Contracts Flashcards
1
Q
How do you determine whether there has been mutual assent?
A
It is usually determined by an objective standard i.e. did words or conduct manifest a present intention to enter into a contract?
2
Q
What happens if there is a missing price turn in a sales contract in the sale of real estate?
A
According to common-law price and description are required or else it is not an offer.
3
Q
In reference to the sale of goods, what happens if there is no price description?
A
According to article 2 of the UCC, there is no price requirement instead, using the gap fillers, a reasonable price will be instituted.
4
Q
When is revocation generally effective?
A
When received by the offeree however where a revocation is by publication, it is effective when published.
5
Q
What are the limitations on the offerors power to revoke?
A
An option contract, firm offer, detrimental reliance, and beginning performance in response to a true unilateral contract offer.
6
Q
What is a firm offer?
A
- If a merchant offers to buy or sell goods
- in a signed writing
- If the writing gives assurances that it will be held open
- the offer is not revocable for lack of consideration during the time stated, or if no time is stated, for reasonable time not to exceed three months.
7
Q
What is an option contract?
A
An option contract is where the offeree gives consideration for promise by the offer or not to revoke an offer. The offer or must hold the offer open for as long as the parties specify.
8
Q
What is detrimental reliance?
A
When the offeror could:
- reasonably expect that the offeree would rely to her detriment on the offer, and
- the offeree does so rely,
- the offer will be held irrevocable as an option contract for a reasonable length of time.
9
Q
When is a rejection effective?
A
It is effective when received by the offeror.
10
Q
What is the mirror image rule?
A
The mirror image rule under common law states that both the offer and acceptance must mirror each other. So in acceptance that adds new tires is treated like a counter offer rather than acceptance.
11
Q
What events will terminate an offer by operation of law?
A
- Death or insanity of either party,
(Does not have to be communicated to other party.) - destruction of the proposed contracts subject matter, or
- supervening Illegality.
12
Q
Article 2 Version of the mirror image rule
A
Article 2 has a band in the mirror image rule.
If the contract involves a non-merchant the terms of their original offer will govern and the additional or different terms are considered to be mere proposals to modify the contract and do not become part of the contract unless the offeror expressly agrees.
If the contract is between merchants meaning both parties to the contract are merchants additional terms in the acceptance will be included in the contract unless:
- They materially alter their original terms of the offer
- The offer expressly limits acceptance to the terms of the offer; or
- The offeror has already objected to the particular times, or objects within a reasonable time after notice of them is received.
13
Q
What is the mailbox rule?
A
Acceptance by mail or similar means create a contract at the moment of dispatch, provided that the mail is properly addressed and stamped, unless:
- The offer stipulates that acceptance is not effective until received; or
- An option contract is involved (effective only upon receipt)
- If the offeree sends a rejection and then sends an acceptance, which ever arrives first is effective.
- If the offer he sends an acceptance and then a rejection, the acceptance is effective unless the rejection arrives first and the offeror detrimentally relies on it.
14
Q
What are the two elements necessary to constitute consideration:
A
- There must be a bargain for exchange between the parties; and
- That which is bargain for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee.
15
Q
What is the pre-existing legal duty rule?
A
Performing or promising to perform an existing legal duty is insufficient consideration.
16
Q
What are the exceptions to the pre-existing legal duty rule?
A
There is consideration if:
- New or different consideration is promised;
- The promise is to ratify avoidable obligation;
- The pre-existing duty is owed to a third person rather than to the promisor;
- There is an honest dispute as to the duty; or
- They are our unforeseen circumstances sufficient to discharge a party, or under the modern view, if the modification is fair and equitable in view of circumstances not anticipated when the contract was made.
*A good faith agreement modifying a contract subject to the UCC needs no consideration to be binding.
17
Q
What is promissory estoppel?
A
Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing. A promise is enforceable if necessary to prevent injustice if:
- The promisor should reasonably expect to induce action or forbearance; and
- Such action or forbearance is in fact induced.
18
Q
What is the concept of mutual mistake?
A
If both parties entering into a contract on mistaken about existing facts related to the agreement, the contract may be voidable by the adversely affected party if:
- The mistake concerns a basic assumption on which the contract is made
- The mistake has a material effect on the agreed-upon exchange; and
- The party seeking avoidance did not assume the risk of the mistake.
19
Q
What happens to a contract if there is fraudulent misrepresentation or fraud in the inducement?
A
If a party induces another to enter into a contract by using fraudulent misrepresentation, the contract is voidable by the innocent party if she justifiably relied on the fraudulent misrepresentation.
This is fraud in the inducement.
