Contracts & Sales Flashcards (66 Cards)

Contracts for the sale of goods (movable, tangible property) are governed by UCC Article 2. Contracts for services, real estate, and intangibles are governed by the common law. Identify the subject matter first; the body of law dictates the rules that follow.

Apply the predominant purpose test: the whole contract is governed by a single body of law based on its dominant element. If goods predominate, the UCC controls the entire deal; if services predominate, the common law controls. An exception exists where the contract divides payment by category.

A merchant is one who regularly deals in goods of the kind or who otherwise holds out special knowledge or skill regarding the goods or practices involved. Merchant status triggers heightened rules such as the firm offer, the implied warranty of merchantability, and special handling of additional terms under 2-207.

An offer is a manifestation of present willingness to enter a bargain, made so that the recipient reasonably understands that assent will conclude the deal. It requires a serious intent to be bound, communication to the offeree, and reasonably certain terms. Advertisements are generally treated as invitations to deal, not offers.

At common law, all essential terms (parties, subject, price, quantity) generally must be definite. The UCC is more forgiving and will fill gaps (price, time, place of delivery) so long as the parties intend to contract and a remedy can be fashioned. Quantity, however, normally cannot be supplied by the court.

An offer is terminated by rejection or counteroffer by the offeree, revocation by the offeror, lapse of time (a stated period or a reasonable time), or operation of law (death or incapacity of either party, destruction of the subject matter, or supervening illegality).

A revocation is effective when received by the offeree. Generally an offeror may revoke any time before acceptance, even after promising to keep the offer open, unless the offer has become irrevocable. Revocation may be communicated directly or indirectly through reliable information of conduct inconsistent with the offer.

(1) An option supported by consideration; (2) a merchant's firm offer under the UCC; (3) part performance of an offer for a unilateral contract; and (4) detrimental reliance that the offeror should reasonably have expected (promissory estoppel).

A firm offer is irrevocable if made (1) by a merchant, (2) in a signed writing, (3) giving assurance the offer will be held open. It stays open for the time stated, or a reasonable time if none is stated, but in no event longer than three months. No consideration is required.

Once the offeree begins actual performance of an offer that can only be accepted by performance, the offer becomes temporarily irrevocable, giving the offeree a reasonable time to finish. Mere preparation to perform does not lock in the offer (though it may support a reliance claim).

Under the mirror image rule, an acceptance must match the offer exactly. Any change to the terms acts as a rejection plus a counteroffer, which the original offeror may then accept or reject. This rule applies to common law contracts, not to UCC sales of goods.

A definite acceptance forms a contract even with additional or different terms. Between merchants, additional terms become part of the contract unless (a) the offer limited acceptance to its terms, (b) the new terms materially alter the deal, or (c) the offeror objects within a reasonable time. With a non-merchant, the added terms are mere proposals.

If the documents do not form a contract but the parties' conduct recognizes one, a contract exists. Its terms are those on which the writings agree, with conflicting terms typically knocked out and replaced by the UCC's gap fillers (the knockout rule).

Under the mailbox rule, an acceptance is effective when dispatched, not when received. Exceptions: it does not apply to option contracts (effective on receipt), it yields when the offer says receipt is required, and a rejection sent before an acceptance controls if the rejection arrives first.

Such an offer invites acceptance either by a promise to ship or by prompt shipment of conforming (or even nonconforming) goods. Shipping nonconforming goods is both an acceptance and a breach, unless the seller seasonably notifies the buyer that the shipment is offered only as an accommodation.

Consideration is a bargained-for exchange of legal value. The promisee must incur a legal detriment or the promisor a benefit, and that detriment or benefit must be sought by the promisor in exchange for the promise. Gifts and past consideration generally do not qualify.

Performing or promising to perform a duty one already owes is not consideration. Thus a promise to pay more for the same performance is unenforceable unless there is new consideration, a change in performance, an unforeseen difficulty, or the duty is owed to a third party.

At common law, a modification needs new consideration (the pre-existing duty rule), though an unforeseen difficulty can excuse this. Under the UCC, a modification needs only good faith, no new consideration, but may still require a writing under the Statute of Frauds.

Promissory estoppel enforces a promise without consideration where (1) the promisor makes a promise expecting to induce reliance, (2) the promisee reasonably and detrimentally relies, and (3) injustice can be avoided only by enforcement. Recovery may be limited to the reliance interest as justice requires.

Use MY LEGS: Marriage (in consideration of); Year (cannot be performed within one year); Land (transfers of an interest in real property); Executor/administrator promising to pay estate debts personally; Goods of 500 dollars or more (UCC); Suretyship (promise to answer for another's debt). These need a signed writing.

A writing (or set of writings) must show the essential terms and be signed by the party to be charged. A signature can be any mark intended to authenticate. For UCC sales, the writing need only indicate a sale, be signed, and state a quantity; it is enforceable only up to the quantity shown.

