Contracts Flashcards
1
Q
When a transaction involves BOTH the sale of goods and services, what test applies to determine which law governs?
A
The Predominate Purpose Test.
2
Q
What is the predominate purpose test?
A
The test used to determine whether the UCC or Common Law (services) applies.
3
Q
What is required for a valid offer?
A
- ) Offer: objective manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree.
- ) Acceptance:
4
Q
What are the requirements of the UCC Firm Offer Rule?
A
i) The offeror is a merchant;
ii) There is an assurance that the offer is to remain open; and
iii) The assurance is contained in a signed writing from the offeror.
5
Q
What is the definition of a merchant?
A
a merchant includes not only a person who regularly deals in the type of goods involved in the transaction or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction, but also any businessperson when the transaction is of a commercial nature
6
Q
What is required for an Acceptance?
A
An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer. Only a party to whom an offer is extended may accept or, if the offer is extended to a class, a party who is a member of the class may accept.
7
Q
What is a bilateral contract?
A
one in which a promise by one party is exchanged for a promise by the other. The exchange of promises is enough to render them both enforceable. An offer requiring a promise to accept can be accepted either with a return promise or by starting performance. Commencement of performance of a bilateral contract operates as a promise to render complete performance.
8
Q
What is a unilateral contract?
A
one in which one party promises to do something in return for an act of the other party (e.g., a monetary reward for finding a lost dog). Unlike in a bilateral contract, in a unilateral contract, the offeree’s promise to perform is insufficient to constitute acceptance. Acceptance of an offer for a unilateral contract requires complete performance
Once performance has begun, the offer is irrevocable for a reasonable period of time to allow for complete performance unless there is a manifestation of a contrary intent. However, the offeree is not bound to complete performance. In addition, while the offeror may terminate the offer before the offeree begins to perform, expenses incurred by the offeree in preparing to perform may be recoverable as reliance damages
9
Q
What evidence does the parol evidence rule allow, and what does it disallow?
A
The parole evidence rule applies to contracts that are “partial integration” (no merger clauses). If the evidence supplements the writing, it is allowed in. But if it contradicts the writing, it is not allowed.
So it can be for something additional, but not something contrary to what is in the writing.
10
Q
Under an installment contract, what is the standard used for a buyer’s ability to reject an installment shipment?
A
The Substantial Impairment Standard.
If the non-conforming shipment under the k substantial impairs whatever it is the buyer is trying to accomplish.
11
Q
For a new business to recover “lost profit” damages, what is the new business required to show?
A
The amount of damages with reasonable certainty.
12
Q
What is the first thing to discuss on a Contracts Essay?
A
The applicable law in the jurisdiction
13
Q
What contracts does the UCC govern?
A
All contracts involving the sale of GOODS
14
Q
What contracts does Common Law Govern?
A
All contracts involving the sale of SERVICES
15
Q
What is a Mixed Contract?
A
A contract that includes both goods and services, whichever one predominates will determine the governing law.
16
Q
What is a Merchant under the UCC?
A
1.) A merchant includes not only a person who regularly deals in the type of goods involved in the transaction or otherwise by his occupation holds himself out as having knowledge or skill particular to the practices or goods involved in the transaction, but also in some instances any businessperson when the transaction is of a commercial nature.
17
Q
When does the “Battle of the Forms” apply?
A
When both parties are merchants?
18
Q
Which warranty does a merchant grant solely because they are a merchant?
A
Warranty of Merchantability.
19
Q
What is required for a contract to be valid?
A
- ) Offer
- ) Acceptance
- ) Consideration
20
Q
What is required of an offer?
A
- ) A promise
- ) Terms
- ) Communication to the offeree
21
Q
What terms must be present in a Common Law Contract?
A
All essential Terms:
- ) Parties
- ) Subject Matter
- ) Price
- ) Quantity
22
Q
What terms must be present in a UCC Contract?
A
Quantity is the most important, a court will gap fill other missing terms.
