Contracts Flashcards
1
Q
What are the main sources of contract law?
A
Common Law and UCC (governs the sale of goods)
2
Q
Sales
A
Any transaction in which the seller transfers title of goods to buyer.
3
Q
Goods
A
Any movable item; does NOT include intangibles (IP), money, legal claims, services, or real property.
4
Q
Predominant purpose test
A
Test to determine whether a contract should be governed by UCC or C/L.
Three Factors:
-Contract Language
-Nature of supplier’s business
-Value of the goods versus the services
5
Q
Implied in Fact Contractual Obligations
A
Formed by conduct rather than words.
6
Q
Implied in Law Contractual Obligations
A
Arises where one party bestows benefit on another and it would be unjust not to pay the reasonable value of the benefit. (e.g. surgeon who performs emergency surgery)
7
Q
Offer (Two elements)
A
(1) Outward manifestation (oral, written, or via conduct)
-jokes/too good to be true does not count
(2) Signal that acceptance will conclude the deal
8
Q
Commercial Advertisements (American Rule and Exception)
A
American Rule: Ads, catalogs, price lists are invitations for offers, since responses may exceed available supply of goods or services.
Exception: Language that identifies who gets limited supply of goods even if there is an excess demand (e.g. first come, first served, or first 10 customers)
9
Q
Reward Offers
A
They are considered offers because they are communications that promise money in exchange for performance of specific tasks.
10
Q
What are the four ways to terminate the power of acceptance?
A
-Lapse of time
-Death or incapacity of either party
-Revocation by offeror
-Rejection by the offeree
11
Q
Termination-Lapse
A
After time stated in offer or after a reasonable time.
Reasonable time is determined by: (1) subject matter/market conditions, and (2) degree of urgency and means of transmission.
12
Q
Face-to-face conversation rule
A
An offer made in a face-to-face conversation generally lapses at the end of the conversation.
13
Q
Termination-Revocation
A
An offeror may revoke an offer at any time for any reasons:
-Must be revoked before acceptance, and
-the revocation must be communicated to the offeree.
14
Q
Direct Revocation
A
Offeror directly communicates to offeree an intent to withdraw the offer.
15
Q
Indirect Revocation
A
(1) Offeror takes action that is inconsistent with the intent to go through with the offer; and
(2) Offeree learns of such action from reliable source. (e.g. they sold it to someone else)
16
Q
What are the four ways of preventing revocation?
A
-American Rule
-Option Contract
-Reliance/Construction
-Firm offer under UCC
17
Q
Preventing Revocation-American Rule
A
The offeror can revoke even if he gave a specific time to accept.
18
Q
Preventing Revocation-Option Contract (C/L)
A
(1) Offer
(2) Separate promise to keep it open
(3) Valid mechanism for enforcing subsidiary promise (e.g. give them consideration for the option)
19
Q
Preventing Revocation-Reliance/Construction
A
Courts will hold offers open when the offeree has detrimentally relied on them, such as when general contractors rely on subcontractor’s bids in forming their own bids on a project.
20
Q
Preventing Revocation-Firm Offer under UCC
A
Irrevocable offer by merchant to buy or sell goods without consideration:
(1) Offer made by a merchant (in the business of buying or selling goods) +
(2) In a writing signed by the merchant +
(3) Expressly stating it will be held open.
(irrevocable for time stated or reasonable time, BUT no longer than 3 months even if stated otherwise)
21
Q
What are the three ways an offeree may reject an offer?
A
-Outright rejection
-rejection via counteroffer (rejection + new offer; doesn’t count if mere inquiry)
-rejection via non-conforming acceptance (mirror image rule)
22
Q
Mirror Image Rule (C/L)
A
Acceptance must mirror the terms, and any variation is a counteroffer (and rejection of the initial offer).
23
Q
Bilateral Contract
A
Offer seeking acceptance by a promise. A promise for a promise. Once promises are exchanged, both parties are bound.
24
Q
Unilateral Contract
A
Offer seeking performance in return (e.g. reward offers). Offeror not bound until offeree completes performance, and offeree is NEVER bound.
