Contracts

Question 1

If Article 2 of the UCC is at issue in the MEE:

Answer 1

Article 2 of the Uniform Commercial Code (UCC) applies to sales of goods. Goods are things moveable at the time of identification to the contract. A contract under Article 2 may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.

Question 2

What is needed to form a contract?

Answer 2

Mutual assent (offer and acceptance) and consideration.

Question 3

Offer

Answer 3

A person makes an offer when the person communicates to another a statement of willingness to enter into a bargain so that the other understands that his assent to the bargain is invited and will conclude it.

The terms of an offer need to be reasonably certain.

Question 4

Counteroffer

Answer 4

Under common law, a statement is a counteroffer, rather than an acceptance, when the terms of the initial offer are changed—e.g., when a condition is added to the purported acceptance (mirror image rule).

Question 5

Promise to hold offer open

Answer 5

Generally, an offer may be revoked before acceptance. A promise to hold an offer open requires consideration in order to be binding (unless the UCC firm offer exception applies).

Question 6

Acceptance

Answer 6

An acceptance is a manifestation of assent to the terms of an offer made in a manner invited by the offer. It is effective upon dispatch (mailbox rule).

Question 7

Rejection

Answer 7

Manifestation of intent to not accept the offer. Terminates the offeree’s power of acceptance. Effective when received by the offeror.

Question 8

What happens if a rejection is sent and then an acceptance is sent?

Answer 8

Whichever the recipient receives first is effective.

Question 9

Consideration

Answer 9

A bargained-for exchange.

A promise to make a gift does not constitute consideration.

Question 10

Pre-existing duty rule

Answer 10

Under common law, promising to perform a legal duty already owed to a promissor is not valid consideration. Exceptions include if the duty is changed (even slightly), unforeseen circumstances, etc.

Question 11

Under the UCC, only ___ is needed to modify a contract

Answer 11

Good faith

Question 12

Promissory estoppel

Answer 12

Substitute for consideration. If there is (1) a promise, (2) reliance that is foreseeable and justifiable, and (3) enforcement is necessary to avoid injustice, the promise will be enforced.

Question 13

Performance obligations under common law

Answer 13

A party must “substantially perform” its contractual obligations in order to demand performance (usually payment) from the other party. Courts will look at several factors to determine whether performance was substantial.

Question 14

Performance obligations under Article 2

Answer 14

Requires perfect tender for one-shot deals.

Exception: divisible contracts. A contract is divisible so long as (1) it is apportionable and (2) the parties would have contracted for each part separately. A party that performs one or more parts of the contract may collect payment for those parts even if he does not substantially complete the performance of his duties.

Question 15

A buyer can reject goods…

Answer 15

For any reason under the perfect-tender rule (exceptions—installment contracts, etc.).

Question 16

If a buyer accepts the goods, can he reject them?

Answer 16

No. However, in certain circumstances, a buyer can revoke his acceptance of the goods. He can do this when (1) the nonconformity substantially impairs the value to him; (2) he accepted the goods because he had a reasonable belief that the nonconformity would be cured and it was not, or he did not discover the nonconformity because it was difficult to discover or because of the seller’s assurances; (3) he revokes within a reasonable time after he discovers or should have discovered the nonconformity; and (4) he revokes before any substantial change in condition of the goods which is not caused by their own defect.

A buyer who revokes acceptance of goods may recover the purchase price that has been paid.

Question 17

Anticipatory repudiation

Answer 17

Occurs when there is an unequivocal manifestation by one party to the other that the party cannot or will not perform its obligations under the contract (a mere expression of doubt is not enough) and this statement is made before the repudiating party’s performance is due.

The other party may wait for a reasonable time for performance or resort to any remedy for breach of contract.

Question 18

Prospective inability to perform

Answer 18

This occurs when a party has reasonable grounds for insecurity that the other party is unable or unwilling to perform. This is merely doubt, it does not rise to the level of anticipatory repudiation. Under the UCC, the party may then, in writing, demand adequate assurance of performance, and until she receives such assurance, may suspend her performance. If such assurance is not given within a reasonable time, not exceeding 30 days, the other party may treat it as a repudiation.

Question 19

Retracting a repudiation

Answer 19

The party who has repudiated can retract his repudiation unless the other party cancelled the contract, materially changed his position in reliance on the repudiation, or indicated that she considers the repudiation to be final.

