Contracts

Question 1

Article 2 UCC v. Common Law

Answer 1

• Article 2 of the Uniform Commercial Code (UCC) applies to transactions in goods.
  
  • Goods are tangible, movable things.
• Common law governs if a K deals with services or real estate.
• For mixed contracts, if the contract is divisible, common law and UCC will apply accordingly. Other the predominant purpose of the K will determine whether to common law or UCC governs.

Question 2

Requirements to Form a valid K

Answer 2

• A traiditonal, enforceable contract is formed when there is:
  
  • 1. Mutual assent (a valid offer + acceptance),
  • 2. Consideration; AND
  • 3. No defenses to formation that would otherwise invalidate the contract

Question 3

Offer

Answer 3

• An offer is an objective manifestation of a present intent to contract. It must include definite and certain terms (quantity, time for performance, price).
• UCC Offer: missing terms are OK if there is a clear intent to contract and a basis for remedy. Quantity must be certain (or capable thereof)
• Offer may terminate by
  
  • 1. Revocation by offeror via statement or contrary conduct, 2) Rejection by offeree (expressly by counter offer, conditional acceptance) 3) Lapse of Time and 4) Death/Incapacity of either party
       * Under common law, a stmt is a counteroffer rather than an acceptance when the temrs of the intial offer are changed (mirror image rule).
• Offers that do not terminate include:
  
  • 1. Options Ks, 2. Detrimental reliance/Promissory Estoppel, 3. Start of Performance in a unilateral contract (irrevocable for a reasonable time to complete) 4. UCC Firm offer for the time stated, or a reasonable time not to exceed 3 months.

Question 4

Promise to hold offer open

Answer 4

• Generally an offer may be revoked anytime before acceptance. A promise to hold an offer open requires consideration in order to be binding. An exception exists for UCC firm offers which, if signed, is irrevocable for the time stated and no consideration is required. It will stay open for a reasonable time, no greater than 3 months.

Question 5

Common Law - Acceptance, Counteroffer, Rejection

Answer 5

• Common Law:
  
  • Under the mirror image rule, the terms of the offer and and terms in the acceptance must match exactly. Otherwise, it is not an acceptance, it is a counteroffer.
    
    • Under the mailbox rule, an acceptance is effective upon dispath.
• A rejection is a manifestion of intent to not accept an offer. It terminates the offeree’s power to accept and is effective when recieved by the offeror.
• If a rejection is first then and then an acceptance is sent, which ever the recipient recieves first is effetive.

Question 6

UCC - Acceptance & Rejection

Answer 6

• UCC Section 2-207 (“Battle of the Forms”): A K is formed even if the acceptance contains additional terms or different terms (i.e. it need not mirror the offer). Whether the terms become part of the contract depends on the statuts of the parties:
  
  • If one of the parties is not a merchant, the terms of the offer control.
  • If both parties are merchants, additional terms become part of the K unless they 1) materially alter the K, 2) offer expressly limits acceptance to terms of the offer or 3) the offeror objects to the terms within a reasonable time.
• The UCC relaxes the mailbox rule by requiring that acceptance need only be made in a reasonable manner.

Rejection

• A rejection is a manifestion of intent to not accept an offer. It terminates the offeree’s power to accept and is effective when recieved by the offeror.
• If a rejection is first then and then an acceptance is sent, which ever the recipient recieves first is effetive.

Question 7

Acceptance - Bilateral v. Unilateral Ks

Answer 7

• For a bilateral contract, the start of performance manifests acceptance.
• For a unilateral contract, the start of performance renders the contract irrevocable. The offer is only accepted once the performance is complete.

Question 8

Consideration

Answer 8

• A promise must be supported by consideraton to be enforceable.
• Consideration requires 1) is a legal detriment or bargained-for exchange between the parties of 2) something of legal value. (i.e. benefit to promisor or detriment to promisee)
• A promise to make a gift does not constitute consideration.

Question 9

Modification of K w/o Consideration (UCC v. Common Law)

Answer 9

• Under Common law, if one of the patties has a pre-existing legal duty to perform, and then attempts to modify the contract, the modification is not enforceable unless:
  
  • New or different consideration is given, Promise raifies a voidable obligation (e.g. promise to pay a debt barred by statute of limitation), Promise is made to a 3rd Party, or there is an honest dispute as to whether a duty is owed.
  • Material Benefit: Some state recognize an exception to past consideration limitations in which a promise is made after a receipt of a significant benefit (usually the promise arises after a benefit received in an emergency situation)
• UCC: A modification is enforceable without consideraiton if it was sought in good faith. The pre-existing duty rule does not apply.

