Contracts & Sales Flashcards

Question

Express rejection [is there a deal]

Answer 1

“No thanks” or “not interested.” A rejection permanently revokes the offer, even if the offeror had originally indicated that it would be held open for a longer period. Effective Date of Rejection. Rejections (express or otherwise) are effective upon receipt by the offeror. Option Contracts. A rejection or counteroffer made by the “offeree” during the option period does not terminate the option contract, unless the “offeror” detrimentally relies on the offeree’s rejection.

Answer 2

A conditional acceptance (“I accept if [or but or provided that or on the condition that or so long as”]) is a rejection/counteroffer and permanently revokes the offer

Answer 3

Common law: if the offeree adds terms to the acceptance, this constitutes a counteroffer and a rejection. Last Shot Rule: if the parties perform without an express contract, the last document governs

Answer 4

UCC: If an offeree adds a term (“I accept and . . .”) to the acceptance, ask two questions: 1. Is there a contract? Answer: Yes (as long as acceptance of the additional term was not an express “condition” of acceptance). 2. Does the deal include the additional term? Answer: it depends. --- If both parties are MERCHANTS, the additional term is part of the contract, unless: (1) the original offer limited acceptance to the exact terms of the offer; (2) the offeror objects to the additional term within a reasonable time after receiving the acceptance; or (3) the additional term materially alters the offer (e.g., changes the remedies available to the offeror, significantly limits the offeree’s liability, or disclaims warranties). An additional term that materially alters the offer does not equal a rejection; in such cases, there will be a contract, but without the new term. --- If either party is a non-merchant, the additional term is not part of the contract, unless the additional term is expressly accepted by the offeror (after receiving the acceptance)

Answer 5

Definition: An acceptance is a manifestation of assent to the terms of the offer.

Answer 6

Only those who are aware of the offer Equal Publicity Rule: to revoke a public offer, you must give equal publicity (e.g., the same newspaper, same number of days, etc.) to the retraction as you did the offer Only those person to whom the offer was made (thus, offers may not be assigned or accepted by bystanders to whom the offer was not directed). Option contracts may be assigned

Answer 7

The offeror is the master of the offer and may limit the form of acceptance (e.g., by fax only), but must do so unambiguously.

Answer 8

Bilateral Contracts may be accepted by either (1) a promise to perform (communicated to the offeror); or (2) commencement of performance. Contracts are presumed to be bilateral If an offeree accepts by commencing performance and the offeror has no adequate means of learning of such commencement, the offeree must notify the offeror within a reasonable time that performance has commenced; failure to give timely notice will render the contract unenforceable

Answer 9

Unilateral Contracts may NOT be accepted by commencing performance. An offeree is not bound by starting performance in a unilateral contract, but commencement of performance prevents the offeror from revoking the offer for a reasonable time. Unilateral contracts are limited to (1) those that unambiguously require completion of performance as acceptance; and (2) offers to the public, such as rewards or prizes. Unilateral offers may be accepted only by full performance

Answer 10

The Mailbox Rule does not apply where: 1. The offeror stipulates that acceptance is not effective until received; 2. The offeror unambiguously mandates a method of acceptance (e.g., by fax only) different than that used by the offeree; or 3. The offeree’s method of acceptance is not reasonable under the circumstances (e.g., offeree uses U.S. mail to accept an email offer to purchase ripe bananas).

Answer 11

If an offeree rejects an offer by mail and then sends an acceptance, the first document received by the offeror is effective. By contrast, if the offeree accepts by mail but then sends a rejection, there is a contract unless the rejection arrives first and the offeror relies on that rejection.

Answer 12

For option contracts, the offeror must receive the acceptance (i.e., exercise) to have a contract. In other words, the Mailbox Rule does not apply to option contracts.

Answer 13

A UCC offer for “prompt shipment” may be accepted by a prompt: 1. Promise to ship 2. Shipment of conforming goods 3. Shipment of non-conforming goods - Shipment of non-conforming goods constitutes an acceptance and a breach of contract - Accommodation: if the seller sends non-conforming goods as an “accommodation,” there is no acceptance and thus no breach of contract. An accommodation occurs when the seller notifies the buyer (before or with the shipment) that the goods are non-conforming but are being sent anyway. - If a seller promises to ship conforming goods and then sends non-conforming goods as an accommodation, the seller has accepted the offer and breached the contract.

Answer 14

“Mutual assent” is judged by the objective theory of contracts Whether an offer or revocation has been made is judged from the perspective of a reasonable offeree Whether an acceptance, rejection, or counteroffer has been made is judged from the perspective of a reasonable offeror

Answer 15

1. Express Contracts: mutual assent established by the parties’ language (oral or written) - Option Contracts: an express contract to hold an offer open for a fixed period of time. 2. Contracts implied-in-fact: mutual assent established (at least in part) by the parties’ conduct (e.g., silently accepting benefits where it is reasonable to assume the other party expects compensation). 3. Contracts implied-in-law (i.e., quasi-contracts): these are not contracts, so there is no mutual assent. A quasi-contract is simply a remedy designed to prevent unjust enrichment.

Answer 16

For a “deal” to be enforceable, there must be 1. Consideration 2. No Valid Defenses

Answer 17

Consideration is a bargained-for exchange of legal detriments, which has two-parts: 1. A bargained-for exchange; the promisor bargained for an exchange by the promise in which 2. The promisee (1) promises to do something (or in fact does something) that, but for the contract, he or she is not obligated to do or (2) promises not to do something (or in fact does not do something) that, but for the contract, he or she is legally entitled to do (i.e., legal detriment).