23
Q
Are advertisements offers? Generally
A
Advertisements are generally not offers, unless they are specific and limit who may accept the offer. If an ad is presented in the facts, you must discuss it as a potential offer
24
Q
After you discuss the “Offer,” what comes next?
A
Is it a bilateral or unilateral offer?
25
What is a bilateral contract?
One in which parties exchange promises; it can be accepted by a promise OR by the beginning of performance.
26
What is a unilateral contract?
One in which the offeror makes a promise and the offer must perform; it can only be accepted by complete performance.
27
Are offers generally revocable?
Yes, but there are some circumstances in which they are not revocable.
28
What two situations are offers not revocable? (Irrevocable(
1. ) Common Law Option Contract: An offer where the offeror promise to hold the offer open for a certain period of time. The offer must pay consideration to the offeror to hold the offer open.
2. ) UCC Firm Offer: An offer in WRITING, where the offeror is a merchant and promises to hold the offer open for certain period of time. (Max 90 days). No consideration required. Must be SIGNED.
29
What 5 ways can an offer be terminated?
1. ) Revocation of the Offer
2. ) Rejection by Offer
3. ) Counter-Offer by Offer
4. ) Lapse of time
5. ) Death of the offeror
30
How can an offer by revoked?
An offer can be terminated if the offeror revokes the offer prior to acceptance.
Revocation is effected when RECEIVED.
31
How does a Counter Offer by the offer act as a revocation?
If the offer counter-offers with different terms, the original offer will be deemed to be terminated.
A "mere suggestion" of a different term, or a "mere inquiry" about changing the terms is not a counter-offer and will not terminate the original offer.
32
What is an Acceptance?
The objective manifestation by the offer to be bound by the terms of the offer.
33
What is the rule for Manner of Acceptance?
Any reasonable means of acceptance is allowed; unless the offer limits the means of acceptance
Silence is generally not acceptance, unless the offer has reason to believe that silence will constitute acceptance.
34
What is the (Common Law) Mirror Image Rule?
The acceptance must mirror the terms of the offer; any changes/additions to the terms constitute a rejection of the original offer and a counter offer.
35
Does the mirror image rule exist in the UCC?
NO.
36
What if both parties are merchants and the offer and acceptance contain different terms?
The contract WILL include the changes or additions unless (1) they materially alter the terms of the original offer; (2) the original offer limits acceptance to the terms of the offer, or (3) the offeror has previously objected, or objects to the changed or new terms.
37
What is the Mailbox Rule?
Under the Mailbox rule, an acceptance is valid when placed in the mail
Exception: if there is an option contract or firm offer, the acceptance is valid when received and must be received before the offer expires.
38
What is the "Special Issue" regarding the Mailbox Rule?
If a party mails a rejection of an offer and then mails an acceptance to the
offer, the first communication to be received is effective. The recipient of the
communication does not have to read the communication for it to be effective!
39
What does consideration require?
Consideration requires a bargained-for change in the legal position between parties.
Mostcourts find consideration if there is a detriment to the promisee, regardless of the benefit to the
promisor.
A minority of courts look to either a detriment or a benefit, not requiring both.
40
What is a Legal Detriment?
A legal detriment can take the form of a promise to do/not do something,
or performance/refraining from performance.
41
Does a court consider Adequacy of Consideration?
A court will not look at the adequacy of the consideration (e.g.,
the monetary value of the items being exchanged).
42
What is the pre-existing duty rule?
A promise to perform a preexisting legal duty will not qualify as consideration because the promisor is already required to perform (no additional legal
detriment is being incurred) by the promisor.
43
How does the Common Law deal with Past Consideration?
Under the common law, a legal detriment incurred in the past does not constitute
consideration because it was not bargained for and it was not in exchange for a legal
detriment in return.
44
What is Moral Consideration?
```
Moral Consideration (modern trend): A promise not supported by consideration may be enforceable if it is made in recognition of a significant benefit previously received by the
promisor from the promisee.
