Contracts

Question 1

Consequential damages

Answer 1

Definition: consequential damages consist of loses beyond those covered by the standard measure that reasonable person would have foreseen would occur as a result of the breach.

Whether will receive consequential damages turns on:

• *1. foreseeability:** contract damages are foreseeable if a reasonable person in the position of the breaching party would have known at the time the contract was made that the damages were likely to occur as a result of the breach.
• *2. ascertainability:** they must be able to ascertained with reasonable certainty.
• ex: traditionally, courts will be hesitant to allow for recovery of lost profits from a business not yet started. However, modern trend is to allow for recovery is there is sufficient evidence to determine profits with reasonable certainty.

also check for

1. expenses SAVED as a result of the breach
2. ability to mitigate damages: a non-breaching party cannot recover for avoidable damages. must take REASONABLE steps. (consider if mitigation alternative not reasonable).

Question 2

Expectation damages

Answer 2

1. Expectation damages are intended to put the injured party in the same position as if the contract had been performed.
2. Measures:
   
   1. restoration cost to pre-breach state.
   2. value difference between pre-breach post-breach (courts hesitant to allow this because might encourage breach).
      
      1. also consider whether breach was willful. If it was, could counsel towards restoration cost.

Question 3

Merchant

Answer 3

One who regularly deals in goods of the kind sold or who otherwise by his occupation holds himself out as having knowledge or skill peculiar to the goods involved.

Question 4

Goods

Answer 4

Goods are all things moveable at the time that they are identified as goods to be sold under the contract

Question 5

Offer

Answer 5

An offer is an expression of willingness to enter into a bargain, made with _definite term_s so that the other party could reasonably believe that he could conclude the bargain by accepting

Question 6

Acceptance

Answer 6

1. an acceptance is an assent to the terms of the offer
2. acceptance of an offer must be unequivocal and communicated to the offeror

Question 7

Consideration

Answer 7

1. Consideration is a bargained for exchange, and that which is bargained for must have legal value.
2. There is no bargain when one party gives a gift to another
3. legal value is usually considered to be either a benefit to the promisor or a detriment to the promisee
4. the promise must induce the detriment, and the detriment must induce the promise.

Question 8

SoF goods above 500

Answer 8

To be enforceable, a contract for the sale of goods:

1. priced at 500 or more must be
2. evidenced by a signed writing
3. indicating that a contract has been made
4. specifying the quantity !!!!
5. signed by the party to be charged

Question 9

Signature requirement

Answer 9

1. any mark made with the intent ot authenticate the writing is a signature, including a party’s initials or letterhead

Question 10

Battle of the Forms and oral agreements/confirmations

Answer 10

1. Confirmations of oral agreements are run through section 2-207
2. if the terms of a confirmation (or agreement) differ from terms of an oral agreement, the differing terms drop out and gap fillers are used. (ex: difference in quantity)

Question 11

Merchant’s confirmatory memo

Answer 11

In contracts:

1. Between merchants, if one party
2. within a reasonable time after an oral agreement is made, sends to the other party a written confirmation of the agreement
3. that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if
4. he has reason to know of the confirmations contents and
5. he does not object to it in writing within 10 days of receipt.

Question 12

Part performance

Answer 12

Part performance is sufficient to take contracts out of the SoF when,

1. the goods have been specially manufactured OR
2. the goods have been either paid for or accepted

Question 13

Implied Warranty of Fitness

Answer 13

implied warranty of fitness for a particular purpose arises only when: (i) a seller has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller’s skill and judgment to select suitable goods; and (ii) the buyer in fact relies on the seller’s skill or judgment.

Question 14

When is a revocation effective?

Answer 14

(i) it comes to a person’s attention, or (ii) it is delivered at a place of business through which the contract was made. The communication need not be read by the recipient to be effective.

Question 15

When do TPB’s rights vest?

Answer 15

Generally, a third-party beneficiary has rights under the contract as soon as she does something to vest her rights (manifests assent to the promise, brings suit to enforce the promise, or materially changes position by justifiably relying on the promise).

