Contracts

Question 1

UCC Contracts

Answer 1

Sale of Goods

Rules for merchants and non-merchants.

Question 2

What is a merchant?

Answer 2

Merchants are parties who deal in goods of the kind; or

By their occupations hold themselves out as possessing knowledge or skill concerning the goods involved in the transaction.

Question 3

Common Law Contracts

Answer 3

Real Property and Services.

Question 4

Requirements for a Valid Contract

Answer 4

(1) One party must make a binding offer to the other; (2) the offer must be accepted by the other party; and (3) there must be consideration.

Question 5

Offer

Answer 5

An indication of willingness to perform some obligation or refrain from doing something (enter into a bargain).

Terms must be sufficiently certain.

Question 6

Inquiries or Invitations to Make an Offer

Answer 6

Are NOT an offer.

Question 7

Advertisements

Answer 7

Generally, not offers, but rather, invitations to make offers.

For an advertisement to be an offer the advertisement should (1) target a specific or limited audience, (2) have definite terms, and (3) require the offeree to do something.

Question 8

Offer Termination

Answer 8

When it has: (1) lapsed; (2) been revoked; (3) been rejected; (4) met with a counteroffer; or (5) by operation of law.

Question 9

Lapses

Answer 9

No acceptance within a reasonable time.

What constitutes a reasonable time is a question of fact.

Use 30 days as a default rule.

Question 10

Offers are Freely Revokable

Answer 10

Party making the offer can revoke any time prior to acceptance.

Revocation prior to acceptance precludes the formation of a contract.

Question 11

Rejection and Counteroffer

Answer 11

Offeree that communicates rejection of an offer or responds with counteroffer terminates the original offer.

Question 12

Rejection Meaning

Answer 12

A manifestation of intent not to accept an offer.

Question 13

Operation of Law

Answer 13

Death of the offeror or even that makes contract impossible terminates an offer.

Question 14

Firm Offer Rule
-Irrevocable Offers-

Answer 14

(1) Signed written offers (2) promising to be irrevocable and (3) made by a merchant are revocable for time stated but not more than 3 months.

Since the firm offer must be made by a merchant, this will only arise under the UCC where a sale of goods is involved.

Question 15

Option Contract
-Irrevocable Offers-

Answer 15

Parties exchange consideration for the promise to keep an offer irrevocable for an agreed time – if not time stated than a reasonable time.

Unless terms recite otherwise, an option contract is not created until RECEIPT of the acceptance.

Can appear under the UCC or Common Law.

Question 16

Part Performance
-Irrevocable Offers-

Answer 16

An offer that invites performance as a reasonable method of acceptance makes the offer irrevocable upon partial performance.

Mere preparation is not enough.

Question 17

Detrimental Reliance
-Irrevocable Offers-

Answer 17

A detrimental reliance that the offer will remain open.

Question 18

Counteroffer Meaning

Answer 18

If you propose a change to the terms of an original offer, you are making a new offer – a counteroffer; there can be no contract until the counteroffer is accepted.

An offer made by the offeree to the offeror that concerns the same subject matter as the original offer but differs in its terms.

Question 19

Acceptance

Answer 19

Requires a meeting of the minds (mutual assent).

May arise by communication or performance.

May be express (by word of mouth or in writing) or inferred by conduct, e.g., if he receives goods and makes use of them.

Question 20

Validity of Acceptance

Answer 20

(1) Must take place while the offer is still in force; (2) Under common law, must be on the same terms as the offer; (UCC has exceptions) (3) Must be unconditional; and (4) Must be communicated to the offeror.

Question 21

Mirror Image Rule – Common Law

Answer 21

For an acceptance to form a contract the acceptance must be a “mirror image” of the offer.

Any deviation from the terms is a counteroffer. (an offer and acceptance with new or additional terms is an offer and a counter offer)

Question 22

Mirror Image Rule – UCC
-One or None are Merchants-

Answer 22

Offer and Acceptance with New or Additional Terms

A contract is created according to the original terms of the offer.