Answer 18

Consideration must be legally “sufficient” for there to be a binding contract. To be sufficient, the consideration must be something that has value in the eyes of the law. Examples of insufficient consideration: 1. Love and affection 2. Performing a service the law believes does not exist (e.g., voodoo curse) 3. Nominal or token consideration (except for option contracts) 4. A promise to forbear filing a suit the plaintiff knows is frivolous

Answer 19

If the requirement of sufficiency of consideration is met, there is no additional requirement of equivalence in the values exchanged, unless the contract is so one-sided that it is unconscionable. As long as consideration exists, the parties’ motives for performance are irrelevant.

Answer 20

Things that do NOT constitute consideration: 1. Past Consideration (or Moral Obligation) 2. Pre-Existing Legal Duty 3. Part Payment of a Debt 4. Promise Not to Sue (i.e., a settlement)

Answer 21

If the promisee has already performed the act before the promisor makes her promise, there is no “bargained-for” exchange and thus no consideration. Exceptions: 1. Material Benefit Rule (Restatement § 86): A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice, unless the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched. 2. Promise to Pay Debt Barred by SOL: A written promise to pay a debt barred by the Statute of Limitations is enforceable up to the amount of the new promise despite no new consideration. 3. Promise to Perform a Voidable Obligation: If a minor or incompetent promises to perform a voidable obligation after reaching the age of majority or regaining competency, the obligation is enforceable despite no new consideration

Answer 22

1. If the promisee is legally bound to do (or not to do) the act either by a prior contract or statutory law, there is no legal detriment suffered by the promisee. This means that the modification of an existing contract requires new consideration. 2. If a modification is induced by improper threats, the innocent party may also raise the defense of economic duress if it had no reasonable alternatives. 3. Exceptions: there are several exceptions to the pre-existing duty rule in which parties may modify a contract and the modification will be enforceable. Under these situations, the promisee is entitled to additional consideration because: - The promisee agrees to add to or modify the original deal in any legitimate (i.e., non-pretextual) fashion - The modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made - A third party agrees to pay additional consideration to the promisee - UCC: sales contracts may be modified without consideration as long as the parties act in “good faith”

Answer 23

If a creditor agrees to take less than full payment in exchange for a release, may the creditor seek the remainder from the debtor? 1. If the debt is due (or overdue) and undisputed in amount, part payment does not constitute consideration for the release and thus the debtor owes the remainder 2. But if the debt is not yet due (and the debtor agrees to pay early) or if there is a good faith dispute as to the amount of the debt, part payment would constitute consideration for a release (these are examples of an “accord and satisfaction”) 3. There would also be consideration if a different type of performance—transfer of goods or services—is agreed upon (this is also an example of an “accord and satisfaction”).

Answer 24

A promise not to sue constitutes consideration if the promisor has either a good faith (subjective or reasonable (objective) belief that the suit is valid. If a party executes a written instrument (i.e., a quitclaim deed) settling a claim that was bargained for by the other party, the instrument is sufficient consideration even if the executing party did not subjectively believe the claim was valid.

Answer 25

If there is no consideration, may the promisee enforce the deal? Generally, no. But consider promissory estoppel, which applies where the promisor (1) made a promise; (2) the promisee reasonably, detrimentally, and foreseeably relied on the promise (i.e., the promise induced the promisee to act); and (3) enforcement of the promise is necessary to avoid injustice. Promissory estoppel damages are generally limited to reliance damages (as opposed to expectation damages). The Statute of Frauds does not apply to promissory estoppel.

Answer 26

1. Lack of Capacity 2. Statute of Frauds 3. Illegality 4. Duress/Undue Influence 5. Misrepresentation 6. Mistake or Misunderstanding 7. Unconscionability

Answer 27

The following parties lack capacity to enter into a contract: 1. Minors (under age 18) 2. Mental incompetents (unable to understand legal significance of the acts) - The contract of a party who has been adjudicated incompetent are void 3. Intoxicated persons (unable to understand legal significance of acts and the other party knew or should have known of the intoxication)

Answer 28

A party lacking capacity may disaffirm a contract (i.e., the contract is voidable by the incapacitated party) during disability or within a reasonable time thereafter In a minority of jurisdictions, the party lacking capacity is liable for any benefit he experiences or damage he causes prior to disaffirming

Answer 29

1. If the incapacitated party retains the benefit of the contract after gaining capacity (e.g., reaching age 18) or fails to disaffirm the contract within a reasonable time after gaining capacity, he has impliedly “affirmed” the contract and it is enforceable - An affirmation by a minor or incompetent does not require new consideration 2. The contract is for necessaries (aka necessities); if so, the incapacitated party is liable in quasi-contract for the value of the goods or services, but not for the actual contract price

