Contracts Flashcards
(107 cards)
1
Q
What is a Contract?
According to the Restatement
A
A contract is a promise or a set of promises for the breach of which the law gives a remedy.
2
Q
What are the elements of a contract?
A
("meeting of the minds")
Offer
Acceptance
Intent
Consideration
3
Q
What is an Offer?
A
“An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.”
Restatement 24.
4
Q
What is Acceptance?
A
“The manifestation of assent to the terms of an offer.”
Restatement
5
Q
What are the two types of acceptance?
A
- Express Acceptance (“I DO”)
2. Acceptance by performance
6
Q
What is Intent?
A
Intent to be legally bound by the contract.
7
Q
What is Consideration?
A
Consideration exists when something of value is exchanged in a bargain.
Money
Property
Promise
Act or forbearance
Typically, there must be an element of bargaining involved, in that both parties have determined and agreed to the exchanged values.
8
Q
What is a Bilateral Contract?
A
Agreement between two parties; both make a promise.
9
Q
What is a Unilateral Contract?
A
Agreement between two parties; one makes a promise and one makes a full performance.
10
Q
Invalid Offers
A
- Joke
- Preliminary Negotiations
- Advertisement
11
Q
When is a joke an invalid offer?
A
When the offeree knows or should have known that the offer is a joke.
12
Q
What are examples of preliminary negotiations?
A
invitations to bid
price quotations
proposals
13
Q
When is an advertisement a valid offer?
A
When it contains a reasonably certain promise that leaves no room for negotiation.
14
Q
What are the 4 ways to terminate an offer?
A
- Rejection or counteroffer
- Lapse of time
- Death or incapacity
- Revocation
*before acceptance
15
Q
What is a counteroffer?
A
An offer made by the offeree to the offeror, that proposes different terms relating to the same matter as the initial offer.
The original offer has been terminated and can no longer be accepted.
16
Q
What is a lapse of time?
A
The amount of time to accept an offer may be specified.
If unspecified: must be reasonable based on the circumstances surrounding the offer and attempted acceptance. Usually when the conversation is over.
17
Q
How do you revoke an offer?
A
The offeror must communicate her intent to the offeree before acceptance.
18
Q
What 2 types of contracts may not be revoked?
A
- Option Contracts
2. Firm Offers
19
Q
What are option contracts?
A
Option Contracts are created when the offeror keeps an offer open for a limited amount of time, in exchange for the offeree’s consideration.
These offers cannot be revoked before the end of the time.
Typically, a unilateral contract will form an irrevocable option contract when the offeree begins to perform, because the partial performance serves as the offeree’s consideration.
20
Q
What are firm offers?
A
Apply to the sale of goods (UCC)
A firm offer is a signed writing by a merchant who deals in goods, explicitly assuring the offeree that an offer to buy or sell goods will be held open for a limited amount of time.
NO CONSIDERATION IS REQUIRED.
Even if the specified amount of time is longer, Firm Offers are only irrevocable for up to 3 months.
21
Q
Who can accept an offer?
A
The intended offeree who is invited to accept.
The offeree must know of the offer at the time of acceptance.
22
Q
When does an offeror’s response become an acceptance?
A
Generally, an acceptance is effective the moment it leaves the offer’s possession to be given to the offeror.
23
Q
Mailbox Rule
A
An acceptance is effective upon dispatch.
When you place the signed agreement in the mail, that is acceptance.
24
Q
When does the Mailbox Rule not apply?
A
- The offeror can prescribe a time of acceptance that is not the moment of dispatch.
- Unilateral contracts, which are accepted upon full performance.
- Option contracts, which are accepted upon receipt. (when the acceptance is received, not dispatched)
25
Silence as an acceptance?
Generally, silence is not considered to be an acceptance.
Exceptions:
1. Offeree receives the benefit of offered services, despite reasonable opportunity to reject those services, as well as reason to know that compensation is expected.
2. Offeree exercises dominion over offered property by acting inconsistently with the offeror's ownership of that property. The offeree will be bound in accordance with the offered terms.
