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Contracts
| Term | Definition |
|---|---|
| uniform Commercial Code (UCC) | Governs the sale of goods (tangible personal property). Common law principles apply unless displaced by the UCC. |
| Common Law | governs all other contracts |
| Mixed contracts | If a contract involves both goods and services, then look at the predominant purpose to determine if the UCC or CL governs. |
| Contract formation | for a valid contract - need Mutual assent, certainty of terms, and consideration |
| Mutual Assent | most common version is offer and acceptance |
| Valid offer | A manifestation of the willingness to enter into a bargain where the other party understands that party is invited to form a deal (objective theory); it must be clear, definite, and explicit. |
| Not offers | Jokes; Invitations to make an offer, Offers that lack specificity and Advertisements, unless the ad identifies a particular person or class of persons who may accept the deal through performance. |
| Termination of offer | The power to accept the offer terminates if any of the following occurs: (1) revocation, (2) lapse of time, (3) rejection, (4) counteroffer, or (5) death or incapacity of the offeree or offeror |
| Revocation | An offer may be revoked any time prior to acceptance, directly or indirectly- |
| Revocation: Effective upon receipt | Revocation is effective when the offeree receives reliable news of the revocation. UCC: Revocation is also effective when notice is delivered in a reasonable form at business or another location for receipt |
| Irrevocable offer | Valid consideration, firm offers, reasonable reliance, unilateral contracts |
| IO: Valid consideration | An option contract (where an offer is irrevocable) is created when an offeror promises to hold the offer open for a specified period of time in exchange for valid consideration. |
| IO: Firm Offers | When a merchant makes an offer to buy/sell goods in a signed writing, the offer is irrevocable for the period stated or a reasonable time, never to exceed three months. |
| IO: Reasonable Reliance | An option contract is created if an offeror reasonably expects the offeree’s reliance on the offer. |
| IO: Unilateral Contract | An option contract is created if an offer invites acceptance by performance only and the offeree has begun performance; the offeree has a reasonable time to complete performance. |
| Lapse of time | An offer terminates after the time specified by the offeror, or if no time is specified, then a reasonable period of time. |
| Rejection | A rejection is legally operative when received by the offeror |
| Counteroffer | (1) Rejects the original offer and (2) makes a new offer to enter into a contract based on the terms in the counteroffer. |
| CO: Common Law | courts applied the mirror-image rule under which an acceptance that included different terms than those in the original offer was considered a counteroffer. The modern common law view, however, is the same as the UCC view. |
| CO: UCC | An acceptance that includes terms different than the original offer is not considered a counteroffer unless acceptance is dependent or conditioned upon assent to the changes or additional terms. |
| CO: Option Contract | When an offer remains open because of an option contract, a counteroffer made during the option period does not terminate the power of acceptance. |
| Death or incapacity | If the offeror or offeree dies or becomes incapacitated, then the offer terminates unless an option contract was created, in which case the offer remains open for the option period. |
| Valid Acceptance | An objective manifestation of assent to the specific terms in the offer, in the invited or required manner, with knowledge that the offer was made; it must be definite and unequivocal. |
| Acceptance Conditions | An offeror may include requirements or terms that must be met for the offeree to have the power to accept. If conditions dictated by the offer are not met, then acceptance is not valid. |
| Acceptance Manner | If an offeror does not specify the method or manner, acceptance may be by any reasonable manner and by any reasonable communication method. |
| Acceptance Notice | Bilateral contracts- offeree to exercise reasonable diligence to notify the offeror of acceptance; unilateral contracts require no notification unless notification is requested or the offeree has reason to know will not learn of the performance. |
| Acceptance: Mailbox Rule | Acceptance made in the correct manner and medium is valid as soon as it leaves the offeree’s possession, but rejections are legally operative when received. |
| Acceptance: Mailbox Rule Exceptions | The mailbox rule does not apply to option contracts, offer states acceptance is valid only when received, or when the offeree sends a rejection and then an acceptance, in which case acceptance is valid only if received first by the offeror |