Use SWAP: Specially manufactured goods (not resalable, where the seller has substantially begun); Written merchant confirmation not objected to within 10 days (binds both merchants); Admission in pleadings or court; Part performance (enforceable as to goods paid for or accepted).

Minors and the mentally incompetent may disaffirm (void) their contracts, making the contract voidable at their option, while the other party remains bound. A minor who keeps the benefit after reaching majority may ratify. Even a minor must usually pay the reasonable value of necessaries.

A mutual mistake about a basic, material fact makes the contract voidable by the adversely affected party, unless that party bore the risk of the mistake. A unilateral mistake is generally not a defense unless the other party knew or should have known of it, or enforcement would be unconscionable.

A misrepresentation is a false assertion of fact that induces assent and is justifiably relied upon. If fraudulent or material, it makes the contract voidable. Fraud requires scienter and intent to induce; even an innocent material misstatement can rescind. Nondisclosure can count where there is a duty to speak.

Duress is an improper threat leaving no reasonable alternative (economic duress qualifies). Undue influence is unfair persuasion by one who dominates or holds a relationship of trust. Unconscionability, judged at formation, has a procedural prong (unfair bargaining) and a substantive prong (oppressive terms).

If the subject matter is illegal, the contract is void. If the purpose is illegal, it is voidable by the party who did not know of the illegality. Courts generally leave the parties as they are, but exceptions protect a party who was justifiably ignorant, not in pari delicto, or part of a protected class.

When parties adopt a writing as the final expression of their agreement, the parol evidence rule bars evidence of prior or contemporaneous agreements that contradict the writing. A fully integrated writing also excludes consistent additional terms; a partially integrated one allows them.

It does not bar: evidence to show a defense (fraud, duress, mistake, lack of consideration), to interpret an ambiguous term, to show a condition precedent to effectiveness, to prove a collateral agreement, or to show a subsequent modification made after the writing.

An express warranty arises from any affirmation of fact or promise, description of the goods, or sample/model that becomes part of the basis of the bargain. Mere opinion or sales puffery does not create a warranty. The seller need not use formal words like warrant or guarantee.

Merchantability (implied only when the seller is a merchant in goods of the kind) means the goods are fit for their ordinary purpose. Fitness for a particular purpose arises when any seller has reason to know of a special purpose and the buyer relies on the seller's skill to select the goods.

Merchantability may be disclaimed by mentioning merchantability (conspicuous if written); fitness must be disclaimed in writing and conspicuously. Both are disclaimed by terms like as is or with all faults, by the buyer's examination of the goods, or by course of dealing/usage of trade.

An express condition is an explicit contractual event that must occur before performance is due and requires strict compliance. A constructive (implied) condition is imposed by the court to ensure fairness in the order of performance and requires only substantial compliance.

A condition may be excused by waiver, by the estoppel of one who induces reliance, by wrongful interference or hindrance by the party benefiting from the condition, or to avoid a disproportionate forfeiture. Excuse means the conditioned duty becomes due despite nonoccurrence.

A material breach deprives the nonbreaching party of the substantial benefit of the bargain, excusing its performance and allowing immediate suit for the whole contract. A minor breach (where there is substantial performance) does not excuse counterperformance; the injured party may sue only for the damages caused.

Under the perfect tender rule, if goods or their delivery fail to conform in any respect, the buyer may reject all, accept all, or accept any units. The seller may cure within the original contract time, and even after it if the seller reasonably believed the tender would be acceptable.

A buyer may revoke acceptance if a nonconformity substantially impairs the goods' value and the buyer accepted either on the reasonable belief the defect would be cured (and it was not) or without discovering the defect due to difficulty of discovery or the seller's assurances. Revocation must be timely, before substantial change in the goods.

In an installment contract (goods delivered in separate lots), the buyer may reject a single installment only if the nonconformity substantially impairs that installment and cannot be cured. The whole contract is breached only if a defect substantially impairs the value of the entire contract.

An anticipatory repudiation is an unequivocal statement or act, before performance is due, that a party will not perform. The nonrepudiating party may sue immediately, suspend its own performance and await performance, treat the contract as discharged, or urge retraction. It must involve a future, not yet due, duty.

Under the UCC, a party with reasonable grounds for insecurity may make a written demand for adequate assurance of performance and may suspend its own performance in the meantime. Failure to provide assurance within a reasonable time (not over 30 days) is treated as a repudiation.

Impossibility: performance is objectively impossible (death of an essential person, destruction of subject matter, supervening illegality). Impracticability: an unforeseen event makes performance extremely and unreasonably difficult. Frustration: an unforeseen event destroys the purpose of the deal, though performance remains possible. Each requires a basic assumption shared by the parties and no allocation of the risk.

An accord is an agreement to accept a different performance to discharge a duty; the satisfaction is its performance, which discharges the original duty. A novation substitutes a new party by agreement, releasing the original obligor. A rescission is a mutual agreement to cancel, discharging both parties' remaining duties.

