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139 Cards in this Set

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What does UCC Article 2 apply to?
The Sale of Goods
What does UCC Article 2A apply to?
The leases of goods.

NY Distinction/ Not MBE
If a contract is for goods and services, which law governs?
If primarily for goods than UCC Article 2, otherwise the common law of contracts.
What is the simple definition of a contract?
A legally enforceable agreement.
What is an express contract?
A contract created by words (oral or written).
An am implied contract is created by:
Conduct.
Quasi-Contract is:
an equitable remedy that applies whenever contract law yeilds an unfair result.
What award is given to an injured plaintiff under a quasi-contract remedy?
The reasonable value of the benefit conferred.
The difference between a unilateral contract and a bilateral contract is:
A bilateral contract can be accepted in any reasonable way, but a unilateral contract can only be accepted by performing.
Why are most advertisements not an offer?
Because they lack a quantity term.
The simple definition of an offer is:
A manifestation of an intention to be bound, created by words or conduct.
What is a requirements contract?
Requirements contracts are contracts in which one party agrees to supply as much of a good or service as is required by the other party.
If the ability to supply or purchase the good or service is discretionary in the requirements contract, does consideration likely exist?
No. The consideration usually lies in the exchange of exclusivity b/c the parties surrender to each other the right to purchase or sell the goods within the requirement contract from or to someone else.

Example: In return for only purchasing all my oranges from you, you agree to ensure that I will receive such oranges.If
Is an offer valid without a price term?
Under the common law of contracts the offer without price is invalid.

Under a sale of goods within UCC Article 2, the offer is valid and we will fill the gap with a reasonable price.
Can an offer be accepted if it has been terminated?
No.
When does an offer lapse?
(1) After a stated term; or
(2) a reasonable time has passed.
When does an offer terminate?
When the offeror revokes the offer?
What are the types of revocation?
(1) Direct revocation; and

(2) Indirect revocation
What is direct revocation?
The offeror unambiguously indicated directly to the offeree that the has changed his mind.
What is indirect revocation?
(1) When the offerer engages in conduct that unambiguously indicates that he has rejected the offer; AND
(2) the offeree is aware of the conduct.
When is revocation of an offer effect?
Only upon receipt.

Mailbox rule DOES NOT APPLY.
Name the four situations when an offer cannot be revoked:
(1) An option
(2) Reasonably foreseeable reliance
(3) Beginning performance of an offer to enter a unilateral contract
(4) A firm offer under UCC Article 2.
An option is:
a promise to keep an offer open in exchange for consideration.
If a contractor makes an offer to another party, which in part relies on a subcontractor's offer to the contractor, can the subcontractor revoke the offer?
No, because of reasonably foreseeable reliance.
When can a unilateral contract be revoked?
On the MBE, a unilateral contract can be revoked until performance beyond mere preparation is begun.

In New York, any time prior to complete performance.
What are the required elements for forming a firm offer under UCC Article 2?
(1) A Signed
(2) Written Promise by a Merchant
(3) To keep an Offer Open
What happens if the firm offer includes consideration?
It becomes an option.
Is only a signature valid for a firm offer?
No, any sign or symbol that authenticates the writing is sufficient.
What is the maximum length of a firm offer?
3 Months

Note: If it is an option there is no time limit.
If a firm offer does not include a time period is it valid? If so, how long?
Yes. It is valid for a reasonable period of time up to 3 months.
What is the effect of a counteroffer on the previous offer?
It rejects the prior offer.
Is mere bargaining a counter offer?
No
What effect does conditional acceptance have on an offer?
It rejects the offer.
If the acceptance of an offer contains additional terms is there a valid contract?
Under the common law, the acceptance must mirror the offer or it acts as a rejection of the offer. No valid contract.

Under UCC Article 2, acceptance does not have to mirror the offer.
Under Article 2 when do additional terms of an acceptance part of the contract?
1. When both parties are merchants;

2. The term is not a "material change;" and

3. The offeror does not object within a reasonable time.
How does death of a party affect an offer?
Unless there is an option, the death of EITHER party before acceptance will terminate the offer.

Death DOES NOT revoke an option.
Can the offer control the manner of acceptance?
Yes.

Note: Look for conditional language, such as the party can accept this offer "only by" doing something. Also, be aware that such conditional language may create a unilateral contract.
Is start of performance an acceptance of an offer?
Only for bilateral contracts.

Only full performance is acceptance of a unilateral contract.
What is the legal consequence of improper performance?
Improper performance is both an acceptance of an offer AND a breach of contract.
What is an accommodation in UCC Article 2?
When a seller cannot fulfill a buyer's offers, but sends different goods with a counteroffer (i.e., I hope this meets your needs, but if not . . .)