Answer 30

General Rule: oral contracts are generally enforceable. --- Exceptions: The following contracts are subject to the statute of frauds: (MYLEGS) 1. M: MARRIAGE - Agreements to marry supported by some form of financial consideration (e.g., prenuptial agreements) 2. Y: YEAR - Service contracts that by their own terms are NOT CAPABLE of being performed within one year from the date of the contract. 3. L: LAND - A transfer of an interest in land, except short-term (12 months or fewer) leases 4. E: EXECUTOR - Promise by an executor (or administrator) of an estate to pay the estate’s debts out of the executor’s own pocket. 5. G: GOODS - A contract for the sale of goods when the purchase price is $500 or more (as ultimately modified). 6. S: SURETY - Suretyship contracts (i.e., where one person “guarantees” the payments of another; e.g., a co-signer) – EXCEPTION: if the “main or primary purpose” of the agreement is to benefit the “surety,” the contract does not have to be in writing

Answer 31

A writing signed by the defendant 1. The SOF does not require the parties to sign a written contract; instead, any writing (e.g., a check, a memo to the file, a letter to a friend, notes scribbled on a cocktail napkin) that contains the essential terms and is signed by the defendant will suffice 2. For non-goods contracts: all material terms must be in writing (i.e., the identity of the parties, subject matter, price, and time) and the writing must be signed by the defendant 3. For goods contracts ($500 or more), the only essential term is quantity (note: the contract is not enforceable beyond the quantity stated in the writing) – UCC: the writing must be signed by the defendant or a written confirmation may be used between two merchants (a confirmation letter containing a quantity term signed by the plaintiff) if the other party does not object to the written confirmation within 10 days of receipt; the contract is not enforceable beyond the quantity stated in the confirmation 4. Under both the UCC and common law, the signature requirement may be satisfied by an electronic signature, such as a person typing her name at the end of an email message.

Answer 32

“Part Performance” may, in some cases, entitle the plaintiff to specific performance or damages despite the lack of a writing: 1. Service Contracts: full performance by either party satisfies SOF; part performance does not (but quasi-contract damages may be available) 2. Sale of Goods Contracts: - Ordinary Goods: part performance (i.e., part delivery/acceptance or part payment/acceptance) will satisfy SOF to extent delivered (and accepted) or paid (and accepted) - Unique or Specialized Goods Not Suitable for Sale in the Ordinary Course: the contract fully complies with SOF when the seller substantially begins performance or makes commitments for procurement of the goods 3. Land Contracts (Specific Performance only): Requires the following: payment (substantial or full) plus either possession or improvement

Answer 33

Under the UCC, an admission in court or court papers satisfies SOF (up to the amount of the admission). This rule may also apply to common law contracts.

Answer 34

A modification to a contract must satisfy SOF if the contract, as modified, would be subject to SOF.

Answer 35

Under the common law (and the UCC to a lesser degree), a “no oral modifications” clause is usually deemed waived by 1. The parties’ oral modifications of the contract or 2. The parties’ performance of the contract in a manner inconsistent with its express terms

Answer 36

1. Restitution: A makes an oral contract to furnish services to B for a “two-year period.” After A has worked for two months, B discharges him without paying him anything. Is A entitled to any relief? Yes, A can recover from B as restitution the reasonable value of the services rendered during the two months. 2. Promissory Estoppel

Answer 37

If the subject matter of a contract is illegal (e.g., a contract with a hit man or a gambling contract in a state where gambling is illegal), neither party may enforce it at any time. In other words, the court will leave the parties as it finds them. If the contract merely relates to an illegal act (e.g., the purchase of a gun on credit from Walmart, and the gun is to be used for murder), it is enforceable by the party who is not involved in the illegal act (i.e., Walmart). If one party to an illegal contract is a member of a class for whose protection the statute or regulation was enacted the protected person may enforce (or disaffirm) the contract.

Answer 38

If a contract is illegal solely because a party does not have a required license, the enforceability of the contract depends on the purpose of the license: If the purpose of the license is to regulate the skill and quality of a particular occupation (e.g., a license to practice law, medicine, plumbing, nursing), the contract is unenforceable. If the purpose of the license is solely to raise revenue (e.g., a business license), the contract is enforceable.

Answer 39

Two types of duress may render a contract voidable: 1. Physical duress: violence or threats of violence (this type of duress renders a contract void) 2. Economic duress: by wrongful act (e.g., threatening to breach a contract), one party takes advantage of another party who has no reasonable alternatives; such defense is limited to circumstances where the defendant “caused” the plaintiff’s financial distress in the first place

Answer 40

Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion and who by virtue of the relationship between them (i.e., a confidential or fiduciary relationship) is justified in assuming that the person will not act in a manner inconsistent with her welfare.

Answer 41

This defense exists if a party is induced to enter into a contract by false assertions of fact. Under contract law, a misrepresentation makes a contract voidable if it is either fraudulent or material. Misrepresentations may consist of outright lies, innocent misstatements (if material), half-truths, concealment, or, under the right circumstances, silence. The mere fact that the truth of a misrepresentation could have been revealed by the exercise of due care does not mean the innocent party’s reliance was unjustified. Traditionally, the defense of misrepresentation required false assertions of past or present facts. However, the Restatement and a majority of jurisdictions also recognize “promissory fraud.” A claim for promissory fraud is based on a promise of future action; such claim is actionable if the promise was made with an intent not to perform the future action.

Answer 42

If the defrauding party misrepresents the very nature of the document presented to the innocent party for signature, the agreement is void.

