Flashcards in Contracts and Sales Deck (102):
3 Questions when Getting a K Problem
1. Has an enforceable K been formed?
-No? no legal rights
-Yes? go to Q2
2. Has the K been performed or had perf. been excused?
-Yes? all good
-No? go to Q3
3. What are the remedies for breach?
Def of a K
A legally enforceable agreement.
Agreement + bargained for consideration
When Common Law Applies
When a K deals w/:
1. real estate
3. hybrid K where predominant purpose results in service being main purpose
When UCC Applies
K deals w/:
2. hybrid K where predominant purpose results in goods being main purpose
>UCC governs all parties who enter into a goods K, not just merchants
Hybrid K (aka Mixed Ks)
1. All or Nothing Rule: mixed Ks must fall into either C.L or UCC UNLESS:
>EXCEPTION: Divisible Ks: agreement is divided into two mini Ks
2. Predominant Purpose TEST: look for the main reason party entered into the K and whether the good or service plays a bigger part in K
Q1: Has an enforceable K been formed? (four questions)
"ACDS" ("All Contracts Don't Stink")
1. Agreement (offer + acceptance)
2. Consideration (and P.E.)
3. Defenses to formation (incapacity, duress, etc.)
4. Statute of Frauds (deals w/ enforceability)
A manifestation by the offeror of a willingness to enter into an agreement that creates a power of acceptance in the offeree.
Must (usually) be directed at a specific offeree. Exception: contest offers or reward offers that promise something to anyone who accomplishes a task.
Convey's the power of acceptance to the other side.
TEST for Offer and Acceptance
Objective Test: the outward appearance of words or actions, not secret intentions UNLESS:
-offeree knows offeror won't go through with it
-humor or anger: prob not a serious intent to be bound
-expressions of opinions
Offer in C.L.
All ESSENTIAL TERMS must be covered in the agreement.
Ex: parties, subject, price, quantity
Offer in UCC
Only need quantity. Don't need price, ct will use market/reasonable rate.
UCC uses GAP FILLERS for all other terms
Buyer offers to buy 100% of X from seller, so quantity isn't really set. Can still sue for breach under UCC b/c the quantity is 100% even though it's not more specific than that.
Seller offers to 100% of whatever amount is produced to this individual buyer. Like requirements K, this works under UCC b/c there is a formula for determining breach
"Invitation to Deal" Fact Pattern
A preliminary comm. that reserves a final right of approval w/ the speaker. Does not convey a power of acceptance to the other side.
"Advertisement" Fact Pattern
Usually understood as an invitation to deal BUT two exceptions:
1. Advertisements that offer a reward
2. Ads that are VERY specific and leave nothing open to negotiation, including how acceptance can occur
Terminating the Offer (6 fact patterns)
GENERAL RULE: Offeror can usually revoke any time prior to acceptance
1. Express Revocation: Offeror REVOKES the offer by express comm. to the offeree
2. Constructive Revocation: offeror takes action that is absolutely inconsistent w/ the ability to K
3. Rejection: offeree rejects the offer
4. Counteroffer: offeree makes a counteroffer. is a rejection + new offer
5. Death: offeror dies so the OFFER dies w/ them (diff. for Ks)
6. Reasonable amount of time passes: usually look for a delay of several weeks of months. Offeror can REVIVE the offer by giving a new offer w/ same terms as squashed one.
Irrevocable Offers (4 situations)
1. Option K
2. Firm Offer
3. Unilateral K: offeree has started perf.
4. Detrimental Reliance: usually in construction context
Leave offer open for a certain amount of time. Consideration is paid to keep offer open.
MERCHANT (someone who regularly deals in the type of good at issue, transaction is commercial in nature) can make a firm offer to buy or sell goods.
Binding but free, no consideration needed.
Time period is either stated in offer or is for a reasonable period no longer than 90 days.
2. signed by the offeror
3. contain an explicit promise by merchant not to revoke
Unilateral K: Offeree has started Perf.
Cannot be revoked by the offeror if the offeree has started to perf.
Promise that requests acceptance by an action of the promisee. Can only be accepted by perf., so promisee has the right to finish before offer can be revoked
A promise that requests a promise in return (instead of performance in return)
When the offeree reasonably and detrimentally relies on the offer in some foreseeable manner. Variant of Promissory Estoppel. Usually in the contractor/subcontractor context.
A manifestation of a willingness to enter into the agreement by the offeree.
The offeree must accept the offer according to the rules of the offer.
Even w/ an open-to-all offer, you must know about that offer in order to accept it.
Must communicate acceptance to other party.
