Definitions Flashcards
(25 cards)
Offer creation
There must be intent to enter into a contract plus specific terms (e.g., price, quantity and identity of the parties.) And, it must be communicated to the offeree.
Note: A requirements or output contract will not fail for lack of quantity. The amount sold or requested must be in good faith and not unreasonably disproportionate to a stated estimate or prior comparable output.
Termination of an offer
There are four ways to terminate an offer:
(1) Lapse of time: an offer lapses after a reasonable time.
(2) Rejection (including counteroffer, which is a rejection and a new offer)
(3) Revocation of an offer: An offer can be revoked before acceptance unless it falls into one of the (FOUR) categories:
* Firm offer by a merchant in a signed writing under the UCC. This offer can be held open for a maximum of three months.
* Option contract: a promise to hold open the offer plus consideration for that promise.
* Unilateral contract: if the offeree begins performance on a unilateral contract, the offer is held open for a reasonable time.
* Reasonably foreseeable substantial reliance on the offer.
(4) Death or incapacity of offeror
Acceptance
Look at the type of contract
Bilateral contracts are accepted by a promise to perform or beginning performance. (Most contracts are bilateral!)
Unilateral contracts (rewards, prizes, or offers that specify they are unilateral) can only be accepted by full performance.
Article 2: An offer for the sale of goods is accepted by promising to ship or shipping the goods. Note: if the seller ships defective goods with an accomodation letter, that constitutes a counteroffer. If there is no letter, it is an acceptance and a breach.
When is acceptance effective?
Acceptance is effective when sent (the mailbox rule).
* Exceptions: an option contract (acceptance effective upon receipt) or if a rejection then an acceptance is mailed (the one received first controls.
Terms of acceptance
Common law: the acceptance must be the “mirror image” of the offer.
UCC: An acceptance does not need to mirror the offer and may have additional or different terms. Between merchants, an additional term will be part of the contract unless it materially alters it, the offeror objects within a reasonable time, or the offer limits acceptance to the terms of the offer. Under the majority rule, a different term is knocked out and replaced with gap fillers.
Consideration
“Bargained-for exchange”
The following are not consideration: a promise to make a gift, a moral obligation, past consideration, or an illusory promise.
Reliance
A
A substitute for consideration.
If there is a promise and forseeable justifiable reliance, enforcement will be granted as necessary to avoid injustice.
Modifications
Common Law: Consideration is needed to modify a contract. The performance of a preexisting legal duty is not consideration unless it falls into an exception (e.g., unforseen difficulty, a good faith settlement of a lawsuit, a good faith payment in full of a due and disputed debt, a written promise to pay a time-barred debt, or the duty was owed to a third person).
UCC: Only good faith is needed to modify a contract.
Performance
Common Law: One has to substantially perform one’s duties in order for the other party’s duty to arise. (Tip: courts find that most conditions are “constructive” and substantial performance is enough).
* Exception: Express condition (e.g., “I will buy it if I like it” or “I will buy it if I can get a 10% interest rate”). These must be complied with exactly.
UCC: The seller must provide perfect tender of the goods (or the buyer can reject the goods). If the seller does not provide perfect tender and the buyer rejects the goods, the seller only has an automatic right to cure if (1) there is time left to perform under the contract, or (2) the seller reasonably believed that the buyer would accept the nonconforming goods with or without a money allowance such as a discount (e.g., the seller sent better goods than contracted for).
* Exception: Installment contract. The buyer may reject an installment if there is a “substantial impairment and the seller cannot cure the installment.
* Note on revocation: If the buyer accepts goods, he may not reject them. However, he may later revoke his acceptance. Revocation is a higher standard than rejection as it requires showing that the defect substantially impairs the vavlue of the goods to him, among other things.
Delivery obligations
Carrier cases: Most contracts are shipment contracts (e.g., the contract is silent or has shipping terms such as “FOB Seller’s Place of Business,” “CIF,” “C&F,” or “FAS”). The seller only has to get the goods to the shipper and the risk of loss (ROL) passes to the buyer at that point. For destination contracts (e.g., contracts that state, “FOB Buyer’s Place of Business” or “Ex-Ship”), the seller has to get the goods to the destination.