Answer 43

Mutual Mistake: both parties are mistaken about a basic material fact If the mistake relates to what is being purchased (i.e., the subject matter of the contract—a real Picasso as opposed to a fake Picasso), the contract is unenforceable This defense is unavailable if the party asserting it “assumed the risk” of the mistake; a party assumes the risk where: (1) the parties knew their assumption was doubtful, or (2) one party (e.g., contractor) is in a better position to know the risks than the other party (e.g., homeowner) By contrast, if the mistake relates to the “value” of what is being purchased (the value of a real Picasso), the contract is fully enforceable (as long as there was no fraud, etc.)

Answer 44

Unilateral Mistake: Only one party was mistaken General rule: contract is enforceable Exception 1: in cases involving a mechanical error of computation, the non-mistaken party may not “snap up” an offer or bid that it knew or should have known was erroneous (i.e., the offer was too good to be true) Exception 2: under the Restatement, unilateral mistake is also a valid defense if enforcement of the contract would be unconscionable

Answer 45

There is no manifestation of mutual assent (and thus no contract) if the parties attach materially different meanings to their manifestations and neither party knows or has reason to know the meaning attached by the other. By contrast, the manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if that party does not know of any different meaning attached by the other, and the other knows (or should know) the meaning attached by the first party.

Answer 46

UCC and common law doctrine 1. Tested at the time of contracting. 2. Question of law for the court. An unconscionable contract is one that is 1. Procedurally unfair (e.g., surprise terms, adhesion contracts); and 2. The terms are oppressive (e.g., grossly overpriced)

Answer 47

These defenses are typically affirmative defenses for which the defendant would carry the burden of pleading, the burden of production, and the burden of persuasion.

Answer 48

1. Complete Integration. If a written contract is the final and complete agreement of the parties (i.e., it is a fully integrated contract), the parol evidence rule prohibits parties from introducing prior oral statements or writings or contemporaneous oral statements that add to or contradict the written contract. 2. If a contract contains a merger clause (“This is the complete and final agreement.”) there is a presumption of complete integration. 3. On the MBE, parol evidence questions will generally state (or assume) that the contract is completely “integrated.”

Answer 49

If a written contract is the final (but not complete) expression of the parties’ agreement, the parol evidence rule prohibits parties from introducing prior oral statements or writings or contemporaneous oral statements that contradict the written contract. Whether a writing is integrated (completely or partially) is a question of law for the judge.

Answer 50

The PER is a rule of contract law and has many exceptions (i.e., situations in which parol evidence is admissible): 1. Parol evidence is admissible to prove that the contract never became operative because of fraud, duress, mistake, illegality, or failure to satisfy a condition precedent. 2. Parol evidence is admissible to establish the meaning of an ambiguous term, to show that consideration was (or was not) in fact paid, to establish a case for reformation (i.e., the writing contains a clerical error), or to prove unconscionability 3. Oral or written statements made after the contract was executed—usually as part of a contract modification—are not subject to the PER: thus, such statements are generally admissible (subject, of course, to SOF). 4. Under the UCC, the following evidence (in order of preference) is admissible to explain or supplement a contract, regardless of whether the contract is integrated or ambiguous: - Course of performance (the same parties in the same contract); - Course of dealing (the same parties in earlier contracts); and - Usage of trade (other parties in the same industry) 5. If a prior or contemporaneous additional agreement is of a type that would “naturally and normally” be contained in a separate agreement (with separate consideration), its admissibility is not barred by the PER (e.g., a side deal)

Answer 51

At common law, if the parties failed to agree on a material term, a court would not enforce the agreement because of indefiniteness. Under modern law, if a contract has been formed that fails to address one or more terms, the court will fill in those terms as follows: Common Law and UCC: All contracts contain implied promises of good faith, fair dealing, and reasonable efforts in connection with performance and enforcement.

Answer 52

1. Time and place of payment 2. Place of delivery and Risk of Loss 3. Price 4. Date and mode of delivery

Answer 53

Under the UCC, payment is due at the time and place at which the buyer is to receive the goods. In an installment contract, payment is due at the time and place at which the buyer is to receive of each installment. The buyer may pay by check, but the seller may demand cash; in such event, the buyer must be given a reasonable time to obtain the cash.

Answer 54

Place of Delivery. If the contract does not call for (expressly or implicitly) delivery, the UCC presumes that the buyer will pick up such goods at the seller’s place of business or, if none, the seller’s residence. Risk of Loss. In such cases, risk of loss shifts to the buyer upon 1. Physical receipt by the buyer if the seller is a merchant or 2. Tender by the seller if the seller is a non-merchant

Answer 55

The UCC recognizes two types of “delivery” contracts, which are used when the parties expressly provide for delivery by common carrier or the circumstances are such that common carrier delivery is implied: 1. Shipment Contracts. Such contracts are created by the phrase “FOB or FAS Seller’s location.” Under such contracts, the seller’s risk of loss ends when the seller places the goods with a common carrier. - Presumption: If a contract calls for delivery but is silent as to risk of loss, the UCC presumes that the contract is a “shipment” contract. - Seller’s Breach: Risk of loss remains with the seller if the seller is in breach (e.g., shipped nonconforming goods). 2. Destination Contracts. Such contracts are created by the phrase “FOB or FAS Buyer’s location.” Under such contracts, the seller’s risk of loss ends when the goods arrive at buyer’s location. - Buyer’s Breach: Risk of loss is borne by the buyer if buyer is in breach (e.g., anticipatory repudiation), but the buyer is entitled to any insurance proceeds the seller obtains for such loss.