20
Q
When does the statute of frauds’s apply?
A
My legs:
- Promises in consideration of marriage
- Performance is not within one year – I promise that by its terms cannot be performed within one year
- Interest in land
- A promise by an executor or administrator to pay this states that out of his own funds
- Good’s priced at $500 or more
- Suretyship Promises– A promise to answer for the debt or default of another.
21
Q
How do you determine whether there has been a contract made?
A
You look to see if there was mutual assent, consideration or some substitute for consideration, and any defenses to creation of the contract.
22
Q
What is the concept of unconscionability?
A
It allows the court to refuse to enforce a provision or an entire contract to avoid unfair terms, usually due to some unfairness in the bargaining process.
23
Q
What are the common instances of procedural unconscionability?
A
- Boilerplate provisions – courts have invalidated these provisions because they are inconspicuous or in comprehensible to the average person even have brought to his actual attention
- Contracts of adhesion or take it or leave it clauses
- Exculpatory clauses – an exculpatory clause releasing a contracting party from liability for his own intentional wrongful acts is usually found to be unconscionable because such a clause is against public policy in most states.
- Limitations on remedies – such clauses generally will not be found to be unconscionable unless it is inconspicuous. If a contract limits a party to a certain remedy and that remedy fails it’s essential purpose, a court may find that the limitation is unconscionable and ignore it.
24
Q
What options does the court have when an unconscionable clause is present?
A
- Refused to enforce the contract;
- Enforce the remainder of the contract without the unconscionable clause; or
- Limit the application of any clause so as to avoid an unconscionable result.
25
What is the hierarchy when contract provisions conflict?
Courts will look at the express terms and then they will look to the course of performance course of dealing and last usage of trade.
26
What is a course of performance?
It evidences what the parties have done in the past as it applies or pertains to this particular contract.
27
What is course of dealing?
It evidences with the parties have done in the past with regard to other or prior contracts.
28
What is usage of trade?
Usage of trade is what people in the industry normally do.
29
According to the Parol evidence rule, when does it matter whether a writing is a complete integration or partial?
When there is a consistent additional term.
If an integration is complete, the writing cannot be contradicted or supplemented however if the integration is partial, the writing may not be contradicted but may be supplemented by proving consistent additional terms.
30
What is the basis of the parol evidence rule?
The court deems that when parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain the writing is an integration.
Therefore any other expressions written or oral made prior to the writing, As well as any oral expression is contemporaneous with the writing, are inadmissible to vary the terms of the writing.
31
According to article 2, as it pertains to the sale of goods, what term must be included?
The quantity term must be included. If either turns I'm missing from the agreement the gap filler provisions will fill in the missing terms.
32
What are the article 2 gap fillers?
Price – if nothing has been said as to the price; the price is left to be agreed upon by the parties and they failed to agree; or the price is to be fixed in terms of some standard that is set by a third-party or agency and is not set, then the price is a reasonable price at the time for delivery.
Place of delivery – if the place of delivery is not specified, the place usually is the seller's place of business, if he has one; otherwise, it is the sellers home.
Time for shipment or delivery – if the time for shipment or delivery is not specified, shipment or delivery is due in a reasonable time.
Time for payment – if the time for payment is not specified, payment is due at the time and place at which the buyer is to receive the goods.
Assortment if I contract provides that an assortment of goods is to be delivered and does not specify which party is to choose; the assortment is at the buyers option.
33
What are the four risk of loss rules?
1. Agreement allocates risk – won't see on the bar
2. Breach – breaching party is liable for any uninsured loss even though breach is unrelated to problem.
3. Delivery by common carrier other than seller – risk of loss shifts from seller to buyer at the time that the seller completes its delivery obligations.
4. If there is no agreement, no breach, no delivery by carrier – the determining factor is whether the seller is a merchant... risk of loss shifts from emergent seller to the buyer and the buyers receipt of the goods;risk of loss shifts from a non-merchant seller when he or she tenders the goods i.e. tells the buyer where they are.
34
In a shipment contract when does risk of loss shift?
The risk of loss passes to the buyer when the goods are delivered to the carrier. Unless the agreement otherwise specifies.
35
When does risk of loss pass or shift in destination contracts?
When the goods are tended to the buyer at the destination.
36
How is risk of loss allocated in the instance of breach?
1. Defective goods – if the buyer has the right to reject the goods, the risk of loss does not pass to the buyer until the defects are cured or she excepts the goods in spite of their defects.
2. Revocation of acceptance – if the buyer rightfully revokes acceptance the risk of loss is treated as having arrested on the seller from the beginning to the extent of any deficiency in the buyers insurance coverage.