It is NOT improper performance!
The mailbox is the rule that:
an acceptance is effective when mailed.
When does the mailbox rule not apply?
1. If the offer provides otherwise.

2. The offer is irrevocable.

3. When acceptance is followed by rejection, the rejection arrives first, and the offeror relies on the rejection.

4. Rejection, then acceptance (whichever arrives first controls).
What are the defenses to contract formation?
Mnemonic: "In DuMP, I'll MAUL"

(In)capacity, (Du)ress, (M)istake, (P)ublic Policy

(Ill)egality, (M)isrepresentation, (U)nconscionability, (L)ack of Consideration.
What people does incapacity apply to?
1. Under 18,

2. Intoxicated,

3. Mentally incompetent.
Are incapacited parties ever liable under an invalid contract?
Yes, but only for necessaries on a quasi-contract basis.
Is physical duress sufficient to negate contract formation? What about economic duress?
Both are sufficient to negate contract formation.
What level of misrepresentation or non-disclosure of a material fact is sufficient to negate contract formation?
Even an innocent misrepresentation or non-disclosure is fatal to agreement if it is a material fact.
When does ambiguity negate contract formation? What is the exception?
When the necessary term is ambiguous to both parties, there is no agreement.

Exception:

If one party knows or has reason to know of the ambiguity, the innocent party's meaning will govern the term.
When does a mistake about a material fact negate agreement?
When the mistake is mutual to all parties.

If the mistake is unilateral to one party, it is not a fatal flaw unless the other party knew or should have known of the clueless party's mistake.
When is there a lack of consideration?
When there is no bargained-for legal detriment or benefit between the parties.
Can past consideration create a valid contract?
On the MBE, no.

In NY, it is only binding if it is expressly stated in a provable signed writing.
Is consideration necessary to modify a contract?
Under the pre-existing duty rule of the common law, consideration is necessary to modify a contract.

Under UCC Art. 2, no consideration is needed but one must show good faith.
How does consideration apply to the partial payment of debts?
Partial payment for an undisputed debt is not consideration, but is valid consideration for DISPUTED debts.
When is a promise to pay a debt that is barred by the statute of limitations enforcable? Is consideration required?
Yes, if signed and written. No consideration is necessary.
When can promissory estoppel serve as a substitute for consideration?
1. There is a promise; and

2. there is foreseeable, detrimental reliance on the promise.
When does illegality operate to negate contract formation?
If the contract was illegal AT THE TIME OF AGREEMENT.
What types of clauses in contracts tend to violate public policy?
1. Covenants not to compete that operate as a restraint on trade (Note: consider both scope of & need for the covenant)

2. Exculpatory clauses that limit liability for negligence (Note: Limiting gross negligence or recklessness ok)
Unconscionability is:
oppressive terms or unfair surprise AT THE TIME OF AGREEMENT.
The Statute of Frauds requires that the following contracts must be in writing:
1. The transfer of an interest in real estate.

2. A service contract that cannot be performed within one year from THE DATE OF AGREEMENT.

3. A sale of goods for $500 or more.

4. In NY under Art. 2A, a lease of goods where the lease payments total $1,000 or more.

5. A promise to answer for the debt of another (suretyship)

6. A promise by an estate representative to use her own funds to pay estate expenses.

7. A promise in consideration of marriage.
Is an employment contract for life valid under the Statute of Frauds?
Not on the MBE, but yes in NY.
When does the Statute of Frauds apply to modifications of a contract?
When the contract AS MODIFIED falls within the Statute of Frauds.
Can a contract prohibit oral modification of the contract?
Under the common law, such clauses are invalid.

Under Art. 2, it is valid.
On a sale of goods, what kind of writing satisfies the Statute of Frauds?
A writing that contains:

1. a quantity term; and

2. is signed by the Defendant.
On a lease of goods, what kind of writing satisfies the Statute of Frauds?
A writing that states:

1. that it is a lease;

2. the number of items leased;

3. the term and rental payments; and

4. is signed by the Defendant.
If it is not a sale or lease of goods, what kind of writing satisfies the Statute of Frauds?
A writing that contains:

1. all material terms; and

2. is signed by the Defendant.
What are the exceptions to the Statute of Frauds?
1. The doctrine of part performance with respect to real estate contracts.

2. Full performance in service contracts over one year.

3. Sales of Goods exceptions

4. Suretyship whose main purpose benefits the sturety (MBE only)
What is a Suretyship?
A contract, under the terms of which a guarantor assumes responsibility with respect to the creditor for fulfillment of the commitment of a debtor.
Whare the sales of goods exception of the Statute of Frauds?
1. The goods are accepted or paid for by the buyer.