Modern Approach to Uni and Bi K
If there is an ambiguity about whether the offer is uni or bi, acceptance can be by either perf. or a return promise.
Seller tries to accept by shipping the wrong goods?
UCC treats this as an acceptance + breach
Acceptance sent by mail is effective when the letter is sent/posted.
Does NOT apply:
1. Offeree sends something else back first (e.g. rejection/counteroffer)
2. to other types of comm.-revocations, rejections, etc.
3. to option Ks
4. unclear if it applies to media like email
Acceptance via Silence
1. Unilateral rewards offers or contests
2. Uni offer where offeror can see that perf. has occurred
3. When parties that do business together all the time and silence is the norm
4. Offeror says that acceptance must come by silence and the offeree intends to accept the offer by silence
Comm. acceptance through gestures or actions (haircut ex.)
C.L. Mirror-Image Rule
Terms in the acceptance must match the terms of the offer exactly or it is not an acceptance and instead is a counteroffer.
C.L. Conditional Acceptance
Is a counteroffer. Look for:
"if" "only if" "on the condition that" "but"
PARTIES DO NOT NEED TO BE MERCHANTS. When an acceptance has different terms than the offer.
"A definite and seasonable expression of acceptance (or written confirmation) which is sent w/i a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional upon assent to the additional of different terms."
UCC 2-207 Additional Term
New term MAY control if: (AND)
1. both parties are merchants
2. the new term does not materially alter the deal
3. the initial offer did not expressly limit acceptance to its terms
4. the offeror does not reject or object w/i a reasonable time to the new term
UCC 2-207 Knock Out Rule
WHEN THERE ARE DIFFERENT INSTEAD OF ADDITIONAL TERMS.
The first offer's terms control unless the knock out rule applies.
Maj.: Knock out both of the diff. terms and let UCC gap fillers apply.
Min.: when diff. term does not govern then initial offer controls the terms
UCC 2-207 Acceptance Based on Conduct
Parties might not actually make a K but act as though they did. Only the terms both writings agree on become part of the K and all other terms are gap filled by UCC.
UCC 2-207 Confirming Memo
Arises when the parties have a K (usually verbal) and one party sends a confirming memo w/ add.L terms. New terms will very rarely come in.
Bargained for Consideration. A deal in which the parties exchange promises involving a legal detriment OR benefit [i.e. something of value or a legal right]. Parties should think they are making a deal when they exchanged the promises. Not doing something you are legally entitled to do is a legal detriment.
>Gift promises and conditional gifts are NOT bargained-for consideration.
> pretense of consideration is insufficient, need some value even if its subjective
Illusory Promise (consideration)
Have to clearly commit to the deal, aka there must be a way to breach. Not consideration to say you'll buy it "if you feel like it."
>Look for facts where one side is not really committing to the deal under the objective test ("I would like to buy X when I have more money" "when economy gets better I'll buy X")
not illusory, real K that depends on the offeror's satisfaction
Is not enough to count as consideration in the deal now
Promising Not to Sue (Consideration)
Settling a legal claim can be sufficient consideration, only if:
1. P has a good faith belief in the validity of the claim OR
2. there is reason to doubt the validity of the claim due to uncertain law
Pre-Existing Duty Rule: a promise to do something that you are already legally obligated to do is not consideration. There is no new bargained for consideration for the modification so the modification does not come in.
1. a change in perf.
2. a 3rd party promising to pay OR
3. unforeseen difficulties that would excuse perf.
Promising partial payment for release from a debt obligation
ask whether the debt is currently due and undisputed. If yes, the modification is not binding and offeror can still sue for entire amount
TEST: Is the modification made in good faith? If yes, it is binding even w/o any new consideration.
"Hold up" problem = bad faith so mod. is not binding
Promissory Estoppel (aka Reliance)
One party makes a promise and the other party relies on that promise to take some action.
1. A promise is made that would be reasonably expected to induce reliance
2. The promisee does indeed take detrimental action in reliance on the promise
3. Injustice can only be avoided by enforcement of the promise
Charities and Promissory Estoppel
Do not need to prove detrimental reliance when trying to collect on a charitable gift promise
aka K implied-in-law.
Arises when you would have made a K if you could have, but you could not, or when one party conferred a benefit on another party and it would be fair to pay for that benefit. (ex. call a dr to save your life)
1. P confers a measurable benefit on the D
2. P reasonable expected to get paid
3. it would be unfair to let the D keep the benefit w/o paying
Damages: usually limited to the fair value of the benefit conferred
Look for: a fact pattern that isn't a normal K but it seems unfair
Dead Letter Law: does not act as consideration to put a seal on a document
Defenses to K Formation (7)
When each party attaches a different meaning to the same words.
