Contracts

Question 1

Contracts Formula

Answer 1

K = MA (O + A) + C - D

Question 2

Offer is a:

Answer 2

1) Promise with intent

2) Communicated to an offeree so they have knowledge

3) With definite and certain terms, e.g. the parties, the service/good, the price, etc.

Question 3

Offers are Terminated with…

Answer 3

1) Lapse of Time
- Time specified OR
- Reasonable Time

2) Rejection
- Express
- Counteroffer
- Conditional Acceptance

3) Revocation UPON RECEIPT
- Direct
- Indirect, if the offeree receives:
- Correct information
- From a reliable source
- Of acts of the offeror that would indicate they no longer wish to make the offer

4) Operation by Law
- Death
- Insanity
- Destruction of the contract’s subject matter
- Illegality

Question 4

Limitations on Power to Revoke

Answer 4

1) Option Contract (e.g. “I’ll pay $300 extra for you to keep it open 90 days.)

2) Merchant’s Firm Offer: Open up to 3 months. In writing. (A firm offer that states a longer period is still firm for the first three months.)

3) Detrimental Reliance (but the offeror must know the offeree is relying)

Question 5

Unilateral Contract

Answer 5

Missing Dog poster thing

• Contract completed upon performance
• Starting performance of a unilateral contract offer = an irrevocable offer
• But mere preparation to perform –> can still revoke

Question 6

Acceptance - Main Points

Answer 6

• Method of Acceptance can be any reasonable manner under the circumstances
• Acceptance must be unequivocal. Requires the assent to each and every term of the contract.
• Offeree must be aware in order to accept

Question 7

Performance as Acceptance

Answer 7

Bilateral Contract: May be accepted either by a promise to perform or by the beginning of performance (which is an implied acceptance).

Unilateral Contract: Completion of performance makes acceptance. Once you’ve started, the offerror cannot revoke.

Silence cannot be acceptance, except maybe in commercial circumstances based on prior dealings/context

Question 8

• Offers to Buuy Goods for Current or Prompt Shipment

Answer 8

Under Article 2, an offer to buy goods for current/prompt shipment is inviting acceptance either by a promise to do so or prompt shipment of conforming or nonconforming goods.

Shipment of Nonconforming Goods. I order Beyoncé CDs and get Lady Gaga instead. The Seller has accepted but has breached, unless they notified the buyer and offered this nonconforming good as an accommodation. (That would be a counteroffer.)

Question 9

Battle of the Forms

Answer 9

Common Law Mirror Image Rule: Acceptance must mirror the offer terms exactly.
- So if you return the contract with an additional term = not an acceptance, but a counteroffer.

Article 2 - No Mirror Image Rule. Acceptance that doesn’t match the offer terms—e.g. by adding terms—can be legit if:
- Both merchants
- Not material (doesn’t cause hardship or surprise)
- Offeror doesn’t object

But, if your acceptance is contingent on the additional term being offered, that’s a rejection and another offer.

Also, if the Offeree does materially change the contract, THAT’S STILL AN ACCEPTANCE: JUST WITHOUT THE ADDED TERMS.

Question 10

The Mailbox Rule

Answer 10

Acceptances are valid once sent.

• Except for option contracts—”Hold open until June 15th.” For that, you have to get your acceptance in BY JUNE 15TH.

Whereas, revocations are valid once received.

Question 11

Criss-Cross: Rejection and Acceptance

Answer 11

Send Rejection then Acceptance –> Whichever Received First

Send Acceptance then Rejection –> Contract Valid, Mailbox Rule Applies. (Unless Offeror detrimentally relied.)

Question 12

Past Consideration

Answer 12

…is not consideration

Question 13

Modifications

Answer 13

…need NEW consideration, unless:

1) Unanticipated Circumstances:
a) the modification is due to circumstances that were unanticipated by the parties when the contract was made; and
b) it was fair and equitable; OR

2) Third Party: the consideration/duty is owed to a third party. (Kanye comes in and offers an extra $10k that Coachella refuses to pay Beyoncé.)

3) BUT NO CONSIDERATION NEEDED FOR UCC SALE OF GOODS CONTRACTS
- Only good faith needed. No exploitation.

4) No writing needed unless the SoF applies to the modification.

Question 14

Discharge of Debt

YOU WILL GET THIS ON THE BAR!!

Answer 14

No consideration for partial payment of debt.

Example: You owe MasterCard $3,000. You orally agree to pay $2,000 in exchange for MC forgiving the rest. If you pay $2,000, can MC still demand the $1,000 balance? Yes. There was no consideration.