Non-carrier cases: If the seller is a merchant, the seller must actually deliver the goods to the buyer for the ROL to pass. If the seller is not a merchant, the seller must tender delivery (make goods available) for the ROL to pass.
Breach: If the seller is in breach, the ROL is on the sller until the defective goods are curred by the seller or accepted by the buyer.
Exusing performance and conditions
A party is excused from performing if the other party breaches.
An anticipatory repudiation occurs when a party unequivocally breaches. If this occurs, the other party can sue immediately, suspend performance and wait to sue, treat the contract as discharged, or urge the other party to perform.
A prospective inability to perform is when a party has reasonable grounds for insecurity that the other will not perform. The insecure party can demand adequate assurances that performance will take place.
Note that conditions can also be waived.
Discharging duties
A duty can be discharged by:
* Occurence of a condition subsequent: This is a condition that cuts off a duty. (E.g., “I will paint the house until it starts to rain.” The rain is the condition subsequent that cuts off the duty to paint the house.)
* Agreement: examples include novation ( a new party steps into the shoes of an existing party), modification, release, and accord and satisfaction (the parties agree to new or different consideraiton, and rescission (the contrat is undone).
* Frustration of purpose: the primary purpose of the contract known by both parties at the time of contracting is substantially frustrated by an unforeseeable event that occurred after the contract was entered into.
* Impossibility: an event that renders performance impossible occurs after the contract was made, it was not reasonably forseeable at the time of the contract, the nonoccurrence was a basic assumption of the parties, neither party is at fault, and neither party bears the risk.
Express warranties are affirmations of fact about the goods or a sample of the goods. These cannot be disclaimed. Mere “puffery” does not create an express warranty.
The implied warranty of merchantability is made by a merchant and warrants that goods are fit for their ordinary purpose. This warranty can be disclaimed (e.g., by express language such as a conspicuous “as is” clause or through conduct).
The implied warranty of fitness for a particular purpose can be made by any seller who knows of the buyer’s specific purpose and the buyer relies on the seller. It can be disclaimed. (Tip: The seller does not have to be a merchant.)
A limitation of remedies clause is a contractual provision that limits or controls the remedies. It is enforceable unless it is unconscionable or it “fails of its essential purpose.” The clause is unconscionable if it attempts to limit or avoid paying consequential damages for a personal injury due to a consumer product.
Interpretation
General Rule: Express terms control. Then courts look to course of performance, course of dealing, and trade usage.
Gap fillers: the UCC has default rules for terms that govern contracts for the sale of goods if no term is stated in the contract (e.g., if nothing is said as to price, the price is a reasonable price at the time of delivery.)
Keeping terms out with the parol evidence rule (PER): The PER applies when a party wants to add a term from preliminary negotiations to a final written agreement.
* If there is a complete integration, no terms will be admitted into evidence. (Tip: look for a merger or integration clause in the contract; e.g., one state states, “this is the full and final agreement.”)
* If there is a partial integration, consistent additional terms are admitted.
* The PER does not apply to (FICCL) formation defenses, interpretation of a term, failure of a condition precedent, a clercial error, or a later modification.
Third-party beneficiaries (TPBs)
Intended TPBs have rights under a contract once their rights vest. Rights vest when there is assent, reliance, or when the third party brings a lawsuit.
Incidental TPBs do not have rights under a contract.
Factors to determine if a TPB is intended:
1. Is the TPB expressly designated under the contrat?
2. Is performance directly related to the TPB?
3. Does the TPB have any rights?
4. What is the relationship between the TPB and the promisee?
Delegation
Tip: If you mix up assignment and delgation, remember that generally, one delegates duties and assigns rights (usually the right to be paid).
Generally, one may delegate duties under a contract unless the contract prohibits it or if the contract involves special skills, judgment, or trut. Neither consent nor consideration, nor a writing is needed to delegate a duty. The delegator remains liable on the contract after delegation. The delegatee is liable if he receives consideration from the delegator.
Assignment
Generally, rights can be assigned unless the assignment substantially changes the obligor’s duties or the contract prohibits it. An assignment may not be revoked if there was consideration given or if it is payment for a preexisting debt. An assignment is revoked if the assignor takes performance directly or makes a subsequent assignment to a different party.
Statute of Frauds (SOF) Defenses
Rule: The SOF requires a writing signed by the party to be charged that evidences a contract. (Tip: the “party to be charged” generally means the defendant.)
