Contracts

Question 1

Essay Structure

Answer 1

(Surely, All Contracts Don’t Stink)

1) Source of Law that applies (Common Law / UCC Article 2)

2) Agreement = Offer + Acceptance (Mutual Agreement)

3) Consideration

4) Defenses

5) Statute of Frauds

Question 2

Source of Law

Answer 2

Common Law - Governs service agreements and the sale of an interest in land

UCC Article 2 - Governs sale of movable goods

Question 3

Contract Formation

Answer 3

For an enforceable contract to be formed there must be a valid offer, acceptance, and bargained-for consideration.

There must be no defenses to the formation of the contract, and the SoF must not bar the enforcement of the agreement

Question 4

Offer - Definition

Necessary Terms

Answer 4

An offer is an OBJECTIVE manifestation of a WILLINGNESS to enter into an agreement that gives someone else the POWER TO ACCEPT

Must be directed to a specific offeree (except for contest offers or reward)

Terms: CL (all required terms - parties, subject, price, and quantity); UCC (no price needed - UCC will fill the gap)

Question 5

Termination of Offer

Answer 5

(1) Revocation (Direct Communication)

(2) Constructive Revocation

(3) Rejection

(4) Counter-Offer (mere inquiry is not a counter-offer)

R2d - Mirror Image Rule
UCC - Battle of the Forms

(5) Death

(6) Lapse Time (Reasonable amount of time)

Question 6

Irrevocable Offers

Answer 6

Option Contracts;

Firm Offers;

Unilateral Contracts (in a contest / reward if a party starts performance, the offer cannot be revoked);

Detrimental Reliance (general contractors/subcontractor context)

Question 7

Firm offers under the UCC

Answer 7

Firm offers under the UCC: An offer to buy or sell goods is irrevocable if it

1) is by a merchant;

2) is in a signed writing; and

3) gives explicit assurance that the offer will be held open

Time Period:

1) As stated in the offer; or

2) reasonable time period not to exceed 90 days.

No offer can be made irrevocable for any longer than 3 months, unless consideration is given. If the offer lists a period longer than 3 months, the offer becomes revocable after 3 months

Question 8

Acceptance

Answer 8

Acceptance is an OBJECTIVE manifestation of a WILLINGNESS to enter into an agreement by the offeree

Offeror is Master of the offer - Offeree must accept it according to its terms

In Unilateral Contracts - one must know about the offer to accept it

Question 9

Mailbox Rule

Answer 9

Acceptance sent by mail is EFFECTIVE when SENT

Does not Apply if offeree sends rejection/counteroffer first - Which ever the offeror RECEIVES first

Question 10

Acceptance without communication

Answer 10

• Unilateral reward offers or contests
• Past history of silence serving as acceptance
• The offer says that acceptance must come by silence + offeree intends to accept

Question 11

Counteroffer

Common Law - Mirror Image

Answer 11

The terms in the acceptance must match the terms of the offer exactly

Question 12

Counteroffer

UCC Battle of the Forms (2-207)

Answer 12

2-207(1) - Acceptance?
Acceptance, unless acceptance is expressly made conditional on assent to the additional or different terms

2-207(2) - What Terms Control?

ADDITIONAL TERMS
If not Merchants: Contract is formed and additional terms must be regarded as proposal

If Merchant: Additional terms become part of the contract, unless
(i) the offer expressly limits acceptance to the terms of the offer;

(ii) they materially alter it; or

(iii) notification of objection is given within a reasonable time

DIFFERENT TERMS
Knock-out rule, Use gap fillers

Question 13

Consideration

Answer 13

Consideration is a BARGAINED-FOR exchange of a benefit or legal detriment

(Not doing something that you are legally entitled to do is a legal detriment)

Nominal Consideration - NO CONSIDERATION

Illusory Promise - NO CONSIDERATION (must be a way for the promisor to breach - “if I feel like it”) - Satisfaction; output and requirements contracts are ok

PAST CONSIDERATION IS NOT CONSIDERATION

Question 14

Contract Modification

Pre-Existing Duty Rule

Answer 14

Might require new consideration to be valid

CL - Follows the PEDR
Exceptions: Change in performance; a third party promising to pay; unforeseen difficulties