Answer 56

The parties can conclude a contract for sale even though the price is not settled. In such case, the price is a reasonable price at the time for delivery if: 1. Nothing is said as to price; 2. The price is left to be agreed by the parties and they fail to agree; or 3. The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency (e.g., Kelley Blue Book) and it is not so set or recorded.

Answer 57

Date of Delivery: The time for shipment or delivery or any other action under a contract if not agreed upon by the parties shall be a reasonable time. Reasonableness depends on the circumstances, such as: 1. How complicated the good is to make 2. Past dealings of the parties 3. The practice of the industry 4. The needs of the buyer A party must give notice before treating a sales contract as breached due to the passage of a reasonable time for performance. Mode of Delivery: The default rule is that goods will be delivered and received in a single lot.

Answer 58

Express: statements of fact (but not puffing), models, samples, etc. that are part of the buyer’s basis of the bargain; strict liability for breach, and express warranties may not be disclaimed The Parol Evidence Rule may bar evidence of express warranties made prior to the execution of an integrated contract.

Answer 59

1. Implied Warranty of Merchantability (this warranty applies only to Merchants who sell goods of this kind) 2. Implied Warranty of Fitness for a Particular Purpose: 3. Other Implied Warranties

Answer 60

Implied Warranty of Merchantability (this warranty applies only to Merchants who sell goods of this kind): the goods must be fit for their ordinary purposes. This warranty may be disclaimed generally (e.g., by seller “as is” or “with all faults”) or specifically (e.g., by a CONSPICUOUS disclaimer mentioning “merchantability”).

Answer 61

Implied Warranty of Fitness for a Particular Purpose: this warranty is made by any seller who knows the buyer’s specific needs and knows that the buyer is relying on the seller’s expertise to select suitable goods. This warranty may be disclaimed generally (e.g., by selling ”as is” or “with all faults”) or specifically (e.g., by a CONSPICUOUS written disclaimer).

Answer 62

Other Implied Warranties. The seller also impliedly warrants that she 1. Has good title; 2. Has the right to convey; and 3. There are no liens or encumbrances on the goods

Answer 63

1. Failure of a Condition Precedent 2. Other Party's Breach 3. Anticipatory Repudiation 4. Prevention (aka Failure to Cooperate or Bad Faith) 5. Subsequent Agreement 6. Subsequent Event

Answer 64

If a condition precedent to a party’s performance has not occurred, that party’s performance is excused. Express conditions precedent may be satisfied only by strict compliance; that is, unless the condition occurs completely, the duties subject to the condition are not enforceable. The party whose performance is subject to a condition precedent must make a good faith attempt to satisfy the condition. However, compliance with an express condition precedent is excused if the party whose performance is subject to the condition voluntarily waives (by words or conduct) the condition.

Answer 65

Express Conditions – a party’s satisfaction. If a contracting party’s performance is expressly conditioned on his or her “satisfaction” with the other party’s performance, the following rules apply: If the contract is for services that do not require personal taste or aesthetics (e.g. a contract to install a furnace), the party (whose performance is conditioned on his or her satisfaction) must act reasonably (objective test) in determining whether the other party’s performance is satisfactory; in close cases, courts will apply this objective test If the contract is for services that require personal taste or aesthetics (e.g., a contract to paint a portrait), the party (whose performance is conditioned on his or her satisfaction) must act in good faith (subjective test) in determining whether the other party’s performance is satisfactory If a third party (e.g., an architect) is to make the determination of “satisfactory” performance, the third party must act in good faith (subjective test)

Answer 66

Constructive Conditions (not satisfied): If the contract fails to provide for the order of performance, the following conditions are implied in law: If performance by one party will take time (e.g. builder in a construction contract), that party’s performance must take place prior to the other party’s performance (e.g., owner’s duty to pay) If performance by both parties may occur at the same time (e.g., sale of goods), the parties must tender simultaneously (i.e., each party’s tender is a condition precedent to the other party’s performance) If the contract sets a date certain for one party to perform but does not set a date for the other party to perform, the party subject to the date certain must perform first

Answer 67

Unlike express conditions, constructive conditions may be satisfied by substantial compliance, unless the breach is willful (in which case strict compliance is required)

Answer 68

If the seller does not make a perfect tender, the buyer’s duty to perform (i.e., pay) is excused, unless: 1. Seller Cures. The seller has a right to cure (upon notice that it will cure) if the time for performance has not yet expired or an option to cure if the seller is “surprised” that the buyer failed to accept the goods (e.g., because of prior course of dealing or the sale of pre-packaged goods form a reputable supplier) and the seller remedy the nonconformity within a reasonable time after expiration of the time for performance 2. Installment Sales Contract. If delivery will occur in two or more installments - An installment may be rejected only if the nonconformity substantially impairs the value of that installment and cannot be cured - The whole contract is breached only if the nonconformity of one or more installments substantially impairs the value of the entire contract - Note: unless the contract expressly calls for installments, the UCC presumes a single delivery

Answer 69

If one party is in material breach (i.e., the party has not substantially performed), the other party’s duty to perform is excused. If the breach is not material, the non-breaching party must perform (i.e., pay) and then seek damages (or offset the amount of damages from final payment). Most courts will require strict compliance if the breach is willful.

Answer 70

A delay in performance will generally constitute a material breach only if it operates to significantly deprive the other party of the benefit of the contract. If time is “of the essence” and a party fails to perform on time, that party is in material breach. Under modern law, there is a presumption that time is not “of the essence,” unless the contract so states or other circumstances make the need for promptness apparent.