Which contracts fall into the SOF? (MYLEGS) contracts made in consideration of marriage, contracts that cannot be performed within a year, contracts for the sale of land, promises made by an executor to pay a debt from his own estate, contracts for the sale of goods over $500, and surety contracts.
Exceptions – where no signed writing is required
* Land: part performance (when one’s actions evidence a contract; e.g., the buyer does two of the following three things: takes possession of the property, imrpoves the land significantly, or pays a substantial amount of the purchase price).
* Sale of goods: the four exceptions are (1) merchants confirmatory memo exception, (2) when the seller has made a substantail beginning in manufacture or commitments for specially manufactured goods not suitable for sale to others in the seller’s ordinary course of business, (3) judicial admissions (one admits in his pleadings, testimony, or in court that there is. a contract – it is enforceable up to the quantity admitted), and (4) part performance (one pays for or accepts a part of a contract).
* Surety: a promise to pay the debt of another if the other does not pay falls within the SOF unless the main purpose of the surety promise is to serve a pecuniary interest of the person making the promise.
* Cannot be performed within a year: full performance on one side will serve as a substitute for a signed writing.
Capacity Defenses
Incapacity for minors, mentally incompetent, or intoxicated persons. However, they may be liable for “necessities.”
Duress: when a party threats to commit a wrongful act that would threaten the other party’s finances, property, well-being, or life.
Undue influence: unfair persuasion where a person in a position of trust, confidence, or dominance uses that position to convince another to enter into a contract that is not in that party’s best interest.
Lack of Contract Formation Defenses
Mutual mistake: if both parties are mistaken about a basic assumption of fact that materially affects the agreed upon exchange and neither bears the risk, the contract is voidable.
Unilateral mistake: if a party knew or had reason to know of the other party’s mistake, the contract is voidable.
Mutual understanding: there is no contract if both parties have a different understanding of a material term that is open to at least two reasonable interpretations and neither party has any reason to know of the meaning attached by the other.
Illegal subject matter: the contract is void. If it is for an illegal purpose (e.g., leasing a car to transport drugs), it is voidable by the party who didn’t have the illegal purpose (e.g., the car owner) if he didn’t know the purpose or he knew of the purpose but didn’t facilitate it and it doesn’t involve “serious moral turpitude.”
Unconscionability: there are two necessary elements – procedural unconscionability (an unfair bargaining process – e.g., hidden or incomprehensible terms) and substantive unconscionability (grossly unfair terms). This is voidable.
Other defenses: fraud, misrepresentation, nondisclosure, and public policy.
UCC Formulas for Remedies
Seller breaches and buyer has goods: buyer gets the value of the goods as contracted for minus the value of the goods as delivered plus incidential and consequential damages.
Seller breaches and seller has goods: buyer gets the difference between the market price (or replacement price) and contract price plus incidental and consequential damages minus expenses saved.
Buyer breaches and buyer has goods: seller gets the contract price.
Buyer breaches and seller has goods: seller gets the difference between the contract price and market price (or resale price) plus incidental damages minus expenses saved.
Loss volume seller: The seller gets lost profits plus incidentials. (Tip: A seller is a lost volume seller when there is an unlimited amount of the product available. The MBE fact pattern will make this very clear).
Remedies
General rule: The damages party recovers expectation damages. This is the loss of value of the breaching party’s performance plus incidental damages plus consequential damagess minus any expenses saved as a result of the breach. Mitigation of damages is required.
Incidental damages are those related to avoiding the loss from the breach (e.g., storing goods after a breach).
Consequential damages are those that are foreseen at the time the contract is entered into.
Equitable Remedies
Specific performance is not usually available unless the goods are unique or if it is a land contract.
An injunction is an equitable remedy that tells a party to do or not do something. An injunction for a noncompete clause will be granted so long as the covenant is reasonable in time, scope, and geography.
Rescission is undoing the contract when the contract is void or voidable or because it is impossible to perform.
Reformation is a remedy either party may seek when the contract does not reflect the terms the parties agreed to.
Liquidated Damages
Are clauses enforced if the damages are difficult to estimate at the time the contract was made and a reasonable forecast of damages. Penalties are not permitted under contract law.