Partial Payment/Release - IF currently due, modification is not binding

UCC - Does not follow PEDR

Good faith? Them, binding w/o new consideration

Question 15

Statute of Frauds

Unenforceable Ks unless in writing:

Answer 15

MY LEGS

• Marriage
• One Year - A contract that by its terms CANNOT be performed within one year from its making (MORE THAN 1y)
• Real Property - only transferring an interest in the property (LAND)
• Executor (executor agreement of an estate)
• Suretyship (GUARANTEE)
• SALE OF GOODS - $500 or more
• Part performance
• LAND
• Pay some money; and
• Possesion of the land OR make improvements to the land
• Sale of Goods
• Give some money, ship some goods back
• Guarantor
  Main purpose exception - If the main purpose in agreeing to pay a 3rd party debt is for surety’s own economic advantage, then no SoF

Question 16

SoF - Satisfaction

Answer 16

Performance - If full performance, the other party cannot assert SoF defense

Writing - (i) Signed by the party against whom enforcement is sought; (ii) Essential Terms (parties, subject, quantity – and price (if CL))

Real Estate - Part performance can satisfy if (2 of the following):
- Possession,
- Payment
- Improvements to the land

Part Performance (only for the quantity delivered and accepted)

Custom-made (exempt from SoF)

Question 17

SoF - Must the modification satisfy the SoF?

Answer 17

Ask whether the deal, with the modification, would be in the SoF

If so, SoF requirements must be met

Question 18

3rd PARTY BENEFICIARY

Answer 18

Two people make a contract and someone else benefits.

• 3 PARTIES HYPO!

1. Intended – Guy who the original parties intended to benefit
   o Parties express the intention!!

• Parties can change their minds, if rights are not vested!!
• Can only enforce the right, if the right is vested:
• One of the original parties inform the beneficiary
• 3rd party learn about it and begins to rely on this

2. Incidental – 3rd parties claiming something but the original parties do no intended to benefit him

• Never has rights!! EVEN IF HE RELIES

Question 19

ASSIGNMENT v. DELEGATION

Answer 19

ASSIGNMENT – One party ASSIGNS away their rights in the contract

VS.

DELEGATION – One party DELEGATES their duty under the contract

Rule = You may freely assign (rights) or delegate (duties) to whomever whenever you want

• The other party needs to allow the performance
• • If the party breaches, the non-breaching party may sue BOTH
• If the parties execute a NOVATION, Then, can only sue the assignee
  Never assume novation!!
• The new party cannot unilatery change the terms of the original contract – after assignment, he assumes the original terms

Exceptions:

• If service is unique –> Cannot delegate (IN ANY CASE)!
• If the parties agree that neither party may ASSIGN the rights – but assignment anyway – the assignment is valid and effective! But owe damages for breaching the promise!
• BUT IF ATTACHED TO THE WORD VOID (“any assignment will be void”) –> NOT VALID
• BUT, If the parties agree that neither party may DELEGATE the duties – but delegate anyway – NOT VALID!

Question 20

PAROL EVIDENCE

Answer 20

PAROL EVIDENCE – After a contract is formed, one party tries to admit Oral evidence in the contract

1. Is the K integrated? Final vs. Partial Integration

• Final/Compete Integration –> Parties want the contract to be the final understanding (4 corners) – Merger Clause
  o Parol Evidence is not admissible!
  o UNLESS, to clear up an ambiguous term
  o DEFAULT RULE –> Everything is partial unless the question tells otherwise
• Partial Integration –> Admissible
  o Except – Contradict a material term!
• Always admissible:
  o to prevent fraud or duress!
  o To show that was a condition precedent
  o In a sale of goods contract, to show course of dealing, trade or custom

2. If Partial, consistent additional terms admitted, but not material alteration, or CONTRADICTS MATERIAL TERMS
3. If FINAL, nothing admitted, except to clear up ambiguity

Question 21

MODIFICATION

Answer 21

MODIFICATION –

• Same rules as Counteroffer (but CO is before the agreement)
• Modification does not have to be in writing!!!

COMMON LAW - Additional consideration needed

• Services
• Land

UCC – No Consideration needed, only GOOD FAITH

• Sale of goods