| Acceptance: Absence of written contract | Under the UCC, if both parties engage in conduct that recognizes the existence of a contract for the sale of goods, if the parties’ written communications are not sufficient to establish mutual assent. |
| Acceptance: Shipment Contracts | Under the UCC, an order to buy goods for prompt shipment invites acceptance either by a prompt promise to ship or by prompt shipment of conforming or nonconforming goods. |
| Certainty of Terms | The terms must be sufficiently definite to enable the court to determine the parties, whether the agreement has been breached, and a remedy. |
| CoT: Common law | The offer must identify the offeree, conduct the offeree must perform, the subject matter of the contract, and the price or other definable obligations with reasonable certainty. |
| Cot: UCC | The offer must identify the subject matter and quantity unless the contract is an output contract (i.e., to purchase the entire amount produced by the seller) or requirements contract (i.e., to sell the buyer the amount the buyer needs). |
| Consideration | Parties must enter into a bargained-for exchange (one party’s promise/performance induced the other party’s promise/performance); a benefit to the promisor and detriment to the promisee are evidence of consideration. |
| No consideration | Conditional Gifts, Past/Moral Consideration, Preexisting Legal Duty, Large Disparity in the Exchange, Illusory Promises |
| No Consideration: Conditional Gifts | Unless the promisor’s motive was to induce a return promise; |
| No Consideration: Past/Moral Consideration | Past services given gratuitously, unless enforcing the promise is necessary to prevent injustice; |
| No consideration: Preexisting Legal Duty | Promises to act in a way that is the same as the promisor’s then-existing legal obligation; |
| No consideration: Large disparity | Contracts in which the exchange was not truly bargained for or a mere formality, but courts usually do not inquire into the adequacy of consideration |
| No Consideration: Illusory Promises | Where the promisor has retained the choice to perform or not. |
| Promissory Estoppel | The promisor should have reasonably expected to induce an action or forbearance of the promisee ; The promise did induce such action or forbearance of the promisee or third party; and injustice can be avoided only by enforcement of the promise. |
| Quasi-Contract | The party seeking recovery provided a benefit to another party; The party seeking recovery had a reasonable expectation of compensation for the benefit conferred; and It would be unjust for the other party to retain the benefit without paying for it. |
| Statute of Frauds | Certain contracts must be signed and in writing |
| SoF: Contract Types | Interests in land; Contracts that cannot be fully performed within a year; Promises by executors or administrators to personally pay debts; Suretyships; Contracts made in consideration of marriage; or Sale of goods for $500 or more. |
| SoF; Writing | Must state the parties, subject matter, and essential terms of the contract. Under the UCC, a writing that satisfies the statute of frauds is not enforceable beyond the quantity of goods shown in such writing. |
| SoF: Signed | A valid signature includes any symbol or express indication of the party’s name, showing that the party intended to enter into the agreement (e.g., letterhead, initials, typed name, electronic or stamped signature). |
| SoF: Signed exception | A signature is not required if the contract is between two merchants, the party seeking enforcement sent the memo within a reasonable time, and the other party had reason to know of the memo’s contents and did not object within 10 days of receipt |
| SoF: Modifications | If a modified contract falls under the SOF, then the modification must be in writing and signed by the party to be charged. |
| SoF: Exceptions | The party against whom enforcement is sought admits the contract exists; A party has partially performed the obligations under the contract; The elements of promissory estoppel are met; or The contract is for specially manufactured goods still enforcable |
| Common law Modification | mutual assent, certainty, and new or different consideration unless is fair and equitable in the view of circumstances not anticipated by the parties, or enforcement is justified due to a material change of position in reliance on the modification. |
| UCC Modification | Requires good faith by both parties; no new consideration is needed. |
| Conditions | If a party’s performance is conditioned on an event that does not occur, then no performance is due, and the nonperforming party cannot be held liable for breach unless an excuse or waiver applies. |
| Types of conditions | Precedent, subsequent, Concurrent |
| ToC: Precedent | States an event must occur before a duty arises. |