Question 23

Mirror Image Rule – UCC
-Both are Merchants-

Answer 23

Offer and Acceptance with New or Additional Terms

A contract is created that includes the new or additional terms.

Unless: (1) there is an objection; (2) the new or additional term is a material alteration; and (3) the original offer expressly says it can only be accepted as stated.

Question 24

Acceptance by Performance

Answer 24

Creates a contract.

Question 25

What happens if the performance deviates from the terms of the offer?

Answer 25

Non-conforming performance/ acceptance creates a contract and a simultaneous breach. Non-conforming performance/ acceptance accompanied by written explanation creates a counteroffer.

Question 26

Mailbox Rule

Answer 26

Acceptance of the offer is effective upon dispatch. Revocation of offer is effective upon receipt.

Question 27

Exceptions to Mailbox Rule

Answer 27

Does not apply where the offer states that acceptance will not be effective until received. Does not apply where the acceptance is in response to an option contract; acceptance must be received to be effective. Where rejection is sent before acceptance, whichever is received first controls.

Question 28

Consideration

Answer 28

An exchange of promises to perform acts in the future. May take the form of a commitment to pay, to perform or to surrender a right in exchange for another’s promise to act. Promise for a promise is sufficient.

Question 29

Inadequate Consideration

Answer 29

Past consideration is not sufficient legal consideration. Pre-Existing Duty -- if a party to a contract is under a pre-existing duty to perform, then no consideration is given for any modification of the contract and the modification is therefore voidable.

Question 30

Consideration Principles

Answer 30

(1) A valuable consideration is required, i.e. the act, forbearance, or promise must have some economic value; (2) Consideration need not be adequate but it must be sufficient (as long as it has some economic value); (3) Consideration must move from the promisee. (4) Consideration must not be past.

Question 31

Material Benefit Rule -Past Consideration Exception- (Some States)

Answer 31

A promise not supported by consideration may be enforceable if it is made in recognition of a benefit previously received by the promisor from the promise. Does not apply (and the promise is not enforceable) if the promisee conferred the benefit as a gift, or to the extent that the value of the promise is disproportionate to the benefit conferred.

Question 32

Terms

Answer 32

Must be sufficient such that an assent to the terms creates a contract.

Question 33

Contract Modification -Generally-

Answer 33

When parties change the terms of an existing contract the law regards the modification as a brand-new contract.

Question 34

Contract Modification -Common Law-

Answer 34

Modification requires new consideration! Some states permit a writing to substitute for new consideration. Some states permit modification without new consideration where the change is necessitated by unforeseen circumstances.

Question 35

Contract Modification -UCC-

Answer 35

Modification permitted without new consideration! Requires good faith!

Question 36

Unconscionability

Answer 36

Gross inequality of bargaining power, together with terms unreasonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms.

Question 37

Misrepresentation

Answer 37

A false statement made to encourage you to enter into a contract, but you would not have otherwise entered into the contract.

Question 38

Duress

Answer 38

Either actual violence or the threat of violence was used to make the other party enter into the contract (“sign this contract or I’ll shoot you!”).

Question 39

Undue Influence

Answer 39

Improper pressure other than violence (e.g., blackmail).

Question 40

Mistake

Answer 40

If absolutely fundamental, as it gets to the very heart of the transaction, the contract will be considered void from the outset. Must be a mutual mistake!

Question 41

Illegality

Answer 41

Contracts that violate the law are void and unenforceable by either party.

Question 42

Statute of Frauds MY LEGS

Answer 42

Require a writing for the following: Marriage Year or Longer (entrance date) Land Sales Executors of Estates Goods ($500 or more) Suretyship

Question 43

Statute of Frauds –Requirements (Contract Specific)

Answer 43

Under the Statute of Frauds, a contract [insert] is unenforceable unless (1) referenced in a writing sufficient to indicate a contract has been made and (2) signed by the party against whom enforcement is sought. Almost any form of signing will suffice, so long as the signer had the intention of authenticating the instrument.