3. If there are prior dealings that make it reasonable for the offeror to expect to be notified of a rejection and, in the absence of a rejection, to conclude acceptance.
26
Mirror Image Rule
| Restatement
(Restatement)
Requires an acceptance to be an unconditional assent to the exact same terms that were stated in the offer. Any acceptance that adds to or changes the terms of an offer is considered a counteroffer that rejects and terminates the initial offer. Essentially, the acceptance must be the “mirror image” of the offer.
27
Mirror Image Rule
| UCC
UCC rejects the Mirror Image Rule
An acceptance that adds to or changes the terms of an offer is considered to be an acceptance, rather than a counteroffer.
Only modifications made in good faith.
28
What is past consideration?
Any consideration that was already given before the contract was formed.
29
Are gifts enforceable?
Gifts are unenforceable due to the lack of an exchange or a bargain (consideration).
30
What is an illusory promise?
An illusory promise doesn’t actually commit the promisor to do anything, because the promisor reserves a choice of alternative performances.
31
What is the preexisting duty rule?
An act or forbearance does not constitute consideration if it is already a legal obligation or not a legal entitlement.
32
Under the preexisting duty rule, when will a modification to a contract will be enforceable?
1. A modification is enforceable if it results from unforeseen circumstances that were not anticipated by the parties when the contract was formed.
2. A modification is enforceable if the parties’ duties are altered sufficiently to constitute consideration.
33
Preexisting duty rule (UCC)
Under UCC, a modification to a contract for the sale of goods requires no consideration to be binding.
34
What is Promissory Estoppel?
“A promise which the promisor should reasonably expect to induce action or forbearance . . . and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.”
Restatement 90
A promise may be partially or fully enforced, even if it is not supported by consideration.
35
3 elements of promissory estoppel?
1. Promise (reasonable expect to induce the promisee's action or forbearance)
2. Reliance on the promise (equivalent to consideration; makes the promise binding)
3. Substantial detriment (enforcement necessary to avoid injustice)
36
What is Reliance?
1. The promisee must have actually relied on the promise by taking a definite and substantial action that was induced by the promise
2. The promisee must have justifiably relied on the promise
37
What is the remedy for Promissory Estoppel?
Courts usually limit the promisee’s remedy to only what justice requires.
The court will enforce the part of the promise that the promisee has actually relied on, and place the promisee back in the position before the promise was made.
38
What is the Statute of Frauds?
The Statute of Frauds forbids the enforcement of a contract unless it is set down in a signed writing.
39
What types of contract fall within the Statue of Frauds?
"MY LEGS"
Marriage contracts
contracts that cannot be performed within 1 Year
Land contracts
Executor-administrator contracts sale of Goods contracts for $500 or more
Suretyship contracts
40
Statute of Frauds: Contracts that cannot be performed within 1 year
At the time the contract is formed, both parties must already know that it’s impossible for the terms of the contract to be fully performed within 1 year of the time of formation.
Full performance in one year must be impossible, rather than merely unlikely.
41
Land Contracts
A land contract is any agreement that transfers an interest in land.
Leases and mortgages.
A land contract does not fall within the Statute of Frauds if the injured party has reasonably relied on the contract to the extent that injustice can be avoided only by enforcement.
42
Sale of Goods contracts for $500 or more.
Exemptions.
When signed writing is not required.
1. Sale of specially manufactured goods.
A good is specially manufactured if it is not suitable for sale to others in the ordinary course of the seller’s business. The seller must have already made a substantial beginning in manufacturing the goods or made a commitment to procure the goods by the time the buyer’s repudiation is received.
2. If the non-injured party admits in court that the contract was made
3. If the payment has already been made and accepted or the goods have already been received and accepted.
43
What are the defenses to enforceability?
1. Lack of capacity
2. Duress
3. Illegality
4. Unconscionability
5. Misrepresentation
44
What is lack of capacity?
When a party lacks capacity at the time the contract is formed.