Question 10

Promissory Estoppel

Promise i can get RID of you?

Answer 10

• PE is a substitute for consideration and will be enforced if: 1) Reasonable (foreseeable) expectation of reliance on the promise, 2) injustic will occur if not enforced and 3) the party actually detrimentally relied.

Question 11

Buyer’s ability to Reject goods v. Revoke Acceptance of Goods

• UCC only*
• ST. SAC DAD*

Answer 11

• Rejection of Goods: A buyer can generally reject goods for any reason under the perfect tender rule (subject to exceptions - contract, installment Ks, chance to cure)
• Revocation of Accepted Goods: If a buyer fails to reject nonconforming goods after having a reasonable opportunity to inspect, the buyer is deemed to have accepted the good is may only revoke if his acceptance if:
  
  • The nonconformity substantially impairs the value of the goods to him
  • Revocation occurs within a reasonable time after buyer discovers or should have discovered the nonconformity and before any substantial change in condition of the goods which was not caused by their own defects; AND
  • The buyer accepted the goods either:
    
    • On the reasonable assumption that the nonconformity would be cured and it has not OR
    • Without discovery of the nonconformity if his acceptance was induced by the difficulty of discovery before acceptance or seller’s assurances.

Question 12

Contract Formations Defenses

Making Mistakes IIS DUM

Answer 12

1. Misrepresentation/Fraud*
2. Mistake
3. Illegality
4. Incapacity
5. Statute of Frauds *
6. Duress & Undue influence*
7. Unconscionability/Impracticability
8. Misunderstanding

Question 13

Statute of Frauds

MYLEGS!

Answer 13

• The following contracts are not valid unless they satisfy the statute of frauds:
  
  • Marriage - Contract made in consideration of Marriage (prenup)
  • Year - Contracts that by its terms cannot be performed within one year
    
    • “For Life” does not trigger SoF because life can end within one year.
  • Land - A contrct to transfer, recieve or create an interest in real estate/land
  • Executor
  • Goods - Under the UC, Contracts for the Sale of Goods over $500 (exceptions)
  • Suretyship: A contract promising to guarantee the debt of another
• SoF is satisfied writing or performance
  
  • Writing: To be enforceable, a K within the SoF must be memorialized in writing, signed by the party to be charged, and include essential terms (Q-Tips v. P.S.Q)
  • Performance:
    
    • For service Ks under the 1 year provision: full performance satisfies the SoF
    • For Land Ks: seller fully performs or Buyer does 2 of the 3:
      
      • takes posession, makes payment in full or in party, makes substantial improvements.

Question 14

UCC - Sale of Goods over $500

4 Ways a Contract can satisfy SoF under the UCC

Answer 14

UCC Goods over 500: PAWS - Exceptions to Statute of Frauds

• Part Performance in the amount made & accepted or received & accepted.
• Admission in court
• Merchant Confirmatory Memo
  
  • After an oral agreement between merchants, either party sends a signed written confirmation of the oral contract (signed by sender) and the written confirmation is recieved by the other merchant to the oral agreement - Party recieving written confirmation can give written notice of objection withiin 10 days after receipt of the written confirmation.
• Specially Manufactured Goods - SoF satisfied when seller makes a “substantial beginng” toward the manufcture of custom goods that are to be specially made for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business under circumstances that reaosnably indicate that the goods are for the buyer.

Question 15

Contract Formation Defense: Duress

Answer 15

• Duress is a defense to contract formation and renders a contract void when it is established that a party was influenced to sign a contract under pressue.
• Duress is determined by the state of mind in the victim (SODA - susceptibility, opportunity, disposition, appearance)

Question 16

Warranties

Answer 16

• An express warranty is any affirmation of fact, promise, or description which is party of the basis of the bargain.
• Implied Warranty of Title indicates the that the title is good and transferable.
• Disclaimers are only good for implied warranties. It must be in writing and must be conspicious. (As it or with faults is sufficient). A seller cannot disclaim express warranties.

