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Applies to the sale of goods (moveable objects, e.g., personal property).
Applies to all contracts other than those for the sale of goods (e.g., for services).
What is a contract?
A legally enforceable agreement.
Created by the parties' words.
Created by the parties' conduct.
Protects against unjust enrichment when contract law yields an unfair result.
The offer may be accepted either with a promise to perform or by beginning performance.
The offer can be accepted only by complete performance. The offer must state that it requires complete performance as acceptance. (E.g., rewards, ads, contests).
What are some examples of unilateral contracts?
A manifestation of an intention to be bound.
Is an advertisement an offer?
An advertisement is generally not an offer; merely an invitation to bargain.
Open price terms
Not a problem in most cases, courts will read in a reasonable term. Not true of quantity under the UCC however.
One party agrees to purchase all of its required amount of a given good from the supplier.
Party agrees to sell all of its output to a given purchaser.
What terminates an offer?
- Lapse - An offer lases after a stated term or a reasonable time has passed.
- Revocation - An offer terminates where the offeror revokes the offer.
- Rejection - An offer terminates when the offeree rejects it.
- Death of a party before acceptance - Terminates a revocable ofer, but not an irrevocable offer, like an option.
The offeror indicates directly to the offeree that he has changed his mind and the offeree is aware of the conduct.
The offeror engages in conduct that indicates he's changed his mind and the offeree is aware of the conduct.
When can an offer not be revoked?
- Option - a promise to keep the offer open that is supported by consideration.
- Forseeable reliance before acceptance - very rare, it is what it sounds like. Look for construction contractors.
- Starting to perform in a unilateral contract - although preparing to perform is not enough.
- Firm offer - In the sale of goods, if a merchant promises in a signed writing to keep an offer open, the offer is irrevocable.
A promise to keep the offer open that is supported by consideration. An offer cannot be revoked if there is an option.
Forseeable reliance before acceptance
Very rare, it is what it sounds like. Look for construction contracts. An offer cannot be revoked if there is forseeable reliance before acceptance.
Does starting to perform revoke an offer in a unilateral contract?
Yes, but preparing to perform is not enough.
In the sale of goods, if a merchant promises in a signed writing to keep an offer open, the offer is irrevocable. Only lasts for a maximum of 3 months.
Almost every business person is a merchant under Article 2's broad definition.
How long does a firm offer last?
A maximum of 3 months.
When does a revocation become effective?
When it is received.
When does an offer terminate?
When the offeree rejects it.
Operates as a rejection; mere bargaining does not.
Does the death of a party before acceptance terminate an offer?
The death of a party before acceptance terminates a revocable offer, but not an irrevocable offer, like an option.
Not an acceptance at all (but rather a rejection and counteroffer).
Does an acceptance varying the offer count as an acceptance?
Under the common law, acceptance must mirror offer ("mirror image rule"). Under Article 2, the offeree's term is included only if 1) both parties are merchants, 2) the term is not a material change (if it is customary in the industry, then it is not material), and 3) there is no objection within a reasonable time.
Acceptance varying the offer -- when is the offeree's term included under Article 2?
- Both parties are merchants
- The term is not a material change (if it is not customary in the industry then it is not material)
- No objection within a reasonable time.
When is a new term a material change?
If it is customary in the industry then it is not material.
Under Article 2, does an offeree's new term often make it into the contract?
Does starting performance constitute acceptance in a bilateral contract?
Starting performance is acceptance of an offer to enter a bilateral contract and carries with it an implied promise to finish the job.
Does starting performance constitute acceptance in a unilateral contract?
Starting performance is not acceptance of an offer to enter a unilateral contract; only completing performance is acceptance. NOTE: However, once performance has begun, the offer may not be revoked.
Does improper performance constitute acceptance?
Under the common law, improper performance is simutaneous acceptance and breach.
Under Article 2, improper performance is simultaneous acceptance and breach unless the seller is sending the goods as an accommodation to the buyer.
