Contracts

Question 1

Common Law vs. UCC

Answer 1

The common law governs if a contract deals with services or real estate. The UCC governs if a contract deals with goods.

Question 2

Mixed Contracts

Answer 2

For mixed contracts, the predominant purpose of the contract determines whether the common law or UCC governs.

Question 3

Requirements to Form a Valid Contract

Answer 3

An enforceable contract is formed when there is: (1) mutual assent (a valid offer and valid acceptance of offer); (2) consideration; and (3) no defenses to formation that would invalidate the contract.

Question 4

Expectation Damages

Answer 4

The goal of expectation damages is to put the non-breaching party in the same economic position that it would be if the contract had been performed. Expectation damages are measured by comparing the value of performance without the breach to the value of performance with the breach.

Question 5

Expectation Damages - Limitations on Calculation

Answer 5

Expectation damages must be proven with reasonable certainty. Unforeseeable consequential damages are not recoverable unless the breaching party had some reason to know about the possibility of the unforeseeable damages.

Question 6

Statute of Frauds - Contracts Triggering Statute of Frauds

Answer 6

The following contracts are not valid unless they satisfy the statute of frauds (usually requires the contract be a signed writing): (1) contract made in consideration of marriage; (2) contract promising to guarantee the debt of another; (3) a contract that cannot be performed within one year; (4) a contract for the purchase or sale of goods for $500 or more; and (5) a contract to transfer, receive, or create an interest in real estate.

Question 7

Statute of Frauds - Satisfying the Statute of Frauds

Answer 7

A writing will satisfy the statute of frauds if: (1) it is signed by the party against whom enforcement is sought; (2) shows that a contract was formed; and (3) includes the required terms. The required terms under common law are parties, subject, quantity, and price. The required terms under the UCC are parties, subject, and quantity.

Question 8

Statute of Frauds - Service Contracts under One-Year Provision

Answer 8

Under common law, full performance of services contract by either side satisfies the statute of frauds.

Question 9

Statute of Frauds - Real Estate Contracts

Answer 9

Real estate contracts can satisfy the statute of frauds if the seller fully performs (ie, coveys land to buyer) or the buyer performs two of the following actions: (1) buyer takes possession of property; (2) buyer makes payment in full or in part; and/or (3) buyer makes substantial improvements to the land.

Question 10

Statute of Frauds - Goods $500 or More

Answer 10

Under the UCC, the statute of frauds is satisfied for the quantity of goods for which payment has been made and accepted or which have been received and accepted.

Question 11

Statute of Frauds - Goods $500 or More (Written Confirmation Between Merchants)

Answer 11

Under the UCC, the statute of frauds is satisfied if after an oral agreement between merchants, either party sends a signed, written confirmation of the oral contract and the written confirmation is received by the other merchant unless the party receiving the written confirmation gives written notice of objection within 10 days of receipt.

Question 12

Statute of Frauds - Goods $500 or More (Specifically Manufactured Goods)

Answer 12

Under the UCC, the statute of frauds is satisfied when a seller makes a “substantial beginning” toward manufacturing custom goods that are to be specially made for the buyer and that are not suitable for the sale to others.

Question 13

Terminating the Offer

Answer 13

If a valid offer is terminated at any time before acceptance, the offer is invalidated. It cannot be accepted or revived unless a new offer is made. An offer is terminated if: (1) offeror revokes offer by express communication to offeree; (2) offeree learns that offeror has taken action inconsistent with continuing to contract; (3) offeree rejects offer; (4) offeree gives a counteroffer; (5) offeror dies or becomes incapacitated; (6) a reasonable amount of time passes; or (7) the subject matter of the offer becomes illegal or destroyed.

Question 14

Irrevocable Offers - Option Contracts

Answer 14

The offeror is normally free to revoke at any time prior to acceptance; however, an agreement where consideration is given in exchange for a promise to keep an offer open is irrevocable.

Question 15

Irrevocable Offers - Firm Offers

Answer 15

Under the UCC, a merchant (someone who regularly deals in the types of goods at issue) can make a firm offer to buy or sell goods. A firm offer will last as long as stated in the offer or for a reasonable period not to exceed 90 days. A firm offer must: (1) be in writing; (2) contain an explicit promise not to revoke; and (3) be signed by the merchant.

Question 16

Irrevocable Offers - Offeree has started performance

Answer 16

A unilateral offer to contract cannot be revoked by the offeror if the offeree has started performance. A unilateral offer arises from a promise that requests acceptance by an action of promisee.

Question 17

Irrevocable Offers - Detrimental Reliance

Answer 17

An offer cannot be revoked if the offeree reasonably and detrimentally relies on the offer in a foreseeable manner.

Question 18

Terms Required in the Offer

Answer 18

Under common law, all essential terms must be specified in offer (parties, subject, quantity, and price). Under the UCC, the law plugs the gaps for missing terms. The only terms required are parties, subject, and quantity.

