Contracts Flashcards
1
Q
Elements needed to form a valid contract
A
- Mutual assent (offer + acceptance);
- Consideration (bargained for legal detriment); and
- No defenses to formation
2
Q
Define
bilateral contract
A
Contract made by both sides; i.e. mutual promises
3
Q
Define
unilateral contract
A
Requires full performance as the method of acceptance
4
Q
Define
offer
A
- An outward, objective manifestation of willingness to enter into a bargain;
- That creates the power of acceptance in the offeree (i.e. nothing left to do except say “yes”)
5
Q
Under common law, what terms must be included in the offer?
A
- Parties
- Subject matter
- Price
- Quantity
6
Q
How can an offer be terminated?
A
- Counter-offer;
- Death;
- Incapacity;
- Lapse;
- Rejection; or
- Revocation
7
Q
What types of offers are irrevocable?
A
- Option contracts;
- Firm offers;
- When there is detrimental reliance;
- When offeree has started performance on a unilateral contract
8
Q
What does a counteroffer function as?
A
rejection + new offer
9
Q
Define
mirror image rule
(common law)
A
Acceptance must be a mirror image of every single term of the offer
If any part of the terms are different, it will function as a counter-offer and rejection
10
Q
Under UCC §2-207, what happens if an acceptance contains “additional or different” terms from the original offer if both parties are merchants?
A
The terms will automatically become part of the contract, unless:
- the terms materially change the contract;
- the offeror objects; or
- the offer explicitly limited the offer to the original terms
11
Q
How does a merchant accept an offer to buy goods?
A
- Promise to ship the goods; or
- Shipping the goods within a reasonable time period
12
Q
Does shipment of nonconforming goods qualify as acceptance?
A
Yes, but also constitutes breach
13
Q
What is the mailbox rule?
A
Acceptance is effective upon DISPATCH
14
Q
What happens if both an acceptance and rejection is sent by the offeree when the:
- Rejection is sent first?
- Acceptance is sent first?
A
- Acceptance will be effective if received BEFORE the rejection
- Acceptance effective upon dispatch (regardless of whether rejection is received before)
15
Q
Define
consideration
A
- Detriment to promisee (promisee forgoes something of value); or
- Bargained-for exchange (must not be nominal)
16
Q
Is consideration required to modify a contract under common law?
A
Yes, unless:
- New obligations on both sides; or
- Existence of circumstances unforeseen by either party
17
Q
Does the UCC require consideration for modification?
A
No, as long as both parties are acting in good faith
18
Q
Define
void contract
A
Entire contract is void and non-existent
19
Q
Define
voidable contract
A
Valid contract unless one party seeks to void it
20
Q
Define
unenforceable contract
A
A valid contract that cannot be enforced if one party halts performance
21
Q
What are the 10 defenses to contract formation and enforceability?
A
- Duress
- Incapacity
- Illegality
- Misrepresentation
- Misunderstanding
- Mistake
- Public Policy
- Statute of Frauds
- Undue Influence
- Unconscionability
22
Q
What actions can a court take upon finding a contract unconscionable?
A
- Declare the entire contract void;
- Strike the unconscionable clause while leaving the rest; or
- Rewrite the offending clause to make it conscionable
23
Q
What are examples of procedural unconscionability?
A
- Adhesion contracts (“take it or leave it”)
- Contracts with boilerplate terms
- Contracts with hidden terms that are vague or confusing
24
Q
What are examples of substantive unconscionability?
A
- Grossly excessive price
- Disproportionate consequences for minor breach
- Provisions unreasonably limiting warranties or remedies
25
Differentiate K's that have illegal **subject matter** vs. illegal **purpose**
_Illegal Subject Matter_: Illegal and **completely void & unenforceable**
_Illegal Purpose_: **Voidable** by party who:
1. **Did not know** of the purpose; or
2. Knew but **did not facilitate the purpose** and the purpose does not involve “**serious moral turpitude**”
## Footnote
⚠️ Note: If **both parties** knew of the illegal purpose, K is void and unenforceable
26
When can a contract be **voided** for **mutual mistake**?
By the **adversely affected** party if:
1. **Both parties** had a mistake of fact when the contract was **formed**;
2. About a **material** assumption of the contract;
3. Adversely affected party **did not assume risk** of the mistake; and
4. Mistake cannot be fixed by **reformation**
27
When can a party void for **unilateral mistake**?
The adversely affected party can void if:
1. There was a **mistake as to basic assumption** when K was **formed**;
2. About **material effect** of K; and
3. Adversely affected party **did not assume risk** of the mistake
**AND either:**
1. Mistake would make K **unenforceable**; or
2. Other party had **reason to know of mistake**; or
3. Mistake was the **other party's fault**
28
When can a party seek **reformation for a mistake**?
