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MBE: Final Review > Contracts > Flashcards

Flashcards in Contracts Deck (94):

CL: Past Consideration/Moral Obligation

Definition: a promise given in exchange for something already done

Rule: Not a valid form of consideration, nor are they valid substitutes for consideration
• no bargained-for exchange


CL: Option Contract
• Elements (2)
• Acceptance Rule

1. Promise to keep an offer open for a period of time
2. Consideration

Receipt (not mailbox) rule - acceptance effective once received


UCC: Merchant Firm Offer Rule
•Default Rule on Timing

An offer by a merchant in a signed writing, which by it's terms assures that it will be held open, is irrevocable during the time stated (equivalent to CL "option contract")

• default rule: if no time is stated, period of irrevocability can't exceed 90 days

• note - if time is longer than 3 months, a court will widdle it down to 3 months (reform, don't rescind)


UCC: Battle of the Forms: Basic Rules (4)

1. If the offeree (usually buyer) accepts the offer, and simultaneously materially alters that offer, the terms of the ORIGINAL offer

2. If offeree makes acceptance conditional upon assent to the additional term --> counteroffer --> no contract
• Ex: "I accept, but only if you agree to X"

3. If offeree accepts and makes a non-material change, that change is incorporated in the contract
• Exception - if offerer objects w/in a reasonable pd of time, change is not included

4. Material alteration = change a/b remedy, $, or liability


UCC: Perfect Tender Rule
• Rule
• What is the effect of a non-conforming tender?
• Buyer's Options (3)
• Exception

Rule: Seller must deliver perfect tender to the buyer.
• note - a delivery of non-conforming tender is an acceptance AND a breach

If seller doesn't, buyer has three options:
1. Timely reject the goods AND sue for damages
2. Accept the goods AND pay the contract price OR
3. Accept in part, and reject in part

Exception: Seller saved from suit if the delivery is accompanied by a notice of accommodation. That notice is a counteroffer that the buyer can accept/reject, but can't bring a lawsuit under.


Unilateral Contract
• Definition
• Rule

Definition: An offer that requires performance as method of acceptance.
• example - reward offer (i.e., an ad for returning a pet)

Rule: Once you begin performance of a unilateral contract, the offeror cannot cancel.


Is a surety contract (guarantor agreement) subject to the SoF? Exception?

Yes - a promise to answer for the debt of another must be in writing in order to be enforceable

Main Purpose Exception - if the guarantor benefits from the promise, not subject to the SoF


Mutual Mistake
• Definition
• Function
• Rule

Definition: Arises when both parties are mutually mistaken about the contract terms

Function: Defense to contract formation

Rule: May rescind the contract if:
1. the mistake goes to the essence (heart) of the agreement

2. the mistake has a material effect on the agreed-upon exchange AND

3. the party trying to rescind the contract didn't assume the risk of mistake


• Function
• Applicable to which contracts?

Defense to contract formation: certain contracts must be in writing to be enforceable


Marriage - promise to do something IF get married
Year - more than 1 yr
Executory contracts
Guarantor Agreement - surety contracts
Sale of Goods - $500 or more


Unilateral Mistake
• Definition
• Rule + Exception

Definition: Arises when one party is mistaken a/b the contract terms

Rule: a unilateral mistake will NOT prevent contract formation (not a defense!)

Exception: if the non-mistaken party knows or has reason to know of the other party's mistake, they cannot take advantage of that mistaken party (so there's a defense!)


CL: Modification
• Rule
• Exception

Need new consideration (must sweeten the deal)
• rationale: pre-existing duty rule
• example: slight change in performance (change in duty)

Exception: a promise modifying a duty under a contract not fully performed by either party is binding if the modification is fair and equitable given unanticipated circumstances


UCC: Modification

Must be in "good faith": honesty in fact AND conformity w/ reasonable commercial standards
• don't need new consideration


CL: Parole Evidence Rule
• Exceptions (9)

Four-Corners Rule: Prevents evidence of prior or contemporaneous ORAL agreements that vary or modify the terms of a completely integrated agreement (all terms there)

1. Fraud
2. Deceit/Misrepresentation
3. Illegality
4. Undue Influence
5. Duress
6. Lack of Consideration
7. Condition Precedent
8. Industry Practice/Trade Usage/Course of Dealing
9. Mistake


SoF: Discuss the exception involving the sale of goods

Merchant's Confirmatory Memo Exception - if w/in a reasonable time after entering into an ORAL agreement, one merchant sends a written confirmation of that oral agreement to the other merchant, it binds the sending merchant immediately
• if the recipient merchant doesn't object to contents of that writing w/in 10 days after receipt, it binds the recipient as well

Note - for this rule to apply, both parties must be merchants


Ways in which a third party beneficiary's rights vest (3)

1. Assent: TPB learns of the contract and assents to it
2. Reliance: TPB learns of the contract and relies on it OR
3. Lawsuit: TPB learns of the contract and brings an immediate lawsuit to enforce their rights


Third Party Beneficiary: Effect of Vesting Rights

Before vesting, the contracting parties can cancel or modify the agreement w/out TPB consent. But once vested, the contracting parties can't do shit unless the TPB agrees.