2. Custom-made goods unsuitable for sale to others.

3. Judicial admission in a pleading, in testimony, or in response to discovery.

4. Merchants' confirmatory memo.
When is Merchants' confirmatory memo a valid exception to the Statute of Frauds?
1. Both parties are merchants
2. The writing claims there is a prior oral agreement
3. The recipient doesn't object in writing within 10 days.
If a contract falls within the Statute of Frauds, what level of authority is required to enter the contract on behalf of another?
Written authority to enter a contract on behalf of another person is required if the underlying contract falls within the Statute of Frauds
What is the Parol Evidence Rule?
The PER keeps out evidence of a prior agreement (oral or written) that contradicts a later writing.
What are the exceptions to the Parol Evidence Rule?
1. To correct a clerical error.

2. To establish a defense against formation of an agreement.

3. To explain a vague or ambiguous term in the written contract.

4. To supplement a "partially-integrated" writing.
Does the Parol Evidence Rule have any effect on evidence after the agreement is reduced to a writing?
No.
What conduct can be used to explain terms or fill in the gaps within the contract(from most to least importance?)
1. Course of Performance

2. Course of Dealing

3. Usage of trade
What is an express warranty?
A statement of fact, promises and descriptions of goods are express warranties.
When can a plaintiff pursue a claim over an express warranty?
To be actionable, an express warranty must be a basis of the bargain.
What are the implied warranties?
1. Implied warranty of merchantability.

2. Implied warranty of fitness for a particular purpose.

3. Seller's warranties of quality in leases of goods under Art. 2A (NY Only).
When does the implied warranty of merchantability exist?
1. When a merchant who deals in goods of the kind

2. sells goods that are not fit for their ordinary purpose.
When does the implied warranty of fitness for a particular purpose apply?
When the buyer has a special purpose in mind, relies on the seller to select suitable goods, and the seller knows both of these facts.

Note: Seller does not have to be a merchant.
Does the seller's warranty of quality in a lease of goods under Art. 2A in NY apply to banks?
No.
What are the limitations on warranty liability in sales and leases of goods?
1. A seller can disclaim implied warranties, but not express warranties.

2. A seller can limit buyer's remedies for breach of any warranty if the limitation is unconscionable.
Can a seller limit a buyer's remedies for personal injury due to a breach of any warranty?
No. It is unconscionable.
In the risk of loss over the sales of goods, what in order of priority determines the liability of buyers or sellers?
1. Agreement of the parties controls.

2. Breaching party bears any uninsured loss, even if the loss is unrelated to the breach.

3. Delivery by common carrier shifts risk to the buyer when seller completes its delivery obligations.

4. When not relying on a common carrier, the status of the seller as a merchant controls.

5. If the contract provides a right of return the same rules apply if the items are for resale, otherwise seller bears risk of loss until buyer has accepted the goods.
When not relying on a common carrier, the status of the seller as a merchant controls with respect to risk of loss. How does it apply?
1. If the seller is a merchant, the seller bears risk of loss until possession by the buyer occurs.

2. If the seller is not a merchant, the buyer bears risk of loss once the seller tenders the goods.
Under Art. 2A in NY, who bears the risk of loss?
The lessor bears the risk of loss, except in a financial lease.
What is the perfect tender rule?
A seller must deliver perfect goods in the right place at the right time. If tender is not perfect, buyer has the right to reject the goods.
How does the option to cure work?
A seller who fails to make perfect tender may have an option to cure. It usually depends on whether time for the seller's performance has expired.
An installment sales contract:
requires or authorizes the seller to deliver goods in separate installments.
Does the perfect tender rule apply to installment sales contracts?
No.
When can a buyer reject under an installment sales contract?
1. The buyer can reject an installment only if there is a substantial impairment in the installment that cannot be cured.

2. The buyer can reject the entire contract only if a defect in an installment substantially impairs the value of the whole contract.
When does implied acceptance of goods occur?
When the buyer keeps the goods without objection after having an opportunity to inspect.
When can a buyer of goods revoke acceptance?
Only when the non-conformity of the goods substantially impairs their value and was DIFFICULT to DISCOVER.
If perfect performance does not occur under a contract governed by the common law, is it a material breach?
No, so long as there is substantial performance.
Under the common law, when does the other party's breach excuse performance?
Only when that other party commits a material breach of the contract.
With respect to an imperfect tender, how can a buyer respond to a lot of acceptable and unacceptable goods?
The buyer can accept all the goods, reject all the goods, or accept any commercial units and reject the rest.

In any situation above, money damages are always available.
What is the consequence of an anticipatory repudiation of a contract?
It acts as a material breach, thereby excusing the other party for non-performance.
Can an anticipatory repudiation be withdrawn?
Yes, so long as the other party has not relied on it.
When can a later agreement between the parties excuse non-performance?
1. Rescission

2. Modification

3. Accord and Satisfaction

4. Novation
What is Novation?
An agreement substituting a new part for an existing one.
When can a later unforeseen event provide an excuse for non-performance?
Under the common law, if performance is impossible.