Question 15

No Consideration?

Answer 15

Ask: was there promissory estoppel? IOW:

1) Should the Promisor have reasonably expected to induce action/forebearance, and
2) Such action/forebearance was in fact induced?

–> enforceable despite on consideration.

Grandpa promises granddaughter $2,000 as a gift. Granddaughter quits her job in reliance. Grandpa dies, the estate reneges on the deal. Can Grandaughter enforce the promise? Yes! Promissory Estoppel!

Question 16

Defenses

Answer 16

• Lack of Capacity
• Duress
• Absence of Mutual Assent (No Meeting of the Minds)

Question 17

Lack of Capacity

Answer 17

You only care about the defendant’s capacity, not the plaintiff’s.

Minors: Doesn’t matter if the other party didn’t know they were a minor. (Like statutory rape standard.)

• Minor can enforce against you; they don’t have to disaffirm.
• Implied Affirmation. If you made the contract before 18 and continued to use it after 18, that’s an implied affirmation –> enforceable.

Intoxication –> if the other party knew/took advantage –> invalid

Question 18

Duress

Answer 18

Economic Duress. Look for a bad guy taking advantage of a vulnerable guy.

Question 19

Absence of Mutual Assent

Answer 19

• Misunderstanding: Ambiguity
• Mutual Mistake
• Unilateral Mistake
• Unconscionability
• Statute of Frauds

Question 20

Misunderstanding: Ambiguity in the Terms

Answer 20

Both Parties Knew: No Contract unless both parties intended
the same meaning;

Neither Party Knew: No Contract unless both parties intended
the same meaning;

One Party Knew: Binding Contract based on what the ignorant party reasonably believed was the meaning of the ambiguous term.
- IOW, Court says: “Why didn’t you [non-ignorant party] clarify it??”

Question 21

Mutual Mistake

Answer 21

Voidable by the adversely-affected party if the mistake concerned:

• A basic assumption on which the contract was made;
• had a material effect; and
• the party seeking avoidance did not assume the risk of the mistake

Question 22

Unilateral Mistake

Answer 22

If one party made a unilateral mistake that was palpable and obvious, they can void the contract if the other party knew or should have known about the mistake.

E.g. nine plumbers get paid $1,000, tenth gets paid $100. Palpable and obvious mistake.

Question 23

Statute of Frauds

Answer 23

MY LEGS

Marriage
Year (can’t be completed w/in one year)
Land
Executor
Guarantor
Sale of $500 or more

Question 24

Service Contracts

Answer 24

Full performance of a service contract satisfies the Statute of Frauds

Example: Sesame orally agrees to employ Big Bird for 2 years for $50,000. BB works for two years. SS refuses to pay. BB does not need a writing, because full performance satisfied it.

Partial performance is not enough.

Question 25

Sales of Goods Exceptions in the Statute of Frauds

Answer 25

Part Performance takes a sale of goods contract out of the Statute of Frauds for the goods already accepted when:

(1) the goods have been specially manufactured (why else would you get a purple sneaker with sparkle wings??)

(2) the goods have been either paid for or accepted.

Question 26

Merchant’s Confirmatory Note

Answer 26

Where both parties are merchants, one party can use their own signed writing to satisfy the SoF.

…unless there’s an objection by the recipient within 10 days.

Example: ​​Vera Wang Design Studios sends Victoria’s Bridal Shop a signed letter “confirming our earlier oral agreement over the phone for the sale of 9 gowns for $2,700.” Victoria’s Bridal Shop does not respond. Will Vera Wang’s letter satisfy the Statute of Frauds against Victoria’s? Yes! Victoria loses SoF Defense.

Question 27

The Writing Requirements

Answer 27

Article 2:
- Quantity Term
- Defendant’s Signature

(Watch out for signature on the bar. They’ll bury the actors in the whole question and obfuscate whose signature it is. Parse to make sure it’s the Defendant’s.)

Contracts for Services must have:

• All material terms (who & what)
• Defendant’s signature

Question 28

Parol Evidence Rule

Answer 28

You cannot use evidence outside the text of the contract to contradict the final writing.

Applies to evidence that happened before the agreement was finalized, not after. (After would be a modification.)

Question 29

Exceptions to the Parol Evidence Rule

Answer 29

• Condition Precedent to the Contract. If the Parol Evidence was a condition that needed to be fulfilled for the contract to be operative, that’s valid.
• Partially Integrated Writing. If it’s an incomplete writing that wasn’t intended as the final expression of the agreement –> parole evidence allowed.
  