Answer 71

If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a party’s performance of his part of such a pair has the same effect on the other’s duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised. If the contract by its own terms is expressly indivisible, the court may not construe it otherwise.

Answer 72

If one party unambiguously declares (i.e., in a communication to the other party) that it will not perform prior to the date of performance, the other party’s performance is excused and that party has two choices: (1) await performance by the repudiating party for a commercially reasonable time (while suspending its own performance); or (2) treat the declaration as an immediate breach (e.g., bring suit, sell item to another buyer) even if it has notified the repudiating party that it would await performance and has urged a retraction. If the repudiating party retracts the repudiation before the non-repudiating party has materially changed position in reliance on the repudiation or has notified the repudiating party that the contract is terminated, the obligations of both parties are revived.

Answer 73

It is not necessary for repudiation that performance be made literally and utterly impossible. Repudiation can result from action which reasonably indicates a rejection of the continuing obligation, including (1) a statement of intention not to perform except on conditions that go beyond the terms of the contract, or (2) a sale of the goods to a third party that the seller was contractually obligated to deliver to the buyer.

Answer 74

UCC (and Restatement): A party may demand in writing adequate assurances of future performance if that party has reasonable grounds for insecurity (e.g., something short of an anticipatory repudiation, such as credit problems). The party demanding adequate assurances may suspend its future performance until such assurances are received (which must be within a reasonable time, not to exceed 30 days). Failure to provide such assurances in a timely fashion constitutes an anticipatory repudiation.

Answer 75

If one party acts in such a way that makes the other party’s performance impossible, the other party’s performance is excused.

Answer 76

All parties to the original contract (and the new third party) agree to substitute the new party for one of the original parties. In such case, the original party’s (the party who was replaced) performance is excused and the new party assumes that duty. A novation is never presumed; it must be clearly established.

Answer 77

An agreement by the parties to a contract to accept a different type of performance by one party (the “accord”) and that party so performs (the “satisfaction”). The accord suspends the original performance; the satisfaction excuses the original duty. If there is no “satisfaction,” the other party may sue on the original agreement or the accord.

Answer 78

This excuses performance only if both parties’ performances are still executory. If the original contract is subject to the SOF, a writing may be required to rescind it.

Answer 79

After the deal is executed (but before it is performed), an unexpected event occurs that renders performance the performance the seller of goods or real property or the provider of services: 1. Objectively Impossible 2. Commercially Impracticable

Answer 80

No one could perform under such circumstances (e.g., (1) destruction of the subject matter – a contract to buy a particular horse, but the horse dies; (2) death or incapacity of a party in a personal services contract – a singer dies after signing a contract to star in an opera; or (3) a supervening illegality). If, at the time of contracting, the parties were aware than an event was not certain to occur, that event may not be used to support a claim of impossibility or impractability. If a contractor performs services (e.g., plumbing) on a building and the building is destroyed (due to no fault of the contractor) before the contractor completes performance, the contractor’s duty to perform is discharged and the contractor is entitled to quasi-contractual damages measured just before the destruction occurred. However, a contractor’s duty to construct a building is not discharged by destruction of the work in progress (but most courts will excuse the contractor from meeting the original deadline).

Answer 81

An unforeseen event that so drastically changes the duty of one party that it is no longer fair to make that party perform (e.g., an unexpected strike, war, outbreak of disease, shortage of raw materials, embargo) An unforeseen event that simply makes a party’s performance more expensive is not sufficient to excuse performance, unless the increase in expenses is massive (e.g., a ten-fold increase) or the increase in places the non-performing party on the brink of bankruptcy. If the unforeseen event is temporary in nature, the seller may only suspend performance. If the seller’s inability to perform as a result of the unforeseen event is only partial, the seller must provide pro rata performance to her customers, including regular customers who do not have any outstanding orders.

Answer 82

After the deal is executed (but before it is performed), an unexpected event occurs that frustrates the sole purpose of a buyer of goods or real property or a recipient of services: Frustration of Purpose. The sole purpose of the contract—which both parties know of at the time of contracting—no longer exists (e.g., B leases an apartment from C to watch a coronation. Both parties are aware of the purpose. The coronation is unexpectedly canceled. This is frustration of purpose and B’s non-performance is excused). Frustration of purpose is rarely successful as an excuse for non-performance.

Answer 83

In the event of a breach, the non-breaching party may choose to pursue various remedies, including: 1. Expectation Damages 2. Reliance Damages 3. Equitable Damages 4. Restitution

Answer 84

Definition: Expectation damages are forward-looking damages; their purpose is to place the non-breaching party in the position it would have been in if the breaching party had fully performed.

Answer 85

In most cases, the non-breaching party is entitled to “expectation damages” - Plus incidental damages (e.g., placing a new classified ad to find for another buyer) - Plus foreseeable consequential damages (Hadley v. Baxendale). Such damages (e.g., lost profits, lost rents) must be foreseeable by both parties at the time of contracting; this usually means the plaintiff told the defendant of her special needs at the time of contracting - Minus reasonably avoidable costs and damages (e.g., in a wrongful discharge case, plaintiff must accept a comparable job to avoid damages)

Answer 86

To determine the amount of “expectation” damages, ask: 1. What would the plaintiff have received if the contract had been fully performed? 2. What did the plaintiff actually received? 3. What’s the difference?

