Contract Law – Formation, Performance & Remedies

Question-and-Answer flashcards covering contract formation, defenses, performance, and remedies, derived from the provided lecture notes.

What are the three elements of a valid contract?

(1) Mutual assent (offer and acceptance); (2) Consideration; and (3) No defenses to formation.

Which law governs contracts for the sale of goods?

Article 2 of the Uniform Commercial Code (UCC).

Under the UCC, how may a contract be formed?

In any manner sufficient to show agreement, including conduct of the parties recognizing a contract.

For mixed (goods & services) contracts, how do courts decide which law applies?

By the predominant-purpose test: whichever element (goods or services) predominates controls.

What are the components of mutual assent?

Offer and acceptance.

Define an offer.

A manifestation of intent to contract, with definite and reasonably certain terms, communicated to the offeree.

Define acceptance.

A manifestation of assent to the terms of the offer, indicating a commitment to be bound.

List four ways an offer can terminate before acceptance.

(a) Rejection or counteroffer, (b) Lapse of time, (c) Revocation, or (d) Death/incapacity of either party.

When may an offer be revoked?

Any time before acceptance by unambiguous words or conduct indicating unwillingness/inability to contract (effective when received).

Name four types of irrevocable offers.

Option contracts, a merchant’s firm offer, beginning performance of a unilateral contract, and offers relied on to the offeree’s detriment.

What is a merchant’s firm offer?

(1) Offer to buy/sell goods; (2) by a merchant; (3) in a signed writing; (4) stating it will be held open; and (5) the assurance is separately signed by the offeror. No consideration required.

Differentiate rejection from counteroffer.

A rejection terminates the offer; a counteroffer both rejects the original offer and creates a new offer.

What is the common-law Mirror Image Rule?

Acceptance must exactly mirror the offer.

What is the UCC exception to the Mirror Image Rule?

Additional terms in the acceptance may become part of the contract if: (1) both parties are merchants; (2) term is not material; (3) offer didn’t limit acceptance; and (4) no timely objection.

When is an agreement too indefinite to enforce?

When its terms cannot be ascertained with reasonable certainty, e.g., duration left open without a standard.

Define consideration.

A bargained-for exchange of a promise for a return promise or performance that benefits the promisor or detriments the promisee.

Is past or moral consideration valid?

No, past or moral consideration is insufficient.

When does promissory estoppel apply?

(1) Reasonable, foreseeable, detrimental reliance; (2) promisor should expect reliance; and (3) enforcement needed to avoid injustice.

Does settlement of a legal claim provide consideration?

Yes, voluntary relinquishment of a known right is valid consideration.

State the common-law pre-existing duty rule.

Past performance or performance of an existing legal duty is not consideration for a new promise.

List two exceptions to the pre-existing duty rule.

(a) Addition or change in performance; (b) fair and equitable modification due to unanticipated circumstances before full performance.

Under UCC Article 2, is consideration required for contract modification?

No, if the modification is made in good faith, though it may need to be in writing under the Statute of Frauds or if required by the original contract.

Distinguish physical compulsion from economic duress.

Physical compulsion makes a contract void; economic duress (improper threat leaving no reasonable alternative) makes it voidable.

When does undue influence arise?

Unfair persuasion of someone under the influencer’s domination or in a relationship of justified trust.

State the elements of mutual mistake.

(1) Both parties mistaken about a basic assumption; (2) mistake is material; (3) party asserting it did not bear the risk.

Define unilateral mistake.

A mistake by one party, unknown to the other, about a basic assumption that materially affects the contract.

Differentiate fraudulent and non-fraudulent misrepresentation.

Fraudulent: knowing false statement inducing reasonable reliance; Non-fraudulent: material false statement (without knowledge of falsity) inducing reasonable reliance.

Procedural vs. substantive unconscionability—explain.

Procedural: unfair bargaining process or inequality of bargaining power; Substantive: unfair, one-sided contract terms.

Name six types of contracts covered by the Statute of Frauds.

Marriage, suretyship (unless main-purpose), contracts $≥1$-year performance, sale or interest in real property, executor’s personal promise to pay estate debt, sale of goods $≥$500.

What are the four Statute-of-Frauds exceptions for goods $≥$500?

