Contracts

Question 1

What makes an option K valid under common law? Under UCC?

Answer 1

Under common law, in order for offer to remain open, must be supported by consideration

Under UCC, merchant’s firm offer rule (UCC 2-205). Offer by merchant IN A SIGNED WRITING which by its terms says it will be held open is irrevocable during the time stated. If no time is stated, then period of irrevocability can not exceed 90 days.

Note: firm offer can be for more than 3 months and will not be invalidated; but a court will only enforce it for up to 90 day maximum

Question 2

What is the test for whether a reply is a counteroffer or a mere inquiry?

Answer 2

Whether a reasonable person would believe the offer was being rejected.

Look for softer language (e.g. would you consider) that indicates mere inquiry and does not operate as a counteroffer.

Question 3

When does offer become irrevocable on a unilateral contract?

Answer 3

Performance must have begun. Mere preparation is not enough to make the offer irrevocable.

Question 4

What Ks must be in writing to be enforceable pursuant to Statute of Frauds?

Answer 4

MY LEGS!!!!!!!

Marriage
Years (cannot be performed within one year)**
Land
Executory
Goods ($500 or more)
Surety (promises to answer for debt of another)

**note that measure here is whether it is capable of being performed within one year. If so, then not subject to statute of frauds. If measurement is someone’s life, it is possible that could be within one year (they might die prematurely even if they are young).

Question 5

What is the main purpose exception to the surety provision of the statute of frauds?

Answer 5

If main purpose of guarantor is to benefit himself, that takes the K out of the statute of frauds.

(e.g. uncle guarantees loan from bank to his nephew, but plans to use the tractors 15 days out of the year for himself)

Question 6

What happens if there is mutual mistake?

Answer 6

If mistake goes to heart of agreement, it is grounds for rescission

Question 7

What happens if unilateral mistake?

Answer 7

General rule - unilateral mistake will NOT prevent K formation.

However, if non-mistaken party knows or has reason to know of the other party’s mistake, will not be permitted to take advantage of mistake party and snap up the bargain**

**in bid situation, look out for one bid that is way out of step with all the other bids

Question 8

When does unconscionability arise?

Answer 8

When one party has substantially superior bargaining power over the other party and uses that power to dictate the terms of the contract to the other party

Question 9

What is the merchants confirmatory memo exception to statute of frauds?

Answer 9

Both parties must be merchants for exception to apply

If within a reasonable time after entering into oral agreement, one merchant sends written confirmation of that agreement, will bind the sending merchant immediately

Then, if recipient merchant does not object to contents of the writing within 10 days of receipt, they are bound as well

Question 10

When can contracting parties modify or cancel a contract without consent of a third party beneficiary?

Answer 10

If an intended third party beneficiary’s rights have not yet vested, the contracting parties can modify or cancel the contract without TPB’s consent.

After intended third party beneficiary’s rights have vested, the parties cannot modify unless the intended TPB consents to it.

TPB’s rights vest in one of three ways:

1. When TPB learns of the contract AND assent to it (Learn and Assent)
2. When TPB learns of contract AND relies on it (Learn and Rely)
3. When TPB learns of contract AND brings immediate lawsuit to protect their rights (Learn and Sue)

Question 11

What are the elements of promissory estoppel?

Answer 11

1. A promise
2. Reasonable expectation of reliance on the promise
3. Reliance itself
4. Interests of justice require enforcing the promise

Question 12

What kinds of Ks are assignable, delegable?

Answer 12

All Ks, EXCEPT unique personal service Ks and long-term requirement Ks

Assignments and delegations can be done orally or in writing.

They can be gratuitous or for value, but if gratuitous then revocable; whereas if for value, irrevocable

Question 13

What is an accord?

Answer 13

A new agreement between parties who are already under contract with each other. It as the effect of suspending the original agreement until the accord is either satisfied or unsatisfied. If the accord is satisfied, the original agreement is discharged. If fail to satisfy accord, other party can sue either under terms of original agreement or under accord itself.

Question 14

What is required for anticipatory repudiation?

Answer 14

Must have a clear indication of an intent not to perform (more than just an expression of doubt). If not clear, require non breaching party to seek assurances or wait until time of performance called for by K.

Question 15

What can a party do if there is a non material breach (i.e. performance is slightly late, but there was no time is of the essence clause)?

Answer 15

Can sue for damages for the period of time performance was late, but can’t walk away from the contract

Question 16

What is a condition precedent?

Answer 16

An act or event (other than lapse of time) that must occur first in order for a party to be under a duty to perform.

Question 17

Under the UCC, if buyer accepts goods not in conformity with their order, what may they recover?

Answer 17

Warranty damages - the difference in value between the goods accepted and the goods that were contracted for (plus any incidental and consequential damages)

Question 18

What is a merchant

Answer 18

One who regularly deals in the kinds of goods being sold OR who otherwise by their profession holds themselves out as having special knowledge or skills as to the practices or goods involved

Question 19

What law governs if a K involves both goods and services?

Answer 19

Determine which aspect is dominate and apply the UCC or common law accordingly.