The seller acknowledges that the goods are not those discussed by the offer and states that these are instead sent as an accommodation.
Does an offeree's silence constitute acceptance?
When is acceptance effective?
When it is mailed (the "mailbox rule"), with exceptions.
What are exceptions to the "mailbox rule"?
(I.e., when is acceptance not effective when it is mailed?)
1. Offer provides otherwise - language of the offer controls.
2. Irrevocable offer - does not need the protections of the mailbox rule.
3. Offeror relies on overtaking rejection - offer reliance prevents mailbox rule from allowing acceptance.
4. Rejection sent first - if you rejected them, you don't need the mailbox rule.
Lack of capacity
An incapacitated defendant may disaffirm the contract.
Who lacks capacity?
- Mentally incompetent
Retaining the benefit of the contract without complaint after gaining (or regaining) capacity.
What can an incapacitated party be held liable for?
Necessaries (i.e., food, shelter, clothing, or medical care), but only on a quasi-contract basis.
What are defenses to formation?
- Economic Duress
- Misrepresentation of a Material Fact
- Misunderstanding (ambiguity)
- Lack of consideration
Rarely a succesful defense against formation unless there is a threat to break an existing contract where there is no reasonable alternative.
If there is no meeting of the minds, there can be no contract. If a party knows there is reason for confusion, then they are at fault if they fail to clarify.
When is mistake a defense to formation?
Mutual mistake about a material fact allows the adversely affected party to avoid the contract. Unilateral mistake is usually not an effective defense--if the other party knew, or had reason to know of the mistake, then he had an obligation to clear it up.
When is mutual mistake a defense to formation?
When it is about a material fact, it allows the adversely affected party to avoid the contract.
When is uniateral mistake a defense to formation?
If the other party knew, or had reason to know of the mistake, then he had an obligation to clear it up.
Bargain plus legal detriment - A person can bargain for a promise, performance, or even forebearance.
Is no consideration at all.
An illusory promise is one that courts will not enforce. Usually for lack of consideration.
Forseeable reliance may make a promise enforceable even without consideration.
Is new consideration required to modify a contract?
Common law - new consideration is required to modify a contract. (Pre-existing duty rule: performing a pre-existing duty is not enough.)
Article 2 - consideration is not required to modify a contract, but you must show good faith.
Pre-existing duty rule
Performing a pre-existing duty does not constitute new consideration as required to modify a contract.
Is an agreement to accept a lesser amount valid?
If the amount is not in dispute, an agreement to accept a lesser amount is not valid.
If the amount is in dispute, a settlement agrement is enforceable.
A written promise to pay a debt, collection of which is barred by the statute of limitations, is enforceable even without consideration.
Are covenants not to compete enforceable?
A court will invalidate or narrow a covenant not to compete that operates as a restraint of trade.
When does a covenant not to compete operate as a restraint of trade?
- Scope - consider the duration and geography
- Need - consider the uniqueness of the services
When are exculpatory clauses enforceable?
An exculpatory clause can eliminate liability for negligence, but not for gross negligence or intentional torts.
When is unconscionability a valid defense against enforcement of a contract?
- Procedural - the parties have reached an agreement through a process that was unfair (gross inequality of bargaining terms; surprising fine-print terms)
- Substantive - the terms of the contract are so one-sided as to shock the conscience.
The parties have reached an agreement throug ha process that was unfair.
1. Gross inequality of bargaining terms
2. Surprising fine print terms
(Procedural unconscionability can be a valid defense agianst enforcement of a contract.)
The terms of the contract are so one-sided as to shock the conscience.
(Substantive unconscionability can be a valid defense against enforcement of a contract.)
What kinds of contracts need a writing to be enforced under the Statute of Frauds?