37
What happens if the goods are destroyed before risk of loss passes?
If goods that were identified when the contract was made our destroyed without fought by either party and before the risk of loss passes to the buyer, the contract is avoided.
38
What is warranty of title?
Any seller of goods warrants that title transfer it is good, that the transfer is rightful, and that they are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting.
39
What is the implied warranty of merchantability?
It is implied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable.
To be merchantable, goods must at least be fit for the an ordinary purpose for which such goods are used.
40
What is the implied warranty of fitness for particular purpose?
It applies when any seller whether it be a merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the sellers skill and judgment to select suitable goods; and the buyer in fact relies on the sellers skill or judgment.
41
What are express warranties?
Any affirmation a fact or promise made by the seller to the buyer, any description of the goods, and Annie sample or model create an express warranty if the statement, description, sample, or model, is part of the basis of the bargain.
For it to be part of the basis of the bargain it need only come at such a time that the buyer could have relied on it when she entered into the contract.
42
How many an express warranty be disclaimed?
By not saying anything
43
How many the warranty of title be disclaimed?
The warranty of title can be disclaimed or modified only by specific language or by circumstances that give the buyer notice that the seller does not claim title or that he is selling only such rights as he or a third-party may have.
44
How do you disclaim implied warranties?
Disclaimer of warranty of merchantability – this may be disclaimed or modified only by mentioning merchantability. If the sale contract is in writing, the disclaimer must be conspicuous.
Disclaimer of warranty of fitness for a particular purpose – the warranty of fitness for particular purpose and can be specifically just going only by conspicuous writing for example, "there are no warranties which extend be on the description on the face thereof."
All implied warranties may be disclaimed by using language such as "as is" or "with all faults."
Implied warranties may also be disclaimed by the course of dealing, course of performance, or usage of trade.
45
What are the rules concerning modification?
Under the general contract law, a contract cannot be modified unless the modification is supported by new consideration.
The modern view, however, permits modification without consideration if: the modification is due to circumstances that were unanticipated by the parties when the contract was made and it is fair and equitable.
The UC see is even more liberal – good faith promises of new and different terms by the parties to a sales contract are valid without consideration.
46
May a written contract be modified or orally?
Yes, a written contract can be modified orally. However for the sale of goods contracts, the modification must be in writing if the contract as modified falls within the statute of fraud.
47
What are the rules concerning no modification clauses?
Common law – the common-law rule is that even if a written contract expressly provides that it may be modified only by writing, the parties can orally modify the contract.
UCC – under the UC see, if a contract explicitly provides that it may not be modified or rescinded except by a sign writing, that provision is given effect.
*however if the contract is between a merchant and nonemergent this provision requires the non-merchant's separate signature.
48
When does the breach occur?
When the promisor is under an absolute duty to perform, and the absolute duty of performance has not been discharged, then this value to perform in accordance with the contractual terms will amount to a breach of the contract.
The nonbreaching party who sues for breach of contract must show that she is willing and able to perform but for the breaching party's failure to perform.
49
A buyers right to reject under the perfect tendered role is limited by acceptance, a buyer excepts when:
1. After reasonable opportunity to inspect the goods, she indicates to the seller that they conform to requirements or that she will keep them even though they failed to conform;
2. She fails to reject within a reasonable time after tender or delivery of the goods or fails to seasonably notify the seller of her rejection; or
3. She does any act inconsistent with the sellers ownership.
50
When may acceptance be revoked?
The buyer may revoke her acceptance if the goods have a defect that substantially impairs their value to her and:
1. She excepted them on the reasonable belief that the defect would be cured and it has not been; or
2. She excepted them because of the difficulty of discovering defects or because of the sellers assurance that the goods conform to the contract.
51
When must revocation of acceptance occur?
1. Within a reasonable time after the buyer discovers or should have discovered the defects; and
2. Before any substantial change in the goods occurs that is not caused by a defect present at the time the seller relinquished possession.
52
In an installment contract, it can be rejected only if:
The nonconformity substantially impairs the value of that installment and cannot be cured.
**In addition, the whole contract is breached only if the nonconformity substantially impairs the value of the entire contract.
53
Sellers right to cure in single delivery contracts?
1. If the buyer has rejected goods because of defects, the seller may within the time originally provided for performance cure by giving reasonable notice of her intention to do so in making a new tender of conforming goods that the buyer must then accept.
2. When the contract time has expired – if the buyer rejects a tender of nonconforming goods that the seller reasonably believed would be acceptable the seller upon a reasonable notification to the buyer has a further reasonable time to make a conforming tender.
54
How may acceptance occur in a unilateral contract?