1. Infancy (until the beginning of the day before his 18th birthday)
2. Mental illness or defect
- Unable to reasonably understand the nature and consequences of the transaction
- Unable to reasonably act in relation to the transaction and the other party has reason to know of his condition
3. Intoxication
- If the other party has reason to know that, by reason of intoxication, the party is unable to reasonably understand the nature and consequences of the transaction or is unable to reasonably act in relation to the transaction
45
What is duress?
A party whose assent was induced by an improper threat that left no reasonable alternative.
Improper threats, which include crimes and torts, may be expressed or implied through words or conduct.
46
What is illegality?
May be asserted by either party when their contract violates public policy.
47
What is unconscionability?
Unfair contract.
1. Procedurally Unconscionable
-Significant inequality of bargaining power between the two parties.
Examples:
-Standard form contracts
-Contracts containing buried terms that are actively hidden
2. Substantively Unconscionable
-Terms are overly harsh or one-sided against one of the parties
48
What is misrepresentation?
1. Untrue assertion (a statement that is not in accordance with the facts)
-Concealment
Affirmative action is taken to prevent discovery of a fact
-Non-Disclosure
Party knows that disclosure is necessary to correct the other party's mistake.
2. The misrepresentation must be fraudulent or material.
- Fraudulent: intended to induce the party's assent
- Material: Likely to induce a reasonable person's assent
3. The party’s reliance on the fraudulent or material misrepresentation must be justified.
49
Reliance on an opinion is justified for 3 reasons:
1. A party may rely on an opinion if he has a relationship of trust and confidence with the other person, such that it is reasonable to rely on the other person’s opinion.
2. A party may rely on an opinion if he reasonably believes that the other person has special skill, judgment, or objectivity regarding the subject matter.
3. A party may rely on an opinion if he is particularly susceptible to the misrepresentation for some special reason, such as illiteracy or unusual gullibility.
50
What is interpretation?
During the process of interpretation, courts will determine the meaning of the contract.
- Terms
- Intent of parties regarding those terms.
51
What are the standards of preference?
1. Courts will prefer to give reasonable, lawful, and effective meaning to all of the terms.
2. Courts will give greater weight to specific or exact terms than to general language.
3. Courts will give greater weight to negotiated or added terms than to non-negotiated or standard terms.
52
What are terms needing interpretation?
1. Indefinite terms
2. Ambiguous terms
3. Omitted terms
53
What are indefinite terms?
Terms left open or uncertain.
Courts may void the contract for indefiniteness, depending on the importance of the terms.
If the indefinite terms are essential, then the court will conclude that the parties never intended to make a contract.
If the indefinite terms are minor and the parties intended to make a contract, then the court may imply a definite term based on what is customary or reasonable.
54
What are ambiguous terms?
Terms have multiple meanings or involve a misunderstanding between the parties.
1. If the parties had the same meaning for the term, then the court will interpret the contract based on that meaning.
2. If the parties had different meanings for the term due to a misunderstanding, then the court will typically find a lack of mutual assent and void the contract.
3. If one party knew of the misunderstanding, then the court will interpret the contract based on the other party’s meaning.
55
What are omitted terms?
The parties have not provided for what should happen in a given situation.
Courts will usually fill in the gaps of the contract by supplying a reasonable term under the circumstances.
Courts will also impose a duty of good faith in the performance and enforcement of the contract.
56
What is the Parol Evidence Rule?
How to interpret a written, binding, integrated agreement.
57
What is a Fully Integrated Agreement?
A writing that has been adopted by the parties as a final and complete statement of the terms.
Extrinsic evidence may not be used to modify or supplement a written contract.
58
What is a Partially Integrated Agreement?
A writing that has been adopted by the parties as a final but incomplete statement of the terms.
Extrinsic evidence may not be used to modify, BUT may be used to supplement a written contract.
59
What are 4 Exceptions to the Parol Evidence Rule?
1. Extrinsic evidence may be used to establish whether a written contract is an integrated agreement, as well as whether an integrated agreement is completely or partially integrated.
2. Extrinsic evidence may be used to clarify the meaning of an ambiguous term.
3. Extrinsic evidence may be used to support a defense to enforceability, such as illegality.
4. Extrinsic evidence may be used to determine whether a remedy should be granted or denied to one of the parties.
60
What is a Condition?