Question 19

Offer

Answer 19

To form a valid offer, the offeror must (1) manifest an objective willingness to enter into an agreement; and (2) create a power of acceptance in the offeree.

Question 20

Acceptance

Answer 20

An acceptance is a manifestation of willingness to enter into an agreement by the offeree. The offeror is the master of the offer, which means that the offeree must accept the offer according to rules of offer.

Question 21

Acceptance - Bilateral vs. Unilateral

Answer 21

For bilateral contracts, the start of performance manifests acceptance. For unilateral contracts, the start of performance makes the offer irrevocable - the offer is only acceptance once performance is complete.

Question 22

Contract Modification & Preexisting Duty Rule

Answer 22

Under the common law, contract modifications must be supported by consideration. The common law follows the preexisting duty rule, which means that a promise to do something that a party is already legally obligated to do is not consideration. Under the UCC, there is no consideration requirement.

Question 23

Mirror Image Rule

Answer 23

Under the common law, the terms in the acceptance must match the terms of the offer exactly - otherwise, it is not an acceptance, it is a counteroffer.

Question 24

UCC § 2-207 - Acceptance with New Terms (One or No Merchants)

Answer 24

If one or both parties are not a merchant, additional terms in the acceptance are considered proposals and are not a part of the final agreement, unless agreed to by the offeror. If the acceptance alters any terms, then the term from the offer is a part of the final agreement. If the offer indicates that the acceptance is conditional upon the other party accepting all of the offeror’s terms, then if the offeree changes any terms, it is considered a rejection of the offer and a counteroffer.

Question 25

UCC § 2-207 - Acceptance with New Terms (Both Parties Merchants)

Answer 25

Additional terms will govern the contract if both parties are merchants unless: (1) initial offer expressly limited acceptance to its terms; (2) additional terms materially alter deal; or (2) offeror objects to additional terms within reasonable amount of time.

Question 26

UCC § 2-207 - Acceptance with New Terms (Knockout Rule)

Answer 26

Under the knockout rule, different terms that conflict with terms in the original offer and acceptance knock each other - UCC uses gap fillers. The knockout rule does not apply to additional terms added by the offeree.

Question 27

Consideration

Answer 27

To form an enforceable contract, the agreemetn must be supported by consideration. Consideration is a transfer of legal value in a bargained-for exchange.

Not consideration: Gift promises; Conditional gifts; Pre-existing legal duties; Past consideration; Pretense of consideration; Illusory promise

Question 28

Substantial Performance

Answer 28

Under common law, substantial performance is required, which means that performance will be satisfied so long as there is not a material breach. If there is a material breach, the non-breaching party’s performance is excused. If there is not a material breach, the non-breaching party’s performance is not excused.

Question 29

Good Faith and Fair Dealing

Answer 29

All contracts have an implied obligation which requires the parties to act in good faith and deal fairly with one another without breaking their word, using deceptive means to avoid obligations, or denying what the other party understood.

Question 30

Perfect Tender

Answer 30

Under the UCC, perfect tender is required, which means that a seller must deliver conforming goods. A nonconformity is a breach that allows the buyer to reject all or a portion of the goods.

Question 31

Perfect Tender - Installment Contracts

Answer 31

Installment contracts (agreement for delivery in separate lots) do not have to satisfy perfect tender - the buyer can reject a specific installment when there is a substantial impairment that cannot be cured.

Question 32

Perfect Tender - Curing Nonconformity

Answer 32

If the seller fails to tender perfect goods, buyer must give the seller a chance to cure nonconformity if the time for performance under the contract has not yet expired and the seller has reasonable grounds to believe that the buyer would accept a replacement for nonconformity.

Question 33

Perfect Tender - Revocation of Acceptance

Answer 33

If a buyer fails to reject nonconforming goods after having reasonable opportunity to inspect goods, buyer has deemed to have accepted the goods. Buyer may revoke their acceptance if: (1) nonconformity substantially impairs value of goods; (2) revocation occurs within reasonable time after buyer discovers or should have discovered nonconformity and before any substantial change in condition of goods; and (3) buyer accepted goods on reasonable assumption that the nonconformity would be cured or acceptance was induced by the difficulty of discovery or the seller’s assurances.

Question 34

Anticipatory Repudiation (Common Law)

Answer 34

Under common law, anticipatory repudiation occurs when a promisor clearly and unequivocally repudiates a promise before the time for performance is due. Repudiation may be retracted until the promisee: (1) acts in reliance on the repudiation; (2) accepts the repudiation; or (3) commences action for breach of contract.

Question 35

Anticipatory Repudiation (UCC)

Answer 35

Under the UCC, anticipatory repudiation occurs when (1) the buyer or seller makes an unequivocal refusal to perform; or (2) reasonable grounds for insecurity arise and the repudiating party fails to provide adequate assurances within a reasonable time (not to exceed 30 days).

Question 36

Anticipatory Repudiation (Options for Remedy)

Answer 36

When an anticipatory repudiation occurs, the non-repudiating party may treat the repudiation as a breach and sue for damages or ignore the repudiation and urge performance.