Only by performance
And offered to form a unilateral contract is not excepted until performance is completed.
55
How does acceptance occur in bilateral contracts?
Unless an offer specifically provides that it may be accepted only through performance, it may be accepted either by a promise to perform or by the beginning of performance.
Generally acceptance of an offer to enter into a bilateral contract must be communicated to the offer or unless the offer advise that acceptance need not be communicated.
56
What is the shipment of nonconforming goods considered?
It is considered as an acceptance as well as a breach.
57
In a contract for the sale of good when you have a 2-207 problem and it is a contract involving a non-merchant what happens if there is an additional or different terms?
The additional or different terms are considered to be mere proposals to modify the contract and do not become part of the contract unless the offeror expressly agrees.
58
2-207- if the contract is between merchants what happens with additional terms?
If both parties to the contract are merchants additional terms and the acceptance will be included in the contract unless:
1. They materially alter their original terms of the offer
2. The offer expressly limits acceptance to the terms of the offer; or
3. But awful war has already objected to the particular terms for objects within a reasonable time after notice of them is received.
59
2-207- if the contract is between merchants what happens with different terms?
They are either treated as additional terms or knocked out.
60
The mailbox rule:
Acceptance by mail or similar means creates a contract at the moment of dispatch, provided the mail is properly addressed and stamped, unless:
1. The offered stipulates that acceptance is not effective until received; or
2. And option contract is involved (and acceptance under an option contract is effective only upon receipt)
3. If the offeree sends and rejection and then sends an acceptance, which ever arrives first is effective.
4. If the offeree sins and acceptance and then a rejection, the acceptance is effective unless the rejection arrives first in the offer or detrimentally relies on it.
61
What are the elements of consideration?
There must be a bargained for exchange between the parties; and that which is bargained for must be considered of legal value or, it must constitute a benefit to the promisor or a detriment to the promisee.
*No bargain involved when one party gives a gift*
62
Preexisting Legal Duty
Performing or promising to perform an existing legal duty is insufficient consideration.
63
Preexisting Legal Duty Exceptions:
1. New or different consideration is promised;
2. The promise is to ratify a voidable obligation
3. The preexisting duty is owed to a third person rather than to the promisor;
4. There is an honest dispute as to the duty; or
5. There are unfrozen circumstances sufficient to discharge a party, or under the modern view, if the modifications fair and equitable in view of circumstances not anticipated when the contract was made.
**GOOD FAITH AGREEMENT MODIFYING A CONTRACT SUBJECT TO THE UCC NEEDS MO CONSIDERATION TO BE BINDING.
64
What is illusory promise?
When either party gives consideration
"All the widgets I want" or "all you want to sell me"
65
What is promissory estoppel Or detrimental reliance?
Consideration is not necessary in such circumstances. A promise is enforceable if necessary to prevent injustice if:
1. The promisor should reasonably expect to induce action or forbearance; and
2. Such action or forbearance is in fact induced.
66
Mutual mistake: if both parties entering into a contract are mistaken about existing facts relating to their agreement, the contract maybe voidable by the adversely affected party if:
1. The mistake concerns a basic assumption on which the contract is made
2. The mistake has a material effect on the agreed-upon exchange; and
3. The party seeking avoidance did not assume the risk of the mistake.
67
Unilateral mistake:
If only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a contract.
However, if the non-mistaken party knew or had reason to know of the mistake made by the other party, the contract is voidable by the mistaken party.
68
What happens when there is a mistake by the intermediary?
When there is a mistake in the transmission of an offer or except in buying into medium airy, the prevailing view is that the message as transmitted is operative unless the other party knew or should have known of the mistake.
69
What happens to a contract when there has been fraudulent misrepresentation or fraud in the inducement?
The contract is voidable by the innocent party if she justifiably relied on the fraudulent misrepresentation.
70
What happens when there has been a misrepresentation but it is not fraudulent?
The contract is voidable by the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material.
A misrepresentation is material if:
1. It would induce a reasonable person to agree, or
2. The maker knows that for some special reason it is likely to induce the particular recipient to agree, even if a reasonable person would not.
71
Illegality and contracts:
If the consideration or subject matter of the contract is illegal the contract is void. The exceptions to this are as follows:
1. The plaintiff is unaware of the illegality wow the defendant knows of the illegality;
2. The parties are not in Pari Delicto (One party is not as culpable as the other) or
3. The illegality is the failure to obtain a license when the licenses for revenue raising purposes rather than for protection of the public.
If only the purpose behind the contrite is illegal the contract is voidable by a party who was:
1. Unaware of the purpose; or
2. Aware but did not facilitate the purpose and that purpose does not involve serious moral turpitude.
72
What happens when a contract is made with a minor?