| ToC: Subsequent | Discharges a duty that already exists. |
| ToC: Concurrent | Exist when each party’s performance is conditioned upon the other party’s performance. |
| Creation | Conditions arise if they are (1) expressed in the parties’ agreement or (2) implied by law. |
| Excuses | The nonoccurrence of a condition is excused if (1) it would be unjust to insist on the occurrence of the condition, or (2) the party wrongfully prevented the condition from occurring |
| Waiver | A condition may be waived via election waivers or estoppel waivers |
| Election Waiver | . Election: A voluntary relinquishing of a known right; only applies to immaterial terms. |
| Estoppel Waiver | Estoppel: One party manifests a willingness to perform even though the condition has not yet occurred; applies to all terms and can be retracted if the other party has not detrimentally relied on it |
| Satisfaction | A reasonable person standard is used to determine if a condition is satisfied, unless the party’s duty to perform is conditioned upon the party’s satisfaction with a matter of personal aesthetics. |
| Satisfaction: Personal Aesthetics | condition is not satisfied if the party is dissatisfied in good faith. t party is an entity , then the objective standard for satisfaction. If the satisfaction of an independent person who is not a party to the contract is required, a subjective standard |
| Breach | To prevail on a breach-of-contract claim, the nonbreaching party must show it was ready, willing, and able to perform. |
| Common law Material breach | A party’s failure to substantially perform its obligations will discharge the nonbreaching party’s obligation to continue performance. Factors used to determine if there was substantial performance include: |
| common law Material Breach Factors | extent injured party be deprived, extent injured party can be adequately compensated , extent to which the breaching party will suffer hardship, likelihood the breaching party will cure; extent to which the breaching party’s conduct constitutes good faith |
| CL Material Breach: Divisible Contracts | If contractual performance divided into multiple jobs and each job, then one party’s performance of a particular job triggers the other party’s duty to pay for that job, even if the performing party breaches another part of the contract. |
| CL Material Breach: Delay in performance | material breach, to determine whether the injured party’s duty to perform is discharged, the courts will look at (1) whether the delay prevented or hindered any reasonable substitute arrangements and (2) whether timely performance was important |
| CL partial Breach | If a breach is immaterial, the nonbreaching party is required to fulfill its remaining duties but may then sue to recover damages. |
| UCC Perfect Tender Rule | Requires that the goods and tender match all contract specifications. |
| Seller's Breach | If goods or delivery do not conform to the contract, the buyer may: (1) Reject all goods; (2) Accept some goods and reject the rest; or (3) Accept all goods and sue for the deficiency. |
| UCC Breach: Inspection | The buyer has the right to inspect goods at a reasonable time, place, and manner; the buyer bears the expense of inspection unless the goods are nonconforming and rejected. |
| UCC Breach: Cure | time for performance not expired, then the seller may notify the buyer of intent to cure and cure. If performance time expired, the seller can cure-reasonable grounds to believe accepted; Notifies the buyer of the intent to cure, cures in reasonable time |
| UCC Breach: Right to Reject | Acceptance extinguishes the buyer’s right to reject nonconforming goods and occurs if the buyer: Tells the seller that the goods conform; Fails to reject reasonable time; Acts in a way inconsistent with the seller’s continued ownership of the goods. |
| UCC Breach: Revocation of Acceptance | A buyer can revoke: Acceptance based on reasonable assumption that nonconformity would be cured, and not been cured reasonable time; Nonconformity would be difficult to detect before acceptance; seller made assurances that there was no nonconformity. |
| UCC Breach: RoA: Timing | A buyer must notify the seller of revocation within a reasonable time after the buyer discovers the nonconformity and before any substantial change to the condition of the goods |
| UCC Breach: Instalment Contracts | The perfect tender rule does not apply to contracts that are divisible, where there are separate deliveries to be separately accepted, often occurring over a period of weeks |
| UCC Breach: IC: rejection and cancellation | Rejection: if nonconformity substantially impairs value and cannot be cured. Cancellation: cannot cancel the whole contract unless (1) nonconformity substantially impairs value of the entire contract, and the buyer notifies the seller of the cancel |