25
Revocation of a Unilateral Contract
Once the offeree begins performance, an option K is created and offeror may not revoke. Mere preparations do not create an option K, only beginning performance.
26
Acceptance (C/L)
Acceptance must mirror terms of offer + be communicated to the offeror.
27
What are the two exceptions to the requirement that an acceptance be communicated ? (C/L)
(1) Unilateral Contract
-acceptance is effective only by completing performance.
(2) Acceptance by mail
28
Common Law Mailbox Rule
Acceptance by mail is effective upon dispatch if properly posted.
Default rule unless offer provides otherwise.
Other communications are only effective upon receipt.
29
Mail box rule and option contracts
The mailbox rule is not applicable and acceptance is only effective upon receipt.
30
If a rejection were sent and later an acceptance via mail at the same time, what would happen?
Mailbox rule does not govern if a rejection is mailed before acceptance, and whichever arrives first will be effective.
31
UCC-Acceptance
Seller can accept buyer's offer to purchase goods for prompt or current shipment in 3 ways:
-promise to ship goods;
-shipping conforming goods; or
-shipping non-conforming goods, unless the seller send the shipment as an accommodation (i.e. a counteroffer)
32
UCC Rejection of the Mirror Image Rule
An offeree's nonconforming acceptance or confirmation (with additional terms) will operate as an effective acceptance of the offer, thus forming a contract (not a counteroffer)
33
UCC-Effect of Additional or Different Terms
Between merchants, the "additional" terms in offeree's acceptance or confirmation become part of the K EXCEPT in three circumstances:
(1) The offer expressly limits acceptance to its own terms
(2) If the offeror objects to the additional terms within a reasonable time
(3) If the additional terms would materially alter the K
34
Additional Terms-"Material Alteraction"
Terms that would result in "surprise or hardship if incorporated w/o the express awareness of the other party."
Ex: warranty disclaimers; clauses that materially shorten the deadline for raising complaints; clauses that change usages of trade or past course dealings.
35
Knock out rule
Different terms in the two writings dealing with the same topic knock each other out.
36
UCC Conditional Acceptance
If the offeree's "acceptance" is specifically conditioned on offeror first agreeing to the additional terms in the acceptance before offeree will proceed, this nonconforming, conditional acceptance will NOT be effective to form a K (i.e., it's a counteroffer)
37
Contracts Formed by Conduct
The UCC provides that the parties' conduct in recognizing the existence of a contract is sufficient to establish a contract even though their writings do not otherwise establish a contract.
The terms of the contract will be:
-terms on which the writings of the parties agree; and
-default terms provided by the UCC.
38
Consideration
General Rule: Promise is unenforceable unless supported by consideration.
39
Bargain Theory
A promise is supported by consideration if based on a bargained-for exchange.
-there was something (goods or services) that was promised, and the promise must have been made in order to obtain something else of value.
40
Benefit/Detriment Test (legal value analysis)
Whether there is a benefit to the promisor and/or a detriment to the promisee.
41
Legal Detriment Test
Whether promisee is:
-doing something he had a legal right NOT to do; or
-forgoing some activity he HAD a legal right to do.
42
Illusory Promises
Promise of performance that leaves performance to the unlimited discretion of the promising party=does NOT constitute consideration.
Ex: You agree to paint my portrait, and I agree to pay you $1,000 if I decide I want it.
43
Gratuitous Promises
Promise to make a gift, generally unenforceable due to insufficient consideration.
Exception: Gratuitous transfers are legally binding. (e.g. giving a gift)
44
Past or Moral Consideration
General Rule: A promise in exchange for something already given or performed is NOT supported by consideration.
45
Exceptions to Past or Moral Consideration
-A written promise to pay a debt barred by limitations.
(only revived to the extent that D promises to pay)
-A written promise to pay a debt discharged by bankruptcy.
46
Material Benefit Test (minority rule)
Promise made in recognition of a past benefit conferred is enforceable if:
-promisee conferred the benefit on the promisor (not a third party); and
-the benefit is material.
47
Promissory Estoppel
Promisee that reasonably relies to his detriment on gratuitous promise may be able to enforce that promise even without consideration. 4 requirements:
(1) A promise;
(2) Foreseeable reliance
(3) Actual reliance (must be induced by the promise
(4) Injustice without enforcement.