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45
What is Promissory Estoppel? (Consideration Substitute)
If a promise is made by a party, but there is not consideration provided by both sides,
the promise will still be enforceable if certain conditions are met.
46
What conditions give rise to Promissory Estoppel?
1. ) The promisor should reasonably expect the promise to induce action or forbearance;
2. ) The promise actually induces action or forbearance; AND
3. ) Injustice can be avoided only by enforcement of the promise.
47
What are the damages awarded under promissory estoppel usually limited to?
Reliance damages (money spent on reliance of the promise).
48
When a party asserts a defense to formation of a contract, what are they really asking?
The court to find that no contract was formed between the two parties at all.
49
What are the 5 Defenses to Formation
1. ) Mistake
2. ) Fraudulent Misrepresentation
3. ) Undue Influence
4. ) Duress
5. ) Capacity
50
What is a Mutual Mistake? (Defense to Contract)
both parties are mistaken as to an essential element of the contract, the contract
may be voidable by the adversely affected party.
51
What are the two remedies to mutual mistake in contract?
1. ) Reformation - if there was a PRIOR AGREEMENT, oral or written, by the parties. There was an agreement by parties to put that agreement into writing; and as a result of the mistake, there is a difference between the prior agreement and the writing.
2. ) Recission: If reformation is available to cure the mutual mistake, neither party can void (rescind) the contract. If reformation is not available, the contract may be voidable if:
a.) A mistake of fact existing at the time the contract was formed
b.) the mistake relates too a basic assumption of the contract
c.) the mistake has a material impact on the transaction, AND
D.) the adversely affected party did not assume the risk of the mistake.
52
What is a unilateral Mistake?
When one party is mistaken as to an essential element of the contract.
53
What remedy is available for unilateral mistake?
Recision, if:
1. ) The mistake would make enforcement unconscionable; OR
2. ) Non-mistaken party failed to disclose the mistake or caused the mistake
3. ) Also, there must not be serious prejudice to the non-mistaken party if the contract is voided.
54
What is a fraudulent Misrepresentation?
An intentional misrepresentation of a fact that the innocent party justifiably relies on. The
misrepresentation can be affirmative (a lie) or through non-disclosure (omission).
55
Under a fraudulent representation, when is a contract VOID?
If a fraudulent misrepresentation prevents a party from knowing the character or essential
terms of the transaction, no contract is formed, and the apparent contract is void.
56
When is a fraudulent representation make a contract voidable?
If a fraudulent misrepresentation is used to induce another to enter into a contract, the
contract is voidable by the adversely affected party if she justifiably relied on the
misrepresentation in entering into the agreement.
57
What are the remedies for fraudulent representation in a contract?
Remedies (reformation or rescission): When one party misrepresents the content or legal effect of a writing to another party, the other party may elect to avoid (rescind) the contract or to reform it to express what had been represented.
58
When does Undue Influence occur? (Defense to formation)
Occurs when a party unfairly persuades the other party to assent to a contract.
Specifically when, in certain relationships, a party is susceptible to persuasion
59
When does duress occur? (Defense to formation)
When a party is improperly threatened and has no meaningful choice but to agree to thecontract. This is a subjective test, so the defendant must actually feel like she has no choice
but to agree.
60
When does Duress make a contract Void
When a party’s agreement to enter into a contract is physically compelled by duress, such
as the threat to inflict physical harm, the contract is void.
61
When does Duress make a contract voidable?
When a party is induced to enter into a contract due to other duress, such as the threat of pursuing a civil action in bad faith, the contract is voidable.
62
Generally, is a threat to breach a contract improper for purposes of Duress?
Generally, a threat to breach a contract is not improper for purposes of duress. However, if the breach would violate the duty of good faith and dealing, it would constitute an improper threat.
63
What are the 3 defenses to Enforcement of a contract?
1. ) Statute of Frauds
2. ) Illegality
3. ) Unconscionability
64
What is the overall approach to a statute of frauds issue?