Answer 87

If a breach results in defective or unfinished construction, the plaintiff (e.g., the buyer or homeowner) may recover damages based on 1. The diminution in the market price of the property caused by the breach, or 2. The reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.

Answer 88

4. Special Cases If an employee breaches an employment contract, the employer is entitled to recover the difference between the wages paid to the replacement employee and the breaching employee’s contract. If an employer breaches an employment contract, the employee is entitled to recover the full contract price, minus: 1. The salary the employee would have received if the employee had made reasonable efforts to obtain a comparable job in the same locale; and 2. The actual salary the employee received from any job.

Answer 89

The standard measure of damages for breach of a land sale contract is the difference between the contract price and the fair market value of the land.

Answer 90

Buyer is entitled to compensatory damages (as set forth below) plus foreseeable consequential damages plus incidental damages minus avoidable damages.

Answer 91

Except for installment contracts, the seller must make “perfect” tender. Any defect permits the buyer to reject the goods in whole or in commercial units (subject, in some cases, to the seller’s right to cure). If the goods are non-conforming, the buyer must (1) make a timely inspection and rejection; (2) promptly notify the seller of the rejection and the reasons therefor; and (3) dispose of the goods in accordance with the seller’s instructions or, if none, in a manner to avoid damages. As for damages, the buyer may get “cover” damages, which is the difference between the contract price and the price the buyer had to pay for a reasonable replacement or the difference between the contract price and the market price (at the time the buyer discovers the breach). If the buyer covers, the buyer may not sue for market damages.

Answer 92

In such cases, buyer’s damages are measured by the difference between the value of what the buyer received and the value of what he would have received if the seller had fully performed (i.e., breach of warranty damages); buyer must give the seller notice of defects within a reasonable time after they are or should have been discovered.

Answer 93

Seller is entitled to compensatory damages (as set forth below) plus incidental damages (but not consequential damages) minus expenses saved because of the breach.

Answer 94

Seller’s damages are either (1) the difference between the contract price and the resale price (resale may occur by any commercially reasonable manner—public or private—with notice to the buyer) or (2) the difference between the contract price and the market price (at the time and place of tender). If the seller is a lost volume seller (i.e., one with an unlimited supply of goods to sell), seller’s damages are equal to the profit seller would have made on the sale. Notice of resale is not required for lose volume sellers.

Answer 95

Seller may recover the entire contract price if (1) the goods are specialized and seller is unable to resell them (i.e., the seller may “force” the buyer to purchase the goods); (2) the buyer has accepted the goods (but has not paid for them); or (3) the goods are destroyed after risk of loss has shifted to the buyer.

Answer 96

Liquidated Damages are appropriate only if: 1. At the time of contracting, the parties knew it would be difficult to determine the amount of damages in the event of a breach, and 2. The liquidated damages amount is reasonable in light of anticipated or actual damages --- Examples of enforceable liquidated damage clauses: 1. 10% of purchase price for real estate contracts 2. Per diem (e.g., $100 per day for delays in building contract) damages --- If the contract permits the plaintiff to elect to recover either liquidated damages or actual damages, the liquidated damages clause is probably unenforceable.

Answer 97

No punitive damages are awarded in contracts cases (unless there is also a tort).

Answer 98

Damages for emotional distress are not available in breach of contract actions, unless the breach caused personal injury (e.g., breach of warranty) or such harm is “particularly likely” to result from a breach (e.g., breach of warranty) or such harm is “particularly likely” to result from a breach (e.g., a mortuary mishandling a corpse or an insurance company guilty of bad faith).

Answer 99

Reliance damages are backward-looking damages; their purpose is to put the non-breaching party in the position it would have been in had the contract never been formed.

Answer 100

Reliance damages are generally awarded in cases where the non-breaching party cannot establish expectation damages with reasonable certainty; in those cases, the non-breaching party has a right to damages based on its reliance interest, including expenditures made in preparation for performance. Traditional (Minority) View: Lost profits (i.e., expectation damages) are not recoverable by a new business or enterprise; a new business or enterprise is limited to reliance damages. Restatement (Majority) View: Lost profits are recoverable by a new business or enterprise if proved with reasonable certainty.

Answer 101

Equitable remedies are available only if money damages are inadequate (i.e., money damages will not put the non-breaching party in as good a position as performance would have).

Answer 102

Specific Performance is available only for breaches of: 1. Real estate contracts 2. UCC contracts - For the sale of unique or rare goods - For other proper circumstances (i.e., the buyer is unable to cover or is unable to secure a comparable long-term contract) 3. Specific performance will not be awarded for personal services contracts, but an injunction may be entered to prevent the employee from working for a competitor (but only where the employee has very rare skills—a professional athlete—or the employee possesses trade secrets or the employee is subject to an enforceable “non-compete” agreement).

Answer 103

Where a writing that memorializes an oral agreement fails to accurately express the agreement because of a clerical or transcription error (or fraud), the court may reform the writing to express the agreement, except to the extent that rights of third parties will be unfairly affected. Clear and convincing evidence is usually required for reformation.

Answer 104

The purpose of restitution is to prevent unjust enrichment.

Answer 105

No Enforceable Contract (Quasi-Contract). If there is no valid contract but the plaintiff provided a valuable service (or property) to the defendant with a reasonable expectation of payment, the plaintiff may be entitled to quasi-contractual relief. A quasi-contract is not a contract, but rather a form of relief designed to remedy unjust enrichment. Quasi-contract damages are measured by either the detriment suffered by the plaintiff or the benefit experience by the defendant.

