Duty Rule
A promise to perform a preexisting legal duty will not qualify as consideration because the promisor is already required to perform by the promisor
30
Past Consideration
Under the common law, a legal detriment incurred in the past does not constitute consideration because it was not bargained for in exchange for a legal detriment
31
Moral Consideration
Under the modern trend, a promise not supported by consideration may be enforceable if it is made in recognition of a significant benefit previously received by the promisor from the promisee.
| (does not apply to gifts)
32
Gift
A gift from one party is not supported by consideration because the receiving party is not suffering a legal detriment.
33
Promise to Pay Debts after Statute of Limitations
A new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration.
34
Settlement of Claims
A promise to surrender a claim or defense constitutes consideration for a settlement agreement so long as :
(1) the claim or defense is valid or subject to a **good-faith dispute** or
(2) the surrendering party **honestly believes **that the claim or defense may be valid.
35
Consideration of Items Exchanged
Difference in economic values between items being exchanged, does not show inadequate consideration.
36
Mutual Mistake
When both parties are mistaken as to an essential element of a contract at the time the contract is formed, the contract is voidable by the adversely affected party if:
1. mistake relates to **basic assumption** of contract
2. mistake **materially affects** agreed-upon exchange of performances AND
3. adversely affected party** did not assume risk **of mistake
37
Mutual Mistake - Reformation
The parties can ask a court to reform the contract and rewrite it to reflect the correct element(s) of the contract.
Reformation is available if:
* There was a prior agreement (either oral or written) between the parties;
* There was an agreement by the parties to put that agreement into writing; and
* As a result of a mistake, there is a difference between the prior agreement and the writing.
If reformation is available to cure, neither party can void (rescind the contract)
38
Mutual Mistake - Recission
If reformation is NOT available for a mutual mistake, the contract may be voidable.
39
Assumption of Risk / Conscious Ignorance
A party assumes the risk of mistake if, at the time the contract is formed, the party is aware that he/she has limited knowledge of the facts and accepts this knowledge as sufficient.
40
Unilateral Mistake
Applies only if one party is mistaken as to an essential element of the contract.
Mistaken party can void the contract if:
1. Mistake makes enforcement of contract unconscionable OR
2. Non-mistaken party failed to disclose the mistake or caused the mistake.
For a unilateral mistake to form the basis for rescission, there must be an absence of serious prejudice to the other party.
41
Misunderstanding
A misunderstanding occurs when contract parties assign different meanings to the same term.
If neither or both parties know - then no contract is formed, because no meeting of the minds.
If one party knows – then valid contract was formed and the unknowing party’s meaning controls the terms.
42
# ```
Unconscionability
A contract is unconscionable when it is so unfair to one party that no reasonable person in that party's position would have agreed to it.
43
Misrepresentation
Misrepresentation occurs when a statement / conduct is
(1) fraudulent;
(2) induced assent and
(3) the adverse party justifiably relied on it.
44
Misrepresentation Cure
Misrepresentation can be cured if the misrepresentation becomes true before the adversely affected party avoids the contract.
45
Undue Influence
Undue influence is the unfair persuasion of a party to assent to a contract.
Relevant factors include:
* the fairness of the bargain,
* the availability of independent advice, and
* a party’s susceptibility to being persuaded.
46
Duress
Duress is an improper threat that deprives a party of meaningful choice.
47
Statute Of Frauds
To satisfy the statue of frauds, a certain contracts must be in writing and signed by the party whom enforcement is being sought in order to be enforceable. Categories include:
* Marriage
* Surety
* Contracts that cannot be performed within 1 year
* Sale of Goods $500 of more
* Real-estate
| (Commissions do not count)
48
Suretyship
A promise to assume responsibly for a duty incurred by another.
Under the main purpose rule, suretyships are subject to the statute of frauds, unless they are made from the promisor’s own economic advantage.
49
Exceptions to the Statute of Frauds
If not met/satisfied, exceptions include:
* Full performance?
* Estoppel
* Specially manufactured goods exception
* Merchant SIGNED memo? No objection within 10 days?
