Contract

Question 1

Applicable Law

Answer 1

1. Common law
2. UCC: movable goods
3. Predominance test: determines the predominant purpose of the contract.

Question 2

Merchant

Answer 2

One who deals in goods of the kind, or one holding oneself out as having special knowledge or skills regarding the practices or goods involved in the contract.

Question 3

Contract Formation

Answer 3

A valid contract requires mutual assent, which consists of an offer and acceptance, and consideration.

Question 4

Offer in Common Law

Answer 4

Definition: manifestation of willingness to enter into a bargain

Elements:

1. intent to enter into a contract
2. definite and certain terms: Quantity, Time of performance, Identity of the parties, Price, Subject matter (QTIPS)
3. Communicated to the offeree: offeree must have knowledge of the offer.

Question 5

Termination of offer

Answer 5

1. rejection
2. counteroffer
3. revocation
4. lapse of time: “reasonable time”
5. death or incapacity (terminated automatically, unless option contract)

Question 6

UCC “firm offers”

Answer 6

Requirements:

1. made by a merchant
2. in writing and signed
3. gives assurance it will be held open for a specified time, during which it is irrevocable
4. three-month max of irrevocability

Question 7

Option contract

Answer 7

consideration is required for an option contract. The offer will be irrevocable for the stated option periods.

Question 8

Detrimental reliance and partial performance

Answer 8

An offer is irrevocable if the offeree has made preparation to perform in reasonable detrimental reliance on the offer, or has performed in part.

Question 9

Acceptance

Answer 9

Manifestation of assent to the terms of the offer.

Requirements:

1. within a reasonable time
2. only a person at whom the offer is directed may accept
3. offeree must know of the offer before accepting
4. accepted in a manner required by the offeror, if no manner required, can be accepted by any reasonable means
5. acceptance is judged by an objective standard
6. CL requires Mirror Image Rule

Question 10

Mailbox rule

Answer 10

Acceptance is effective upon dispatch.

• proper dispatch requires that the offeree no longer has control or possession of the acceptance.

Exceptions:

• offer provided otherwise
• option contract is effective upon receipt
• if an rejection is dispatched first, acceptance will only become effective if it is received first.
• Acceptance dispatched first is effective on dispatch.

Question 11

Acceptance varies (UCC)

Answer 11

Added terms:

• if one or more party is not a merchant, any additional term is a proposal and will not become part of the K unless the other party assents.
• If both parties are merchants, the additional term automatically becomes a part of the K unless: 1) offer expressly limits acceptance to its terms; 2) material alteration; 3) objection within a reasonable time.

Conflicting terms:

• Knock-out rule (majority): neither enters into the K, UCC gap fillers will supply the missing terms.
• Treat as additional terms (minority): as above
• Fall out rule (minority): offeror’s terms controls.

Question 12

Acceptance by shipment (UCC)

Answer 12

The offer is accepted by shipping conforming or nonconforming goods:

shipping conforming goods: acceptance

shipping nonconforming goods: depends upon whether the seller acknowledges the nonconformity of the shipment-

• Shipment without acknowledging: accepted and breached simultaneously
• Shipment with acknowledging: serve as a counteroffer, not acceptance

Question 13

Consideration

Answer 13

bargained-for exchange of legal detriment.

Question 14

Illusory promise

Answer 14

A promise not supported by consideration and thus unenforceable.

Requirement and output K are not illusory because of the implied obligation of good faith (requirement K: seller - exclusive source of all buyer’s requirement; output K: buyer - buy all of the seller’s output)

Question 15

Inadequate consideration examples

Answer 15

1. gifts
2. sham or nominal consideration
3. past consideration except when: i) promise to pay a past debt of which statute of limitation has run; ii) promise to pay for benefits previously received at the promisor’s request.
4. Preexisting duty rule

Question 16

Promissory estoppel

Answer 16

Substitute for consideration

• a promise that foreseeably induces reliance and is actually relied upon may be enforceable to prevent injustice even without consideration.
• recovery limited to reliance damages.

Question 17

Defenses to K formation

Answer 17

1. Statute of Fraud
2. Misrepresentation
3. Fraud
4. Unconscionability
5. Mistake

Question 18

Statute of Fraud (SOF)

Answer 18

Certain types of K are unenforceable unless they are in writing:

1. Marriage: K made upon consideration of marriage.
2. Real Property: sale of an interest in land.
3. Promise to pay the debt of another (suretyship)
4. One year: performance literally impossible to complete in one year
5. Sale of Goods of $500 or more.

Mnemonic: Mr. Dog (marriage, real prop., debt, one year, goods > $500)

SOF Exceptions:

1. performance in part (PIP: payment, improvement, or possession)
2. full performance has occurred for the K that can’t be performed in one year.
3. Specially manufactured goods
4. Main purpose to pay the debt of another is for his own economic interest.
5. Promissory Estoppel
6. Judicial admission in pleadings or testimony that there was an agreement.

SOF writing requirements

1. essential terms are included
2. signed by the party to be charged.
3. If it’s between two merchants: merchant confirming memo is enforceable if 1) one party received signed confirmation and 2) has reason to know its contents and 3) did not object within 10 days of receipt.

Question 19

Misrepresentation

Answer 19

One party made a misrepresentation prior to the other signing K:

1. state of mind of the party making the misrepresentation need not be intentional
2. false statement of material fact
3. justifiable and actual reliance
4. damages

Question 20

Fraud

Answer 20

One party makes an intentional misrepresentation prior to signing K:

1. false statement of material fact
   2, knowledge of the statement’s falsity
2. Intent to induce reliance
3. justifiable and actual reliance
4. damages (may get punitive damage too)

Question 21

Unconscionability

Answer 21

A K term so unfavorable to one party that no reasonable person would have agreed to it. Unconscionability is assessed at the time of the K formation.