- Transfer of interest in real property (equal dignities rule - an agents' authority to transfer an interest in property must be in writing)
- Performance cannot be completed within a year (if it could theoretically be completed within a year, then a writing is not required, i.e. contract for the rest of my life--I could die tomorrow)
- Sale of goods for $500 or more
- Suretyship (a promise to answer for the debt of another)
- Contract modification (must be in writing only if the contract as modified is within the statute of frauds)
What is the equal digities rule?
An agent's authority to transfer an interest in property must be in writing.
What is a suretyship?
A promise to answer for the debts of another.
Does contract modification have to be in writing to be enforceable?
Only if the contract as modified is within the statute of frauds.
What must a written contract include to satisfy the statute of frauds?
Sale of goods - must contain a quantity term and be signed by the party against whom enforcement is sought
Other contracts - must contain all material terms and be signed by the defendant
What must a written contract include to satisfy the statute of frauds under Article 2(sale of goods)?
Must contain a quantity term and be signed by the party against whom enforcement is sought.
What must a written contract include to satisfy the statute of frauds under the common law?
Must contain all material terms and be signed by the defendant.
Which transactions in real property are exempted from the statute of frauds (i.e., do not require a writing)?
Leases of one year of less (ensures that short-term leases are not invaludated by the statute of frauds)
- Part performance (requires any two of the following three facts:
- 1) Buyer is in possession of the property
- 2) Buyer made some payment
- 3) Buyer made improvements to the property
What satisfies part performance as to exempt a transaction in real property from the statute of frauds?
- Any two of the following three facts:
- 1) Buyer is in possession of the property
- 2) Buyer made some payment
- 3) Buyer made improvement to the property
Do contracts for less than one year have to be in writing?
No, there is an exception to the statute of frauds for contracts that can be performed within one year.
What are some exceptions to the rule that contracts for the sale of goods for $500 or more have to be in writing?
- Goods accepted or paid for by the buyer - applies only to goods accepted or paid for, not to the whole contract.
- Custon made goods - if seller has made a substantial start and they are not suitable for sale in the ordinary course of seller's business.
- Judicial admission (in a deposition, in testimony, etc.)
- Merchants' confirmatory memorandum: one party can use its own signed writing to satisfy the statute of frauds against the other party if: a) both parties are "merchants," b) the writing claims a prior oral agreement, c) the writing is signed and has a quantity, and d) there is no written objection within 10 days.
Under Article 2, when does a merchants' confirmatory memorandum satisfy the statute of frauds?
One party can use its own signed writing to satisfy the Statute of Frauds against the other party if:
- 1. Both parties are "merchants,"
- 2. The writing claims a prior oral agreement,
- 3. The writing is signed and has a quantity, and
- 4. There is no written objection within 10 days
Do suretyships have to be in writing to be enforced?
No, because your main purpose in giving the suretyship was to help yourself.
What is the parol evidence rule?
The parol evidence rule excludes evidence of prior or contemporaneous negotiations or agreements (either oral or written) that vary the terms of the later writing.
NOTE: Parol evidence rule question requires a WRITING.
What are exceptions to the parol evidence rule?
- To correct a clerical error
- To establish a defense against formation
- To interpret a vague or ambiguous term
- To supplement a partially integrated writing (a final statement of the terms included, but not a complete statement of all the terms that the parties agreed to)
- Subsequent developments
When can conduct explain terms or fill in gaps in a contract? (listed in preferred order)
- Course of performance - what the parties did under this contract
- Course of dealing - what hte parties have done under prior contracts wiht each other
- Usage of trade - what others in the trade do in similar contracts
What are express warranties under Article 2?
Statements of fact, promises, descriptions of the goods and the use of a sample or model. An opinion is not an express warranty.
What are implied warranties under Article 2?
- Implied warranty of merchantability - the goods are fit for their ordinary purpose
- Implied warranty of fitness for a particular purpose - the goods are fit for the buyer's particular purpose (the buyer has a special purpose in mind; the buyer is relying on the seller to pick out suitable goods, and the seller knows it)
What is the implied warranty of merchantability?