Under Art. 2, if performance is impracticable.
What effect does death or incapacity have on performance?
Non-performance is excused if the person was essential, otherwise none.
Can a government regulation or order excuse performance?
Yes.
When is the Frustration of Purpose excuse for non-performance?
When the buyer knows the purpose of the contract and a later unforeseen even thwarts that purpose.
What is the consequence of failing to satisfy an express condition?
It creates no obligations (i.e., can't sue for breach), but non-performance is excused.
How are satisfaction clauses interpreted?
Reasonable person standard, unless the contract is for aesthetic purposes.
With respect to the timing of a condition, what are the three types?
Condition precedent/concurrent/subsequent.
When can the occurrence of a condition be excused by the later action or inaction of the person who is protected by the condition?
1. Failure to cooperate may excuse the occurrence of a condition.

2. A waiver may excuse the occurrence of a condition.
What is specific performance?
An equitable remedy availably only if damages are clearly inadequate to compensate the injured party.
Under Article 2, when can a seller reclaim goods?
When the buyer was insolvent when it received the goods; and the seller demands return within 10 days of the buyer receiving the goods.

May also reclaim AT ANY TIME if the buyer misrepresented its solvency in WRITING within 3 months before delivery.
How does entrustment under Article 2 operate?
An owner who entrusts her property to a merchant who deals in goods of the kind has no rights against a BFP.
Are punitive damages available for a breach of contract?
Nope. Nada. Never.
When are liquidated damages permissible?
When damages are difficult to estimate and the provision is a reasonable forecast of probable damages.
What are expectation damages?
A sum that leaves an injured party in as good a position as full performance.
What are a buyer's/seller's money damages available under Article 2 for failure by the breaching party to sell/purchase goods?
Rising Market:

[Cover - Contract] if good faith cover or [Market - Contract] when bad faith or no cover.

Falling Market:

[Contract - resale] if good faith resale or [Contract - Market] when bad faith or no resale.
What damages can a lost volume seller receive?
The lost profit on that particular sale.
What are incidental damages? Are they recoverable?
Incidental damages are the cost of caring for/transporting goods after breach & cost of arranging a substitute transaction.

Always recoverable.
When is consequential damages recoverable?
When they are special to a particular plaintiff and were reasonable foreseeable to the breaching party at the time of the contract.
What is the rule of mitigation?
One cannot recover damages he or she could have avoided with reasonable effort?
Who is a promisor in a third-party beneficiary contract?
The person who promises to perform for the third party.
Who is a promisee in a third-party beneficiary contract?
The person who secures the promise.
What is the difference between an intended and incidental beneficiary?
An intended beneficiary is named in the contract, otherwise she is incidental. Only INTENDED beneficiaries have legal rights to enforce the contract.
What is the difference between a creditor and donee beneficiary?
A creditor beneficiary exists where the primary purpose of the promisee entering the contract is to discharge a debt owed to a third party, otherwise she is a donee beneficiary.
When can the promisor and promisee rescind or modify the contract?
Up until the rights of the third party beneficiary have vested.
Can a third-party beneficiary sue a breaching promisor?
Only if he or she is the intended beneficiary.
Can an intended beneficiary sue the promisee?
Only if he or she is a creditor beneficiary
Can a promisee recover from a breaching promisor?
Yes, even if damages are nominal.
What is the general rule of delegation in contract law?
Contractual duties may be delegated without the consent of the person to whom performance is owed.
What are the exceptions to the general rule of delegation in contract law?
1. Contract language controls.

2. The duty involves special skill or reputation.
Is the delegating party still liable to the obligee?
Yes.
Is the delegate ever liable to the obligee?
No, unless there is consideration (which turns obligee into a third-party beneficiary)
Can an assignment of rights transfer obligations to another party?
No. Only an assignment of an entire contract can transfer obligations.
Is consideration necessary to make an assignment valid?
No. It is a revocable gift assignment.
Can a promise to assign rights in the future be valid?
No. The language must impose a present transfer of rights.
How does contract language prohibiting assignments determine the validity of an assignment of rights?
If the language merely prohibits assignment than it is a breach, otherwise it invalidates the assignment.
Can an assignment change the duties of an obligor?
Not if they are substantial changes to the dutes of an obligor.
When is a requirements contract assignable?
When the assignee's requirements are not out of line with the assignor's requirements.
If payment to an assignor by an obligor effective?
Yes, unless the obligor knew of the assignment.
What is the general rule of priority between multiple assignees?
The first assignee for consideration prevails?
What is the exception to the general rule of priority between multiple assignees?
A later assignee for consideration prevails if he did not know of the prior assignments and is the first to obtain payment from or judgment against the obligor.