“A condition is an event, not certain to occur, which must occur . . . before performance under a contract becomes due.”
61
What are the 2 types of Conditions?
1. Express Condition
A term that is agreed upon by the parties to the contract.
2. Constructive Condition
A term that is supplied by the court, based on what is reasonable under the circumstances.
62
What are the 3 types of Warranties (UCC)?
1. Express Warranty (based on a seller's guarantee or affirmation)
2. Implied Warranty of Merchantability (automatically created when the goods are sold)
3. Implied Warranty of Fitness for a Particular Purpose (automatically created when the goods are sold)
63
What is an Express Warranty?
An express warranty is made by a seller to a buyer as a basis of the bargain, guaranteeing or affirming that the goods conform to a stated fact or condition.
An express warranty may also be created by a description, which warrants that the goods will conform to the description, as well as a sample or model, which warrants that the goods will conform to the sample or model.
64
What is an Implied Warranty of Merchantability?
An implied warranty of merchantability guarantees that the goods are merchantable and is automatically created when the seller is a merchant of those goods.
Goods are merchantable when they are fit for the ordinary purposes for which such goods are used.
65
What is an Implied Warranty of Fitness for a Particular Purpose?
Guarantees that the goods are fit for the buyer’s particular purpose and is automatically created when the buyer relies on the seller’s skill or judgment to select suitable goods.
The seller must know of the buyer’s purpose and reliance.
66
What are 2 types of disclaimers?
1. Explicit Disclaimer
| 2. Implicit Disclaimer
67
What is an Explicit Disclaimer?
1. An express warranty may only be explicitly rather than implicitly disclaimed, by the seller’s clear and reasonable words or conduct.
2. An implied warranty of merchantability may be explicitly disclaimed by the seller’s explicit language, which may be spoken or written but must include the word “merchantability.”
3. An implied warranty of fitness for a particular purpose may be disclaimed by the seller’s written language.
Any written disclaimer must be conspicuous, which means it cannot be in fine print.
68
What is an Implicit Disclaimer?
Both types of implied warranties may be implicitly disclaimed by the language of the sale or the buyer’s examination of the goods.
"as is"
"with all faults"
69
What is a breach of contract?
“Full performance of a duty under a contract discharges the duty. When performance of a duty under a contract is due, any non-performance is a breach.”
Restatement
If a total breach has occurred, in that the party has not performed at all, then the injured party may sue for a remedy.
Partial Performance:
The injured party may still sue for a remedy, but only if the breach is material.
70
When is a breach material?
1. Consider the loss of benefit to the injured party, or the extent to which the injured party will be denied any reasonably expected benefit.
2. Consider the adequacy of compensation for the injured party’s loss, or the extent to which the injured party is able to be adequately compensated for any loss.
3. Consider the forfeiture by the breaching party, or the extent to which the breaching party will suffer from the denial of compensation. Typically, if the breaching party has substantially performed, then there will not be a material breach.
4. Consider the likelihood of a cure by the breaching party, taking into account all circumstances, including any reasonable assurances.
71
What is Anticipatory Repudiation?
1. The repudiating party may give a statement clearly indicating the intention to breach.
2. The repudiating party may take an action that renders him unable to perform. The action must be voluntary and affirmative.
72
How to retract anticipatory repudiation?
1. The injured party must either receive notice of the retraction
2. OR know that events causing the repudiation have ceased to exist.
73
When does an anticipatory repudiation become final?
1. The injured party has materially changed position in reliance on the repudiation.
2. The injured party has indicated to the repudiating party that the anticipatory repudiation is considered final.
74
What is prospective inability to perform?
A party may suspend her own performance and demand adequate assurance if there are reasonable grounds to believe that the other party may be unable to perform.
Example: Insolvency
The party may not sue for a remedy immediately, but may only suspend her own performance and demand adequate assurance.
75
What is a Mistake?
A mistake is a belief that is not in accordance with the facts at the time of the contract.
Rather than a simple misunderstanding, a mistake means that one or more of the parties has entered into the contract based on an erroneous belief.
76
What are the 2 types of Mistake?