Merchant’s confirmatory memorandum, goods accepted or paid for, custom-made goods, admission in court.

What must a writing contain to satisfy the Statute of Frauds?

Signed by party to be charged, identify the subject matter, show a contract was made, and state essential terms with reasonable certainty.

List four exceptions to the parol evidence rule?

(1) Correct clerical error, (2) establish defense to formation, (3) interpret ambiguous term, (4) supplement a partially integrated writing.

Give two ways a condition precedent may be excused.

(1) Protected party’s failure to cooperate/good-faith effort, (2) waiver by the protected party.

How does the UCC define good faith?

(1) Honesty in fact and (2) observance of reasonable commercial standards of fair dealing.

Distinguish impossibility from impracticability.

Impossibility: performance objectively impossible (death, destruction, illegality). Impracticability: performance extremely and unreasonably difficult/expensive due to an unforeseen event.

When is performance excused under frustration of purpose?

Principal purpose is substantially frustrated by an unforeseeable event, without fault, and both parties knew the purpose at formation.

What factors do courts weigh to decide if a breach is material?

(1) Benefit deprived, (2) adequacy of compensation, (3) forfeiture to breacher, (4) likelihood of cure, (5) absence of good faith.

When is a contract divisible?

When paired performances can be divided into matching parts that parties would view as equivalents.

State two exceptions to the UCC Perfect Tender Rule.

(1) Seller’s right to cure (before deadline or with reasonable grounds for acceptance); (2) installment contracts—cancel only if defect substantially impairs whole contract.

After accepting goods, when may a buyer revoke acceptance?

If non-conformity substantially impairs value and (a) defect was latent, (b) acceptance induced by seller’s assurances, or (c) buyer accepted expecting cure.

Define anticipatory repudiation.

Unequivocal communication that a party is unable or unwilling to perform before performance is due.

What options does a non-breaching party have after anticipatory repudiation?

Treat the contract as repudiated and sue immediately, treat as discharged, wait and sue at due date, or urge performance.

What is an accord and satisfaction?

Accord: new executory agreement to accept substituted performance; Satisfaction: completion of that performance, discharging the original duty.

How is an express warranty created?

Seller’s affirmation of fact, promise, description, or sample relating to goods that becomes part of the basis of the bargain.

What is the implied warranty of merchantability?

Goods sold by a merchant must be fit for their ordinary purpose.

What promises are included in the warranty of title?

(1) Good, rightful title; (2) delivery free of liens or encumbrances.

Differentiate intended and incidental third-party beneficiaries.

Intended beneficiaries are meant to benefit and have contract rights; incidental beneficiaries benefit by happenstance and have no rights.

When do an intended beneficiary’s rights vest?

Upon assent, detrimental reliance, or filing suit to enforce the contract.

Name three situations where an assignment is not valid.

(a) Materially alters duties/risks, (b) prohibited by law/public policy, (c) precluded by contract.

Contrast assignment prohibitions with invalidations.

Prohibition clause: assignment is valid but assignor liable for breach. Invalidation clause: any assignment is void.

When are duties not delegable?

If prohibited by contract/law, against public policy, personal services requiring skill/discretion, or delegation materially alters obligee’s expectancy.

Define expectation damages and list their four limits.

Put the non-breacher in the position as if contract performed. Must be caused by defendant, foreseeable, certain, and unavoidable.

Define consequential damages and state recovery requirements.

Indirect losses from special circumstances. Recoverable if foreseeable at formation, based on circumstances known to defendant, and reasonably certain.

List eight UCC seller remedies when buyer breaches.

Withhold delivery, cancel, cover damages, market damages, lost profits (lost volume seller), stop delivery upon insolvency, stop truckload after breach, replevy identified goods.

When does the waste doctrine limit damages?

Good-faith contractor’s defects exist and cost to remedy greatly exceeds completed work’s value; damages limited to diminution in value.

When is restitution awarded?

To prevent unjust enrichment when a party confers a benefit; measured by the value of the benefit conferred.

What is rescission?

Equitable remedy treating the contract as canceled, available for formation problems like fraud or misrepresentation.

Give two situations where rescission is unavailable.

(a) An equitable defense applies, or (b) plaintiff previously elected to sue for contract damages.