| Anticipatory Repudiation | party unequivocally communicates not intend perform, nonbreaching excused from future performance and can sue for damages or ignore repudiation and urge performance. communication must be absolute, be definite, and involve the entire performance. |
| AR: Assurances | reasonable grounds to believe other will fail to perform, right to temporarily suspend performance and request assurances. request must be in writing and failure by the other party to provide adequate assurances constitutes a repudiation of the contract |
| AR: Retraction | : Before performance is due, a repudiating party may retract its repudiation unless the other party has (1) materially changed its position or (2) indicated it considered the repudiation final. |
| Implied duty of good faith and fair dealing | Exists in every contract and requires parties act and speak honestly regarding the transaction, or in observance of reasonable commercial standards (UCC); this duty does not apply to negotiations. |
| Risk of Loss | party will bear the cost of damages of execution contract and are related to the subject matter of the contract. If the risk of loss is specified in the contract or not specified in the contract, responsibility by either common law or UCC principles |
| RL: Common Law | real estate transactions damaged between the execution of the and the closing date: if the risk of loss is not specified, then the majority rule places the risk of loss on the buyer minority seller has the risk |
| RL: UCC | Shipment contracts, effect of breach, nonshipment |
| RL: USS: shipment contracts | provides goods be delivered by a third-party carrier, then the risk of loss shifts to the buyer sales contract provides goods will be delivered by a third-party carrier to a specific place, then the risk of loss shifts to the buyer whe deleived there |
| RL: UCC: Effect of breach - seller | by tendering nonconforming goods buyer has the right to reject, the risk of loss effectively remains on the seller until cure or acceptance. buyer accepted goods and revokes the acceptance, the buyer risk of loss on seller only difeicny |
| RL: UCC: Effect of breach- Buyer | breaches the contract before the risk of loss has passed to the buyer, the seller may treat the risk of loss as resting on the buyer for a commercially reasonable time, to the extent there is a deficiency in the seller’s insurance. |
| RL:UCC: Nonshipment | If the seller is a merchant, the risk of loss remains on the seller until the buyer receives the goods. If the seller is not a merchant, the risk of loss passes to the buyer when the seller makes the goods available to the buyer to take delivery. |
| Impossibility | (1) subject of a contract is destroyed or performance becomes objectively impossible, (2) an unforeseeable event that happens after the contract, then the party’s obligation to perform is discharged unless (3) the party bore the risk of the occurrence |
| Impracticability | (1) If performance becomes objectively and commercially impracticable (2) unforeseeable event that happens after the contract, then the party’s obligation to perform is discharged unless (3) the party bore the risk of the occurrence of the event. |
| Frustration of purpose | (1) primary purpose of the contract is eliminated through no fault of the parties, then the duties under the contract may be discharged unless (2) the parties foresaw the risk or the party raising the defense bore the risk of the event’s occurrence. |
| Accord and Satisfaction | An accord is an executory agreement, with consideration, to forgive a prior obligation in exchange for a new obligation. |
| Accord and satisfaction requires | A bona fide dispute over the amount that is due; and agreement that the amount to be given is a final settlement (not a progress payment). If there is a breach of the accord, the nonbreaching party can sue under the accord or the original contract. |
| Novation | Is a new contract that immediately extinguishes all obligations under the original contract. A contract is a novation if it (1) discharges a prior contractual duty, (2) creates a new contractual obligation, or (3) adds a new party. |
| Release | If a release of a contractual obligation is not supported by consideration, it must be in writing. |
| Mutual rescission | Occurs when all parties to an agreement agree to surrender their rights and terminate the contractual obligations. This results in the modification of contractual obligations between the parties and must be supported by consideration |
| Liquidated damages | A clause with a specific amount or formula for damages will be enforced if it is reasonable. Courts consider the following factors to determine reasonableness: |
| Specific performance | A court can grant specific performance if (1) monetary damages are inadequate to compensate the nonbreaching party, and (2) the award of specific performance is equitable. |