48
Factors to Analyze the "injustice" requirement of Promissory Estoppel
-Strength of proof of the other three requirements;
-blameworthiness or willfulness of the breach;
-relative position or equities of the parties;
-extent to which the reliance was detrimental; and
-availability of alternatives short of enforcing the promise.
49
Statute of Frauds
General Rule: Oral and written Ks are equally enforceable.
Exception: If the K falls under the SOF it must be (1) in writing and (2) signed by the party against whom enforcement is sought.
50
Categories of Contracts Subject to SOF (MYLEGS)
-Marriage Ks
-Ks that can't be performed within one Year of their making
-Ks for the sale of Land
-Ks of an Executor or administrator to answer for a duty of a decedent
-Ks of Guarantee or suretyship
-Ks for the Sale of goods at a price of $500 or more
51
Contracts Not to be Performed within a Year
Measured from date K is made, not the date the performance begins.
Must ask: at the point of formation, is it at all possible (even if not probable) to complete the required performance within 1 year?
52
Main Purpose Exception
Applies to guaranty/suretyship agreements
-Although guarantee contracts (secondary obligation) are generally within the SOF, a primary exception is the main purpose doctrine. That is, where the main purpose of the guarantor is to protect his own economic interest, the guarantee agreement is not governed by the SOF.
53
SOF-Writing Requirement
All that is necessary is that the writing be a memorandum of the agreement which can be prepared before, during, or after formation.
Required terms:
-Identity of the parties
-the nature and subject matter of the K; and
-the essential terms of the agreement, such as price and date for performance.
54
SOF-Signature Requirement
Any symbol with intention to authenticate the writing (e.g. initials, typed, stamped, etc.)
55
SOF: Performance
SOF may be satisfied with respect to some categories of governed contracts via part performance, in an action for specific performance.
-Land sale Ks
-One-year Ks
56
Part Performance-Land Sale Ks
Part performance requires a showing of any combination, or all three of the following:
-payment of all or part of purchase price
-taking possession of land
-making substantial improvements to property
57
Part Performance-One Year Ks
If fully performed enforceable despite SOF.
If only partially performed not enforceable.
58
UCC SOF
Ks for sale of goods for $500 or more are under the UCC SOF.
59
Main way to satisfy UCC SOF
A signed writing:
-writing,
-quantity, and
-signed by the party against whom enforcement is sought.
60
Merchant's Confirmation
Two merchants enter an oral agreement, one send the other written confirmation of agreement. SOF satisfied against the recipient merchant if:
-both sender and recipient are merchants;
-writing is in confirmation of the K and contains a quantity; and
-recipient does not send written objection within 10 days.
61
SOF-Judicial Admission
Party admits K formation in pleading, testimony, or otherwise in court.
Satisfies the SOF.
62
UCC Partial Performance-SOF
Despite absence of writing, an otherwise valid K is enforceable for:
-goods for which payment made/accepted; or
-goods which have been received/accepted.
63
UCC SOF-Specially Manufactured Goods
SOF satisfied against buyer who orders custom goods from a manufacturer if:
-manufacturer detrimentally relied by beginning performance before buyer's withdrawal; and
-manufacturer can't resell the goods in the ordinary course of business.
64
Warranty of Title (UCC)
For the sale of all goods, there is an implied warranty of:
-good title to the goods;
-rightful transfer of the goods; and
-no liens or security interest are attached to the goods.
65
Warranty of Title-Exclusion/Modification
Can only be excluded or modified by:
-specific language; OR
-circumstances which give buyer reason to suspect seller does not claim unencumbered title.
66
Warranty of Merchantability (UCC)
Goods fit for ordinary purposes for which those goods would be used.
ONLY applies if the seller is a merchant.
67
Warranty of Merchantability-Displaced
Displaced by:
-specific use of the word "merchantability" and conspicuousness if in writing; OR
-any other language or circumstances that would be reasonably understood by a buyer to exclude the warrant ("as is" or patent defects)
68
Warranty of Fitness for a Particular Purpose (UCC)
Goods being sold are fit for the particular purpose buyer intends to use them for.