1. ) Determine whether the SOF applies to the contract.
2. ) If the SOF applies, determine whether the requirements (written, signed by party to be charged) are met.
3. ) If the requirements are not met, discuss exceptions (Part/full performance, estoppel)
65
To what types of contracts does the SOF apply?
1. ) Marriage
2. ) Surety
3. ) Contracts that cannot be performed within one year of making
4. ) Sale of goods UCC $500 or more
5. ) Real Property
66
What requirements must a contract meet to comply with the SOF?
1.) Writing: signed by person to be charged, UCC sale of goods doesn't have to contain all the terms, just quantity.
2.) Signature: A document on company letterhead may be enough to constitute a signed
writing as long as the party to be charged intended to authenticate the writing as that of the signer to adopt the document.
67
Does a writing have to exist at the time of the promise to comply with the statute of frauds?
No, it can be created after the promises are made and still meet the SOF.
68
If the SOF is not met, will a court still enforce the contract in limited situations?
YES.
69
What if full performance or part performance has occurred on a UCC sale of goods?
Full Performance: the contract is fully enforceable
Part Performance: the contract will be enforceable to the extent that money has been paid.
No writing required if the contract involves specifically manufactured goods for the buyer.
IF BOTH PARTIES MERCHANGES, and send confirmatory letters that meet the SOF and the other party doesn't object in 10 days, the contract is enforceable against the receiving party.
70
When will a court enforce performance over the statute of frauds concerning the sale of land?
The contract will be enforced if at least two of the following three acts have occurred:
1. ) The purchaser pays part or all of the purchase price
2. ) The purchaser takes possession of the land, OR
3. ) The purchaser substantial improves the property.
71
Concerning Unconscionability (defense to enforcement), what two types of unconscionability does a court consider?
1. ) Procedural unconscionability: occurs when the bargaining process leading to the formation of the contract is unfair (if a party is in a superior position and takes advantage of this position)
2. ) Substantive Unconscionability: Occurs when the actual terms of the contract are unfair; there must be a significant showing of unfairness in the contract to find this.
72
What is a modification?
After a valid contract has been formed, any change to the terms of the contract is a modification. Both
parties must agree to the modification.
73
What is the common law rule regarding modification?
A modification must be supported by consideration
74
What is the Pre-existing duty rule?
Watch out for exam facts where a party offers to pay more money to the other party to
guarantee completion of the contract on time. Under the Preexisting Duty Rule, there is
no additional consideration here because the other party already has a duty to perform
the contract on time. The modification (additional money) will not be enforceable.
If a party agrees to pay more money in exchange for earlier performance of the
contract, there will be consideration. The parties are changing their duties.
75
How does the statute of frauds deal with modification?
If the modified contract falls within the SOF, it must be in writing (unless an exception applies)
76
What is the UCC rule regarding modification?
A modification does NOT require additional consideration, as long as the modification is entered into in good faith by both parties.
77
What is Accord and Satisfaction?
When there is a dispute over the validity of the contract or the amount owed, a party can agree to accept a different performance from what was agreed upon in the contract.
78
What is an Accord?
The new agreement where a party agrees to accept a different performance than what was agreed upon.
79
What is a Satisfaction?
Occurs when the different performance is completed by the other party, which discharges the original contract duties and the accord agreement duties.
80
How is Consideration dealt with in Accord and Satisfaction actions?
The party performing the different performance is incurring a legal detriment.
The party that is agreeing to accept the different performance is giving up the right to dispute the original contract and sue for breach.
81
What is the parol Evidence Rule?
Under the Parol Evidence Rule (PER), extrinsic evidence of oral or written communications prior to the written contract are generally inadmissible for contradicting the terms of the contract.
(Mostly about prior negotiations or discussions).
82
What is the first thing a court will ask regarding the parole evidence rule and Integration?
First a court will ask if the writing in question was intended to be the final agreement (does it
integrate) the terms of the contract.