Promissory Estoppel:
• Function
• Rule
• Standard

This is a substitute for consideration (detrimental reliance)

Despite lack of consideration, a promise is enforceable if it:
1. Was made w/ reasonable expectation that it would induce reliance AND
2. A party substantially relies on the promise to their detriment

Standard: if the interests of justice so require


• Assignor: Liability Rule
• Assignee: General Rule

Liability: May assign duties, but the assignor is still responsible if there's a breach of contract

1. May enforce his rights against the obligor directly
2. Subject to any defenses that the obligor had against the assignor


UCC: Buyer's Standard Remedy if Seller Materially Breaches

Cover Price - Contract Price = Standard Remedy


Are all contracts assignable and delegable?
• Rule + Key Features (2) + Exceptions (2)

Rule: Yes
• written or oral
• don't need consideration

1. Unique personal service contracts OR
2. Long term requirement contracts


Assignments: Revocability
Gratuitous Assignment v. For Value Assignment

Gratuitous Assignment: usually revocable
• unless assignee relied on the assignment

Assignments for Value: usually irrevocable


• Definition
• Creation (4)
• Effect

Definition: Substitute out one party for another

1. Previous valid contract

2. Agreement among parties (including new party)

3. Immediately extinguish contractual duties b/t original contracting parties AND

4. New contract is valid and enforceable

Effect: Discharges the old contract


Accord and Satisfaction

Accord - new agreement that arises out of some good faith dispute b/t parties who are already under contract
• must require a new type of obligation

Satisfaction - the performance of that new agreement (of the accord)

Classic Example: Where there's a bona fide dispute as to the amount owed, there's a good faith tender and acceptance of a check conspicuously marked "payment in full"


Accord: Legal Effect

Doesn't get rid of the original contract, but rather suspends performance of the original contract until the accord is satisfied or unsatisfied

• satisfied --> everyone goes their separate ways! Done!

• unsatisfied --> party who can enforce the accord has an option: (i) enforce the accord OR (ii) enforce the original contract


When can you make a demand for adequate assurances?

When the other party "doubts" that they can perform
• can't file lawsuit b/c then you'd be in breach


Anticipatory Repudiation/Breach

Arises when there a clear statement of intent not to perform
• need not be in writing
• mere expression of doubt is insufficient

• effect: Non-breaching party may:
(i) terminate contract immediately
(ii) hire someone else to do the work AND
(iii) sue for damages (cover price - contract price)


Material Breach: Non-Breaching Party's Remedy?

Cancel contract immediately AND
Sue for damages


Non-Material Breach: Non-Breaching Party's Remedy?

Can't cancel contract, but may sue for damages


Impossibility: Unique Personal Service Contract

If you're too sick to do the job, you're excused for that period of time AND will not be liable for any damages (unless the contract provides otherwise)


Condition Precedent
• Definition
• Rule

Definition: An act or event that must occur first before a party is under a duty to perform

Rule: Failure of condition --> no contract breach


"Time is of the Essence" Clause: What's the rule?

Rule: If not mere boilerplate, a court will enforce the clause


What is the basic principle of contract damages?

Place the non-breaching party in the situation she would have been in had the contract been performed


UCC: Standard Remedies for Non-Breaching Seller
• and the alternative remedy

1. Contract Price - Resale Price = Standard Remedy

2. Lost Profits + Incidental Damages


UCC: Buyer Defaults: Measure of Damages (4)

1. If liquidated damages clause, allow buyer's deposit to serve as liquidated damages

2. No LD, but buyer gives deposit, seller may keep 20% of contract price OR $500 (whichever is less)

3. ED = Resale Price - Contract Price

4. Lost Profits: Expected Profits - Amt Buyer Paid


UCC: Requirements
• Req't?
• Measurement
• Limitations (2)

Not need a set quantity - it's measured by the buyer's good faith needs

1. may not be unreasonably disproportionate to any:
(i) stated estimate OR
(ii) otherwise comparable prior req'ts

2. Generally, goods under a req't contract are not assignable (obligor's duties could change significantly)
- exception: assignment ok if the assignee acts in good faith not to alter the contract terms


Public Offer

An offer of award is an offer to enter into a unilateral contract. If made to the public generally, it may be accepted by anyone to whom it becomes KNOWN.
• to accept, just need to perform the requested act (but no accidental acceptances)


Promise to Make a Gift: Enforceable?

