Contracts Flashcards
(84 cards)
1
Q
What is the UCC?
A
UCC governs the “sale of goods.”
2
Q
Which law applies in hybrid (goods and services) cases?
A
To determine whether the UCC or common law applies in a hybrid case is determined by the predominant purpose test (majority rule), which looks at the following factors: the language of the contract; the nature of the supplier’s business; and the relative values of the goods versus the service (i.e., $100 in installation fees vs. $1,000 in products to be installed)
3
Q
When is the common law applied?
A
When a contract does not involve the sale of goods, the contract is governed by common law. (Examples: service Ks, Ks involving real property)
4
Q
Express contractual obligations
A
The parties make oral or written express statements of their commitments to the agreement.
5
Q
Implied-in-fact contractual obligations
A
Consensual agreements that fail to express the agreement of the parties in its entirety.
6
Q
Implied-in-law contractual obligations (quasi-contractual obligation or restitutionary obligation)
A
Arises where there is an equitable imposition of a would-be K. An equitable remedy available to prevent unjust enrichment, and arises where one party bestows a benefit on another.
7
Q
Offer
A
A party makes an offer when their communication is an (1) outward manifestation (2) signaling that acceptance will conclude the deal.
8
Q
Outward manifestation
A
Outward manifestation can be oral, written, or made via conduct, but inward thoughts or subjective intentions are irrelevant unless they are reasonably apparent to the other party.
9
Q
Multiple offerees: advertisements, auctions, reward offers
A
Generally, advertisements are presented to multiple people and are treated as invitations for offers rather than offers.
-Exception: If there is language in the ad such as “first come, first served” or “first 10 customers only,” then that is an offer.
10
Q
Legal effect of an offer
A
An offer creates the power of acceptance in the offeree. The offeree can create a K by accepting the offer. If an offeree accepts the terms before the power of acceptance is terminated, there is an enforceable K.
11
Q
Ways to terminate the power of acceptance
A
- Lapse of time: Offeree’s POA terminates at the time stated in the offer, or if no specific time stated, then a reasonable time. Exception: face-to-face conversation rule–an offer made by one person to another in a face-to-face conversation is deemed to only be open until the end of the conversation
- Death or incapacity of either party
- Revocation by offeror: American K law has a rule of free revocability at any time and for any reason so long as the revocation: (a) occurs prior to acceptance AND (b) is effectively communicated either directly or indirectly.
- Rejection by the offeree
12
Q
Functional equivalent rule (rejection of an offer made to multiple offerees)
A
If there is an offer made to the public in a newspaper or another widely available public source of information, the power of acceptance is terminated when the notice of revocation is communicated in the same or very similar way that the offer was made and no better means of notification is reasonably available.
13
Q
How does an offeree reject an offer?
A
outright rejection; rejection via a counteroffer; or rejection via nonconforming acceptance
14
Q
What is a “mere inquiry”?
A
A mere inquiry is an offeree’s way of testing the water about the offeror’s willingness to negotiate without creating a counteroffer and therefore terminating the power of acceptance.
15
Q
Mirror image rule
A
Common law rule that requires acceptance must mirror the terms of the offer, and any variation results in a counteroffer and rejection of the initial offer.
16
Q
Does the UCC recognize the mirror image rule?
A
No. The UCC rejects the common law mirror image rule and recognizes a binding K despite the presence of a nonconforming acceptance in two sets of circumstances: the shipment of nonconforming goods and the battle of the forms.
17
Q
Revival of the offer
A
The maker is the master of the offer and has the power to revive an offer after lapse and rejection and in turn revive the offeree’s POA.
18
Q
When can the offeror revoke?
A
An offeror is free to revoke any time before acceptance. The offeror can revoke even if he has expressly promised the offeree that he would hold the offer open, with two exceptions: a common law option K or a firm offer under the UCC.
19
Q
Requirements for an enforceable option K
A
an offer; a subsidiary promise to keep the offer open; and a valid mechanism for securing enforcement of the subsidiary promise (like consideration)
20
Q
Special rule for construction Ks
A
Majority rule is that where a general contractor uses a particular subcontractor’s bid to formulate his own, an implied K is created via promissory estoppel.
21
Q
UCC Firm Offer Rule
A
Under the UCC, a merchant can make a firm offer (irrevocable offer) to either buy or sell goods without consideration so long as: the offer is made by a merchant, the offer is made in a writing signed by the merchant, and the offer expressly states by its terms that it will be held open.W
22
Q
What is a merchant under the UCC?