ONLY applies when, at the time of contracting, seller has reason to know:
-the particular purpose for which the goods are required; AND
-the buyer is relying on seller's expertise to select reasonable goods
69
Warranty of Fitness for a Particular Purpose-Negated
Warranty is negated when:
-disclaimer is written, clear, and conspicuous; OR
-goods have patent defects which were easily detectable.
70
Express Warranties
Goods will conform to some standard, arises whenever seller expressly makes them as part of the basis of the bargain in the following ways:
-any affirmation of promise or fact;
-any description of the goods; or
-any sample or model
Vague or "sales talk" (puffery) does not count
71
Revocation of an Offer to Multiple Offerees (Functional Equivalents Rule)
Where an offer is made by advertisement in a newspaper or other general notification to the public, the power of acceptance is terminated when the notice of revocation is communicated by advertisement or other general notification equivalent to that used for the offer.
72
What are the three ways an offeree may reject an offer?
(1) Outright rejection
(2) Rejection via a counteroffer; and
(3) Rejection via Nonconforming acceptance
73
May an offeree make inquiries about the offer?
Yes, not all statements or question about an offer are considered counteroffers. An offeree may test the waters by making a "mere inquiry" about the offeror's willingness to negotiate without creating a counteroffer.
74
May an offer be revived?
Yes, the maker is the master of the offer. Therefore, an offeror has the power to revive an offer that the offeree has rejected or has lapsed. All the offeror must do is communicate the revival to the offeree.
75
Requirements for an enforceable option contract at common law
(1) An offer
(2) A subsidiary promise to keep the offer open
(3) A valid mechanism for securing enforcement of the subsidiary promise.
76
When may a court enforce an option contract despite it having no consideration?
Under promissory estoppel, courts will sometimes enforce a subsidiary promise to keep an offer open where the offeree has foreseeably and reasonably relied on the option, and injustice can only be avoided by enforcing the promise.
77
Rule for Option Contracts and Construction
Majority Rule: Where a general contractor uses a particular subcontractor's bid to formulate his own, an implied option contract is created via promissory estoppel. This prevents the subcontractor from revoking the bid despite the fact that the subcontractor hasn't promised to keep the bid and the general contractor hasn't provided any consideration to keep the bid open.
78
Option Contracts-UCC Firm Offer Rule
A merchant can make a firm offer (an irrevocable offer) to either buy or sell goods without consideration so long as:
-the offer is made by a merchant
-the offer is made in a writing signed by the merchant
-the offer expressly states by its terms that it will be held open
79
Merchant (UCC definition)
A merchant is defined in terms of his special knowledge or skill with respect to the practice or goods involved in a transaction. A person may be considered a merchant even if he only has knowledge of the goods, or knowledge of the practices.
80
When is an offeror bound under a unilateral contract?
(1) The Offeror is bound only when the offeree completes performance in accordance with the terms of the offer; and
(2) The offeree is never bound to perform because he has never promised to perform
81
Revocation of a Unilateral Contract (C/L and Majority)
C/L: The offeror was free to revoke the unilateral offer up until the moment that the offeree actually completed performance
Modern Majority: Once the offeree begins performance, an option contract is created and the offeror may not revoke.
-Exception: An offeror may revoke where the offeree is engaged in "mere preparations" to perform rather than the beginning of performance itself.
82
Communicating Acceptance under CL
2 General Requirements:
(1) Under the mirror image rule, the acceptance must mirror the terms of the offer; and
(2) The acceptance must be communicated to the offeror.
83
Acceptance by Silence (3 acceptable scenarios)
(1) Where the offeree takes the benefit of the offeror's services with a reasonable opportunity to reject them and with reason to know the offeror's intention;
(2) Where the offeror has given the offeree reason to understand that acceptance may be communicated by silence, in which case the offeree's silence will operate as acceptance if he intends as such; and
(3) Where, because of pervious dealings or other circumstances, it is reasonable that the offeree should notify the offeror if he does not intend to accept, in which case his silence will operate as acceptance.
84
Acceptance (UCC)
Unless the contract or circumstances unambiguously indicate otherwise, acceptance may be made in any manner and by any medium reasonable under the circumstances.