Only if there's consideration
• even if in writing or promisor intends to be enforceable


CL: Buyer's Standard Remedy if Seller Materially Breaches

Buyer's obligation to pay is discharged/cancelled


Completely Integrated Agreement

An agreement intended to be the final and exclusive embodiment of the parties' agreement


Breaching Party Wants Restitution: What Result?

A breaching party may seek (and will prevail) in a restitution action ONLY IF the non-breaching party tries to keep the value of the benefit conferred w/out paying

Damages = reasonable value of services provided - non-breaching party's damages


When a breaching party seeks restitution, what choice of remedies does the non-breaching party have?

1. Enforce the benefit of the bargain and pay the contract price minus the costs of having to have performance fulfilled

2. Set aside the bargain (if material breach)
• Pay FMV of any benefit/services conferred


CL: Buyer Breaches via Repudiation: Seller's Remedy

1. Incidental damages


• Diff b/t K Price and FMV or
• Diff b/t K Price and Resale Price


3. Expenses saved as a result of breach


Contract Enforceability: Minors
• Rule
• Exception
• Note on Disaffirmance

Rule: Minors lack capacity to enter into a contract that binds themselves

Exception: Affirmance - minor may choose to be bound by the contract upon reaching majority
• express or implied (via conduct)

Note - disaffirmance discharges all liability


Offer for a Shipment of Goods: Methods of Acceptance

1. Prompt shipment with notice
2. Promise to ship


Liquidated Damages Clause: Enforceability Rule (2)

1. Only if damages were difficult to determine at the time contract was formed AND

2. The amt agreed upon is a reasonable prediction


Specific Performance: Personal Services vs. Unique Services

Unique goods or services --> SP

Personal services --> No SP


Difference B/t Assignment and Third-Party Beneficiary

Third-Party Beneficiary: a contract b/t parties contemplates performance to a third party
• must be intended beneficiary at time contract formed (i.e., designated in the contract)

Assignment: a contract that doesn't contemplate performance to a third party when the contract is made, but rather later one of the parties transfers his rights to another


Will a court grant specific performance if the contract's subject matter has been transferred to a BFP for value?



Contract: Elements of Enforceability (3)

1. Offer
2. Acceptance AND
3. Consideration


What damages if buyer accepts goods that breach one of the seller's warranties?

Damages equal the difference b/t the value of the goods as delivered and the value they would have had if they had been according to the contract


CL: Acceptance
• Rule
• 2 individual bases

Mirror Image Rule - to accept offer, your acceptance must be the mirror image of that offer. Any deviation = counteroffer

1. Performance
2. Promise to Perform


CL: Pre-Existing Duty: Rule + Exception

Rule: Performing an existing legal duty is not consideration

Exception: pre-existing duty owned to someone other than the promisor


UCC: Insolvent Buyer: What Result?

Seller may refuse to deliver except for cash (including all goods previously delivered under the contract)


UCC: What is the effect of an offer to buy goods for current or prompt shipment?

Invites acceptance by (i) promise to ship or (ii) by current or prompt shipment of conforming or non-conforming goods



A person who deals in goods of the kind involved in the contract


UCC: Effect of Sending Non-Conforming Goods

Creates a bilateral contract AND a breach (unless seller reasonably notifies buyer that the non-conforming goods are offered only as an accommodation to the buyer)


UCC: Effect of a Notice of Accommodation

Turns the shipment into a counteroffer rather than an acceptance


CL: Rescission
• Function
• Req't
• Typically applicable to what?

Cancels the contract and terminates the parties' contractual duties. It's as if the contract never existed.

Req't: Adequate legal grounds
- mutual mistake of a material fact

Typically applies to bilateral contract (neither party has performed yet)


Modern View on Modification: Exception to CL's Consideration Req't

Unanticipated Circumstances - situation makes performing the contract more difficult OR expensive

Rationale - fair/equitable


CL: Unilateral Contract: Rescission

A rescission promise must be supported by either:

1. New consideration

2. Detrimental reliance (elements of promissory estoppel)


3. Offeree shows intent to make a gift (of obligation)


SoF: Sales of Goods of $500 or More: The writing must contain what?

Quantity term


Acceptance: Golden Rule

You must KNOW of the offer to begin with in order to accept


Ways to Terminate an Offer (4)

1. Revocation BEFORE acceptance
2. Offeree rejects the offer
3. Offeree's Counteroffer (original offer is "rejected")
4. Lapse of Time


When is acceptance by silence ok?

has occurred in the past AND was proper means of acceptance in the past


Mailbox Rule

Applies only to acceptances: acceptance is effective upon dispatch (not receipt)

Exceptions: Mailbox rule doesn't apply when:

1. option contracts

2. offeree uses incorrect address
• effective upon receipt

3. offeree sends rejection, then acceptance
• whichever is received FIRST controls


Are future promises enforceable?