83
If the contract is not an integration (final agreement), does the Parole Evidence Rule apply?
NO.
84
How will a court determine a total or partial integration?
The court will look at the words in the contract to determine if the parties intended for
it to be a total or partial integration.
Merger clause: If the contract has a “merger” clause stating that the contract is the final
and complete understanding of the parties, it is likely to be a total integration.
85
What is a total integration?
if the writing contains all of the terms of the agreement, it is a total integration and no parol evidence is admissible.
86
What is a Partial Integration?
If the writing contains some of the terms of the agreement, it is a partial integration, parol evidence is admissible and the writing may be supplemented
by additional terms, as long as they are consistent with the writing (and do not
contradict any of the terms).
87
What are the 5 exceptions to the Parole Evidence Rule?
1. ) Timing
2. ) Ambiguity and Interpretation
3. ) Collateral Deal
4. ) UCC
5. ) Condition Precedent
88
After determining a contract exists, and has terms, the next issue is what?
Performance of the contract
89
What two considerations when determining performance of a contract?
Promise or Condition
When discussing the performance of the contract, determine whether the contract involves promise(s) and/or condition(s). When a contract is unclear, a court will usually find a statement to be a promise.
90
What type of words show something was not a promise?
“On the condition that”
91
What is the common law standard of performance?
Under the common law, a party has a duty to SUBSTANTIALLY PERFORM his part of the contract.
A party who substantially performs may recover on the contract even though that party has not rendered full performance.
While a party who has NOT substantially performed generally cannot recover damages - but may be livable to recover through restitution.
92
What is required (performance-wise) under the UCC?
The perfect tender of goods.
Buyer has a right to inspect the goods, and once he accepts them, he has an obligation to pay.
93
What if a UCC buyer rejects the goods?
If a buyer rejects goods as nonconforming and time still remains to perform under a contract, the seller has a right to cure and tender conforming goods.
94
How does the UCC define installment contracts?
Under the UCC, an installment contract is defined as one in which the goods are to be delivered in multiple shipments, and each shipment is to be separately accepted by the buyer.
95
What if, as part of an installment contract, the seller makes a non-conforming tender? Can the buyer reject?
Yes, but only if the nonconformity substantially impairs the value of that shipment to the buyer and cannot be cured.
96
Under the UCC, when a seller makes adequate assurances of tender in an installment contract, must the buyer accept?
Yes, if he can cure the nonconformity
97
What is a condition precedent?
The condition must occur before the other party has an obligation to perform
98
What is a condition subsequent?
If the condition occurs, the duty to perform will then be excused.
99
How must express conditions be performed?
Must be met perfectly
100
How must implied conditions be performed?
Require substantial performance
101
What 3 things excuse conditions?
Waiver
Wrongful interference
Estoppel
102
What are the 3 things that discharge a duty to perform?
1. ) Impracticability
2. ) Impossibility
3. ) Frustration of purpose
103
What is required for a duty to be considered impracticable?
An unforseeable even occurs (natural disaster) making the performance of the contract extremely difficult.
The non occurrence of the event was a basic assumption at the time of the contract; AND
The party seeking discharge was not at fault.
104
Are non extraordinary increases in cost a basis for an Impracticability defense?
NO.
105
What is “Impossibility?”
An unforeseeable event occurs, making it objectively impossible for the party to perform.
106
What is “Frustration of Purpose?
If an unexpected event arises that destroy the party’s purpose for entering the contract, the party will be entitled to rescind the contract, even if the performance is still possible.
Similar to impracticability, the nonoccurrence of the event must have been a basic assumption at the time of the contract and the party seeking discharge was not at fault.
107
What is a third party beneficiary contract?
Results when the parties to a contract intend that the performance by one of the parties is to benefit a third person who is not party to a contract.
108
When a contract benefits persons other than the parties to a contract, can the third party enforce the contract?
Yes, if they were an intended beneficiary.
109
What is an assignment under a contract?