Question 44

Merchant Memo Rule -Exceptions to the UCC Statute of Frauds-

Answer 44

If, (1) within a reasonable time, (2) a signed writing in confirmation of the contract and sufficient against the sender is received, and (3) the party receiving it has reason to know its contents, it satisfies the requirements against such party unless written notice of objection to its contents is given within 10 days after it is received.

Question 45

Specially Manufactured Goods -Exceptions to the UCC Statute of Frauds-

Answer 45

Goods not saleable in the ordinary course of business become binding when manufacturer begins production or procurement of necessary material for the Buyer.

Question 46

Performance

Answer 46

A court may deem an oral contract enforceable if the parties (or one party) has partly performed the contract.

Question 47

Admission

Answer 47

If a party admits under oath (such as in a deposition or in a court proceeding), the existence of a contract, it may then be deemed enforceable.

Question 48

Promissory Estoppel (Detrimental Reliance) -Quasi Contract-

Answer 48

(1) The promisor, when making the promise, should have reasonably expected that the promisee would change his position in reliance on the promise; (2) the promisee did in fact change position in reliance on the promise; (3) the change in position was to the promisee’s detriment and (4) injustice can be avoided only by enforcing the promise.

Question 49

Unjust Enrichment -Quasi Contract-

Answer 49

One party confers a benefit on another that a reasonable person would have expected to provide consideration for.

Question 50

Warranty of Merchantability

Answer 50

Merchants who regularly deal with the goods involved in a transaction impliedly warrant (warranty of merchantability) (1) that the goods are “fit for their ordinary purpose” and (2) that they will “pass in the trade without objection”.

Question 51

Warranty of Fitness for a Particular Purpose

Answer 51

It warrants that the goods will be fit for the buyer’s particular use or purpose rather than the ordinary purpose of the goods. To establish this warranty, the buyer must prove: (1) The seller’s expertise regarding the goods; (2) The seller’s knowledge of the buyer’s purpose for the goods; (3) The buyer’s reliance on the seller’s expertise.

Question 52

FOB Buyer’s Place of Business

Answer 52

Places risk of loss on seller while the goods are in transit.

Question 53

FOB Seller’s Place of Business

Answer 53

Places risk of loss on buyer while the goods are in transit.

Question 54

Time of the Essence

Answer 54

The mere designation of a particular date upon which a thing is to be done does not result in making that date the essence, or a “material” term of the contract. Therefore, unless the contract explicitly states that time is of the essence, a material breach will not be found solely because a party fails to perform by the date given.

Question 55

Non-Competition Clauses

Answer 55

Public Policy disfavors them. Enforceable if the clause is reasonable in: (1) time; (2) geography; and (3) scope.

Question 56

Installment Contracts

Answer 56

Contract sells the same goods repeatedly for the same price. Each installment treated as its own contract.

Question 57

Divisible Contracts

Answer 57

Contract requires the same service to be repeated more than once for the same price. Each division treated as its own contract.

Question 58

Parol Evidence -Completely Integrated-

Answer 58

Prior to or contemporaneous agreements are inadmissible to supplement the terms of a contract under circumstances where a contract is completely integrated.

Question 59

Parol Evidence -Partially Integrated-

Answer 59

Where contract is partially integrated contract, prior to or contemporaneous agreements are admissible to supplement the terms of a contract. Parol evidence never permits prior to or contemporaneous agreements to contradict the terms of contract – only to explain ambiguous terms.

Question 60

Integrated Meaning

Answer 60

A written agreement is considered to be integrated if it constitutes a final expression of one or more terms of an agreement and is considered to be completely integrated if the parties adopted the writing as a complete and exclusive statement of their agreement.

Question 61

Parol Evidence -Exceptions-

Answer 61

Fraud Mutual Mistake Misrepresentation Condition Precedents DOES NOT apply to subsequent agreements.

Question 62

Condition Precedent

Answer 62

A condition that must be met before performance is due. Only enforceable by the party for whose benefit the condition exists.

Question 63

Condition Subsequent

Answer 63

A condition that ends the obligation to perform.