A
A person/entity with special knowledge or skill with respect to the practices or goods involved in a transaction.
23
Q
How long does a UCC firm offer last?
A
Irrevocable for no more than three months; any firm offers that state a longer time period will only be irrevocable for the first three months; after that, the offer would then be revocable, but still enforceable
24
Q
What are the two ways an offer can require acceptance?
A
An offer can require acceptance by either a promise or a performance.
25
Bilateral K
An offer seeking a promissory acceptance is an offer to enter into a bilateral K. A promise exchanged for a promise.
26
Unilateral K
An offer seeking performance in return is an offer to enter into a unilateral K. Under a unilateral K: (1) the offeror is bound only when the offeree completes performance in accordance with the terms of the offer; and (2) the offeree is never bound to perform because he has never promised to perform.
27
What if the offer does not specify the method of acceptance?
Where an offer does not specify whether it must be accepted by a promise or a performance, the offeree is free to choose the means of acceptance.
28
Revocation of the offer in a unilateral K
At common law, the offeror was free to revoke up until the moment performance was completed. The modern majority rule is that once the offeree begins performance, an option K is created and the offeror may not revoke.
29
What is the "mere preparations" exception to revocation of an offer in a unilateral K?
The offeror may revoke under the modern rule where the offeree is engaged in "mere preparations" to perform rather than the beginning of performance itself.
30
Does the mailbox rule apply to unilateral Ks?
No, just bilateral.
31
What obligations does the offeree have once he has began performance in a unilateral K (looking for action K)?
The offeree of a unilateral K is free to abandon the performance at any time and even to not undertake performance at all.
32
How to accept under the common law?
There are only two general requirements to constitute effective acceptance: (1) under the mirror image rule, the acceptance must mirror the terms of the offer; and (2) the acceptance must be communicated to the offeror.
33
How to communicate acceptance under CL?
If the offer stipulates a particular means of communicating acceptance, offeree must utilize those means; if silent as to means of communication, offeree free to use any reasonable means of transmissions
34
What are reasonable means of transmission to communicate acceptance under CL?
Unless the circumstances indicate otherwise, a means of transmission is reasonable if it is: (1) the means used by the offeror; (2) the means customarily used in similar transactions; or (3) a means of communication that is equivalent in expeditiousness and reliability to the means used by the offeror.
35
In what instances does the offeree not have to communicate acceptance to the offeror?
acceptance by silence; acceptance by performance; and acceptance by mail or other correspondence
36
Acceptance by silence
Generally, an offeree's silence in response to an offer cannot constitute acceptance except in the following three circumstances: (1) where the offeree takes the benefit of the offeror's services with a reasonable opportunity to reject them and with reason to know the offeror's intention; (2) where the offeror has given the offeree reason to understand that acceptance may be communicated by silence, in which case the offeree's silence will operate as acceptance if he intends as such; and (3) where, because of previous dealings or other circumstances, it is reasonable that the offeree should notify the offeror if he does not intend to accept, in which case his silence will operate as acceptance.
37
Acceptance by performance
The maker of an offer to enter into a unilateral K is free to make communication of acceptance a part of the required performance. If he fails to do so, then acceptance is effective upon the offeree's completion of the requested performance whether or not the offeree so notifies the buyer.
38
Acceptance by mail--The Mailbox Rule
Under the common law mailbox rule, acceptance by mail is effective upon dispatch so long as the acceptance is properly posted, with the correct address and postage amount. Applies ONLY to acceptances. Once the offeree dispatches his acceptance, he thereby creates a binding contract. Offeror may not revoke an offer once acceptance has been dispatched. The parties are bound even if the acceptance is lost in transmission and the offeror has no knowledge of that acceptance. Applies to acceptances sent by any means of transmission which involves a foreseeable delay between the time of dispatch by the offeree and the time of receipt by the offeror.
39
When does the mailbox rule apply?
The mailbox rule is only a default rule, meaning that it only applies if the offeror is silent on the question of when acceptance will be effective. As always, the maker is the master of the offer, and thus the offeror is free to establish his own rules for effective acceptance.
40
When does the mailbox rule not apply?
When the offeree sends to responses to an offer: a rejection and an acceptance. The parties' obligations will depend on which of the offeree's communications reaches the offeror first: (1) if the acceptance reaches the offeror first, then the acceptance is effective upon receipt and the parties are bound to the K; and (2) if the rejection reaches the offeror first, then the offeree's power of acceptance is terminated and the subsequently arriving acceptance becomes a counteroffer, which the original offeror is free to accept or reject.