The goods are fit for their ordinary purpose.
What is the implied warranty of fitness for a particular purpose?
The goods are fit for the buyer's particular purpose.
- 1. The buyer has a special purpose in mind;
- 2. The buyer is relying on the seller to pick out suitable goods; and
- 3. The seller knows it.
Can a seller disclaim warranties under Article 2?
A seller can disclaim implied warranties but not express warranties, as by saying the goods are "as is" or "with all faults." If you use language specifically disclaiming the implied warranties of merchantability or fitness, you must make it conspicuous.
Can a seller limit a buyer's remedies for breach of any warranty under Aritlce 2?
Yes, so long as the limitation is not unconscionable.
NOTE: Limiting recovery with consumer goods for personal injury is PRESUMED to be unconscionable.
Can a seller of consumer goods limit recover for personal injury?
Yes, but limiting recovery with consumer goods for personal injury is presumed to be unconscionable.
How do you determine who bears the risk of loss under Article 2?
Agreement -- the agreement of the parties controls
Breach -- the breaching party bears the risk of loss, even if the loss is unrelated to the breach
Delivery by a common carrier (shipment contract - contract requires the seller to get the goods to the carrier - buyer has the risk of loss before he actually gets the goods) (destination contract - contract requires seller to get the goods to a specific destination)
FOB (free on board) (seller's location - this is a shipment contract) (buyer's location - this is a destination contract)
Non-Carrier Cases (merchant - the merchant bears the risk of loss until the buyer actually takes possession of the goods) (non-merchant - the seller bears the risk of loss until it "tenders" the goods by making them available to the buyer)
Who bears the risk of loss in a shipment contract (i.e., a contract requiring the seller to get the goods to the carrier) under Article 2?
The buyer has the risk of loss long before he actually gets the goods.
NOTE: Contracts that are FOB (free on board) at the seller's location are considered shipment contracts.
Who bears the risk of loss in a destination contract (i.e., a contract requiring the seller to get the goods to a specific destination) under Article 2?
NOTE: Contracts that are FOB (free on board) at the buyer's location are considered destination contracts.
Who bears the risk of loss under Article 2 in a non-carrier case?
- Merchant: the merchant beras the risk of loss until the buyer actually takes possession of hte goods.
- Non-merchant: the seller bears the risk of loss until it "tenders" the goods by making them available to the buyer.
Perfect tender rule
If tender is not perfect, buyer may reject the goods. (Note: a seller who fails to make perfect tender has an option to cure if: a) time has not expired; or b) time has expired but in the past the buyer has accepted non-perfect performance).
When does a seller who fails to make perfect tender have an option to cure?
- Time has not expired
- Time has expired but in the past the buyer has accepted non-perfect performance
Requires or authorizes delivery in separate installments (look at what the contract says, not what the parties are actually doing).
Buyer may only reject for substantial impairment - theory is that the seller can cure with the next shipment.
When the buyer keeps goods without objection after having an opportunity to inspect.
Can a buyer reject goods under Aritlce 2 after he has accepted them?
No. Once accepted, buyer can no longer reject. But a buyer can still get damages for non-conforming goods.
Can a buyer revoke acceptance of goods under Article 2?
Generally, no. Exception: substantial impairment, and difficult to discover (latent defect).
When can a buyer revoke acceptance of goods under Article 2?
When there is substantial impairment, and it is difficult to discover (latent defect).
What are the consequences of rejection or revocation under Article 2?
Return the goods at seller's expense; refund any money the buyer has paid for the goods; and damages -- can get damages for breach of contract.
What payment is required to satisfy performance under Article 2?
Can be by check under Article 2 but seller may require cash -- if seller requires cash, then the buyer must be given a reasonable time to get it.
What is required to satisfy performance under the common law?
Substantial performance is all that is required.
What are excuses for non-performance?
- Other party's breach
- Divisible contract
- Anticipatory repudiation
- Adequate assurance
- Later agreement
- Failure of an express condition
When is the other party's breach an excuse for non-performance under Article 2?