The contract is voidable… However the contractual promises are binding on the adult.
A minor may choose to disaffirm the contract anytime before or shortly after reaching the age of majority. If the person so chooses to disaffirm they must return anything that they received under the contract that still remains at the time of disaffirmance.
73
What is the writing requirement for the statue of fraud?
The statute requires one or more writings that:
1. Reasonably identify the subject matter of the contract,
2. Indicate that a contract has been made between the parties, and
3. State with reasonable certainty the essential terms.
A writing can be a receipt, I letter, a check with details in the memo line, or written offer that was accepted orally.
74
What is the signature requirement of the statue of frauds?
A signature is any mark or symbol made with the intention to authenticate the writing as that of the signer. It can be printed or typed, under the UCC a party's initials or letterhead May be sufficient and an electronic signature is also sufficient.
The writing need not be signed by both parties only the party to be charged my sign.
75
What is the exception to the signature requirement for the statute of frauds?
Written confirmation by a merchant:
In contracts between merchants if one party within a reasonable time after an oral agreement has been made, since to the other party a written confirmation of the understanding that is sufficient under the statute of frauds's to bind the sender it will also buy the recipient if:
1. He has reason to know of the confirmations content; and
2. he does not object to it in writing within 10 days of receipt.
76
For the sale of goods priced at $500 on more when is a writing not required?
SWAP
1. Specially manufactured goods: if goods are to be specially manufactured for the buyer and not suitable suitable for the sell to others by the seller in the ordinary course of his business the contract is enforceable if the seller has, made a substantial beginning in their manufacture or commitments for their purchase before notice of repudiation is received.
2. Written confirmation by a merchant
3. Admissions and pleadings or court: if the party whom enforcement is sought admits in pleadings, testimony, or otherwise in court that the contract for sale was made the contract is enforceable without a writing.
4. Payment or delivery of goods: if goods are either received and accepted or paid for the contract is enforceable. However, the contract is not enforceable beyond the quantity of goods excepted are paid for.
77
For goods priced at $500 or more, is a writing sufficient even though he omits or incorrectly states a term?
Yes the writing will be considered sufficient but the contract is not enforceable beyond the quantity of goods shown in the writing.
78
What is the performance standard at common law?
Substantially perform all that is called for in the contract
79
What is the performance standard under article 2?
Perfect tender – the delivery and condition of the goods must be exactly as promised in the contract
80
What are the sellers obligations of tender and delivery in non-carrier cases?
Tender of Delivery:
The seller must put and hold conforming goods at the buyers disposition for time sufficient for the buyer to take possession. The seller must give the buyer notice reasonably necessary to enable her to take possession of the goods. The tender must be at a reasonable hour.
Place of Delivery:
In the absence of an agreement otherwise, the place of delivery generally is the seller's place of business, or if he has none, his residence.
81
What happens in a situation where A condition of a contract is failed?
The failure of a contractual provision that is only a condition is not a breach of contract, but it discharges the liability of the promisor where obligations on the additional promise never mature.
*failure of a promise is a breach**
82
And contracts we are performance is based on the personal taste or judgment or satisfaction of a party what is the standard?
Personal satisfaction and honest and in good faith.
83
What is anticipatory repudiation?
Occurs if a promisor, prior to the time set for performance of his promise, indicates that he will not perform when the time comes.
The repudiation must be unequivocal indicating that he cannot or will not perform when the time comes.
84
When does an anticipatory repudiation apply? I.e. what kind of contracts
Anticipatory repudiation applies only if there's a bilateral contract with executory or unperformed duties on both sides.
85
In the case anticipatory repudiation what alternatives does the non-repudiating party have?
1. Treat the anticipatory repudiation as a total repudiation and Sue immediately.
2. Suspend his own performance and wait to see until the performance date;
3. Treat the repudiation as an offer to resend and treat the contract as discharged; or
4. Ignore the repudiation an urge the promisor to perform.
86
May a party retract their anticipatory repudiation?
Yes, I repudiating party may at any time before his next performance is do withdraw his repudiation unless the other party has canceled, materially changed her position and reliance on the repudiation, or otherwise indicated that she consider the repudiation final.
87
When does perspective failure of a condition occur?
When a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performances due.
Conduct the words that merely raises doubts that the party will perform.
88
What is the effect of perspective failure to perform?
To allow the innocent party to suspend further performance on her side until she receives adequate assurances that performance will be forthcoming.
If the other party fails to provide adequate assurances, the innocent party may be excuse from her own performance and May treat the failure to provide assurances as a repudiation.