No (even if they're in writing)


Mitigation Principle (UCC and CL)

The non-breaching party must minimize their damages
• discontinue work
• "cover"


Cover Price

Reasonable purchase of substitute goods


Who can raise a SoF defense?

Only the contracting parties (no third parties)


Once you repudiate, when is a retraction valid?

The other party didn't already rely on the repudiation


Exception to SoF: Specially Manufactured Goods



Lost Profits Remedy Applies to Whom?

Only volume sellers


Third-Party Beneficiaries: Subject to Defenses?

Yes - any defense the promisor could have used against the original promisee


Implied-In-Fact Contract
• Formation
• Classic Example

Manifest assent by ways other than oral or written language, usually by conduct

Ex: Knowingly accept offered benefits
• even if offeree SILENTLY accepts offered benefits



Bargained-for exchange --> legal detriment
• Promisee does something he wasn't obligated to do OR
• Promisee stops doing something he has legal right to do


Defense: Frustration of Purpose

At the time of entering into the contract, the parties didn't reasonably foresee the occurrence of an event/act that could frustrate the contract's purpose


SoF: Land
• Rule
• Examples
• Exception

Rule: A promise creating an interest in land must be in writing to be enforceable
• land sale contracts
• property interests in land
• leases for more than 1 year

Exception: Part Performance Doctrine


UCC: Implied Warranty of Merchantability

Rule: Every sale of goods contains a warranty that the goods will be fit for the ordinary purposes for which they are used

Exception: warranty was expressly disclaimed


UCC: Disclaimer: Implied Warranty of Merchantibility

To be effective, the disclaimer must be:
1. Part of the offer/acceptance process OR
2. Agreed to by buyer as a modification


UCC: Express Warranty

Arises when seller:

1. Affirms a fact or promise to the buyer
2. Describes the goods OR
3. Presents samples/models



UCC: Implied Warranty of Fitness

Arises when:
1. Seller had reason to know the buyer's particular purpose for the goods
2. Buyer relies on the seller's skill or judgment in selecting suitable goods AND
3. Buyer actually relies on that


Account Stated
• Definition
• Rule

Definition: A contract where the parties agree to an amount as a final balance due

Rule: must be more than 1 prior transaction b/t the parties


Penalty Clauses: Enforceable?
• Rule
• Exception

Rule: No

Exception - clauses that are denominated "penalty," but in fact operate as a reasonable liquidated damages clause


Minor Breach of Contract
• Definition
• Rule

Definition: Arises if the non-breaching party gets the substantial benefit of her bargain (despite the other party's defective performance)

Rule: Non-breaching party must still perform, but entitled to remedial damages


Third-Party Beneficiary: Creation (two independent ways)

1. Contract b/t parties contemplates performance to a third party
• must be intended beneficiary at time contract formed (i.e., designated in the contract)

2. Delegation + assumption of duty + consideration



Must show that there was an antecedent agreement that is not correctly reflected in the writing (i.e., by mistake)


Installment Contracts: Defect
• What constitutes a breach?
• When may a buyer reject?

Breach = non-conformity substantially impairs the value of the installment

Buyer may reject only if:
1. Non-conformity substantially impairs the value of that installment AND
2. Can't be cured

note - the perfect tender rule doesn't apply here (b/c of the right to cure)


UCC: Buyer's Remedy for Defective Goods (3)

1. Any loss resulting from breach PLUS
• difference b/t value of goods accepted and value had they been as warranted

2. Incidental damages PLUS
• reasonable expenses from inspection, receipt, transportation, care, and custody of the goods

3. Consequential damages
• general/particular needs seller knew about and buyer couldn't "cover" AND
• injury to person or property


Minors: Necessities

A minor is bound to pay the reasonable value of necessities
• food, shelter


• Rule
• Limitations

Rule: Offeror may revoke at will

Limitations on Power to Revoke:
1. Must be before acceptance

2. Detrimental reliance - offeror can't revoke if he could reasonably expect that the offeree would rely on his detriment AND the offeree actually does so
• ex: general contractor uses a subcontractor's bid in making its own offer

3. Option contracts - can't revoke before option expires


UCC: Gap-Filler Provisions
• Examples
• Exception

1. Time for delivery --> reasonable time
2. Offer/Acceptance terms diff --> knock-out/fill in

Exception - court won't gap-fill missing quantity term


What result if a party dies before acceptance?
• Rule
• Exception

Rule: offer terminates

Exception: option contracts survive the death of a party


UCC: Parole Evidence Rule

If there's ambiguity or uncertainty in a written agreement's terms, or there's a dispute a/b the meaning of those words, parole evidence is permitted


UCC: Buyer Breaches by Refusing to Accept Goods: What relief for seller?

1. Incidental damages


• Diff b/t K Price and FMV or
• Diff b/t K Price and Resale Price