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Common law or UCC - divisible contracts
The purpose for contracting determines law for mixed contracts.
A contract is a legally enforceable agreement.
- Manifestation of a willingness to enter into an agreement by the offeror that creates a power to accept in the offeree.
- Objective theory of contracts - outward appearances, not secret intentions.
Direction of offer
- Specific offeree
- Can be broader in cases of advertisements or rewards.
Common law terms
All essential terms of the agreement (CL)
court may fill gaps for everything except quantity (UCC).
Requirements contracts, output contracts
Enforceable under UCC - objectively definable quantity.
Termination - Express revocation
Offeror revokes the offer via express communication to the offeree.
Termination - Constructive revocation
Offeree learns that the offeror has taken an action that is absolutely inconsistent with the continuing ability to contract.
Termination - Rejection
Offeree rejects the offer
Termination - Counter-offer
Offeree makes another offer.
Termination - Death
Unaccepted offer is terminated upon the death of the offeror.
Termination - Time
An offer will lapse after a reasonable amount of time.
Revoking an offer
Offeror is usually able to revoke an offer at any time prior to acceptance.
Irrevocable Offers: Option contract
A separate contract to hold the offer open for a stated period of time. Subject to its own K-law analysis. Will make an offer irrevocable
- Requirements: (1) in writing, (2) contain an explicit promise not to revoke, and (3) be signed by the merchant.
- Will last for the promised time, or if unstated, a reasonable amount of time not to exceed 90 days.
- May remain open even after the time the offer may remain firm.
Irrevocable Offers: performance
- Unilateral offer to contract cannot be revoked once performance has begun
- Offeree has a vested right to finish performing.
Irrevocable Offers: Promissory estoppel
The offeror cannot revoke the offer if the offereee reasonably and detrimentally relied on the offer in a foreseeable manner.
- Manifestation of a willingness to enter into the agreement by the offeror.
- Objective contract theory
Accepting an offer
- When specifically directed or communicated to the offeree
- The offeree must be aware of the offer.
Mirror Image Rule
- As the offeror is the master of the offer, the offeree must accept in the manner proscribed in the offer.
- Acceptance by another means is a counteroffer.
- MD: any reasonable means unless specified.
Accepting a unilateral offer
Only through performance.
Accepting a bilateral offer
By promise or performance
Acceptance by mail is valid when the letter is sent.
Mailbox rule doesn't apply when:
- Offeree mails something else first
- To other types of communications
- To option contracts
Mailbox rule - acceptance and rejection are both mailed
- Rule does not apply.
- Whichever letter which is opened first governs acceptance.
Acceptance by Silence
- An offeree cannot accept by silence except:
- (1) For unilateral rewards or contests,
- (2) Performance that the offeror can see performance occurring,
- (3) Past history of silence serving as acceptance
- (4) Acceptance conditioned on silence and offeree intends to accept by silence.
Serves both as a rejection of the offer by the offeree as well as a new offer which is created by the offeree (now offeror).
UCC 2-207 - Non-merchant
- K with additional terms acceptance unless offer expressly conditioned.
- Additional terms fall out, and may be accepted by the parties.
UCC 2-207 - Between merchants
Additional terms govern unless (1) material alteration, (2) initial offer expressly limited, (3) offeror does not object within a reasonable time.
Bargained-for exchange promises involving a legal detriment or benefit.
MD: Form of Consideration
- (1) a return promise to do something,
- (2) a return promise to refrain from doing something legally permitted,
- (3) the actual performance of some act, or
- (4) refraining from doing that act.
conditional gifts are not bargained-for consideration.
Must be some adequacy of consideration.
A promisor does not clearly commit to the deal, and does not serve as consideration.
MD: past consideration
May be acceptable to prevent injustice.
A promise not to sue: consideration?
- (1) an honest belief in the validity of the claim
- and (2) a reasonable basis for that belief.
CL: Pre-existing duty rule
- A promise to do something that you are already obliged to do is not consideration, unless:
- There is a change in performance
- A third party promises to pay
- Unforeseen circumstances which would excuse performance
Partial payment for release from debt obligations
Valid consideration when the debt is neither (1) due nor (2) disputed.
Pre-existing duty rule - UCC
Modifications made without new consideration which are made in good faith are binding.
Consideration substitutes: Promissory estoppel
- (1) a promise is made that would be reasonably expected to induce reliance,
- (2) the promisee takes detrimental action in reliance on the promise, and
- (3) injustice can be avoided only by enforcing the contract.
MD Distinction: Promissory Estoppel
- (1) promisor should reasonably expect to induce action or forbearance by the other party,
- (2) the promise did induce action/forbearance, and
- (3) injustice can be avoided by enforcement of the promise.