1. Parties had a **prior agreement**;
2. Parties **agreed to put the prior agreement in writing**; and
3. There is a **difference** in the prior agreement and the writing **due to mistake**
29
What **three** factors do courts consider when deciding the **enforceability of non-compete clauses?**
1. Is there a **significant business justification** (e.g. access to trade secrets);
2. Is the **scope** **reasonable in duration** and **geographical reach**; and
3. Is there an **express provision** of a covenant not to compete?
## Footnote
⚠️ Note: Courts can choose to enforce only reasonable provisions of a non-compete
30
What is **required** to satisfy the SOF?
* **Writing**
* K must be **signed in** **writing** & contain **essential elements** of the deal
* **Performance**
* Service K's (full performance satisfies SOF)
* Specially manufactured goods (delivery satisfies SOF)
* Real estate K's if buyer does 2 of the 3 following acts:
* Full or part payment of the purchase price
* Possesses the property; or
* Improves the property
31
What **6 types** of K's are subject to the Statute of Frauds?
1. **Marriage;**
2. Contracts that **cannot be performed within a year;**
3. **Land** interests (real estate sales and leases \> 1 year);
4. **Executor** (contracts for an executor or administrator to answer for the duty of a decedent);
5. **Suretyship** for another's debts; and
6. Contracts for the **sale of goods** for a price of **$500 _or_ greater**
32
When **goods are worth $500 or more**, what is needed to satisfy the SOF under the UCC?
A **memorandum** of the sale that includes:
1. **Indication** that K has been made;
2. **Identity** of the parties;
3. **Quantity**; and
4. Be **signed** by the party asserting the SOF defense
33
Under the UCC, is **quantity** an **essential term** to satisfy the SOF?
Yes, unless:
1. There is language providing a basis for measuring quantity; or
2. K is an **output** or **requirements** K
34
When does **part performance** satisfy the SOF for real property contracts?
When the buyer completes **2 of the 3** following acts:
1. **Full or part payment** of the purchase price;
2. **Possesses** the property; or
3. **Improves** the property
35
Rank the following **from most important to least important** for K interpretation:
* Course of dealing
* Trade usage
* Course of performance
* Express terms
1. Express terms (most important)
2. Course of performance
3. Course of dealing
4. Trade usage (least important)
36
What is the **UCC's approach** to extrinsic evidence?
Presumption that K's are partially integrated; allows addition of **non-contradictory** terms unless the parties would have "certainly" included them (UCC § 2-202)
37
When does the **parol evidence rule not apply**? (i.e. when you can introduce extrinsic evidence?)
* K was only **partially integrated**
* To show that **K does not exist**/was never formed (evidence of misunderstanding, mistake, etc)
* As **defense** to enforceability (duress, illegality, etc)
* To resolve **ambiguities**
* To prove **condition precedent**
* To **supplement or explain terms** w/ evidence of trade usage/past dealings (UCC § 2-202 - sale of goods only)
* To help court **intrepret K** by showing parties' subjective understanding of terms
38
What happens if a UCC K is **missing essential terms** such as time or price?
UCC § 2-305 "**fills the gap**" with the missing term because it is presumed the parties intended to include the term
39
# Define
condition subsequent
Performance is not excused until **after event occurs**
## Footnote
(e.g. Max will continue taking the bar exam **_until_** he passes it)
40
# Define
condition precedent
Condition must take place **before** performance/another event is triggered
## Footnote
(e.g. Max will take Kathy on a trip to Europe **_if_** he passes the bar exam)
41
At common law, if one party's performance is subject to an **express condition**, what is the result if that condition **does not occur**?
The party who would have **benefited** from the condition is **discharged** from their **performance obligations**, unless there was waiver, bad faith conduct, or forfeiture/great loss may result to one of the parties.
42
At common law, under what **3 circumstances** can a **failed express condition** be **excused**?
1. **Waiver**: The party who would have been discharged by the condition's failure may waive that right and perform anyway, making their obligations absolute.
2. **Bad Faith Conduct**: bad faith conduct will excuse a condition if the benefitting party fails to take steps necessary for the condition to obtain, or interferes with the fulfillment of the contract.
3. **Avoiding Forfeiture**: a court may excuse a condition if fulfillment of that condition would cause one of the parties great loss or forfeiture.
43
At common law, what type of **compliance** with contractual duties is required for discharging duties flowing from an **implied condition**?
**Substantial performance** will satisfy the party's obligations, and the aggrieved party will not be discharged from their performance obligations.
The doctrine of substantial performance applies to contracts for services, often construction contracts.
44
# Define
impossibility defense
A defense available (under both common law and UCC) when performance has been rendered **impossible** by **unexpected events** that took place **after** the contract was formed. If the defense is successful, both parties are excused from performance.