Question 16

Impracticability

Answer 16

• excessive or unreasonable difficulty or expense is a defense to breach of contract for nonperformance.
• its nonoccurence was a basic assumption of the parties
• DISCHARGE–NO DAMAGES–UNLESS RESTITUTION (unjust enrichment)
• ex: the means of the performing the contract are destroyed, might be impracticably costly to repair the means and then satisfy the contract.

Question 17

Mutual mistake as to existing facts

Answer 17

If both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract may be voidable by the adversely affected party if:

(i) The mistake concerns a basic assumption on which the contract is made (for example, the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia);
(ii) The mistake has a material effect on the agreed-upon exchange (for example, the cubic zirconia is worth only a hundredth of what a diamond is worth); AND
(iii) The party seeking avoidance did not assume the risk of the mistake. (ex: if you agree to pay damages to avoid a lawsuit, you assumed the risk of the mistake bitch)

Question 18

Right to Reject Cut Off by Acceptance

Answer 18

A buyer’s right to reject under the perfect tender doctrine generally is cut off by acceptance. Under Article 2, a buyer accepts when:

a. After a reasonable opportunity to inspect the goods, they indicate to the seller that the goods conform to requirements or that they will keep the goods even though they fail to conform;

**possession usually denotes acceptance

b. They fail to reject within a reasonable time after tender or delivery of the goods or fail to seasonably notify the seller of their rejection;

OR

c. They do any act inconsistent with the seller’s ownership.

Note: you don’t “have a reasonable time after purchase to inspect”–once you accept re any of three (usually possession makes acceptances), then that’s it. You can’t accept the goods and then inspect and reject.

Question 19

Pre-existing duty rule

Answer 19

1. Consideration is a bargained for exchange of something of legal value
2. Under the pre-existing duty rule, the promise to perform a legal duty already owned to a promisor is not consideration

Question 20

Modern rule: modification w/o consideration

Answer 20

1. Some courts will allow a contract to be modified without additional consideration if the modification is fair and equitable in view of circumstances not anticipated when the contract was made
2. This usually means that a party encountered difficulties in performing bordering on impracticability

Question 21

Modification under the UCC

Answer 21

Under Art. 2, contract modifications sought in good faith are binding without consideration

Good faith means there must be a legitimate commercial reason for the modification

Question 22

Duress: defense

Answer 22

• A contract can be voided based on duress when a party’s assent to a contract is induced by an improper threat by the other party that leaves the victim no reasonable alternative.
• Withholding something someone wants or needs will constitute economic duress if (i) the other party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and (ii) there are no adequate means available to prevent the threatened loss.

Question 23

Merchant’s firm offer

Answer 23

If (i) a merchant (ii) offers to sell goods in a signed writing, and (iii) the writing gives assurances that it will be held open, (iv) the offer is not revocable for lack of consideration during the time stated.

Question 24

Substantial performance

Answer 24

1. In every contract, the duty of each party to render performance is impliedly conditioned on the other party rendering his performance or making a tender of his performance
2. In contracts not involving the sale of goods, the condition of complete performance may be excused if the party has rendered substantial performance
3. The rules for determining whether performance is substantial are the same as those for determining whether a breach is minor or material: if the breach is minor, performance is substantial; if the breach is material, performance is not substantial
4. To determine whether a breach is material, the court looks at: (1) the amount of benefit received, (2) the adequacy of the damages, (3) extent of performance, (4) hardship to the reaching party, and (5) whether the breach was negligent or willful.

Notes:

• a reasonable delay in performance is usually considered a minor breach unless the nature of the contract is such as to make performance on the exact day of vital importance or the contract, by its terms, provides that time is of the essence.

Question 25

Time is of the essence

Answer 25

In determining whether time is of the essence, the trier of fact looks at the instrument itself as well as all of the surrounding circumstances.

