Contracts

Question 1

Contracts choice of law

Answer 1

• Services or real estate: common law
• Goods: UCC
• Mixed: both if divisible, otherwise apply predominant purpose test

Question 2

Offer requirements

Answer 2

• Commitment by the offeror: manifestation of present intent to be bound
• Communication to a specific oferee
  
  • Exception for reward offers
  • c.f. advertisements, which are usually treated as an invitation to receive offers from the public
• Definite and essential terms
  
  • Common law: parties, subject matter, price, quantity
  • UCC: quantity

Question 3

Termination of an offer

Answer 3

• Revocation by the offeror
  
  • Express or constructive retraction
  • Effective upon receipt by the offeree
• Rejection by the offeree
  
  • By words, conduct, or counteroffer
  • Effective upon receipt by the offeror
• Lapse of time
• Operation of law
  
  • Death, destruction of the subject matter, supervening illegality

Question 4

Methods of accepting an offer

Answer 4

• For unilateral contracts
  
  • By complete performance (offeree must be aware of and motivated by offer)
• For bilateral contracts
  
  • By return promise
  • By beginning performance

Question 5

Mirror image rule

Answer 5

At common law, any change in terms will be a rejection and counter offer

Question 6

UCC acceptance by return promise

Answer 6

• Acceptance including a change in terms is valid unless agreement to the changed terms is made a condition of acceptance
  
  • If not, terms are a proposal for change to the contract
• For merchants, new/different terms control unless:
  
  • The original offer limited acceptance to its terms
  • They materially alter the offer
  • The offeror does not object within a reasonable time
  • Knock-out rule applies

Question 7

Knock-out rule

Answer 7

• When both parties are merchants: terms in a purported acceptance that conflict with original terms will knock one another out
• Court will replace with a reasonable gap-filling term

Question 8

UCC acceptance by performance

Answer 8

• Shipment of conforming goods
• Shipment of non-conforming goods, unless buy is notified that the good were sent as an accommodation
  
  • In this case, there is both an acceptance + breach

Question 9

Consideration

Answer 9

A bargained-for exchange of legal detriment

Question 10

Situations without consideration

Answer 10

• Illusory promises: only one party is bound to perform and performance is discretionary
• Gratuitous/gift promises
  
  • c.f. executed gift (legally biding intent to gift + actual/symbolic delivery)
  • May be enforced by promissory estoppel
• Past consideration
  
  • But, modern trend is to allow recovery to prevent injustice (quasi-K)

Question 11

Substitutes for consideration

Answer 11

• Promissory estoppel/detrimental reliance:
  
  • Reliance on promise is foreseeable and reasonable
  • Promisee in fact relies on promise
  • Justice requires enforcement
• Quasi-contract: implied in law to avoid unjust enrichment, promisee gets value of the benefit they conferred

Question 12

Requirements for modification

Answer 12

• Common law: new consideration
• UCC: good faith, but no additional consideration

Question 13

Parol Evidence Rule

Answer 13

• If contract is fully integrated, evidence of prior or contemporaneous communications that vary or supplement terms of the writing is not admissible
  
  • Evidence that explains meaning of terms may be admissible
• If contract is only partially integrated, evidence of prior or contemporaneous communications that vary the terms of the writing is not admissible
  
  • Evidence that supplements terms or explains meaning of may be admissible

Question 14

Effect of a merger clause

Answer 14

Presume that a writing is completely integrated.

Question 15

Exceptions to Parol Evidence Rule

Answer 15

• Attacking validity of written agreement
• Explaining terms
• Proving the existence of an oral condition precedent

Note: PER does not apply to subsequent communications or modifications

Question 16

UCC warranties

Answer 16

• Express warranty: a promise, description, or sample that is a basis of the bargain
  
  • General disclaimer for an express warranty is not valid
  • Opinion ≠ warranty
• Implied warranty of merchantability
  
  • “As-is” disclaimer okay if verbal or written so long as “merchantability” term used
  • If in writing, the disclaimer must be conspicuous
• Implied warranty of fitness for a particular purpose: if seller knows and buyer relies
  
  • As-is disclaimer valid if conspicuous writing

Question 17

Defenses to formation

Answer 17

• Absence of mutual assent:
  
  • Mutual mistake (void)
    
    • Mistaken as to a basic assumption that materially affects performance
  • Unilateral mistake (voidable)
    
    • Only voidable by mistaken party only if non-mistaken party knew or had reason to know of misunderstanding
• Absence of consideration (no K)
• Misrepresentation/fraud (voidable)
• Duress or undue influence (voidable)
• Incapacity (voidable)
  
  • Voidable only by party lacking capacity at time of contract. If they later gain capacity (e.g. turn 18) may be deemed to have ratified and thus become bound
  • Exception: recovery of reasonable value for necessities

Question 18

Defenses to enforcement

Answer 18

• Illegality (void)
  
  • Of consideration or performance
• Unconscionability (unenforceable)
  
  • Standard: “shocks the conscience” at the time of contracting
• Statute of Frauds (unenforceable)

Question 19

When does statute of frauds apply

Answer 19

M. SOUR:

• Marriage
• Surety
  
  • Exception: guarantor’s primary purpose is own economic motivation
• One-year
• UCC > $500
  
  • Exception: merchant confirmation, specially manufactured goods
• Real property
  
  • Exception: part performance

Question 20

Part performance (real estate)

Answer 20

A land sale will be enforceable in the absence of a written contract if purchaser can show 2+/3:

1. Payment
2. Possession
3. Significant improvements to land

Question 21

Merchant conformation

Answer 21

An agreement for the sale of > $500 of goods (UCC) will be binding without written contract, provided that