Question 17

Parol Evidence Rule

Answer 17

• Trigger by an ambiguity in the contract & a merger clause
• PER renders an evidence of prior or contempraneous understanding of the parties inadmissible if offered to contradict or modify terms of a written agreement.
• The rule does not exclude evidence to prove fraud, duress, mistake, misrepresentation or illegality.

Question 18

Conditions

Answer 18

• A condition may shift risk or excuse performance.
• All Ks contain an implied obligation requiring parties to a K to act in good faith and fair dealing.
• It may be an event (other than the passage of time) that must occur or fail to occur, unless excused, before performance comes due (a condition precedent) or that will release a party from an existing duty to perform (condition subsequent).
• Unless otherwise excused, Substantial Performance under common law and Perfect Tender under Article 2 are conditions to a K.

Question 19

Misrepresentation & Fraud (Defense to K Formation)

Answer 19

• A party under a K commits misrepresentation if the person:
  
  1. made a false statement about a material fact
  2. with the knowledge that it was false or did not know if it was true or not
  3. made the fact to induce the other party into entering the K and
  4. other party relied on the statement and was harmed.
• A party under a K commits fraud when there is
  
  1. active concealment of a latent defect
  2. an affirmative lie or
  3. silence when there is a duty to speak
  4. Defendant’s knowledge of wrongful act must be proved along with justifiable reliance, causation and damages.

Question 20

Conditions - Performance Obligation

Common Law v. UCC

Answer 20

• Common Law
  
  • Material Breach excuses a non-breaching party from performance.
  • A minor breach does not excuse a party from further performance but gives the harmed party the right to sue for damages
    
    • When there is a minor (not material) breach, the harmed party is not discharged and must “substantially perform” in order to demand performance and/or deduct damages.
      
      • Exception - Divisible Contract: If one party performs under a divisible contract (one that can be reasonably apportioned), he may collect payment even if he does not substantially peform his duties.
• The UCC does not distinguish between material and minor breach. Instead, under the UCC, a buyer has the right to perfect tender and can reject goods for any nonconformity - even a minor one.
  
  • However, the seller has a right to cure if
    
    • there is time left under the K to perform and the seller gives notice of the intent to cure and does cure; OR
    • the time for performance has passed, but the seller had grounds to believe that the nonconfroming goods would be acceptable but the buyer rejects the goods.

Question 21

Anticipatory Repudiation

Common Law v. UCC

Answer 21

• AR occurs when one party unequivocally indicates that he will not perform. Mere express of doubt is not enough.
  
  • If this happens the aggreived party can suspend performance and immediately sue for damages. The party can also ask for assurances.
• Vs. Insecurity
  
  • When a party has reasonable grounds for insecurity arise that the other party is unable or unwilling to perform. Although it does not rise to the level of anticipatory repudiation:
    
    • Under the UCC, the party may, in writing, demand adeqaute assurance of perofrmance and may suspend performance until she recieves assurance. If assurance is not given within a reasonable time (not exceeding 30 days), the other party may treat it as a repudiation.
• Retracting a Repudiation: The party who repudiated can retract his repudiation unless the other party cancelled the contract, materially changed his position in reliance on the repudiation or indicated that she considers the repudiation to be final.

Question 22

Damages

Answer 22

Expectation Damages

• The normal measure of damages for breach of contract is expectation damages, which aims the put the non-breaching party in the same economic position that it would be in if the K has been performed as promised. Exp. damages are measured by comparing the value of the performance without the breach to the value of performance with the breach.
  
  • Under the UCC, expectation damages puts the aggreived party “in as good a position as if the other party had fully performed”
• Limitations to calculation: Expectation damages must be foreseeable and proved with reasonable certainty.

Punitive Damages are generally no revocerable unless the conduct constituting the breach is also a tort that allows recovery of punitive damages.

Restitution (unjust enrichment): a party may be able to recover restitution for any benefit conferred by way of part performance in excess of the loss that he caused by his own breach.

Duty to Mitigate: plaintiff has a duty to take reasonable steps to mitigate (reduce) his losses. If he fails to do so, the court will reduce total damages by the amount that could have been avoided has the plaintiff taken steps to mitigate his losses

Question 23

Assignment/Delegation

Answer 23

• Any contractual right may be assigned and any contractual duty may be delegated unless the duty involves personal judgment or skill or unless the contract states otherwise.