Question 20

Common law statute of frauds

Answer 20

A contract within the statute of frauds satisfies the statute and is enforceable if it is evidenced by a writing signed by the party to be charged, which (1) reasonably identifies the subject matter of the contract (2) is sufficient to indicate that a contract has been made, and (3) states with reasonable certainty the essential terms of the contract.

Question 21

Contracts within the statute of frauds:

Answer 21

MYLEGS: contracts in consideration of Marriage; cannot be performed in a Year; sale of Land; Executors promise to pay debt of an estate out of his personal funds; Goods of $500 or more; and Suretyship contracts.

Question 22

UCC statute of frauds

Answer 22

A contract for the sale of goods for a price of $500 or more is not enforceable unless there is a writing signed by the party against whom enforcement is sought that is sufficient to indicate that a contract for the sale of goods has been made between the parties. The writing need not contain all terms of the contract, but it is not enforceable beyond the quantity of the goods shown.

Exceptions: merchant’s confirmatory memo; part performance; specially manufactured goods; judicial admissions.

Question 23

Duress

Answer 23

A contract is voidable when it is established that a party’s manifestation of assent is induced by an improper threat that leaves the party no reasonable alternative.

Question 24

Breach of express warranty

Answer 24

Under Article 2, affirmations of fact relating to the goods that are part of the basis of the bargain create express warranties that the goods will conform to those affirmations and descriptions. This warranty is breached if they do not conform.

Question 25

General damages for breach of contract—start MEE as:

Answer 25

The normal measure of damages for breach of contract is expectation damages, which aim to give the non breaching party the benefit of her bargain.

Question 26

Expectation damages must be ___ and ___.

Answer 26

Foreseeable and proved with reasonable certainty.

Question 27

Punitive damages

Answer 27

Not generally recoverable in a breach of contract action unless the conduct constituting the breach is also a tort for which punitive damages can be recovered

Question 28

Restitution

Answer 28

A party may be able to recover restitution for any benefit conferred by way of part performance in excess of the loss that he caused by his own breach.

Also called unjust enrichment and quantum meruit.

Question 29

Mitigation

Answer 29

Generally, a party cannot recover damages for a loss that the party could have avoided by reasonable efforts.

Question 30

In every contract, the duty of each party to render performance is impliedly conditioned on…

Answer 30

The other party rendering his performance or making a tender of his performance.

Question 31

In contracts not involving the sale of goods, the condition of complete performance may be excused if…

Answer 31

The party has rendered substantial performance.

Question 32

How to determine whether performance is substantial:

Answer 32

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.

To determine whether a breach is material, courts look at: the amount of benefit received, the adequacy of damages, extent of performance, hardship to the breaching party, and whether the breach was negligent or willful.

Question 33

A reasonable delay in performance is usually considered a ___ breach, unless…

Answer 33

Minor; 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 34

How to determine whether time is of the essence?

Answer 34

Look at the instrument itself as well as the surrounding circumstances.

Question 35

If a contract is divisible, a party who has performed one or more parts is entitled to…

Answer 35

Collect the contract price for those parts even if it breaches the other parts.

The non breaching party has a cause of action for each of the unperformed units and may withhold counter-performance for those units.

Question 36

For a contract to be divisible,

Answer 36

(1) the performance of each party must be divided in two or more parts under the contract, (2) the number of parts due from each party must be the same, and (3) the performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party.

Divisibility questions involve contract interpretation and generally turn on fairness.

Question 37

If the plaintiff is the party who breached the contract, it may still recover…

Answer 37

In quasi-contract (restitution) the value of the services performed minus any damages incurred as a result of the breach.

Question 38

expectation damages

Answer 38

seek to put the aggrieved party in the position it would have been in had the contract been fully performed.

measure: disparity between promised condition and condition upon breach

Question 39

reliance damages

Answer 39

seek to position the aggrieved party as if the agreement had never occurred

measure: disparity between aggrieved party’s condition before contracting and upon breach.

Question 40

restitution damages

Answer 40

seek to position the breaching party as if the agreement had never occurred by forcing the breaching party to forfeit any benefit received under the agreement.

measure: disparity between breaching party’s condition before contracting and upon breach.

Question 41

expectation damages are preferred over reliance damages unless

Answer 41

plaintiff does not act rationally in bringing the suit or

market volatility is present and damages are measured at the time of litigation rather than at the time of contracting.