* Land related – 2/3 must occur
* >>Purchaser pays part/all land
* >>Takes possession of land OR
* >>Substantially improves the property
50
Implied Warranty of Merchantability & Disclaimer
The implied warranty of merchantability - applies to only merchants - means goods sold are fit for their ordinary purpose.
However, this warranty is disclaimed for defects that an examination would have revealed if the buyer:
1. examined the goods as fully as desired before entering the contract or
2. refused to examine the goods before entering the contract.
51
Express Warranty
Under the UCC, a seller creates an express warranty in a contract for the sale of goods when the seller makes an affirmation of fact or promise about the goods that becomes part of the basis of the bargain.
52
Mere Opinion
A seller's mere opinion or commendation about the value or quality of the goods does not create an express warranty.
53
Unanticipated Difficultures to Pay Debt
Modification of an existing contract without consideration is enforceable when:
(1) one party agrees to compensate the other when unanticipated difficulties arise and
(2) the modification is fair and equitable.
54
UCC Modifications
Under the UCC, no consideration is needed to modify a contract, only good faith.
55
UCC Gap Filing Missing Price
If a contract omits a price term—or if the parties agree to set the price in the future but fail to do so—then the UCC supplies a reasonable price at the time of delivery.
56
Accord and Satisfaction
Under an accord and satisfaction, a party can fulfill its contractual obligation by rendering different performance than the one initially promised, if three conditions are met:
1. the obligation is in dispute;
2. the obligor, in good faith, tenders the negotiable instrument with a conspicuous statement that the instrument is tendered as full satisfaction of the obligation; and
3. the obligee obtains payment of the instrument
| (look for a genuine dispute)
57
Accord Agreement Worth Less
An accord agreement must be supported by new consideration. If the new consideration is worth less than what was originally promised, then it is sufficient only if:
(1) there is a good-faith dispute as to the amount owed OR
(2) it is of a different type than what was originally owed.
58
Parole Evidence Rule
The parol evidence rule generally bars evidence of prior or contemporaneous agreements that contradict the terms of an integrated writing. A writing may be fully or partially integrated.
* totally integrated – such evidence is not admissible or
* partially integrated – such evidence is admissible if it is consistent with the written terms—but not if it contradicts them.
59
Parole Evidence Exceptions
* whether writing is integrated and, if so, completely or partially
* meaning of ambiguous term
* defense to formation or enforcement
* ground for granting or denying remedy (eg, rescission, reformation)
* subsequent contract modifications
* condition precedent to effectiveness
60
Parole Evidence Rule - UCC
The UCC presumes that a contract for the sale of goods is only partially integrated. Evidence that supplements a written contract is admissible—but evidence that contradicts the writing is inadmissible.
61
Condition Precedent
A condition that must occur to trigger a party's obligation to perform.
A party who wrongfully prevents the condition from occurring, will excuse the condition, and thus be in breach if that party fails to perform.
62
Course of Performance / Sequence of Conduct
A sequence of conduct concerning the current contract that is relevant to understanding an agreement between the parties if:
1. the agreement involved repeated occasions for performance by a party and
2. the other party accepted performance without objection
63
Course of Dealing
A sequence of conduct concerning previous contracts between the parties that can reasonably establish a common basis of understanding for interpreting their conduct.
64
Trade Usage
Under the UCC, a party may explain or supplement the terms of a written contract with evidence of trade usage
65
Priority of Evidence
Priority for this evidence is given as follows: course of performance, then course of dealing, then trade usage.
66
Accord Agreement
When a party agrees to accept different performance in satisfaction of (in place of) the original promise; after breach, the party can sue under either the original contract or the accord agreement.
67
Substitute Agreement
When the parties form a second agreement that immediately discharges the original contract; after breach, a party can sue under the substitute contract only.
68
UCC No Oral Modification Clause
Under the UCC, no oral modification clauses are generally enforceable.
But its waived if (1) parties attempt to modify contract orally / by conduct AND (2) one party relies on that modification.
69
Ambiguous Terms - Drafter
Ambiguous contract terms will be interpreted against the drafted to protect the non-drafter.