45
What are **five factors** to determine whether there was a **material breach**?
1. Extent to which the aggrieved party will be **deprived of the benefit** that she reasonably expected to receive under the contract;
2. Likelihood that the breaching party will cure within a **reasonable time** and within the **purposes** of the contract;
* This factor is **important** for determining material breach vs. substantial performance
3. Extent to which the aggrieved party can be **compensated by damages** to make up for the defective performance
4. Extent to which the breach was **willful or in bad faith** rather than merely negligent or innocent
5. Extent to which the breaching party will suffer great loss or **forfeiture** if a material breach is found
46
What is the duty of **good faith and fair dealing**?
Implied in all K's:
1. Duty to **not wrongfully interfere** with performance; and
2. Duty to **cooperate**
47
# Define
common law **doctrine of substantial performance**
As long as a party **substantially performs** (even if they did not meet every requirement), the other party is **still obligated to perform** their obligations
## Footnote
⚠️ Note: unless it is an express condition precedent, in which **full performance is required**, substantial performance will suffice
48
What are the 3 **elements** of the **impracticability defense**?
These three elements are required to show performance under the contract is impracticable:
1. The impracticability arose out of an **unforeseen contingency**;
2. The risk was not assumed nor allocated by the parties;
3. The **increased cost** of performance is now **far greater** than either party had reasonably anticipated
49
What are the two elements of the **doctrine of frustration of purpose**?
1. The party's **principal purpose** of entering into the contract is **substantially frustrated**; and
2. **Non-occurrence** of the event that caused the frustration of purpose was an implicit underlying **assumption** of the contract
50
What's the **risk of loss** in **carrier cases** for:
1. Shipment contracts?
2. Destination contracts?
Risk of Loss in Carrier Cases:
1. Shipment K's → Risk of loss transferred to buyer once seller **delivers goods to common carrier**
2. Destination K's → Risk of loss transferred to buyer when goods are **tendered at the destination**
51
In **non-carrier cases**, who bears the **risk of loss?**
1. If seller is **not a merchant →** ROL passes to the buyer upon **tender of delivery**
* ****Only **tender** of delivery is required, **not** actual receipt by the buyer
2. If seller is a **merchant →** ROL passes to buyer when the **buyer physically takes possession** of the goods
Or
3. As specified in the **contract**; or
4. By the **breaching party** if one party has breached
52
What is the **perfect tender rule**?
Requires **absolute perfect** tender of goods as specified in the contract
## Footnote
⚠️ Does not apply to installment contracts or when parties agree otherwise
53
Upon **receipt of nonconforming goods** that violate the perfect tender rule, what are a **buyer's 3 options**?
The buyer must inspect the goods, and "if the goods or tender of delivery fail in any respect to conform to the contract, the buyer may:
a. **reject** the whole; or
b. **accept** the whole; or
c. **accept any commercial unit or units and reject the rest**."
## Footnote
UCC § 2-601
54
After delivering a **shipment of nonconforming goods** under the perfect tender rule, under what circumstances will the **seller** have a **right to cure**?
1. **Before the window for performance** on the K has **elapsed**, so long as the seller gives the buyer notice of the intent to cure; or
2. If the seller **reasonably** thought that buyer would **accept** the nonconforming goods, the seller may **substitute a conforming delivery**, so long as the seller gives the buyer **notice** of their intent to cure and cures within a **reasonable time**
## Footnote
[UCC § 2-508(1)](https://www.law.cornell.edu/ucc/2/2-508)
55
What are the **3 UCC implied default warranties** for the sale of **goods**?
Warranty of:
1. Title
2. Merchantability
3. Fitness for a particular purpose
56
# Define
creditor beneficiary
A **3rd party beneficiary** of the contract; the **promisee** seeks performance by the **promisor** to **fulfill an obligation** owed to the third party creditor beneficiary.
## Footnote
*More info:* [Third Party Beneficiaries, First Restatement](https://www.law.cornell.edu/wex/third-party_beneficiary)
57
# Define
donee beneficiary
A **third party beneficiary** to the contract; the promisee seeks performance from the promisor **in order to make a gift** to a third party **donee** beneficiary.
58
# Define
incidental beneficiary
A third party who **b****enefits** from performance of the K, even though the benefit to them wasn't the parties' primary intent in forming the K
59
# Define
intended beneficiary
Someone for whom the contracting party **intended** **to benefit** with the contract; can seek enforcement of K
60
What are the **incidental beneficiary's rights** under the contract?