Must show: AND
1. parties use a material term that is open to two or more reasonable interpretations (objective test cannot apply)
2. each side attaches a different meaning to the term
3. neither party knows or should know about the confusion
Applies to minors, people who are mentally ill, VERY intoxicated persons.
[last two the other party must or should know about the incapacity]
The K will be voidable by the incapacitated party but not the other side.
Defenses: Incapacity: Mentally ill
Two stds: OR
1. Person cannot understand the nature and consequences of his actions
2. Person cannot act in a reasonable manner in relation to the transaction
Contract for Necessities
The party without capacity must still pay fair-value, not necessarily the K price.
Necessity: something you really need to live like food, clothing, shelter
A belief that is not in accord w/ a present fact. 2 types:
1. mutual (affects both parties)
2. Unilateral (one party)
Defenses: Mutual Mistake
The adversely affected party can rescind if:
1. there is a mistake of FACT existing at the time the deal is made
2. the mistake relates to a basic assumption of the K and has a MATERIAL IMPACT on the deal
3. the impacted party DID NOT BEAR THE RISK of mistake
Defenses: Unilateral Mistake
The adversely affected party can rescind if:
1. She can prove mutual mistake AND
2. Either the mistake would make the K unconscionable OR the other side knew, had reason to know or caused the mistake
Defenses: [Fraud,] Misrepresentation, [and Nondisclosure]
Misrep: a stmt at the time of k-ing that is not true (either intentional or accidental)
Must show: AND
1. misery of a present fact (not an opinion)
2. material or fraudulent
3. made under circumstances in which it is justifiable to rely on the misrepresentation
Defenses: Fraud, [Misrepresentation,] [and Nondisclosure]
Fraud in the Execution: trick someone into signing something that they don't know if a K
Defenses: [Fraud,] [Misrepresentation, and] Nondisclosure
Nondisclosure: the other party does not learn the truth about something and now you just stay quiet. Generally do not need to tell other side about all material facts related to the deal UNLESS there is a fiduciary relationship or active concealment
An improper threat deprives a party from making a meaningful choice to K. Includes ECONOMIC duress when one party makes threats to induce another party to K or modify a K. Includes undue influence seen when one party is susceptible to high-pressure sales tactics.
>Usually unenforceable. BUT a K entered into in furtherance of an illegal act that is not itself illegal will still be enforced.
>Usually just leaves parties where they stand but modern trend toward allowing the less-guilty party to recover restitution.
>Ks against public policy are not enforced. these usually reflect evolving social norms
Everything is fine but ct says "no this shocks the conscience" - "rip off"
1. procedural: a defect in the bargaining process itself like a hidden term (surprise) or absence of meaningful choice
2. substantive: a rip-off in some term of the K
Statute of Frauds (SOF)
Barrier that some Ks must meet to become binding. Used as another type of defense.
Usually requires a writing signed by the D or some perf. on the alleged deal
Ks in the SOF World
1. Marriage: K made in consideration of marriage like a pre-nup
2. Suretyship: K promising to guarantee the debt of another (if the main purpose of agreeing to pay another's debt is the surety's own economic adv then it is not in SOF world)
3. One year: no possible way K cannot be perf.d w/i one year of its making (someone can die w/i a year)
4. UCC: goods for $500 or more
5. Real property: K for sale of interest in prop. (leases less than one year are usually not included)
Satisfying the SOF
Applies to C.L. and UCC.
1. Perf OR
[service Ks that cannot be perf.d w/i 1 year]
>Full perf. of K by either side satisfies SOF. Part perf. does not get around SOF.
-need writing signed by party abasing whom K is asserted
-writing does not need to be a formal K, just needs to show K was made, identify the parties, AND contain essential elements of the deal
>Real Estate: signed writing OR
-part perf. IF any two are met:
1. possession, 2. payment, 3. improvements to the land
-must mention quantity, does not need to mention price
-part perf. satisfies the SOF but only for the quantity delivered and accepted
>Custom Made Goods: exempt form SOF, maker has made a substantial beginning
>Judicial Admission: stmt made during a pleading or testimony
>Confirming Memo: if both parties are merchants then failing to object to a confirming memo w/i 10 days will satisfy SOF
>Agency law: Equal Dignity Rule: need a signed writing authorizing an agent to form a K
>Modification: only has to meet SOF if the modified K would be in SOF. Doesn't matter if the original is in SOF world or not.