Expectation damages put the injured party where it would have been had the contract been performed (the benefit of the bargain). Reliance damages restore the party to its precontract position by reimbursing costs incurred. Restitution prevents unjust enrichment by recovering the benefit conferred on the other party.

Foreseeability (damages must have been reasonably foreseeable to the breaching party at formation, per Hadley v. Baxendale); certainty (damages must be proven with reasonable certainty, not speculative); and mitigation (the injured party may not recover for losses it could have reasonably avoided).

A liquidated damages clause is valid if (1) actual damages were difficult to estimate at the time of contracting, and (2) the amount is a reasonable forecast of probable loss. If the sum operates as a penalty (grossly disproportionate to actual harm), it is unenforceable, and ordinary damages apply.

On the seller's breach, the buyer may cover (buy substitute goods and recover the price difference plus incidentals less expenses saved) or recover market damages (market price minus contract price). For accepted nonconforming goods, the buyer recovers loss in value (warranty damages). Specific performance is available for unique goods.

On the buyer's breach, the seller may resell and recover the contract price minus resale price, recover market damages (contract price minus market price), recover lost profits as a lost-volume seller, or in limited cases recover the full price (when goods cannot be resold or were accepted).

Specific performance is available when the legal remedy (damages) is inadequate, typically for land (always considered unique) and unique goods (rare items, antiques). Terms must be definite, and the court must be able to supervise. It is generally not ordered for personal service contracts.

An intended beneficiary (creditor or donee) can enforce the contract; an incidental beneficiary cannot. The beneficiary's rights vest when the beneficiary learns of and assents, sues, or detrimentally relies. Before vesting, the original parties may modify or rescind freely.

An assignment transfers contract rights; a delegation transfers duties. Rights are freely assignable unless assignment materially changes the obligor's duty or risk or is barred. Duties are delegable unless personal or specially skilled. The delegating party remains liable unless a novation releases it.

Quantity measured by seller's actual output or buyer's good-faith needs — not illusory because limited by good faith; no quantity unreasonably disproportionate to any stated estimate or prior demand.

A promise that reserves an unlimited right to back out (“I'll buy if I feel like it”) is no consideration. Cured by good-faith, best-efforts, or notice-of-termination limits.

With reserve (default) — auctioneer may withdraw before the hammer; each bid is an offer. Without reserve — goods cannot be withdrawn once bidding opens. Bidder may retract until the hammer falls.

Treated as an acceptance forming a contract AND a simultaneous breach — unless seller seasonably notifies it is an accommodation, which makes it a counteroffer the buyer may accept or reject.

UCC needs only good faith (no new consideration). A signed no-oral-modification (NOM) clause is enforceable; against a non-merchant on a consumer form it must be separately signed. Failed oral mod can still operate as a waiver.

Agreement to accept a different performance; original duty suspended until the accord is performed, then discharged. Good-faith cashing of a conspicuously marked “payment in full” check on a genuinely disputed claim discharges the debt.

Missing price = reasonable price at delivery; place = seller's place of business; time = reasonable time; payment = due on delivery. Open terms are fine if parties intended to contract — only quantity is essential.

A good-faith purchaser for value takes good title from one who got the goods by fraud (voidable title). Entrusting goods to a merchant who deals in that kind lets the merchant pass title to a buyer in the ordinary course. Void title (theft) passes nothing.

Right to inspect before payment/acceptance. Rejection must be within a reasonable time with notice; merchant buyer must follow seller's reasonable disposal instructions. Acceptance = words, retention after chance to inspect, or use inconsistent with seller's ownership; once accepted, buyer must pay and loses the right to reject.

Cash-sale seller may reclaim on a bounced check; credit seller may reclaim within 10 days of delivery if buyer was insolvent (no limit if buyer misrepresented solvency in writing within 3 months). On buyer's insolvency seller may refuse delivery except for cash and stop goods in transit.

If performance is split into agreed pairs of equivalents, breach of one unit does not necessarily breach the whole; recovery is allowed for substantially performed units even by a breaching party.

Where no enforceable contract exists, recover the reasonable value of a benefit conferred to prevent unjust enrichment. Also available to a breaching party for benefit beyond damages, and to the non-breacher as an alternative to expectation.

Reliance = out-of-pocket costs to put P back where she started (used when expectation is too uncertain). Restitution = value of the benefit conferred on the breaching party.

Incidental = costs of cover/inspection/storage. Consequential = lost profits/foreseeable losses (Hadley) — recoverable by buyer only, subject to mitigation; seller generally gets no consequential damages under the UCC.

Four years from breach (tender, or for future-performance warranties when the breach is or should be discovered); parties may shorten to one year but not extend.

A promisor sued by an intended beneficiary or an assignee may raise all defenses arising from the contract itself; an assignee for value who took without notice may cut off some personal defenses (waiver-of-defense / holder-in-due-course concepts).