Assignment is the transfer of rights under a contract
110
What is a delegation of contract duties?
The transfer of duties and obligations under a contract. (First person is still liable)
111
What is an anticipatory breach (repudiation)?
Occurs when a promisor party indicates that it will not perform prior to the date that performance is due that it will not perform.
112
What is the common law rule for anticipatory breach?
The promisor party clearly and unequivocally indicates through words or acts that it will not perform.
113
Under Common law, what can the non-breaching party do?
1. ) Treat the repudiation as a breach of contract and sue immediately
2. ) Suspend its own performance and demand performance from the promisor;
3. ) Cancel the contract, OR
4. ) Wait for the date of performance, and then sue for breach.
114
Under the UCC, what does a party need to do in the face of repudiation?
Either party can demand assurances if has reasonable grounds to be insecure about the other party's ability to perform and may suspend performance until it receives assurances. (Demand needs to be in writing.
115
What if adequate assurances are not given within 30 days of a demand?
1. ) Treat the repudiation as a breach and sue immediately
2. ) Suspend its own performance and demand performance from the promisor
3. ) Cancel the contract; or
4. ) Wait for the date of performance, and then sue for breach.
116
What is a Retraction? (Regarding repudiation)
The promisor party can retract its repudiation of the contract until/unless the other party has cancelled the contract, materially changed position on the basis of the repudiation, or otherwise indicated that he considers the repudiation to be final.
117
When does a Material Breach occur?
A material breach occurs when the nonbreaching party does not receive the substantial
benefit of the bargain.
118
When does a minor breach occur?
A minor breach occurs when the breaching party has substantially performed, but not fully performed.
119
What are Expectation damages?
Expectation damages are damages directly resulting from the breach of the contract.
They are intended to put the injured party in the same position as if the contract was
performed.
120
What must standard must Expectation damages meet?
Foreseeable and can be calculated with reasonable certainty.
121
What are Consequential Damages?
Consequential damages are reasonably foreseeable damages other than expectation damages that are related to the breach of the contract (e.g., loss of profit).
122
What 3 elements must be met to get consequential damages
1. ) Foreseeability
2. ) Causation
3. ) Certainty
123
What are Reliance Damages?
Damages that the nonbreaching party incurs in reasonable reliance upon the promise
that the other party would perform.
124
What are Incidental Damages?
Damages that arise when the nonbreaching party is trying to remedy the breach (e.g., in
a commercial contract, the cost of finding a replacement seller of goods).
125
What is "Mitigating Damages?"
The nonbreaching party has duty to avoid or mitigate its damages, to the extent possible, by seeking replacements/substitutes for goods and/or services.
the nonbreaching party will be held to a standard of reasonable conduct.
126
Can a party obtain both reliance and expectation damages?
Nope - must choose between them, discuss both items if necessary.
127
What are the 3 equitable remedies in Contract?
1. ) Restitution - allows non breaching party and breaching party to recover damages under an unjust enrichment theory. (not based in K)
2. ) Quasi-Contract (implied in law k)
3.) Specific Performance - There must be a valid contract: This requires you to discuss whether a valid contract
(offer, acceptance, consideration) exists.
The terms of the contract must be certain/clear enough to allow a court to make an
order.
The nonbreaching party has satisfied any conditions precedent (or the condition has
been excused), so the breaching party’s performance is now due.
Money damages are inadequate (this usually means the item(s) involved in the contract
are unique.
128
What 3 elements must be met for quasi-contract?
1. ) Plaintiff must confer a measurable benefit on the defendant;
2. ) The Plaintiff acted without gratuitous intent (he intended to get paid
3. ) It would be unfair to let the defendant retain the benefit because the defendant had a reasonable opportunity to decline the benefit but did not do so.
129
When will a court not grant specific performance
When the court will be required to supervise the performance for a long period of time, or it will be difficult to enforce.
Typically won't force people to perform services (indentured servitude, 13th amendment)