- Proof of reliance by clear and convincing evidence.
Consideration substitutes: Quasi-contract
Contracts implied-in-law where (1) the plaintiff confers a measurable benefit on the defendant, (2) the plaintiff reasonably expected to get paid and (3) it would be unfair to let the defendant keep the benefit without paying.
Seal on Contracts: MD
No requirement for a seal, but the statute of limitations twelve years.
MD: Defense to formation
Illegality, public policy and unconscionabilty
MD: Defense to enforcement.
All other defenses not illegality, public policy or unconscionability.
- Two parties attach different meanings to the same words.
- (1) A material term which is open to two or more reasonable interpretations,
- (2) Neither side attaches a different meaning to the term
- (3) Neither party knows of the confusion
A belief which is not in accord with a present fact.
- Contract rescission
- (1) there is a mistake of fact that existed at contract formation
- (2) which relates to a basic assumption of the contract which has a material impact on the deal, and
- (3) the impacted party had not assumed the risk of the mistake.
MD: Mutual Mistake
Remedy of restitution harmed party and reformation of written contracts to fix mistakes unless likely to harm a third party.
- (1) there is a mistake of fact that existed at contract formation
- (2) which relates to a basic assumption of the contract which has a material impact on the deal,
- (3) the impacted party had not assumed the risk of the mistake, and
- (4) (a) unconscionable, or (b) the other party knew of, or had reason to know of, or caused the mistake.
MD: Unilateral mistake
rescission when (1) mistake so severe that enforcement would be unconscionable. (2) mistake is material portion of K, and (3) aggrieved party was not aware nor the cause of the mistake.
Assumption of the risk of mistake
- (1) it is assigned via contract,
- (2) a party knows of limited knowledge with respect to the facts but considers it sufficient, or
- (3) risk is allocated by the court as reasonable under the circumstances.
Minors, the intoxicated and the mentally ill
- Before reaching age of majority, a minor can make the contract voidable.
- The minor must bring whatever remains of the contract.
- Contracts for items that a minor needs to live cannot be voided in toto.
- Can void to get difference between contract price and FMV.
Mentally ill persons
- (1) understand the nature and consequences of their actions, or
- (2) act in a reasonable manner in relation to the transaction
- A statement at the time of contracting that is not true.
- (1) a misrepresentation of a present fact
- (2) that is material or fraudulent and
- (3) justifiable under circumstances to rely on the representation.
Nondisclosure: Defense to Formation/Enforcement
- Silence + other party does not learn.
- Requires (1) a fiduciary relationship or (2) an act of concealment.
An improper threat that deprives a party from making a meaningful choice to contract.
A party in a position of trust puts pressure on another party susceptible to the influence.
- A contract for an illegal act is unenforceable.
- A contract which later become illegal is enforceable.
A contract contrary to public policy is not enforceable.
MD Distinction: non-competition clauses in employment contracts
Void under public policy if the clause is (1) beyond what is reasonably necessary to protect the business, or (2) imposes undue hardship on the employee.
- A contract which is so one-sided that it shocks the conscience of the court.
- This is a question of law which does not go to the jury.
A defect in the bargaining process, like surprise or a contract of adhesion
A rip-off in the contract.
Marriage & SOF
- Any agreement made in consideration of marriage must be in writing.
- The marriage itself need not be in writing.
Suretyship & SOF
Any contract promising to guarantee the debt of another must be in writing, unless the main purpose of paying the debt of another is for the surety's benefit.
One Year Rule & SOF
Any contract which has a term that cannot possibly be performed within one year of the formation must be in writing. This is interpreted narrowly.
UCC $500 & SOF
Any contract for the sale of goods in excess of $500 must be in writing.
Real property Ks & SOF
Any contract for the sale of an interest of real property must be in writing.
Satisfying SOF through a writing
- (1) identifies the parties
- (2) which contains the essential elements of the deal and
- (3) is signed by the party against whom enforcement is sought.
Real estate deals satisfy SOF through:
- Complete performance
- Partial performance + two of three
- Improvements upon the land
Miscellanous SOF issues
- Agents must have a signed writing to authorize contract formation under the equal dignity contract.
- A modification to a contract originally subject to SOF must also be subject to SOF to require a writing for the modification to be enforceable.
Whether a prior oral or written statements (extrinsic evidence) can be used when interpreting a subsequent written agreement.
Completely integrated writing
- Contract expresses all terms of the agreement.
- Can be evidenced by a merger agreement.
Partially integrated writing
- Contract is final, but some terms are not included.
- Some terms may be naturally omitted from a contract.
Contradictory evidence and PER
Contradictory extrinsic evidence is barred by PER.