Question 64

Concurrent Conditions

Answer 64

When performance must occur simultaneously.

Question 65

Substantial Performance Rule

Answer 65

Standard of performance required to comply with real property, services and multiple delivery sale of goods contract.

Question 66

Perfect Tender Rule

Answer 66

Single Delivery Contracts under the UCC require perfect performance.

Question 67

Failure of Perfect Tender

Answer 67

If goods, or tender of delivery, fail in any respect to conform to the contract, the buyer has the right to: (i) Accept the goods; (ii) Reject the entire shipment; or (iii) accept part and reject part.

Question 68

Breach of Contract

Answer 68

Where one party breaches the contract, the other is under no further obligation to perform.

Question 69

Anticipatory Repudiation

Answer 69

A party communicates that he will not perform by the time of contract performance (can rescind if no reliance). Non-breaching party may suspend performance and treat the anticipatory repudiation as a material breach; or wait a reasonable time for performance.

Question 70

Demand for Adequate Assurances

Answer 70

Where one party to a contract develops a reasonable belief that the other party may not perform, the party developing the insecurity may demand adequate assurance that performance will occur. Failure to be provided adequate assurances within a reasonable time may be regarded as a breach of contract which thereby excuses further performance from the party demanding assurances.

Question 71

Retracting the Repudiation

Answer 71

A repudiating party may, under some circumstances, retract its repudiation. But the power to retract a repudiation terminates when the aggrieved party has done any of the following: (1) cancelled, (2) materially changed his position, or (3) otherwise indicated that he considers the repudiation to be final.

Question 72

Incidental Damages

Answer 72

Any costs incurred in a reasonable effort, whether successful or not, to avoid loss (such as the cost of inspecting, storing, shipping, or insuring goods).

Question 73

Consequential Damages

Answer 73

To recover there must be shown that: (1) the breaching party knew or had reason to know the harm would result because of a breach and (2) there is a reasonable certainty as to the amount of damages.

Question 74

Punitive Damages

Answer 74

Generally unavailable unless evidence of egregious and intentional misconduct.

Question 75

Resale of Goods

Answer 75

Contract Price –Lower Resale Price + Incidental and Consequential Damages

Question 76

UCC Contract Damages -Buyer and Seller-

Answer 76

Contract Price – Market Price + Incidental and Consequential Damages (No goods received) Contract Price – Market Value + Incidental and Consequential Damages (Goods received but not acceptable)

Question 77

Lost Profits

Answer 77

When the difference between the contract price and the resale price fails to put the seller in as good a position as performance by the buyer would have put him in, and the seller has an unlimited supply of goods (high volume), the measure of damages is the seller’s reasonable lost profit on that contract.

Question 78

Liquidated Damages

Answer 78

To be enforceable must be: (1) if there is a breach, damages difficult to quantify and (2) the amount agreed upon must be a reasonable estimate.

Question 79

Specific Performance

Answer 79

Right to replevy goods that is available to a buyer where goods are unique or where the buyer cannot cover.

Question 80

Injunction

Answer 80

Stop the party from doing something.

Question 81

Reformation

Answer 81

Rewrite the contract.

Question 82

Recission

Answer 82

Undo or cancel the contract as if it never happened.

Question 83

Third Party Beneficiaries -Incidental-

Answer 83

Recover nothing.

Question 84

Third Party Beneficiaries -Intended-

Answer 84

Can recover under (1) breach of contract where the beneficiary provided consideration (creditor) or (2) under quasi contract where the done beneficiary detrimentally relied.

Question 85

Assignments

Answer 85

Contracts are freely assignable unless stated otherwise.

Question 86

Assignment of Rights Only

Answer 86

Benefits are transferred to a third party but not the obligations. Benefit holder is only one who can bring a claim for recovery.

Question 87

Assignment of a Contract

Answer 87

A transfer of both the benefits and obligations to a third party. Original contracting party remains secondarily liable.

Question 88

Novation

Answer 88

A complete substitution of parties that relieves the original obligated party from liability.