They **do not have any rights** to seek enforcement of the contract
61
**When** does an **intended beneficiary** have rights to seek enforcement of the contract **against** the:
1. Promisor?
2. Promisee?
1. Against the _Promisor_: **always,** because promisor is under an obligation to the beneficiary
2. Against the _Promisee_: **never** concerning enforcement of the promised performance under the new contract; a 3rd party beneficiary will only have rights against the promissee if there was a **prior obligation** between promissee and third party beneficiary
62
What are the **4 circumstances** under which an **intended 3rd party beneficiary's** interests **vest**?
A third party intended beneficiary's interest vests when any of the following are met:
1. Beneficiary **sues;**
2. Beneficiary **justifiably changes** her **position of reliance** on the K and **notifies** the parties;
3. At the request of the parties, the beneficiary **manifests assent** to the contract; or
4. The contract's **express terms** state that the rights have vested
63
1. In a contract with intended third party beneficiaries, when the promisor breaches their duties, what **right** does the **promisee have against the promissor**?
2. What if the beneficiary is a **donee beneficiary**?
3. What if the beneficiary is a **creditor beneficiary**?
1. When the promisor does not perform, the promisee has a claim for **breach of contract** against the promisor, and may possibly seek specific performance or damages, BUT...
2. If the promisor's performance is intended to benefit a **donee beneficiary**, then the promisee has no damages, but specific performance may be appropriate.
3. If the promisor's performance is intended to benefit a **creditor beneficiary,** then the promisee may seek enforcement of the promisor's obligation
64
What are the **4** situations where contract **rights** are **not assignable**?
Rights are not assignable when:
1. Assignment would **materially alter the risks or obligations** with respect to the other party to the contract;
2. Assignment would **violate the law or** **public policy**
3. The obligor has a **personal interest** in **providing their service** to the **obligee** rather than a 3rd party
4. The **contract specifies** that assignments are **prohibited**
65
When are assignments **revocable** and when are they **irrevocable**?
Revocable: all **gratutious assignments** unless:
1. Assignee has collected the payment / **received the gift** / symbollically received the gift, or
2. Assignee has **detrimentally relied** on the assignment
Irrevocable: assignments made with **consideration**
66
What are the **two situations** when duties are **non-delegable**?
Generally all contractual duties are delegable, unless:
1. The performance of the service is **personal**, and the beneficiary of the performance values the unique service (character, reputation, taste, discretion, skill) of the intended performing party
* Examples: nanny service; tattoo artist;
2. The **contract specifies** that delegation is prohibited
67
List the **four situations** in which the aggrieved party may not be able to fully recover **expectation damages**
1. Where the **cost to perform** significantly exceeds the **market value** of such a performance
2. Where the party cannot **calculate** expectation damages with **reasonable certainty**
3. Where the damages are **unforeseeable**
4. Where damages could have been **mitigated** or reasonably avoided
68
How do you **calculate** **reliance** **damages**?
Any **expenditures** made in **preparation** for performance or in actually performing
-minus-
Any loss the breaching party can prove the aggrieved party **would have suffered** had the contract been **fully performed**
69
How do you **calculate** **restitutionary** **damages**?
Calculation is within the court's discretion, and as justice may require the court generally uses one or some combination of:
* The **reasonable value or cost** of benefits conferred
* The amount the other party's property has **increased in value** due to the benefits received
70
What are the **buyer's remedies** if the seller breaches (doesn't deliver goods or buyer rejects noncomforming goods)?
* **Cover**
* Difference b/w **market price & K price**
* **Incidental** damages
* **Consequential** damages
71
What are **consequential** **damages**?
Consequential damages are **losses** to the **_buyer_** because of a **particular need** or **use** for the goods.
**_Only the buyer_** can get consequential damages *against the seller* (not the other way around), and **only** when the losses were **reasonably foreseeable to the seller**.
72
What is the **duty to mitigate** damages?
The **nonbreaching** party is expected to take **reasonable** steps to **mitigate damages** after a breach.
If they don't, their **damages can be reduced**, but the breaching party can't sue them for failing to take reasonable steps
73
What is **reformation** and when is it available?
**Rewriting** the contract to include the intent of the parties
Available if:
1. **Prior** agreement existed; (oral or written)
2. Agreement was put into **writing**; and
3. **Difference** between prior agreement and written expression due to mistake
74
When can a **seller** recover **lost profits?**
When the seller is a **lost volume seller.**
Seller can recover if they **resell the item** to another buyer, and can show that they would have **made the sale regardless** of the breach (meaning they would have made 2 sales w/o breach but they only made 1 w/ breach)
## Footnote
For example, Max sells couches. Ian breached his K to buy a couch from Max. Max was able to sell the same couch to Carly, but since Max is a couch-dealer, he would have sold the couch to Carly regardless of whether Ian breached. Thus, he **missed out on two sales** b/c of the breach.