70
Substantial Performance
| (Common Law)
Substantial performance is when a party who substantially performs can recover on the contract even though full performance has not been tendered.
There is no substantial performance if the incomplete performance was a material breach. Material breach allows the nonbreaching party to withhold any promised performance and to pursue remedies & damages for breach.
The Implied Duty of Good Faith and Fair dealing means the duty not to hinder the other party’s performance and to cooperate when necessary.
71
Express Conditions
Substantial performance will not suffice for express conditions. Such conditions must be performed in full.
| ("on the condition that"; "provided that")
72
Perfect Tender
Under the UCC, a seller must strictly perform all contractual obligations or be in breach.
Failure to tender perfectly conforming goods constitutes a breach that, unless cured before the deadline, allows the buyer to accept or reject the goods.
The seller cannot recover damages under the contract for any rejected goods.
73
Sale of Assorted Goods
If a buyer fails to timely select the assortment of good for delivery and the delay **materially impacts** the seller’s performance, the seller can (1) Proceed in any reasonably manner or (2) treat the buyer's failure as a breach
74
Requirements Contract / Exclusive Agreement
Under the UCC, a requirements contract is a contract for the sale of as many goods as the buyer requires during a specified period, meaning an exclusive agreement. As a result, this requires the buyer to purchase goods from the seller only. A failure to do so violates the duty of implied good faith and fair dealing and is a breach of contract.
75
Retaining Rejected Goods
A buyer must retain rejected goods for a reasonable time to allow the seller to reclaim them. In the absence of other instructions, the buyer must sell the goods on the seller's behalf if:
1. the buyer is a merchant,
2. the goods are perishable, and
3. there is no local agent to whom the goods can be returned.
76
Reclaiming Goods From Involvent Buyer
A nonbreaching seller may reclaim goods from a buyer when the seller:
1. discovers the buyer received the goods on credit while insolvent and
2. demands the goods be returned within 10 days after their receipt.
But this 10-day limitation does not apply if the buyer misrepresented its solvency in writing within three months before delivery.
77
Compel to Supply Goods
A buyer can compel a breaching seller to supply the goods in limited circumstances.
* Replevin applies when the contract deals with identified goods.
* Specific performance applies when the contract deals with unique goods.
78
Installment Contracts / Theory of Divisibility
Under the UCC, an installment contract is defined as a contract in which the goods are to be delivered in multiple shipments, and each shipment is to be separately accepted by the buyer. Payment by the buyer is due upon each delivery unless the price cannot be apportioned.
Recovery is limited to the amount promised for the unit of the contract performed.
However, when parties expressly agree to a condition precedent, they are generally held strictly to that condition, and a party must fully comply with that condition before the other party’s performance is due.
79
Installment Contracts - Substantial Impairment Rule
Installment contracts follow the substantial impairment rule. Buyer may reject tender of nonconforming goods when the nonconformity (1) substantially impairs the value of that shipment to the buyer and (2) cannot be cured.
Buyer may also cancel the entire contract, if the nonconformity substantially impairs the value of the entire contract to the buyer.
BUT if the seller makes adequate assurances that he can cure the non-conformity, the buyer must accept the shipment.
HOWEVER, buyer can deduct any damages for loss due to the nonconformity.
| (Perfect Tender Does Not Apply)
80
UCC Shipment Contract
Does NOT require delivery at particular location, so the risk of loss passes to the buyer when goods are properly delivered to the carrier.
81
UCC Destination Contract
Requires delivery at a particular location, so the risk of loss remains with the buyer under goods are delivered at named location.
82
Release
Manifests an intent to discharge another from an existing duty. Typically required new consideration.
UCC requires a release to be signed by the releasing party, but new consideration is not required.
83
Waiver
The nonoccurrence of a condition may be excused, if the party who would benefit from the condition waives it by words or conduct.
Once the condition is excused, then the waiving party cannot raise it as a defense.
84
Wrongful Inteference
The nonoccurrence of a condition may be excused, if the one party wrongfully interfered with the conditions occurrence.