1. Mutual Mistake (both parties have the same mistaken belief)
2. Unilateral Mistake (only one of the parties has a mistaken belief)
77
What is a Mutual Mistake?
1. The mistake must be regarding a basic assumption on which the contract was made.
2. The mistake must have a material effect on the agreed-upon exchange of performances.
3. The adversely affected party must not bear the risk of the mistake.
78
How can a party bear the risk of a mistake?
1. When the parties have agreed in the contract to allocate the risk to that party.
2. When a court allocates the risk to that party because it is reasonable under the circumstances.
3. When that party is consciously ignorant.
79
What is a Unilateral Mistake?
1. The mistake must be regarding a basic assumption on which the contract was made, in that it relates to the substance of the agreement.
2. The mistake must have a material effect on the agreed-upon exchange of performances.
3. The adversely affected party must not bear the risk of the mistake and must also have been the mistaken party.
4. ONE OF THE FOLLOWING MUST BE TRUE:
1. The mistake must cause unconscionability.
2. The other party must know of the mistake.
3. The other party’s fault must cause the mistake.
80
What is Impossibility?
OBJECTIVE STANDARD
A party may avoid performance when it becomes impossible to perform due to changed circumstances.
A performance has become impossible when it objectively cannot be performed by anyone, not just the specific party to the contract.
1. Death or incapacity necessary for the performance.
2. Destruction of subject matter.
3. Performance is prevented by law (regulations or court orders).
Event was not foreseeable and the event must not be the party's fault.
81
What is Impracticability?
SUBJECTIVE STANDARD
A party may avoid performance when it becomes impractical due to changed circumstances.
A performance has become impractical when it will cause extreme and unreasonable difficulty, expense, injury, or loss to one of the parties.
Event was not foreseeable and the event must not be the party's fault.
82
What is Frustration of Purpose?
A party may avoid performance when his or her principal purpose is substantially frustrated due to changed circumstances.
A party’s principal purpose is substantially frustrated when the other party’s performance has become virtually worthless, even if it is still possible or practical.
Event was not foreseeable and the event must not be the party's fault.
83
Perfect Tender Rule
| UCC
A delivery of goods must conform to the contract.
“[i]f the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may reject the whole, accept the whole, or accept any commercial units and reject the rest.”
84
What is Rejection?
| UCC
A buyer may reject a delivery of goods within a reasonable time after the delivery by promptly notifying the seller of the rejection.
The buyer will have the duty to hold the goods with reasonable care for an amount of time that is sufficient for the seller to remove the goods.
85
What is Acceptance?
| UCC
1. After a reasonable opportunity to inspect the goods, the buyer may indicate an acceptance to the seller or fail to make an effective rejection.
2. The buyer may act inconsistently with the seller’s ownership of the goods.
***Once a delivery has been accepted, it may no longer be rejected.
86
What is Revocation?
| UCC
A buyer may revoke acceptance of a unit or delivery that is substantially impaired by its non-conformity.
1. The buyer reasonably assumed the non-conformity would be cured, and it was not.
2. The buyer discovered the non-conformity after acceptance due to the difficulty of discovering the non-conformity.
3. The buyer discovered the non-conformity after acceptance due to the seller’s assurances.
A buyer must revoke acceptance within a reasonable time after discovering the non-conformity and before any substantial change in the condition of the goods that was not caused by their own defects.
The buyer must promptly notify the seller of revocation and has the duty to hold the goods with reasonable care.
87
What are Installment Contracts?
An installment contract is a contract for the delivery of goods in separate installments.
A buyer may reject an installment only if the non-conformity substantially impairs the value of the installment and will not be cured.
A buyer must accept an installment if the seller gives adequate assurance that the non-conformity will be cured.
A buyer may cancel the installment contract entirely if the non-conformity substantially impairs the value of the entire contract.
88
What are Beneficiaries?
A third party may receive a benefit from an existing contract as a beneficiary.
1. Intended
2. Incidental
An intended beneficiary may sue to enforce the contract, while an incidental beneficiary may not.
89
What are Intended Beneficiaries?