41
How does an offeree accept under the UCC?
Unless the K language or circumstances unambiguously indicate otherwise, acceptance may be made in any manner and by any medium reasonable under the circumstances.
42
Seller's shipment of conforming and nonconforming goods
Under the UCC, a seller can accept a buyer's offer to purchase goods for prompt or current shipment in one of three ways: (1) a promise to ship goods in conformity with the terms of the offer, such as an acknowledgement of order form sent to the buyer; (2) a prompt or current shipment of the goods in conformity with the terms of the offer; or (3) the seller can also accept the buyer's offer by shipping nonconforming goods.
43
Seller's shipment of nonconforming goods and accommodation
In contrast to CL, under which the nonconforming shipment would have been a counteroffer, the UCC specifies that the shipment constitutes a valid acceptance and creates a binding K between the parties. Exception: Under the UCC, the shipment of nonconforming goods will not constitute acceptance if the seller notifies the buyer that the shipment is offered only as an "accommodation" to the buyer. IN such circumstances, the shipment constitutes a counteroffer which the buyer is free to accept or reject. Absent accommodation, the seller's shipment of nonconforming goods constitutes acceptance of the buyer's offer under UCC. (but does constitute a breach of the K under the perfect tender rule)
44
The Battle of the Forms
A battle of the forms may occur when a buyer places an order (the offer) and the seller's acceptance form contains terms which differ from the buyer's order or are not addressed in the order at all, creating a nonconforming acceptance. Unless acceptance is expressly made conditional on assent to the additional or different terms (a conditional acceptance), the nonconforming acceptance will operate as an effective acceptance of the offer, forming a valid K. Once the K is formed, the next step is to determine the effect of the new or additional terms. Typically the forms will be in agreement as to the dickered terms (those specific to the transaction), but may differ with respect to the boilerplate terms, like arbitration and warranties.
45
Nonconforming acceptance involving a consumer
When at least one party to the transaction is not a merchant, the additional or different terms are construed as proposals for additional to the K. Thus, they are not part of the K unless the offeror expressly agrees to the additional terms.
46
Nonconforming acceptance where both parties are merchants
In a transaction between merchants, there is a distinction between additional terms and different terms. Additional terms=when it addresses and issue not addressed in the original offer. Different terms=when the offer says one thing about a particular issue and the would-be acceptance says something else.
47
When do additional terms become part of the K?
Additional terms become part of the K unless: (1) the offer expressly limits acceptance to the terms of the offer; (2) the offeror objects to the additional terms within a reasonable time after receiving notice of them; or (3) the additional terms would materially alter the K.
48
What does materially alter mean?
Under Section 2-207, terms that materially alter the K are those that would result in surprise or hardship if incorporated without the express awareness of the other party. Examples: (1) a clause negating standard warranties, such as that of merchantibility or fitness for a particular purpose in circumstances in which either warranty normally attaches; (2) a clause requiring that complaints be made in a time materially shorter than customary or reasonable; and (3) any clause that would vary in a significant way an established usage of trade or a course of past dealing between the parties.
49
How are different terms applied?
The majority of decisions employ the knockout rule and omit both the offeror's original provision and the offeree's differing provision from the resulting K.
50
Written confirmations
Governed by the battle of the forms--when parties enter a K and then one or both of the parties follow up with a written confirmation containing terms additional to or different from the terms of the original deal. If one of the parties is a consumer, then any additional or different terms are mere proposals for addition to the K which the receiving party is free to accept or reject. If the transaction is between merchants: (1) any additional terms are automatically part of the K unless: (a) they would materially alter the K; or (b) the receiving party objects to them within a reasonable time; (2) any terms in a confirmation that differ from the terms of the prior agreement are proposals for inclusion in the K, which the receiving party is free to accept or reject; and (3) if both merchants send written confirmations and those confirmations contain conflicting terms, then the knockout rule applies and neither party's term is in the K.
51
Conditional acceptance with different/additional terms
If the acceptance is made expressly conditional on assent to the additional or different terms, the nonconforming acceptance will not be effective to form a K. Under the majority rule, a would-be acceptance which tracks the language of the exception as set out in Section 2-207 constitutes a conditional acceptance if the language in question is clear and conspicuous. Minority rule--a would-be acceptance constitutes a conditional acceptance only if it clearly communicates that the offeree is unwilling to do business with the offeror unless and until the offeror agrees to the offeree's terms.