If the seller's performance is not perfect in every respect, buyer has pretty much free reign.
When is the other party's breach an excuse for non-performance under the common law?
Only a material breach provides an excuse for non-performance. But the injured party can recover damages for any breach of contract whether the breach is material or not.
Where payment is to be made on a per unit basis, the breaching party can recover the contract price for any unit on which she has substantially performed.
Other party can stop performance and sue for damages right away. If the non-repudiating party does not rely on the repudiation, the repudiator can retract and enforce the contract.
Adequate assurance (Article 2)
A party with reasonable grounds for being insecure about the other party's performance may request in writing adequate assurance that the other party will perform in accordance with the contract.
If you do not get adequate assurance you can treat it as anticipatory repudiation. Stop performance and sue for damages.
What result under Article 2 if a party requests adequate assurance in writing and the other party does not provide adequate assurance?
You can treat it as anticipatory repudiation. Stop performance and sue for damages.
What later agreements can excuse non-performance?
An agreement to cancel the contract.
Can be an excuse for non-performance.
An agreement to replace an existing contract with a new one. Takes effect immediately.
Can be an excuse for non-performance.
An agreement to accept performance in future satisfaction of an existing duty. Satisfaction = performance of the accord. The existing duty is extinguished only when the accord is satisfied.
Can be an excuse for non-performance.
An agreement to substitute a new party for an existing one.
Can be an excuse for non-performance.
What can constitute impossibility and therefore an excuse for non-performance?
- Destruction of something necessary for performance;
- Death/incapacity of an essential person
- Supervening governmental regulations
- Increase in the cost of seller's performance (almost never works)
- Frustration of purpose (need frustration of purpose AND seller knew what the purpose was)
Common law -- a later unforseen event that makes performance impossible may provide seller with an excuse for non-performance.
Article 2 -- called impracticability.
Does the destruction of something necessary for performance constitute impossibility and therefore an excuse for non-performance?
Common law -- an excuse for performance
Sale of goods -- seller is excused only if the damaged/destroyed goods had been "identified to the contract"
ROL -- if the seller had the risk of loss, then he is excused from performance; a buyer, however, is not.
Failure of an express condition
An event, not certain to occur, which must occur, unless occurence is excused, before a duty to perform arises. A condition limits or modifies duties created by other contract language; a condition does not create an independnet obligation. Look for words like "if," "as long as," "when," "provided that," "on condition that." and "unless."
Strict compliance is required but it does not create an independent legal obligation.
Does an express condition create an independent legal obligation?
Express condition. Measured by a reasonable person standard unless the contract deals with art or matters of personal taste.
Express condition precedent
The event must happen before the obligation is due.
Express condition concurrent
The event runs along with the obligation.
Express condition subsequent
Operates to cut off the obligor's duties.
Excusing the occurence of a condition
Occurence of a condition may be excused by the later inaction or action of the person whom the condition protects.
Failure to cooperate provides an excuse; the person who benefits from the condition has to make a good faith effort to see that the condition is met.
Waiver provides an excuse; in an installment-type situation, the person who benefits from the condition may retract the waiver and reinstate as to future performance as long as the other party has not yet relied.
What are non-monetary remedies?
- Specific performance
- Unpaid seller's right to reclaim goods
An equitable remedy, available only if monetary damages are inadequate to compensate the injured party. Availability of specific performance depends on the nature of the contract.
When is specific performance the ususal remedy?
For contracts involving real property, because real property is considered unique.
Is specific performance available in service contracts?
No, but injunctive relief may be.
When is the unpaid seller's right to reclaim goods available under Article 2?
This right is not available under Article 2 unless the buyer was insolvent when it received the goods and the seller makes a demand within 10 days after the buyer received them.
EXCEPTION: Seller can reclaim goods at any time if buyer misrepresented insolvency to seller in writing within 3 months before delivery.