However, if payment is divided between the goods and services, UCC applies to sale of goods portion and common law applies to services portion.

Question 20

Are advertisements offers?

Answer 20

No, advertisements are usually construed as mere invitations for offers

Question 21

What is required for an offer in a real estate transaction?

Answer 21

The offer must identify the land (with sufficient particularity) and the price terms. Most courts will not supply a missing price term for realty.

Question 22

Can a court supply missing terms?

Answer 22

Yes, that one or more terms are missing does not prevent K formation. A court can supply terms such as price (except in real property), time the act is to be performed

***a court cannot however cannot assume intent by the parties to supply a particular term if the parties included a vague term

Question 23

When does an offer for a unilateral K become irrevocable?

Answer 23

Once performance has begun.

The offeror must give offeree reasonable time to complete performance.

But, offeree is not bound to complete performance (but no acceptance until performance is complete)

***substantial preparations to perform do not make the offer irrevocable but may constitute detrimental reliance and make the offeror’s promise binding to the extent of the detrimental reliance

Question 24

Can silence constitute acceptance?

Answer 24

Generally, silence does not constitute acceptance.

However, a court may find silence works as acceptance based on prior dealings or trade practices.

Question 25

What happens if there is a shipment of nonconforming goods?

Answer 25

A shipment of nonconforming goods operates as an acceptance + breach, unless the seller within a reasonable time notifies the buyer that the shipment of nonconforming goods is being sent as an accommodation.

The buyer may reject the nonconforming goods. If buyer rejects, shipper isn’t in breach and may reclaim the accommodation goods

***note the accommodation shipment rule only applies when shipment is the form of acceptance, NOT when there has separately been an acceptance already (in those cases, accommodation is not possible).

Question 26

What happens if the offeree adds additional terms in its acceptance in a sale of goods?

Answer 26

UCC says this is still an acceptance and a K is formed with or without the new terms (not that in other contexts like land sales or services under common law, changing the terms would not operate as an acceptance, but rather as a rejection)

In other words there is NO MIRROR IMAGE RULE under the UCC for sale of goods.

Additional terms:

• If ANY party is not a merchant, then the additional terms are considered mere proposals to modify and don’t go into effect unless expressly agreed upon by offeror
• If both parties are merchants, the additional terms will be included in the K unless (1) they materially alter the original terms of the offer (e.g. by changing a party’s risk or the remedies available); (2) the offer expressly limits acceptance to the terms of the offer or (3) the offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received.

Question 27

What happens if an offeree sends a rejection and then an acceptance?

Answer 27

Whichever gets to the offeror first is effective

Question 28

What if an offeree sends acceptance and then rejection?

Answer 28

Acceptance is effective, UNLESS the rejection arrived first and the offeror detrimentally relied on it

Question 29

How does mailbox rule work with an option contract/when is acceptance effective?

Answer 29

With an option contract, acceptance is only effective upon receipt

Question 30

How do you calculate restitution damages?

Answer 30

Restitution damages are calculated based on what has been actually gained by the breaching party.

Question 31

What is the condition exception to the parol evidence rule?

Answer 31

It permits the admission of extrinsic evidence to establish an oral condition to the parties’ performance under the contract

Question 32

When will an unequivocal statement of repudiation not constitute a total breach?

Answer 32

If the repudiating party has received all of the agreed exchange for the duty, then repudiation of that duty will only operate as a partial breach, for which the other party can only recover the portion included in the breach.

See Adaptibar #677 for example

Question 33

Are requirements contracts assignable under the UCC?

Answer 33

Yes requirements and output contracts are assignable under the UC as long as the assignee does not disproportionately alter the contemplated quantity.

Question 34

Is consideration necessary for K modification?

Answer 34

General K law - new consideration needed to modify K

Modern view - permits modification without consideration IF (1) modification is due to circumstances unanticipated by the parties at the time the K was made and (2) it is fair and equitable

UCC - consideration isn’t necessary to modify. Parties just need good faith promises of new and different terms

Question 35

Is a provision prohibiting oral modification effective?

Answer 35

Common law - not effective

UCC- effective***
but note if K bt merchant and non merchant, provision must have non merchant’s separate signature

Question 36

Definition of Offer?

Answer 36

An offer occurs when a person communicates willingness to enter into a bargain with another party, such that the other party understands that their assent is invited and will conclude it. The terms of an offer must be reasonably certain (parties, subject matter, price).

Question 37

Definition of Acceptance?

Answer 37

Acceptance occurs when an offeree manifests assent to the terms of the offer in the manner set forth by the offeror.

Question 38

Definition of Consideration?

Answer 38

Consideration is a legal detriment or bargained for exchange. A promise to make a gift does not constitute consideration

Question 39

What is the preexisting duty rule and when does it apply

Answer 39

The pre existing duty rule applies under COMMON LAW, and states that promising to perform a legal duty already owed to a promisor is not valid consideration

**exceptions: (1) if the duty is changed, even slightly, or (2) unforeseen circumstances

Question 40

What is needed to modify a contract under the UCC

Answer 40

Under the UCC only good faith is required to modify a contract