85
Estoppel
Other party reasonably & detrimentally relies on belief that condition has been waived.
86
Disproportionate Forefeiture
Party substantially performed & will be significantly harmed if condition is enforced.
87
Impractiability
A contracting party's duty to perform is discharged by impracticability when:
1. an unanticipated or extraordinary event makes it impracticable for the party to perform,
2. the contract was formed under a basic assumption that the event would not occur, and
3. the party seeking discharge was not at fault in causing the event to occur.
88
UCC Goods Sold at Auction - Reserve vs. Non-Reserve
During a reserve auction, the auctioneer may withdraw goods from auction prior to completion of the sale ( before the auctioneer's hammer falls).
At a no-reserve auction, goods generally cannot be withdrawn after the auctioneer calls for bids.
A reserve action is presumed unless a no-reserve action is announced.
89
Winning Bidder Protections
The UCC allows a winning bidder to avoid the sale if the auctioneer:
1. knowingly accepted a bid by the seller or on the seller's behalf or
2. procured the seller's bid to drive up the price of the goods.
However, the winning bidder may not do so if:
1. the seller bid at a forced sale or
2. the seller gave notice reserving the right to bid.
90
Recovery for Breach of an Illegal Contract
A contract to perform an illegal act is void and unenforceable. However, restitution damages may be recoverable if the claimant conferred a benefit on the other party and:
1. was** justifiably ignorant** of the facts that made the contract illegal;
2. was **less culpable** than the other party or
3. **withdrew before** the contract's illegal purpose was achieved & did not engage in serious misconduct (e.g., shockingly immoral, unethical, or unjust behavior).
91
Non-Illegal Act for Illegal Purpose
If one party lacked an illegal purpose and substantially performed under the contract, that party may recover even if he knew of the other party’s illegal purpose
UNLESS
1. The performing party took action to further that illegal purpose or
2. The purpose involved grave social harm
92
Avoid Frustration via Public Policy
When a contract violates a law, where the law was created to protect the parties seeking to enforce the contract, the contract will be enforced via public policy.
93
Third Party Beneficiary
A third-party beneficiary is a nonparty to a contract who receives some benefit from that contract. Only intended beneficiaries—not incidental beneficiaries—have contractual rights and may sue to enforce them.
Intended means those who receive a direct benefit from the contract, as the parties intended. Incidental means those who receive some indirect benefit.
94
Third Party Vesting
The contracting parties may still modify/rescind contract until the intended beneficiary's rights are vested. Once vested, original parties are bound to perform.
Vesting occurs when the beneficiary
1. detrimentally relies on the rights;
2. manifest assent to the contract; or
3. files a lawsuit to enforce the contract.
95
Gratuitious Assignment
When assignment is made without consideration it is revocable by the assignor unless:
* the obligor has already performed
* a document symbolizing the assigned right has been delivered to the assignee
* a written assignment signed by the assignor has been delivered to the assignee or
* the assignee has detrimentally relied on the assignment.
This is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.
96
Contract Provisions that Prohibit Assignments / Delegations
Prohibits Assignment of "the contract" means Assignment of rights if allowed, delegation of duties is barred.
97
Delegation
Contractual duties can generally be delegated by one party to a non-party, without the other party’s consent.
The promisor remains liable for breach if the delegatee fails to perform (verses novation).
98
Delegation Not Permitted
Delegation of contractual duties is not permitted when (1) the contract prohibits delegation or (2) the other party to the contract has a substantial interest in having the delegating party perform.
99
Novation
A valid novation (express or implied) requires that: the promisor repudiate liability to the promisee and the promisee subsequently accept performance of the original agreement from the delegatee without reserving rights against the promisor.
100
Entrustment
Entrustment includes any delivery and acquiescence to the possession of goods, regardless of conditions expressed between the parties.
101
Good Title
Good title can be conveyed to a buyer in the ordinary course of business, who buys goods:
(1) in good faith
(2) without knowledge that the sale violates the owner's rights to the goods and
(3) from a merchant in the business of selling goods of that kind.