  • Example: J. Lo and a Hotel contracted for her wedding and said nothing about sleeping arrangements. J. Lo claims that, before signing the lease, the manager promised to “throw in the bridal suite for free.” Is this admissible? Yes! Because apparently that writing wasn’t fully integrated.
• Defense Against Formation. You can use external evidence if you want out of the contract. Example: J. Lo says the hotel manager said the bridal suite would be soundproof and it’s not. She can get out.
• Explain a Vague Term
• Correct a Clerical Error (Typo)

(When the Bar uses “partial” or “complete integration,” it’s usually the wrong answer.)

Question 30

General Rules of Contract Construction

Answer 30

Course of Performance: The parties’ conduct under prior installments of the current contract.
Can help define, e.g., the term ‘chicken’ in the current transaction.

Course of Dealing: Parties’ conduct in prior contacts. (Same two parties, but different contract.)

Trade Usage: Industry norms parties are aware of. “Baker’s Dozen.”

Question 31

Seller Warranties

Answer 31

Implied Warranty of Merchantability: Goods fit for ordinary, foreseeable purpose. Applies to a merchant who regularly sells this type of good.
- More often tested.

Express Warranties. An affirmation of fact or promise the buyer could have relied upon when they entered the contract. This includes showing a sample/model of the product.
- Distinct from puffery: “This is the best!!”

Implied Warranty of Fitness for Particular Purpose. Seller picks out a good for a special purpose that the buyer needs it for. Don’t have to be a merchant!!

Question 32

Sellers Disclaiming Warranties?

Answer 32

Sellers can ONLY disclaim *implied warranties!!**

The Disclaimer must be conspicuous, IOW so a reasonable person would notice it.

Sellers CANNOT disclaim express warranties.

Question 33

Limitations on Damages Clauses

Answer 33

Contract clause that limits the damages available in the case of a warranty breach (even express warranties), as long as it is not unconscionable. E.g. you cannot limit damages for personal injury.

Question 34

Risk of Loss Terms.

Goods that are damaged or destroyed before the buyer gets them.

When does the risk of loss go to seller v. the buyer?

Answer 34

• Who is in Breach. Whoever breaches the contract bears the risk, even if the breach has nothing to do with the damage. E.g. Starbucks sends coffee late, rat infestation –> Starbucks bears risk.
• Merchants hold the risk *until the buyer receives the goods. E.g. Costco bears risk of a couch being ruined until the buyer picks it up.
• Nonmerchants hold the risk *until they tender the goods (sell them). So *less time than for merchants. E.g. garage sale guy bears risk only until he tells the buyer where to pick it up.
• Delivery by Common Carrier. The Bar’s favorite category!!! See other card.

Question 35

Delivery by Common Carrier

The Bar’s favorite category!!

Answer 35

Risk of loss shifts to the buyer when the seller completes its delivery obligations - not when actual delivery occurs. Or vice versa.

To tell which, look for the word FOB:

1) FOB [Originating Point City Name], and the city is the originating point –>

Shipment Contract, where risk passes from seller to buyer when they:
(a) Deliver goods to common carrier
(b) Arrange for delivery
(c) Notify the buyer

(assume you’re looking at a shipment contract - that’s what the Bar normally does.)

2) FOB [Destination Point City Name] –>

Destination Contract, where risk passes from seller to buyer when the goods are delivered to the buyer.

Question 36

Performance Terms

Answer 36

Performance at Common Law: Substantial performance is enough. You met the ‘essential purpose’ of the contract.

Article 2 Perfect Tender is required when seller is a merchant.

Buyer’s Right of Inspection: Buyer has a right to inspect goods before they pay, unless the contract says otherwise.
…but time matters. Can’t wait a month then demand return.

Payment: Cash or checks are good.
- Bar Tip: They always give you one of these sales of goods where the buyer wil lhave a deadline on a weekend. Buyer comes in with a check right at the deadline. Question: Has the buyer met her performance obligation? Yes! Buyer can use the check unless otherwise agreed. Question Two: Can the seller refuse her check? Yes, but that gives the buyer an additional reasonable time to come in with the cash.

Conditions: Limit obligations created by contract language must be perfectly satisfied. Look out for these terms to see conditions: if, as long as, when, unless, provided that…

Satisfaction Condition: Satisfaction measured by a reasonable person standard except with contracts that deal with art/personal taste.

Express Conditions Precedent: Performance not due until the event occurs.

Conditions Subsequent: Events after performance that could terminate duty to pay.