52
Consideration Rule
The general rule in American K law is that a promise is unenforceable unless it is supported by consideration.
53
What is bargained-for exchange?
The exchange of promise for consideration
54
Gratuitous promise
When there is a promissory transaction and no exchange is contemplated (often in intrafamilial transactions), there is a problem because the promisee has neither promised nor given anything in return to the promisor, leaving the consideration requirement unsatisfied; generally unenforceable under the doctrine of consideration
55
Bargain
In contemporary language, bargain may mean that something of greater value was acquired for lesser value, and implies that the transaction was beneficial to the recipient. For purposes of the consideration doctrine, though, bargain merely indicates an exchange, which could be beneficial or detrimental.
56
Insufficient consideration
A promisor defending against an attempt to enforce a gratuitous promise can state his defense in several ways: (1) the promise is not supported by consideration; (2) there is a want of consideration, or consideration is lacking; or (3) there is legally insufficient consideration.
57
Failure of consideration
A claim that the party has not performed in accordance with his promise.
58
The preexisting duty rule
Traditional CL rule: promise to perform, or performance of, preexisting duty does not constitute consideration
Modern exception: consideration exists if preexisting duty owed to third person (i.e., nonparty to K)
59
Bargained-for consideration
The majority of jurisdictions evaluate consideration based on the bargained-for exchange inquiry.
60
Minority test: benefit/detriment analysis
Consideration is evaluated based on whether there is a benefit to the promisor or a detriment to the promisee.
61
Legal detriment test
Whether courts are applying the benefit/detriment test or the hybrid "promise in exchange for a detriment" test, the question of whether a particular performance by the promisee constitutes a "detriment" is answered by the application of the so-called legal detriment test. This test's question is whether the promisee is doing something he had a legal right not to do or is forgoing some activity in which he had a legal right to engage.
62
Inadequacy of consideration
The modern rule is that courts do not police the equivalence of bargained-for exchanges via the consideration doctrine, so the supposed inadequacy of consideration is no defense to a breach of contract claim.
63
Illusory promises
A promise to perform that leaves performance to the discretion of the promising party is an illusory promise and won't constitute consideration.
64
Gratuitous promises
Although gratuitous promises are unenforceable under the consideration doctrine, gratuitous transfers are legally binding upon satisfaction of the requirements of a gift. In most states, delivery of the would-be gift combined with a present intention to bestow the gift constitutes a legally binding gratuitous transfer.
65
Forbearance of a claim or defense as consideration
Valid consideration exists when a party agrees to forbear a claim or defense in exchange for a promise or performance by the other party. This is so even if the claim or defense proves to be invalid. However, forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless: (1) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law; or (2) the forbearing party believes that the claim or defense may be fairly determined to be valid.
66
What are two alternatives in the absence of consideration?
Past or moral consideration and promissory estoppel
67
Past or moral consideration
As a general rule, a promise given in exchange for something already given or already performed will not satisfy the bargain requirement. Two exceptions to the past consideration rule were available at CL and continue to apply today: (1) a written promise to pay a debt barred by the statute of limitations is binding; and (2) a written promise to pay all or part of an indebtedness that has been discharged in bankruptcy is binding.
--A minority of jx will enforce a promise made in recognition of a past benefit conferred so long as: (1) the promise conferred the benefit on the promisor and not on a third party; and (2) the benefit is material.
--Exception: Where the promisor makes a promise in recognition of benefits that the promisor received under the terms of a K, the promise is not enforceable.
68
Promissory estoppel
The doctrine of promissory estoppel allows for the enforcement of certain promises even where there is no consideration in return. Four requirements: (1) a promise; (2) foreseeable reliance; (3) actual reliance (induced by the promise, not on other factors); and (4) injustice without enforcement.
69
Statute of Frauds for the sale of land
Must meet three requirements to be enforceable:
Writing--physical and electronic documents evidencing a K
Signature--an identifying mark from the party against whom enforcement is sought (met so long as the identifying mark reflects an intent to authenticate the writing; even a letterhead)
Essential terms--the parties' identity, words of intent to buy and sell, land description, and price terms
70
Express warranties
Express warranties by the seller are created as follows:
-Any affirmation of fact or promise made by the seller to the buyer that relates to the goods and becomes a part of the basis of the bargain creates an express warranty that the goods will conform to the affirmation or promise
-Any description of the goods that is made part of the basis of the bargain creates an express warranty that the goods will conform to the description
-Any sample or model that is made part of the basis of the bargain creates an express warranty that the whole of the goods will conform to the sample or model.