85
New Terms-UCC & Consumer
When at least one party to the transaction is not a merchant, the additional or different terms are construed as proposals for addition to the contract. Thus, they are not part of the contract unless the offeror expressly agrees to the additional terms.
86
New Terms-UCC & Merchants
Additional Terms become part of the contract unless:
(1) the offer expressly limits acceptance to the terms of the offer;
(2) the offeror objects to the additional terms within a reasonable time after receiving notice of them; or
(3) the additional terms would materially alter the contract.
87
"Materially Alter" (UCC Definition)
Terms that materially alter the contract are those that would result in surprise or hardship if incorporated without the express awareness of the other party.
Ex: Clause negating warranties, would vary in a significant way to an established usage of trade.
88
Knock out rule
With respect to different (conflicting) terms, the majority of decisions employe the knock out rule and omit both the offeror's original provision and the offeree's differing provision from the resulting contract.
89
Written Confirmations- Different terms (UCC)
If the transaction is between merchants:
(1) any additional terms are automatically part of the contract unless:
-they would materially alter the contract; or
-the receiving party objects to them within a reasonable time
(2) any terms in a confirmation that differ from the terms of the prior agreement are proposals for inclusion in the contract, which the receiving party is free to accept or reject; and
(3) if both merchants send written confirmations and those confirmations contain conflicting terms, then the knockout rule applies and neither party's term is in the contract.
90
Gratuitous promises
The promisee has neither promised nor given anything in return to the promisor, leaving the consideration requirement unsatisfied.
-these transactions are generally unenforceable under the doctrine of consideration
91
Failure of consideration
A claim that the party has not performed in accordance with his promise.
92
The Preexisting Duty Rule
A promisor cannot provide consideration where that consideration is a duty the promisor is already obligated to perform.
-they are not deemed consideration
93
Illusory Promises
A promise to perform that leaves performance to the discretion of the promising party is an illusory promise and won't constitute consideration.
94
Forbearance of a Claim or Defense
Valid consideration exists when a party agrees to forbear a claim or defense in exchange for a promise or performance by the other party.
95
Forbearance of an Invalid Claim or Defense
It is not consideration unless:
(1) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law; or
(2) the forbearing party believes that the claim or defense may be fairly determined to be valid.
96
Past or Moral Consideration
As a general rule, a promise given in exchange for something already given or already performed will not satisfy the bargain requirement.
97
Exceptions to Past or Moral Consideration
(1) A written promise to pay a debt barred by the SOL is binding; and
(2) A written promise to pay all or part of an indebtedness that has been discharged in bankruptcy is binding.
98
Past or Moral Consideration-Minority Rule
A minority of jurisdictions will enforce a promise made in recognition of a past benefit conferred so long as:
(1) the promisee conferred the benefit on the promisor and not on a third party; and
(2) the benefit is material.
98
Promissory Estoppel
Allows for the enforcement of certain promises even where there is no consideration in return.
There are four requirements for promissory estoppel to be available:
(1) A promise,
(2) Foreseeable reliance,
(3) Actual reliance; and
(4) Injustice without enforcement.
-The actual reliance must be induced by the promise.
99
SOF: Performance within 1 Year (measuring 1 year)
-Measured from the date of the contract's formation rather than the date of the beginning of performance.
-A contract that contemplates a duration of less than a year may nonetheless fall under SOF if performance is not to be completed until more than one year after the formation.
-When a contract does not specify a date by which performance is to be completed, the question of whether a particular contract is to be performed within one year of the making thereof is answered by determining whether it is at all possible to complete the required performance within a year's time.
100
SOF: Guaranty/Suretyship Rule and Exceptions
Rule: A promise to answer for the debt of a third party-a suretyship or guaranty agreement-is subject to the SOF.
Exception 1: When the creditor discharges the original debtor from his obligation on the faith of a guarantee by a third party to pay the debt, these agreements are not governed by SOF and do not require a signed writing.
Exception 2: If the main purpose of the guarantor's promise is to protect or promote his own economic interests, rather than the interest of the debtor, then the agreement is not within the SOF. (mere selfish intent in not enough)
101