Has the K Been Performed? (i.e. there is an enforceable K)
Four big topics: "Pizza Crawling With Escargot"
1. Parol evidence rule
4. Excuse of perf. obligations (impracticability, frustration of purpose, etc.)
Parol Evidence Rule
Applies to written agreements. If the parties have reduced their contract to a comprehensive writing, then earlier stmts or writings related to this agreement are not part of the deal under the PER, the earlier stmts are presumed to have dropped out of the final agreement. Does not apply to later written or verbal stmts (these are mod.s)
1. What does the agreement entail?
2. Have the parties created an integrated writing?
-Complete (has a merger clause) or partial integration
3. Would the term naturally be omitted from the writing? if yes, it may come in
>UCC: presumes writings are only partial integration unless the parties would have certainly included a disputed term in the writing
When PER Does Not Apply to Bar Earlier Evidence
1. if evidence is needed for a defense
2. evidence of a second, separate deal
3. evidence of a prior comm. that interprets an ambiguous term in final agreement
Diff. b/w SOF and PER
>Signed writing = SOF
>No signed writing + earlier discussion of the deal = PER
A promise about a term of the K that explicitly shifts risk to the party making the promise. Can disclaim all warranties.
Three types automatically in UCC:
2. Implied Warranty of Merchantability
3. Implied Warranty of Fitness for a Particular Purpose
Promise that affirms or describes the goods AND is part of the basis of the bargain. Doesn't apply if its the seller's opinion.
Use of a sample or model creates an express warranty that good will be like the sample.
Implied Warranty of Merchantability
1. Seller is a merchant
2. Selling product they normally sell in their business
3. Goods are fit for ordinary, commercial purposes
To disclaim: can be oral or in conspicuous writing
>look for term merchantability, "as is", "with all faults"
> must be very clearly done
Implied Warranty of Fitness for a Particular Purpose
Don't have to be a merchant.
Buyer relies on seller's expertise to select a special type of good that will be used for a special purpose. Warrants that the goods will satisfy this special purpose.
Look for asking clerk for expertise.
>must use conspicuous lang. like "as is"
>must be in writing
Really strict and either happen or don't.
Shifts risk by stating that one party's K.L obligation will only kick in if some future event takes place.
Created by lang. in the K. Must be strictly satisfied unless condition is excused.
-objective: preferred approach, if reasonable person would be satisfied then condition is met
subjective: Ks that involve aesthetic taste of buyer
>Waiver or Excuse: party waiving the protection of the condition may waive condition via words or conduct. Can be waived if other party wrongfully interferes w/ condition (use good-faith)
Constructive Condition of Exchange (CCE).
>C.L.: substantial perf. will satisfy CCE as long as there isn't a material breach and the failure to complete isn't willful
>UCC: requires perfect tender unless the K says otherwise or it's an installment K.
-Need: perfect goods and perfect delivery
-Buyer can revoke acceptance if defected and done in a reasonable amount of time
-Seller can cure failure if there is time left on the K OR seller reasonably believed buyer would take goods
-default delivery is one but installment Ks get around this. EXCEPTION TO PERFECT TENDER buyer can reject a specific delivery when there is substantial impairment in installment that can't be cured, otherwise installments get around perfect tender
Shipment K (FOB Seller's Place of business)
Risk on buyer.
1. get goods to common carrier
2. make arrangements for delivery
3. notify buyer
Destination K (FOB Buyer's place of business)
Risk on seller.
Seller must get goods to buyer's business and notify buyer.
Risk of Low Problem (Tricky)
1. is risk already addressed in K? if so, this controls
2. has either party breached (usually)another part of the K?
- if yes, that party bears risk of loss
3. base risk on what type of K it was (shipment or delivery)
4. nothing else applies? ask if seller is a merchant
-if yes, risk of loss on seller until buyer receives goods
-if no, risk of loss on buyer when seller tenders the goods
Excuses (to perf.)
1. impossibility and impracticability
2. death after K
3. frustration of purpose
4. perf. is excused b/c initial K has been modified or canceled
Impossibility and Impracticability
Cannot be perf.d anymore or only w/ great difficulty.
Something hinders the ability to perform, not just the cost to perform = more expensive perf. usually doesn't excuse perf.
Look for an unforeseen event in which the non-occurrence of the event was a basic assumption of the K and the party seeking discharge is not at fault.
Death after a K
Normally doesn't excuse perf. b/c estate can do it UNLESS there was something special about the person performing such that no one else can do it (ex. picasso was going to paint your picture but now he's dead, don't want his estate to assign someone to do it)
Frustration of Purpose
Perf. can still occur but something has happened to undermine the entire reason for the creation of the K. RARE.