Question 26

Divisible Contract

Answer 26

1. If a contract is divisible, a party who has performed one or more parts is entitled to collect the contract price for those parts even if it breaches the other parts.
2. Non-breaching party has a case of action for each of the unperformed units and may withhold counter performance for those units.
3. For a contract to be divisible:
   
   1. performance of each party must be divided into two or more parts under the contract
   2. the number of parts due form each party must be the same
   3. the performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party.

**will usually look at contract interpretation and fairness to determine whether divisible.

Question 27

Restitution

Answer 27

• A breaching party may recover in quasi-contract the value of the services performed minus any damages incurred as result of the breach.
• When breaching party is plaintiff: court may award restitution if the breach was not willful, but it will likely limit recovery to contract price less damages caused by the breach.
• When plaintiff hasn’t fully performed: can recover for restitution
• When plaintiff has fully performed: limited to contract damages

Question 28

Modern trend: consideration

Answer 28

Under a modern trend, some courts will enforce a promise lacking a bargained for exchange if (i) it is based on a material benefit that was previously conferred by the promisee on the promisor, and (ii) the promisee did not intend to confer the benefit as a gift; (iii) the promise is unenforceable to the extent it is disproportionate to the benefit conferred.

Alternative statements of this in CMR:

• (i) if a past act benefited the promisor and (ii) was performed by the promisee at the (iii) promisor’s request or (iv) in response to an emergency, (v) a subsequent promise to pay for that act will be enforceable.

Question 29

Capacity to contract

Answer 29

For a contract to be enforceable, both parties must have had capacity to enter into a contract.

Ex: One who is so intoxicated by drugs or alcohol that she does not understand the nature and significance of her promise may be held to have made only a voidable promise if the other party had reason to know of the intoxication.

Question 30

Clauses barring assignment of contracts

Answer 30

If there is a clause that says “this contract may not be assigned” it is construed ONLY to bar delegation of DUTIES, NOT assignment of rights (like payment).

Question 31

Parol Evidence Rule + Exceptions

Answer 31

Definition: When parties to a contract express agreement in a writing with teh intent that tit embody the final expression of their bargain, the writing is an integration. Any other expressions written or oral made prior to writing or contemporaneously with it, are inadmissible to vary the terms of the writing.

Partial integration

• writing may NOT be contradicted
• writing may be SUPPLEMENTED by providing CONSISTENT supplemental terms.
• UCC presumes all writings are partial integrations.

Complete Integration

• CANNOT be contradicted OR supplemented
• merger clause

EXCEPTIONS (evidence outside scope of rule)

• Validity issues
  
  • formation defects (fraud, duress, illegality)
  • conditions precedent to effectiveness
• Collateral agreements and naturally omitted terms
  
  • a term is naturally omitted if it does not conflict with the written integration or it concerns a subject that similarly situated parties would not ordinarily be expected to include
• Interpretation when uncertainty or ambiguity in writing
• Showing of true consideration
• Reformation
  
  • if party to agreement alleges facts entitling him to reforming of the agreement, extrinsic evidence admissible.
• Subsequent modifications

Question 32

Accord and Satisfaction

Answer 32

If a monetary claim is uncertain or subject to a bona fide dispute, an accord and satisfaction can be accomplished by a good faith tender and acceptance of a check when that check (or an accompanying document) conspicuously states that the check is tendered in full satisfaction of the debt.

Question 33

Battle of the forms vs. UCC

Answer 33

Battle of the forms (not for sale of goods):

• additional statements in the acceptance become a counteroffer and rejection.

UCC (sale of goods)

• Merchant to merchant: additional terms are included unless
  
  • materially alters contract
  • acceptance is expressly conditioned on acceptance of the term
  • offeror has already objected to the particular terms or objects within a reasonable time after notice of them is received.
• Merchant and non-merchant: additional terms not included unless offeror expressly agrees.

Question 34

Contract Construction

Answer 34

Most persuasive to least:

1. express terms
2. course of performance
3. course of dealing
4. trade usage and custom