Answer 106

Non-Breaching Plaintiff. If the plaintiff is the non-breaching party (which is typical), the plaintiff may choose restitution over expectation or reliance damages. However, restitution is usually the best remedy only with regard to “losing contracts” (i.e., those in which the plaintiff would have lost money). Breaching Plaintiff. If the plaintiff breached the contract, quasi-contract damages will be limited to the enrichment actually received by the defendant (and not the value of the efforts undertaken by the plaintiff).

Answer 107

There are three types of third parties that may have rights and/or duties in the contract: 1. Third Party Beneficiary 2. Assignment of Rights 3. Delegation of Duties

Answer 108

A Third Party Beneficiary is contemplated by the original contracting parties at the time of contracting If at the time of contracting, the promisor and promisee (the original contracting parties) intend to confer a benefit on a third party (who is named or identifiable in the contract), that third party beneficiary may enforce the agreement against the promisor, unless: The original contracting parties modified or cancelled the contract prior to the time the third party’s interest in the contract vested. Vesting occurs when the third party (1) assents to the contract; (2) knows of an relies upon the contract; or (3) files suit on the contract or The promisor has a defense regarding the formation or performance of the contract that would have been enforceable against the promisee (because the third-party beneficiary’s rights to enforce the contract are derivative)

Answer 109

In a third-party-beneficiary contract, the promisee may sue the promisor for an order of specific performance ordering the promisor to provide the goods, services, etc. to the third party. If the original contracting parties do not expressly intend to confer a benefit on a third party, the third party is merely an “incidental” third party beneficiary and has no right to enforce the contract.

Answer 110

If after the time the original parties entered into a contract, one of the parties assigns her “rights” (e.g., benefits—often the right to payment) under the contract to a third party, this is an assignment of rights. The “assignor” is the party who assigns her rights, the “assignee” is the third party, and the “obligor” is the other original party to the contract. The common law and UCC rules are quite similar regarding assignments.

Answer 111

Contract rights are generally assignable unless (1) the contract makes assignments “void,” (2) the assignment would materially change the duty of the obligor, or (3) the assignment would materially increase the burden of risk imposed on the obligor.

Answer 112

Language prohibiting “assignment of the contract” is construed as barring delegation of duties and not assignment of rights. Language prohibiting “assignment of contractual rights” does not bar assignment but merely give the obligor a right to sue the assignor for breach of contract.

Answer 113

If an assignment is effective, the assignee (but not the assignor) may sue the obligor to enforce it. The assignee’s rights to enforce the contract are derivative; thus, the assignee is subject to most defenses the obligor could assert against the assignor.

Answer 114

Once the obligor has knowledge of a valid assignment, the obligor must render performance to pay the assignee; if the obligor renders performance to or pays the assignor, the obligor does so at his or her own risk.

Answer 115

An oral gratuitous assignment is generally revocable by the assignor. Such assignments are automatically revoked (1) by the death or bankruptcy of the assignor; (2) by the assignor’s subsequent assignment of the same rights to another assignee; or (3) if the assignor takes performance directly from the obligor.

Answer 116

Assignments for value (e.g., as payment for a preexisting debt) and written gratuitous assignments (e.g., a signed writing or delivery of a token chose, such as a savings account passbook or a lottery ticket) are generally irrevocable by the assignor.

Answer 117

If the assignor assigns the same contract rights to more than one assignee, the following rules apply: 1. If the first assignment is revocable, a subsequent assignment revokes it. 2. If there are two or more irrevocable assignments, the first irrevocable assignee prevails. - The losing assignee (for value), however, has a breach of warranty action against the assignor.

Answer 118

Assignees of Rights and Delagatees of Duties appear after the execution of the original contract Often, contract rights and duties are assigned/delegated to the same third party; when a party to a contract “assigns the contract,” such a transfer acts as both an assignment of rights and a delegation of duties

Answer 119

If after the time the original parties entered into a contract, one of the parties transfers her “duties” (e.g., the work) under the contract to a third party, this is a delegation of duties. The “delegator” or “delegor” is the party who delegates her duties, the “delegatee” or “delegee” or “delegate” is the third party, and the “oblige” is the other original party to the contract. The common law and UCC rules are quite similar for delegation of duties. Duties may generally be delegated, but not if (1) the contract prohibits either delegations or assignments; or (2) the oblige chose the delegator to perform a “personal service” because of the delegator’s special skills, reputation, or trust (e.g., the delegator is a famous portrait painter). In other words, if the delegation impairs the obligee’s commercially reasonable expectations, the delegation is void. Under the UCC, the oblige may treat a delegation as creating reasonable grounds for insecurity and thus may demand that the delegatee provide adequate assurance of performance.

Answer 120

If the delegation is proper, the oblige MUST accept the performance of the delegatee; if the oblige refuses to accept such performance, the oblige forfeits any rights it has against the delegatee and the delegator.

Answer 121

If a delegation is valid and the delegatee does not perform (or does not fully perform), the oblige may sue the delegator (unless there was a novation) or the oblige may sue the delegatee as a third party beneficiary of the contract between the delegator and the delegatee. In such cases, the delegatee has primary liability and the delegator has secondary liability as a surety.

Contracts & Sales Flashcards

(145 cards)