NOTE: Right of reclaimation can only be asserted against the original buyer.
What are monetary remedies?
- Liquidated damages
- Expectation damages
- Incidental damages
- Consequential damages
When are liquidated damages upheld as a monetary remedy to a breach of contract?
If damages were difficult to estimate and are a reasonable forecast of probable damages.
Liquidated damages CANNOT be a penalty.
Graduated damages clauses are normally a reasonable forecast.
How do you determine whether liquidated damages are a reasonable forecast of probable damages?
Common law -- reasonableness must be judged at the time the contract was made, not when breached. Doesn't matter if it ends up reasonable.
Article 2 -- Court scan consider actual damages to validate liquidated damages.
NOTE: Graduated damages clauses are normally a reasonable forecast.
Put an injured party in the position she would have been in had the contract been performed.
What are the typical remedies under Article 2?
Expectation is the general rule.
- 1. Buyers
- a. Cover damages
- b. Market damages
- c. Loss in value
- 2. Sellers
- a. Resale damages
- b. Market damages
- c. Lost profit
- d. Contract price (only if goods are unique and the seller CANNOT resell the goods)
Cost to the injured buyer or seller of transporting/caring for goods after a breach and arranging a substitute transaction.
Damages special to this plaintiff that were reasonably forseeable to the breaching party at the time of the contract.
NOTE: Not available to a seller under Article 2.
Are consequential damages available under Article 2?
Only to a buyer; NOT to a seller.
Duty to mitigate
An injured party cannot recover damages he could have avoided with reasonable effort.
Entrustment (Article 2)
An owner who entrusts goods to a merchant who deals in goods of that kind has no rights against a bona fide purchaser.
A person who is not a party to a contract but has rights because the contract was intended to benefit her.
The party who promises to perform for the third-party beneficiary.
The party who secures the promise for the third-party beneficiary.
Someone who just happens to benefit from performance of a contract.
If the promisee's purpose was to confer a gift on a third-party beneficiary, then the third-party beneficiary is a donee beneficiary.
If the promisee's purpose was to pay off a debt to the third-party beneficiary, then the third-party beneficiary is a creditor beneficiary.
When can the promisor and promisee rescind or modify a contract involving a third-party beneficiary?
Generally, until the rights of the third-party beneficiary have vested. The rights vest when the party knows about them and materially changes position in reliance on the contract. (EXCEPTION: Contrary langugae in the contract controls.)
When do the rights of a third-party beneficiary vest?
When the party knows about them and materially changes position in reliance on the contract.
EXCEPTION: Contrary language in the contract controls.
How does liability work in a contract involving a third-party beneficiary?
- Promisor is liable to the third-party beneficiary
- Promisee is liable to a creditor beneficiary
- Promisor is liable to the promisee
Can contractual duties be delegated without the consent of the person to whom performance is owed?
- 1) Contract language controls
- 2) Cannot delegate responsibility involving personal skill or reputation
What are the rights of the oblige in a delegated contract?
- Delegating party remains liable (contract with a novation)
- A delegate who gets consideration is liable
Assignment of rights
Two people make a contract, the assignor transfers his rights to a third-party assignee. The party who owes the duty is the obligor.
Does the assignment of rights also transfer obligations?
No, it transfers only rights. The assignment of an entire contract transfers both rights and obligations.
What is required for an assignment of rights?
Language of present transfer is required. Consideration is NOT required.
Restrictions on assignment
Contract language controls
Can an assignment of rights substantially change duties of obligor?
How does liability work in an assignment of rights?
Obligor is liable to assignee.
Gratuitous assignments are easily revoked -- goes to the last gratuitous assignee.
Assignments for consideration -- the first assignee for consideration prevails over all subsequent assignees (as well as prior gratuitous assignees).
EXCEPTION: A later assignee for consideration prevails if he does not know of the earlier assignments and is the first to get payment from or a judgment against the obligor.