- A promise that affirms or describes the goods, and that itself is the basis of the bargain.
- NOT an opinion or puffery.
Implied warranty of merchantability
- A guarantee that goods are fit for their ordinary commercial purposes.
- Can be disclaimed if clear and conspicuous.
- Must be a merchant.
Implied warranty of suitability for a particular purpose
- A guarantee is implied when (1) a seller knows of a buyers special purpose and (2) the buyer relies on the sellers expertise when buying the good.
- Need not be a merchant.
- Can be disclaimed.
A future event which, upon its occurrence, triggers contractual liability in one or more parties.
- Created by language of uncertainty in the contract.
- Must be strictly satisfied unless excused.
Waiver of a condition
- Via conduct.
- Via wrongful interference (good faith standard).
Constructive Condition of Exchange
Under the constructive condition of exchange, one partys performance is conditioned upon the other sides performance.
Constructive Condition of Exchange: CL
Substantial performance - when (1) breach is not material and (2) breach is not willful.
- (1) Unforeseeable event
- (2) of which the non-occurrence was a basic assumption of the contract and
- (3) the party seeking discharge was not at fault.
- If one party assumes the risk, it cannot subsequently raise this excuse.
MD Distinction: impracticability
- Unforeseen cost spikes - yes.
- Foreseeable failures of supplies - no.
Death does not typically excuse liability for continuing to perform a contract unless there is something special to that persons performance.
Frustration of purpose
- (1) unforeseen event undermines a party's principal purpose for entering into a contract, and
- (2) both parties knew of this principal purpose
- (3) at the time the contract was made.
Consideration for cancellation of contracts
- If both parties have performance remaining, they can both step away from performing the contract.
- This waiver of continued performance serves as binding consideration.
Accord and Satisfaction
- When the parties to an old contract agree that performance will be satisfied by a new contract.
- Accord: the old contract
- Satisfaction: the new contract which satisfies the old contract.
- If a party breaches the satisfaction, the nonbreaching party can sue under the accord or satisfaction.
- Both parties agree for a substitute person to take over contractual obligation.
- Original promisor is excused for performance, and cannot be sued for any subsequent breach.
Anticipatory repudiation: common law
- (1) definite, clear and unequivocal manifestation of intent on the part of a party
- (2) that he does not intend to perform when performance is due.
What can you do - anticipatory repudation?
- (1) treat repudiation as breach and sue immediately, or
- (2) demand performance and what for the actual breach.
When can you retract repudation?
Retraction when (1) it has not been sued yet or (2) the nonbreaching party has acted in reliance upon the repudation.
Adequate assurances of performance
- May demand when reasonable grounds for insecurity about the other sides performance
- Failure by other party to respond within a reasonable time is repudiation.
Money damages are the typical remedy in contract law.
Awarded to put the non-breaching party in the same position that it would have been performed.
- Damages must be proven with reasonable certainty.
- Issues with new or unproven business ventures. MD Courts dislike.
Duty to mitigate
Take reasonable steps to reduce damages arising from the breach.
- Damages which are unique or special to the plaintiff.
- These damages must be either (1) foreseeable or (2) known to the defendant at the time of contracting.
Damages which put a party in the same economic position that it would have been had the contract never been created.
Damages which give the plaintiff an amount equal to the economic benefit that the plaintiff bestowed upon the defendant.
- Damages agreed upon in the contract.
- Enforceable only if (1) liquidated damages were reasonable at time of contracting, and (2) actual damages would be uncertain in amount and difficult to prove.
Lost volume profits
In spite of mitigation, the seller of a good may try to get expectation damages if the seller commonly sells these products in volume.
- When money damages are presumably inadequate.
- Real property and unique goods like art or custom-made items.
May be provided to prevent the sale of real property or to prevent the breaching party from performing for a competitor.
Has a right to sue to enforce.
Cannot sue to enforce.
A third party who strikes a deal with the promisor to satisfy a pre-existing obligation, and may sue to enforce.
If the promisor intended to convey the gift to the donee beneficiary, then the donee beneficiary may sue to enforce.
When do 3rd party rights vest?
- 3PB detrimentally relies on the rights
- 3PB manifests assent to the contract/rights
- 3PB files suit to enforce the contract.
- Transfer of rights under a contract.
- Rights transferrable even when prohibited - agreement must invalidate.
Double assignment of rights
Without consideration, the last assignment controls. With consideration, the first assignment controls.
- The transfer of duties under a contract.
- Delegable except where:
- (1) Contract prohibits delegation
- (2) Special interest with a specific individual performing
Delegation and Breach
Delegatee is generally not liable for breach unless consideration is given for the delegation.