However, a mere affirmation of the value of the goods or a statement of the seller's opinion does not create a warranty.
Seller does not have to use words like "warrant" or "guarantee" to have a specific intention to create a warranty.
71
Implied warranty of merchantability
1. If the seller of the goods is a merchant with respect to goods of that kind under the UCC, then there is a warranty of merchantability for the sale of goods.
2. The warranty guarantees that the goods are fit for the ordinary purpose for which those goods would be used.
72
Implied warranty of fitness for a particular purpose
1. The implied warranty of fitness for a particular purpose guarantees that the goods being sold are fit for the particular purpose for which the buyer intends to use them.
2. The warranty only applies where, at the time of contracting, the seller has good reason to know the particular purpose for which the goods are required, and that the buyer is relying on the seller's skill or judgment to select or furnish reasonable goods.
73
What can a party with reasonable grounds for insecurity do?
The UCC gives a party with reasonable grounds for insecurity about the other's performance the right to make a written demand for assurances that the other party will perform the contract.
74
How to deal with loss of specifically identified goods
When a contract deals with specifically identified goods (like an antique car on display), then complete destruction of the goods excuses each party's duty to perform so long as the destruction occurred: without fault of either party and before the risk of loss passed to the buyer.
75
Undue influence
A contract is voidable for undue influence when (1) assent stems from unfair or excessive persuasion (2) by someone who dominates or holds a special relationship of trust and confidence with the assenting party.
76
What is misrepresentation and when does it make a K voidable?
Misrepresentation is an untrue assertion of fact made by words or conduct (like concealment). When this occurs, a K is voidable by the adversely affected party if:
-the misrepresentation was fraudulent OR material
-the misrepresentation induced assent to the K and
-the adversely affected party justifiably relied on the misrepresentation
77
When can contractual duties be delegated?
Delegation of contractual obligations is permitted unless (1) the other party to the K has a substantial interest in having the delegating party perform or (2) the delegation is prohibited by the K. After a delegation, the delegating party remains liable under the K unless the other party agrees to a release.
78
Debt disputed in good faith
When a debt is disputed in good faith, the debtor can attempt to settle the debt by giving the creditor a check conspicuously marked, "Payment in full." The creditor can then:
-deposit the check, in which case the debtor's duty to pay is discharged OR
-reject the check, in which case the debtor's duty to pay is not discharged.
79
Divisible Ks
A K is devisable if:
-the parties' duties can be broken down into at least two corresponding pairs of performances and
-those pairs of performances can fairly be regarded as agreed (i.e., bargained-for) equivalents
Although courts prefer to interpret Ks as divisible for reasons having to do with fairness, they will NOT do so if the K expressly states that it is indivisible.
80
Does parol evidence rule bar evidence when that evidence is being offered to establish a defense?
The parol evidence rule does NOT bar evidence of prior or contemporaneous communications between contracting parties when the evidence is offered to establish a defense to enforceability (e.g., unconscionability).
81
Material breach factors and notes
Definition: material breach is the absence of substantial performance; a breach so serious that it defeats the contract's purpose or deprives the nonbreaching party of the substantial benefit of its bargain
Factors considered to determine material breach: extent to which nonbreaching party will suffer loss, extent to which nonbreaching party can be adequately compensated for loss, extent to which breaching party will suffer forfeiture, likelihood of cure by breaching party, absence of good faith or fair dealing by breaching party
A materially breaching party cannot recover damages under the K
82
Mirror image rule
In Ks for SERVICES, the common law is applied and the mirror-image rule states that the acceptance must match the terms of the offer. If the acceptance has different or additional terms, then it is treated as a rejection and a counteroffer.
83
Impractability
A contracting party's duty to perform can be discharged by impracticability. The defense of impracticability is available when:
-an unanticipated or extraordinary event makes it impracticable for the party to perform
-the K was formed under a basic assumption that the event would not occur and
-the party seeking discharge was not at fault in causing the event to occur.
84
Modifying existing Ks under CL
Modern view is that modifications are enforceable without new consideration if the moditification:
-rests on circumstances not anticipated by the parties when the K was made and
-is fair and equitable in light of those circumstances