Event must be extreme and not allocated to one of the parties
Perf. is excused b/c the initial K has been modified or canceled
As long as there is still some perf. on each side, both parties can agree to just walk away from K.
"A recession (or cancellation) by mutual agreement"
Accord and Satisfaction
Parties agree that perf will be satisfied instead by a different perf. This is a compromise b/w parties. New perf = accord. Excusal of original perf = satisfaction.
>If the accord is not perf.d, the other side can sue on either the original obligation or the new promise (accord).
>Diff then a mod. b/c this is an OPTION to do something else, if the perf obligation changes then it's a mod.
BOTH parties agree that a substitute person will take over the K.L obligations. The original promisor will be excused from perf.
What are the remedies for breach?
Constructive condition of exchange (CCE).
>C.L.: failure to substantially perf = other side can w/hold their own perf. (can't w/hold payment if there was substantial perf. but can sue for breach)
>UCC: perfect tender. seller must strictly perf. unless installment K, then substantial perf is fine
Other side clearly and unequivocally says they won't perf. before their perf. is due.
>Nonbreach party can do two things:
1. treat it like breach and sue immediately (unless it's payment, then have to wait until it's due)
2. ignore repudiation, demand perf, and see what happens
>Retracting: can do this unless other side has: commenced lawsuit OR acted in reliance on repudiation by materially changing position
>UCC: can demand adequate assurances of perf.
Money Damages: Expectation Damages
Typical remedy in K law.
Goal: put party in same economic position if K had been perf.d as promised.
Formula: Value of perf. w/ breach (-) value of perf. w/o breach (=) damages
Limits: must be proved w/ reasonable certainty, can't recover unforeseeable consequential damages (but can recover general incidental damages), must mitigate to reduce damages (if party refuses then ct will act as if party did mitigate)
Lost Volume Profits
Seller is a retailer who sells a bunch of X so they have to show they had plenty of X to sell and not a lot of buyers. Damages are the lost profits from losing this sale.
Incomplete Perf. Damages (usually construction projects)
Construction that is breached prior to completion, can't keep building if paying party breaches.
Formula: Amount already paid (-) Amount that would be needed to finish job [cost to build (-) what has actually been spent] (=) damages
Diminution in Market Value Damages
How much lower is the market value of what you got v. what you wanted?
Breaching party usually has to have been unintentionally breaching. Use this when waste would result and cost to complete damages would vastly overcompensate the non breaching party
Turn back time!
Goal: put party in same economic position that it would be in if K had never been created in the first place. Backwards looking.
Used as an alt. to expectation damages if they are hard to get/figure out.
CAN'T GET BOTH EXPECTATION AND RELIANCE DAMAGES
Goal: give P an amount equal to the economic benefit that P conferred on D.
Sometimes the same as reliance damages, but not always
Stated in the K as an explicitly negotiated amount. Has to have been a reasonable amount at time of K-ing and actual damages would be too uncertain/difficult to prove
Almost never allowed unless there is also a tort
>Presumptively available for real estate b/c land is "unique."
>Not available for person service Ks.
>Rarely the ct will grant an injunction to stop someone from working in the same industry/ similar services for a competitor for a reasonable time/place.
>UCC: available for unique or custom made goods
>Right of Reclamation (rare) when seller wants shit back:
-Need: buyer was insolvent at time of receipt of goods, seller demands return of goods w/i 10 days of receipt (or reasonable amount of time after discovering insolvency), AND buyer still has goods.
3rd Party Beneficiary Ks
There are 3 parties, outsider sues promisor for the breach.
1. Identify the parties
2. Determine whether 3rd party is an intended (have the right to sue) or incidental B
-TEST: ask whether initial parties intended to convey enforcement rights to the 3rd party in the event of a breach
-Creditor and donee are common
3. Revoking 3rd party rights: can do it unless B knows about the promise AND has changed position in reasonable reliance on promise, if these occur B has a P.E. claim
-B has enforcement rights if any of the following occur: (rights vest)
a. B detrimental relies on rights
b. B manifests assent to the K OR
c. B initiates a lawsuit to enforce K
>Transfer of rights under a K. Typically has two steps:
1. formation of a K AND
2. transfer of the benefits of K from original party to a 3rd party
>Can almost always occur unless K explicitly prohibits or invalidates assignments.
> If K prohibits assignment, assignor breaches but assignee can still recover from guarantor
>If K invalidates assignments, assignee cannot recover b/c there is no power or right to assign ("void" or "invalidates")
>Rights assigned w/o consideration = last assignment controls
>Rights assigned w/ consideration = first assignment controls