89
May the perspective inability to perform be retracted?
Yes, attraction is possible if the defaulting party regains his ability or willingness to perform. However this fact must be communicated to the innocent party in order to be effective.
90
Rules apply to divisible contracts:
If a contract is divisible and a party performs one of the units of the contract, he is entitled to the agreed-upon equivalent for that unit even if he fails to perform the other unit.
91
What is a divisible contract?
Three tests must be concurrently satisfied to make a contract divisible:
1. The performance of each party is divided into two or more parts under the contract;
2. The number of parts do from each party is the same; and
3. The performance of each part by one party is a great one as the equivalent of the corresponding part from the other party, i.e. each before meant is the quid pro quo of the other.
92
What is Discharge by impossibility?
Contractual duties will be discharged if it has become impossible to perform them.
1. The impossibility must be objective i.e. the duties could not be performed by anyone.
2. The impossibility must arise after the contract has been entered into
Examples:
1. Death or physical incapacity: death or physical incapacity of a person necessary to effectuate the contract serves to discharge it.
2. Supervening illegality
3. Subsequent distraction of contract subject matter or means of performance: if the contract subject matter is destroyed or the designated means for performing the contract are destroyed, contractual duties will be discharged.
93
What is discharged by impracticability?
Courts will discharge contractual duties with performance has become impracticable.
Test for impracticability: the test for a finding of impracticability is that the party to perform has encountered:
1. Extreme an unreasonable difficulty and or expense; and
2. It's non-occurrence was a basic assumption of the parties.
**paying money is never impracticable**
94
What is discharge by frustration?
Frustration will exist if the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge.
The elements necessary to establish frustration are as follows:
1. There is some supervening act or event leading to the frustration;
2. At the time of entering into the contract, the parties did not reasonably foresee the act or event occurring;
3. The purpose of the contract has been completely or almost completely destroyed by this act or event; and
4. The purpose of the contract was realized by both parties at the time of making the contract.
95
What are the rules concerning mutual rescission?
A contract may be discharged by an express agreement between the parties to rescind. The agreement to resend is itself a binding contract supported by consideration i.e. the giving up of each party of her right to counter performance from the other.
**If rights of a third-party beneficiary have already vested, the contract cannot be discharged by mutual rescission by the promisor and promisee.**
**contract must be executory on both sides
96
Unilateral contracts and rescission rules
If the contract is unilateral a contract to mutually resend where one party still has a duty to perform will be ineffective. For an effective decision in a unilateral contract situation where the offeree has already performed, the rescission promise must be supported by one of the following:
1. An offer of new consideration by the nonperforming party;
2. Elements of promissory estoppel or
3. Manifestation of an intent by the original offeree to make a gift of the obligation owed to her.
Most common grounds are mistake, misrepresentation, duress, and failure of consideration.
97
What is a novation?
A novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the regional parties under the terms of the old contract.
The elements for a valid novation are:
1. A previous valid contract;
2. An agreement among all parties, including the new party or parties to the contract;
3. The immediate extinguishment of contractual duties as between the original contracting parties; and
4. A valid and enforceable new contract
98
Discharge by release
A release not to sue will serve to discharge contractual duties. The release or contract not to sue usually must be in writing and supported by new consideration or promissory estoppel Elements.
99
What is an accord?
And accord is an agreement in which one party to an existing contract agrees to except in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other, different performance.
And accord must be supported by consideration
100
What is satisfaction?
Satisfaction is the performance of the court agreement. It's a fact is to discharge not only the original contract, but also the accord contract as well.
101
What is the effect of breach of accord before satisfaction?
Breach by the debtor: if the debtor breaches an accord agreement, the creditor may sue either on the original undischarged contract or for breach of the accord agreement.
Breach by the creditor: if a creditor breaches an accord agreement The debtor has two courses of action available:1. Raise the accord agreement as an equitable defense and ask the contract action be dismissed; or 2. Wait until she is damaged and then bring an action at mall for damages for breach of the accord contract.
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What is a minor breach?
A breach of contract is minor if the obligee gains the substantial benefit of her bargain despite the obligors defective performance.
*if coupled with anticipatory repudiation the nonbreaching party may treat it as a material breach.
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What is a material breach?
If the obligee does not receive the substantial benefit of her bargain.
Options:
1. Treat the contract as at an end
2. Have an immediate right to all remedies for breach of the entire contract including total damages.
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Factors courts look at it in determining whether a breach is material or minor:
1. The amount of benefit received by the nonbreaching party;
2. The adequacy of compensation for damages to the injured party;
3. The extent of part performance by the breaching party;
4. Hardship to the breaching party;
5. Negligence or willful behavior of the breaching party; and
6. The likelihood that the breaching party will perform the remainder of the contract.
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Discharge By Rescission
Rescission will serve to discharge contractual duties. May be either mutual or unilateral.