Question 22

Conditions

Answer 22

an event that must occur before performance of the other party is due

• express condition: created by the language with the intent to have a condition. strict compliance required.
• constructive condition: supplied by the court for fairness. substantial performance required.

Waiver of condition can occur by 1) receiving and keeping a benefit; or 2) failure to insist on compliance.

Waiver can be retracted unless the other party detrimentally relied upon it.

Question 23

Mistake

Answer 23

A belief not in accord with the facts and can be mutual or unilateral.

Mutual mistake can make the K voidable if:

1. mistake as to a basic assumption at the time of the K formation;
2. Material effect
3. Risk: the adversely affected party did not assume the risk of the mistake.

Unilateral mistake: for K to be voidable, the mistaken party must show that the other party knew, or should have known of the mistake, in addition to the three requirements above.

Question 23

Parol Evidence Rule

Answer 23

Partial integration:
- PE not to contradict K terms
- PE okay to supplement K terms

Total integration: no PE.

PER does not apply to:

• subsequent communications
• evidence about K formation defect
• condition precedent to K effectiveness
• Interpreting ambiguous terms: courts regularly use evidence relating to course of performance, course of dealing, and usage of trade to interpret ambiguous terms.

Course of performance > course of dealing > usage of trade

Question 24

K modification

Answer 24

CL: mutual assent + consideration
UCC: mutual assent, good faith, no consideration required.

Oral modification is generally allowed unless in SOF land.

Question 25

3rd Party Beneficiary

Answer 25

Intended beneficiary: can sue
Incidental beneficiary: cannot sue

Question 26

Delegation

Answer 26

Transfer of duties

• delegator remains liable
• cannot delegate duties of special skill or judgment.

Question 26

Assignment

Answer 26

Transfer of rights

• no consideration required
• gratuitous assignment is okay
• assignee stands in the shoes
• cannot assign if it materially change the K

Question 27

Novation

Answer 27

Obligee (party receiving the performance) expressly agrees to accept new performance and releases the delegator from liability.

Question 28

Anticipatory Repudiation

Answer 28

An unequivocal expression by a party, occurring before the time for performance is due, that he will not perform under the K.

Nonrepudiating party can:

• sue immediately (cannot do this if the only part of performance left is payment)l or
• suspend performance and wait until performance is due to sue; or
• treat the contract as discharged and the repudiation as an offer to rescind; or
• urge performance under the K and sue later if efforts are futile.

Question 29

Right to demand adequate assurances

Answer 29

Where the conduct of the party is not unequivocal enough to rise to the level of anticipatory repudiation, but does causes reasonable grounds for insecurity

The insecure party can demand adequate assurances of performance.

-in writing
- may suspend performance pending assurance

A repudiation occurs when a party who received a justified written demand for adequate assurances fails to respond within a reasonable time, not to exceed 30 days.

Question 30

Is the breach material? (CL)

Answer 30

• substantial benefit received?
• extent of partial or full performance
• willfulness of breach: the more intentional, the more material.
• time is not of essence unless contracted for, therefore, a delay will not amount to material breach.
• divisable K (common law equivalent of UCC installment contract): if in breach, each agreed equivalent operates as a separate contract.

Question 31

Is the breach material? (UCC Perfect Tender Rule)

Answer 31

Buyer has 3 choices upon receipt of nonconforming goods:

1. reject the whole within a reasonable time; or
2. accept the whole; or
3. accept any commercial unit

Exception: Perfect Tender Rule does not apply to installment contract. Buyer’s right to reject is determined by substantial conformity and whether the nonperfect tender substantially affects the contract. B cannot reject if S can cure.

Seller’s right to cure: a seller may cure the defect any time before performance is due, with the following provisions:

• notice: seller must give notice to the buyer; and
• new tender: the seller must make a new tender within the time for performance.

Question 32

Warranties

Answer 32

• Express; made explicitly.
• Implied warranty of merchantability: warrants that goods will be fit for the ordinary purpose for which the goods are used.
• Warranty of fitness for a particular purpose: applies when buyer relies on the seller’s judgment to select appropriate goods for a stated purpose.
• Implied covenant of good faith and fair dealing: inherent in every K.

Question 33

Accord and Satisfaction

Answer 33

Accord: agreement to substitute performance in discharge of the existing duty. consideration is required

Satisfaction: the performance of the accord, which then discharges both the original K and the accord.

Question 34

K Defenses

Answer 34

1. No mutual assent
2. Lack of Consideration
3. No writing & writing was required (SOF)
4. Misrepresentation / fraud / duress / undue influence at the time of contracting.
5. unconscionability: unfair at the time of contracting.
6. Lack of capacity t o contract because of minority or mental incapacity
7. Illegality of K
8. Condition Precedent not met.
9. Impossibility: when a supervening, unforeseeable event makes performance impossible. The event must be one that neither party assumed the risk of, and performance must be literally impossible.
10. Impracticability: the occurrence of an event the parties assumed would not occur made the performance extremely and unreasonably difficult. The event must concerns a basic assumption of the K, and the parties must not have allocated the risk of the event to the party seeking to use that defense.
11. Frustration of Purpose: when a party’s purpose for entering the contract is destroyed by supervening events. Both party must know the purpose of the K, the event must not be reasonably foresseeable, and frustration must be total.
12. Laches and unclean hands