A third party is an intended beneficiary when the contract satisfies a monetary debt to the third party, or when circumstances indicate that one of the parties intended to give a benefit to the third party.
90
What are Incidental Beneficiaries?
A third party is merely an incidental beneficiary when the contract only happens to benefit the third party.
91
Can a party transfer rights under an existing contract to a third party?
Any rights under an existing contract may be assigned to a third party, UNLESS the assignment would materially change the other party’s duty or burden or would materially impair or devalue the return performance to the other party.
An assignment may also be forbidden by law or by the contract itself.
92
Can a party delegate the duty to perform under an existing contract to a third party?
Any duties under an existing contract may be delegated to a third party, UNLESS the other party has a substantial interest in the original party’s performance.
A delegation may also be forbidden by law or by the contract itself.
Delegation does not discharge the delegator’s liability.
93
What are Damages?
When an enforceable contract is breached, the injured party will have a right to receive damages from the breaching party.
Damages are simply an amount of money awarded as a compensatory remedy for a breach of contract.
The amount may be set by the parties in the contract as liquidated damages, or by the court as nominal, expectation, or reliance damages.
94
What are Liquidated Damages?
Amount of $$ set by the parties in the contract.
A provision for liquidated damages will only be enforced if the amount is reasonable in light of the anticipated or actual loss caused by the breach.
95
What are Nominal Damages?
When a breach did not cause any loss, or when the loss is not provable, the court will award a small sum of $$ (nominal damages).
96
What are Expectation Damages?
Expectation damages are based on the injured party’s interest in having the benefit of the bargain.
When awarding expectation damages, the court will set an amount that places the injured party in the position that he would have been in had the contract been fully performed.
Calculation:
97
What are Reliance Damages?
Reliance damages serve as an alternative to expectation damages and are typically awarded when the injured party relied on the contract but cannot prove any lost profits.
The court will set an amount that places the injured party in the position that he would have been in had the contract never been made.
Calculation:
98
Limitations of Expectation and Reliance Damages?
1. Avoidability (duty to mitigate loss)
2. Foreseeability
3. Certainty
99
What is Avoidability?
The injured party may not recover damages for any loss that he could have avoided without undue risk, burden, or humiliation.
100
What is Foreseeability?
The loss must be foreseeable due to the ordinary course of events or due to the breaching party’s knowledge of special circumstances.
101
What is Certainty?
The injured party may not recover damages for any loss that cannot be established with reasonable certainty.
102
What is Restitution?
The prevention of unjust enrichment.
To receive restitution, the party seeking restitution, who may be either the injured or breaching party, must have already rendered partial performance.
103
What are the 2 types of Restitution?
1. Damages $$
Either:
-The reasonable value of the given performance OR
-The extent of enrichment of the other party's interests.
2. Specific Restitution
Allows a party to recover a specific thing, rather than an amount of money. A breaching party may not sue for specific restitution.
104
What is a Quasi-Contract?
In some situations, a party may be able to recover restitution, even when there is not an enforceable contract or even any contract at all.
When one party confers a benefit onto the other, courts may imply a contract for the purpose of preventing unjust enrichment.
A quasi-contract may also be implied even when there was no intent to form a contract at all, as long as the party has a restitution interest and acted in good faith.
105
What is Specific Performance?
An order of specific performance will require the breaching party to perform a duty to act.
A court will not grant specific performance against actors, singers, athletes, or employees.
106
What is an Injunction?
An order of injunction will require the breaching party to refrain from taking an action.
An injunction will either:
- directly enforce a contracted duty to forbear from taking an action
- OR it will indirectly enforce a contracted duty to perform by preventing an inconsistent action.
107
Requirements for Specific Performance or Injunction?
1. Damages must be inadequate based on a consideration of several significant circumstances, such as the difficulty of proving damages with reasonable certainty, the difficulty of using damages to procure substitute performance, and the likelihood of collecting damages.
2. The terms of the contract must be definite in that they are sufficiently certain enough to provide a basis for an appropriate order of specific performance or injunction.
3. The order of specific performance or injunction must not be disproportionately burdensome for the court to enforce.