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Mutual Rescission
A contract may be discharged by an express agreement between the parties to rescind.
Agreement itself is consideration (each party giving up her right to counter performance from the other)
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Exception to mutual rescission:
If the rights of a third party beneficiary have already vested, the contract CANNOT be discharged by mutual rescission by the promisor and promisee.
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What is the effect of timeliness and breach of contract?
Failure to perform in the time stated is usually not considered a breach of K if the performance is rendered within a reasonable time.
HOWEVER, if the nature of the K makes timely performance essential, or if the K expressly provides that time is of the essence then failure to perform on time is usually considered a material breach!
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What is the Perfect Tender Rule?
If goods fail or their delivery fail to conform to the contract in any way, the buyer generally may:
1. reject all
2. Accept all
3. or accept any commercial units and reject rest.
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Specific Performance
If the legal remedy is inadequate, the non-breaching party may seek specific performance, which is an order form the court to the breaching party to perform or face contempt of court charges.
**Always available for land and rare or unique goods** NOT SERVICES!
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Employee and Employer (specific performance)
Although you cannot get SP remedies in service contracts a person may seek an injunction--> Court may enjoin a breaching employee from working for a competitor throughout the duration of the contract the services contracted for are rare or unique.
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Covenant Not to Compete:
Most courts will grant an order of SP to enforce a K not to compete if:
1. the services to be performed are unique (rendering money damages inadequate); and
2. The covenant is reasonable.
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For a covenant to be reasonable what is required?
1. The covenant must be reasonably necessary to protect a legitimate interest of the person benefited by the covenant
2. The covenant must be reasonable as to its geographic scope and duration; and
3. The covenant must not harm the public.
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An action for specific performance is subject to what equitable defenses?
1. Laches: a claim that the P has delayed bringing the action and that the delay has prejudiced the D;
2. Unclean Hands: a claim that the party seeking specific performance is guilty of wrongdoing in the transaction being sued upon; and
3. Sale to a bona fide purchaser: a claim that the subject matter has been sold to a person who purchased for value and in good faith.
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Cancellation fo a contract:
If a buyer rightfully rejects goods because they do not conform to the contract, one of her options is simply to cancel the contract.
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Buyer's right to Replevy Identified Goods on Buyer's Prepayment:
If a buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the seller has not delivered the goods, the buyer may replevy the goods from the seller in 2 circumstances:
1. The seller becomes insolvent within 10 days after receiving the buyer's first payment; or
2. The goods were purchased for personal, family, or household purposes.
In either case above, the buyer must tender any unpaid portion of the purchase price to the seller.
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Buyer's right to Replevy Identified Goods on Buyer's inability to cover:
The buyer may replevy undelivered, identified goods from the seller if the buyer, after reasonable effort, is unable to secure adequate substitute goods (cover)
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Seller's right to withhold Goods:
If the buyer fails to make a payment due on or before delivery, the seller may withhold delivery of the goods.
Seller may also withhold goods if purchased on credit and seller discovers that buyer is insolvent.
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Right to recover from buyer on buyer's insolvency:
If a seller learns that a buyer has received delivery of goods on credit while insolvent, the seller may reclaim the goods upon demand made within 10 days after the buyer's receipt of the goods.
EXCEPTION: 10 day limitation does not apply if a misrepresentation of solvency has been made in writing to the particular seller within three months before delivery.
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Right to recover shipped or stored goods from bailee on buyer's insolvency:
Seller may stop delivery of goods in the possession of a carrier or other bailee if he discovers that the buyer is insolvent.
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Right to recover shipped or stored goods from bailee on Buyer's Breach:
Seller may stop delivery of carload, truckload, or planeload, or larger shipments of goods if the buyer breaches the contract or the seller has a right to withhold performance pending receipt of assurances.
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Seller's right to force goods on buyer
limited to an action for price when the seller is unable to resell goods to others at a reasonable price.
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Seller's right to demand assurances:
Where there are reasonable grounds for insecurity with respect to a party's performance, the other party may demand IN WRITING assurances that the performance will be forthcoming at the proper time.
Seller may suspend his performance until he receives adequate assurances.
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What happens if adequate assurances are not given?
If they are not given within a reasonable time (30 days after demand) the seller may treat the contract as repudiated.
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Compensatory Damages
Usual goal of damages for breach of K: put the non breaching party in the position she would have been in had the promise been performed.