| Expectation Damages | Put the nonbreaching party in the economic position it would have enjoyed if the contract had been performed (losses in value caused by breach + gains prevented by breach – savings from not performing). |
| Construction contracts | A party may recover damages for defective or unfinished construction based on the (1) diminution in the property’s market price or (2) the cost to complete performance or to remedy the defects |
| waste | If the cost to complete is clearly disproportionate to the loss in value caused by the breach, then to avoid waste, the remedy will be limited to the diminution in the property’s market price caused by the breach. |
| UCC Damages | The default measure of expectation damages is market damages, but damages differ for sellers and buyers. |
| UCC Damages: Market damages: buyers | Difference between the market price of the goods and the contract price at the time the buyer received notice of the seller’s breach. |
| UCC Damages: Market Damages: Sellers | Difference between the contract price of the goods and the market price at the time the seller tendered the goods. |
| UCC Damages: Cover Buyers | If a buyer purchases substitute goods in good faith, the damages are the difference between what the buyer paid for the substitute goods and the contract price. |
| UCC Damages: Resale | : If the seller resells the goods in good faith, the damages are the difference between the original contract price and the resale price. |
| UCC Damages: lost volume | If a seller carries sufficient volume of a good where the seller can make the resale to the second buyer and sale to the first buyer, then damages are the difference between the contract price and the seller’s costs in acquiring or producing the goods. |
| Reliance Damages | Represent the amount that would put the nonbreaching party in the position that party was in before entering into the contract; only awarded to the extent they are reasonable. |
| Restitution Damages | : Require a defending party to give up any gains enjoyed and are available only to a party who had a reasonable expectation of compensation for the benefit conferred on the other party. |
| Nominal Damages | Are minimal awards granted when there is no compensable harm caused by the breach. |
| Reformation | there is clear and convincing evidence that the written document does not conform to the actual agreement, the court can rewrite the agreement; however, reformation will not be granted if it would adversely affect the rights of a bona fide purchaser. |
| Rescission | by (1) tendering the contractual benefits to the other party and then (2) bringing an action for restitution. used where the contract not supported by mutual assent due to fraud, fraudulent misrepresentation, misrepresentation of a material fact mistake. |
| Recission by law | Promptly after discovering the grounds for rescission and prior to or at the time of filing suit, the plaintiff must provide notice of the rescission to the defendant and completely and unequivocally return the benefits received unless property, lessdue |
| Equitable Rescission | court invalidates the contract upon a showing by the plaintiff of the grounds for rescission. |
| Acquiesence | In any rescission for fraud, the defrauded party is deemed to have acquiesced to the transaction and waived the right to rescind |
| Consequential Damages | Are special damages that are caused by a breach of contract but do not directly flow from the breach; they are only available when a party seeks expectancy damages. |
| Incidental Damages | Are other reasonable expenses incurred as a result of the breach, often to mitigate the harm caused or to protect the claimant’s or other party’s interests. |
| Punitive Damages | Are not awarded in breach-of-contract actions, unless the defendant engaged in the breach of a fiduciary duty, fraud/misrepresentation, or another tort. |
| Attorney Fees | Are not recoverable by the prevailing party unless the contract or applicable statute provides for their recovery. |
| Expectation Damages | The court will reduce the nonbreaching party’s recovery for any expenses avoided because of the breach. |
| Reliance damages | The court will reduce the nonbreaching party’s recovery if the party would have lost money had the contract been performed because a party should not receive reliance damages in excess of what would have been recovered as expectation damages. |
| Duty to mitigate | : If a nonbreaching party fails to take reasonable actions to avoid unnecessary losses, then the court will decline to award damages that could have been avoided. |
| Certainty | Parties are only awarded damages that are proven with reasonable certainty. |
| Foreseeability | Parties are only awarded damages that are proven with reasonable certainty. |
Created by:
Vanderhoof_