• Both parties are merchants
• Seller sends a written a memo of agreement
• Recipient has reason to know of contents
• Recipient does not object within 10 days

Note: agreement is only enforceable to the quantity in written memo

Question 22

Rights of third-party beneficiaries

Answer 22

• Intended beneficiaries: can sue on K
  
  • Donee benficiary: intended recipient of a gift promised by K
    
    • Can only sue promisor unless promisee told 3PB about the gift and 3PB detrimentally relies
  • Creditor beneficiary: receives the benefit of the contract as repayment of a debt owed by a party
    
    • Can sue either promisor or promisee (but m ay only recover once)
• Incidental beneficiary: cannot sue on contract

Note: Contract modification okay until rights in 3PB vested, otherwise notice and consent of 3PB are required

Question 23

Rights of third-party beneficiaries

Answer 23

• Intended beneficiaries: can sue on K
  
  • Donee benficiary: intended recipient of a gift promised by K
    
    • Can only sue promisor unless promisee told 3PB about the gift and 3PB detrimentally relies
  • Creditor beneficiary: receives the benefit of the contract as repayment of a debt owed by a party
    
    • Can sue either promisor or promisee (but m ay only recover once)
• Incidental beneficiary: cannot sue on contract

Note: Contract modification okay until rights in 3PB vested, otherwise notice and consent of 3PB are required

Question 24

Assignment

Answer 24

• Occurs when: right to contract benefit is transferred to a 3P after contract formation
• Rights: Party to K may only assign rights they could enforce themselves;
  “assignee steps into the assignor’s shoes”
• Effects: establishes privity between obligor and assignee; removes privity between obligor and assignor
• Liabilities: assignee may sue obligor and assignor

Question 25

Delegation

Answer 25

• Occurs when: duties to perform on contract is transferred to a 3P after contract formation
• Proper when: generally proper, unless involves personal judgment or skill
• Obligations: Delegatee agrees to satisfy performance obligations of delegator
• Liabilities:
  
  • Delegator can still be sued by obligee (unless novation).
  • Delagatee can only be liable/compelled to perform if receive consideration for delegation

Question 26

Conditions that excuse performance

Answer 26

• Anticipatory repudiation
• Prospective inability to perform
• Estoppel
• Waiver

Question 27

Conditions that satisfy performance

Answer 27

• Substantial performance
• Complete performance
• Performance on a divisible contract
• UCC: perfect tender and delivery

Question 28

Conditions that may discharge an existing duty

Answer 28

• Modification
• Recission
• Impossibility
• Impracticability
• Frustration of purpose
• Accord and satisfaction
• Release/novation

Question 29

Conditions that create impossibility

Answer 29

• Illegality
• Death of necessary person
• Destruction of subject mater

Note: temporary impossibility merely suspends performance

Question 30

Impracticability

Answer 30

• Performance becomes impracticable
• Due to an unanticipated event
• Party seeking to discharge duty is not at fault

Question 31

Frustration of purpose

Answer 31

• An unforeseeable event frustrates the principal purpose for entering the contract
• The party seeking discharge did not cause the intervening event

Question 32

Accord and satisfaction

Answer 32

• Accord: an agreement between parties to accept alternate performance to discharge a pre-existing duty between them
• Satisfaction: performance of new terms

Note: accord can also be satisfied by performing on original agreement (c.f. modification)

Question 33

Conditions that prevent an offeror from revoking their offer

Answer 33

• Option (offeree must pay consideration to keep open)
• Merchants/UCC: firm offers
  
  • Offer signed in writing to keep offer open for time stated
  • If no time stated, reasonable time < 3 months
• Detrimental reliance
• Part performance

Note: after option and firm offer periods expire, offeror must still affirmatively revoke original offer

Question 34

Novation

Answer 34

• All parties expressly agree to release and substitute a party
• No writing required

Question 35

Common law breach

Answer 35

• Material breach:
  
  • Party does not receive the substantial benefit of the bargain
  • May suspend performance and pursue remedy
• Minor breach:
  
  • Party receives substantial benefit of the bargain
  • Must continue to perform, but may seek damages

Question 36

Anticipatory repudiation

Answer 36

An unequivocal statement/conduct indicating that a party will commit a breach can be treated as material breach.

• Failure to provide reasonable assurances within 30 days = repudiation
• Repudiating party may retract repudiation, unless other party
  
  • Acts in reliance on repudiation
  • Signals acceptance of repudiation
  • Brings suit
• Effects: aggrieved party may
  
  • Treat as breach and sue immediately
    
    • Early suit only an option if nonbreaching party has performance remaining besides payment
  • Wait until performance date, and then sue

Question 37

UCC breach

Answer 37

• Perfect tender: if goods or delivery are defective in any way, buyer can sue for breach
  
  • If buyer rejects nonconforming goods, seller can cure if time for performance remains
  • Does not apply to installment contracts; apply substantial performance standard instead
• Warranty: breach occurs when the goods fail to fulfill the terms of the warranty

Question 38

Damages

Answer 38

• Expectation damages: put the non-breaching party where it would have been had the promise been performed
  
  • Expectation damages must be reasonably foreseeable at K formation
  • Also includes incidental and consequental damages, if reasonably foreseeable at K formation
• Reliance damages: If expectation damages too speculative, cost of performance made in reliance of K
• Restitution damages: value of the benefit conferred (only if breach was not willful)
• Liquidated damages: agreed-to damage term in K
  
  • Enforceable only to compensate for breach
  • Intended to be a liquidated damages clause, not a penalty
  • Reasonable estimate of damages in regards to anticipated harm

Note: Duty to mitigate. Non-breaching party can’t recover avoidable damages, has a duty to make reasonable efforts to mitigate.