102
Anticipatory Repudiation
When a contracting party **clearly & unequivocally** indicates an unwillingness to perform a promise before performance is due.
The non repudiating party may treat it as a breach or ignore it, and demand performance. Also, any performance owned by the non repudiating party is excused.
103
Retraction of Anticipatory Repudiation
A repudiation can be retracted if the nonrepudiation party receives notice of the retraction before:
1. canceling the contract
2. materially changing position in reliance on the repudiation or
3. indicating that he/she considers the repudiation to be final.
104
Non-Repudiating Party Breaches
A non repudiating party who materially breaches the contract cannot recover damages for the other party's anticipatory breach because the material breach discharges the repudiating party's duty to perform.
105
Anticipatory Repudiation - Risk of Loss Shift
When a buyer repudiates or breaches a contract that deals with specifically identified goods, the risk of loss immediately passes from the seller to the buyer. When this occurs, the seller can recover any deficiency between the seller's insurance coverage and the contract price within a commercially reasonable time.
106
Adequate Assurances
A party can demand assurance of performance if there are reasonable grounds for insecurity about the other party’s ability or willingness to perform.
Failure to give adequate assurances within a reasonable time can be treated as repudiation.
Under the UCC, the demand must be made in writing, and the reasonable time in which to give adequate assurances is limited to 30 days.
107
Material Harm in Breach of Contract
Material harm is not a necessary element of a breach-of-contract claim.
108
Compensatory Damages
Compensatory damages are meant to compensate the non-breaching party for actual economic losses.
Compensatory damages = (expectation + consequential + incidental damages) – mitigation
| (no attorney fees)
109
Expectation Damages
Expectation damages are intended to put the non-breaching party in the same position as if the contract had been performed, and must be calculated with reasonable certainty.
In construction contracts, the general measure:
Buyer Damages =
Actual cost by another builder – contract price – any payments made by the breaching builder + compensation for the delay.
Builder Damagers = loss of profit + cost incurred – costs saved / repurposed
110
Consequential Damages
Rise from special circumstances unique to the contracting parties.
To be recoverable, consequential damages must have been reasonably foreseeable to the breaching party when the contract was entered.
111
Incidental Damages
Incidental damages may be awarded to the nonbreaching party as compensation for commercially reasonable expenses incurred as a result of the other party’s breach.
112
Mitigation of Damages
A party to a contract must mitigate damages to the extent reasonably possible by taking steps that do not involve undue risk, expense, or inconvenience. Such failure reduces the non-breaching party's damages recovery.
113
Economic Waste
Economic waste occurs when the cost to fix or complete the construction is clearly disproportional to any economic benefit or utility gained as a result.
When a breach results in a defective or unfinished construction, if the award of damages based on the cost to fix or complete the construction would result in economic waste, then a court may instead award damages equal to the diminution in the market price caused by the breach.
114
Reliance Damages / Estoppel
When one party makes promise, other party relies on that promise to take some action.
ELEMENTS
1. Promise made that would** reasonably expect** to induce reliance
2. Promisee did take **detrimental action** in reliance on the promise
3. **Injustice** can only be avoided by enforcement of promise
| (don't need valid contract for this)
115
Charity Subscriptions - Reliance
When it comes to written promises to contribute money or property to a charitable institution—most courts find that proof of detrimental reliance is not required.
116
Quasi Contract / Restitution / Unjust Enrichment
Despite having no contractual relationship with the defendant, plaintiff can recover if the plaintiff conferred a non-gratuitous benefit on the defendant where:
1. the defendant had the opportunity to decline the benefit but knowingly accepted it or
2. the plaintiff had a reasonable excuse for not giving the defendant an opportunity to decline.
117
Advance Payment Restitution Damages
Under the UCC, the breaching buy is still entitled to restitution damages for advanced payments, minus amount of the seller’s damages.
118
Liquidated Damages
Liquidated damages are recoverable so long as the liquidated amount bears a reasonable relation to anticipated damages.
Many courts have held that a deposit of no more than 10% of the purchase price is reasonable.