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Standard measure of damages for compensatory damages:
Expectation Damages: sufficient damages for her to buy a substitute performance. (benefit of the bargain damages)
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Reliance Damage Measure:
If the P's expectation damages are too speculative to measure the P may elect to recover damages based on a "reliance" measure, rather than an expectation measure.
Reliance damages award the P the cost of her performance--> designed to put the P in the position she would have been in had the contract never been formed.
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Consequential Damages:
special damages that reflect losses and above standard expectation damage. Arise because of the non breaching party's particular circumstances, and most often they consist of lost profits
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When may consequential damages be recovered?
Only if:
1. at the time the contract was made, a reasonable person would have foreseen the damages as a probable result of a breach,
2. The damages could not have been avoided through reasonable efforts, and
3. the damages can be proved with reasonable certainty.
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To recover consequential damages the breaching party must have...
known or had reason to know of the special circumstances giving rise to the damages, -->In K's for the sale of goods - buyer may only recover consequential damages.
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What are incidental damages?
Incidental damages include expenses reasonably reasonably incurred by:
the buyer: in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to seller's breach
The seller:in storing, shipping, returning, and reselling the goods as a result of the buyer's breach.
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Must damages be certain?
Yes, according to the certainty rule, the P must prove that the losses suffered were certain in their nature and not speculative.
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Are punitive damages awarded in contract cases?
Generally not
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When may nominal damages be awarded?
When there has been a breach but no actual loss is proven.
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May parties place a liquidated damages clause in their contract?
Yes, parties to a contract may stipulate what damages are to be paid in the event of a breach. Such damages must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach.
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What are the requirements to enforce a Liquidated Damages Clause?
1. Damages for contractual breach must have been difficult to estimate or ascertain at the time the contract was formed; and
2. The amount agreed on must have been a reasonable forecast of compensatory damages in the case of breach.
* *Test for reasonableness is a comparison between the amount of damages prospectively probable at the time of contract formation and the liquidated damages figure. --> If it is unreasonable the courts will construe this as a penalty and will not enforce the provision.
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Can a party receive liquidated damages even if there is no actual harm?
Yes, If the requirements are met then the plaintiff will receive liquidated damages.
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What are the buyer's basic damages where the seller does not deliver, or the buyer properly rejects or revokes her acceptance of tendered goods?
The difference between the contract price and 1) the market price (at the time or 2) the cost of buying replacement goods (buyer must make a reasonable contract for substitute goods in good faith and without unreasonable delay), plus incidental and consequential damages, less expenses saved as a result of the seller's breach.
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When are buyers damages and seller's damages measured?
Buyer's damages are measured as of the time she learns of the breach
Seller's damages are measured as of the time for delivery.
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What are the buyer's remedies in the event that the seller delivers nonconforming goods and buyer accepts?
Difference between the value of the goods as delivered and the value they would have had if they had been according to contract, plus incidental and consequential damages.
*To recover such damages, the buyer must within a reasonable time after she discovers or should have discovered the defect, notify the seller of the defect. --> if buyer fails to do so then the buyer loses her right to sue.
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What are the buyer's remedies in the event that the seller anticipatorily breaches contract?
Measure of damages are the difference between the market price at the time the buyer learned of the breach and the contract price.
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When is a buyer liable for consequential damages to the seller?
if: 1) he had reason to know to of the buyers general or particular requirements and
2) the subsequent loss resulting from the needs could not reasonably be prevented by cover.
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What are the Seller's Damages when Buyer Repudiates or refuses to accept Conforming Goods?
In addition to incidental damages: the seller can:
1) Recover the difference between the market price (measured as of the time and at the place of delivery) and the contract price;
2) Resell the goods and recover the difference between the contract price and the resale price; or
3) If the above measures are inadequate because the seller could have made an additional sale, recover under a "lost profits" measure the difference between the K price and the cost to the seller. (lost volume seller)
**Other damages will NEVER be adequate if seller is a lost volume seller.
If seller's supply is unlimited=lost volume seller
If seller's supply is limited= lost profit measure cannot be used and one of the other two measure must be used.**
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What are the Seller's Damages when Buyer accepts goods but does not pay or has not accepted the goods and seller is unable to resell for a reasonable price or if the goods have been lost or damaged at a time the ROL was on the buyer?
The seller may receive the entire contract from buyer.
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That is the standard measure of damages for breach of a land contract?
The difference between the contract price and the FMV of the land.
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Damages for Employer breach
The standard measure of the employee's damages is the full contract price irrespective of when the breach occurs (i.e. before performance, after part-performance, or after full performance.
*damages may be reduced if employer fails to mitigate.**
