Contracts

Question 1

Offer

Answer 1

Objective manifestation of willingess by offeror to enter into agreement that creates power of acceptance in offeree.

Reqs:
1) Present intent to be legally bound and offeree could reasonably interpret it as an offer–obj test;
2) Essential terms–UCC more lenient just reqs quantity;
3) Duration term–otherwise cts interp “reasonable time”;
4) Unilateral (reqs action by offeree) or bilateral (reqs return promise).

Question 2

Offer vs Invitation to Deal

Answer 2

Ads typically invitations to deal unless associated w/ a stated reward–but the more definite the statement the more likely an offer; e.g. “used car for sale for $5K. First come first served”–qualifies as offer b/c suff specific and limiting as to who may accept.

Question 3

Termination of Offers

Answer 3

1) Lapse of Time in Offer–if term after # days, time starts to run from time offer received, not sent; if no time limit then “reasonable period of time.”;

2) Death or Mental Incapacity of Offeror–even after acceptance; exception is an option b/c irrevocable offer.
*Vs death of a P to K does not term K

3) Destruction/Illegality

4) Revocation

5) Rejection by Offeree

Question 4

Revocation of Offer

Answer 4

Sent by mail NOT effective until received–i.e. comes into poss of person addressed.

e.g. Day 1 A mails offer to B. Day 2 A mails revocation to B–if B receives and accepted before receiving revocation then K formed.

Constructive Revocation–offeror takes action inconsistent w/ offer then auto revoked.

Question 5

Things Making Offer Irrevocable

Answer 5

1) Promissory Estoppel (substitute for consideration)–must be reasonably foreseeable detrimental reliance would occur.

2) Partial Perf–unilateral then offeror cannot revoke once offeree begins perf–i.e. offeree will have reasonable time to complete perf.
*But offeror may revoke general offer even after offeree begins perf–assuming revocation is equally public offeree need not know about it.

3) Option K–but needs to be supported by consideration.

4) Firm Offer under UCC–offer to buy/sell goods irrevocable if:
– offeror=merchant;
– assurance that offer remains open (no time period then “reasonable term” but cannot exceed 3 months unless there is consideration); and
–assurance in signed writing (lenient, initialing next to letterhead or e-sig counts)

Question 6

Rejection by Offeree

Answer 6

Rejection by offeree=offer terminated; effective upon receipt and cannot accept after rejected received (unless offeror revives offer).

Vs Counteroffer–rejection + new offer

Question 7

Acceptance

Answer 7

Obj manifestation of intent to be bound by terms.

Bilateral–can be accepted either w/ return promise of action or by starting perf.

Unilateral–acceptance reqs complete perf but once starts perf offer irrevocable for reasonable time; offeree MUST be aware of offer before perf.
*Notice NOT req to make acceptance effective unless offer so reqs OR offeree has reason to know that offeror would not learn of completed perf w/in reasonable time.

Question 8

Means of Acceptance

Answer 8

Offeror dictates manner and means by which offer can be accepted–otherwise offeree can accept in any reasonable manner.

Silence–unless offeree has reason to believe or b/c of prior dealings w/ offeror, silence does NOT=acceptance even if offer states so.

Question 9

Accommodation

Answer 9

UCC–an offer to buy goods for prompt shipping shall be construed as inviting acceptance either by a prompt shipment of conforming OR non-conforming goods, OR a prompt promise to ship.

S sends a prompt shipment of non-conforming goods–accepting offer AND breaching K simultaneously; B can accept or reject and sue for breach.

OR S can notify B that shipment of non-conforming goods being offered ONLY as an accommodation to B–i.e. S’s shipment will NOT result in breach in this case b/c considered a counter-offer; B can choose to accept accommodation shipment thus forming K; or reject accommodation thus no K will be formed at all.

Question 10

Mailbox Rule

Answer 10

Acceptance effective when sent–applies to bilateral Ks NOT options.

Rejection sent after acceptance–acceptance controls even if rejection received first, unless offeror detrimentally relies.

Acceptance sent after rejection–MR does NOT apply and first one received controls–i.e. first one to come into poss of offerror, need NOT actually read comm.

Question 11

CL Mirror Image Rule

Answer 11

Acceptance must mirror terms of offer–otherwise acts as rejection of original offer and counteroffer.

Question 12

UCC–Acceptance Contains Additional/Diff Terms

Answer 12

UCC does NOT follow Mirror Image rule:

Both Ps Merchants–acceptance containing new/diff terms still acceptance unless acceptance expressly conditioned on assent to new terms–then counteroffer.
*New Terms Auto Included Unless:
1) Materially alters K–e.g. warranty disclaimer/flies in face of trade usage/reqs that complaints be made in unreasonably short time;
2) Offer expressly limits acceptance to terms; or
3) Offeror has already objected to additional terms.
*Diff terms–“knock-out” rule where diff terms nullify each other and ct fills in gaps.

BUT if one or both Ps Non-Merchants–new terms merely proposal for addition; must be sep accepted.

Question 13

Consideration

Answer 13

A bargained-for exchange in the legal position b/t the Ps–can take the form of anything of value including:
–Payment: Money or another form of payment in exchange for performance or a promise of performance
–Services: Providing a service
–Forbearance: Agreeing not to enforce rights or to do something at the request of another party
–Promises: Renouncing an existing benefit or promising to refrain from certain behavior
–Goods: Land, chattel, or other objects

Promising to do something already legally req NOT consideration–but if promisor varies preexisting duty then could =consideration
*E.g. B owes $1K tomorrow. B offers to pay L $900 today if L agrees to forgo other $100–consideration.

Something given in the past does NOT equal consideration.

Question 14

Promissory Estoppel

Answer 14

Substitute for consideration–promise binding if:

1) promisor should reasonably expect it to induce action or forebearance;

2) does induce such action/forbearance; and

3) injustice can be avoided only by enforcing promise.

Remedy limited as justice reqs

i.e. Gift in lieu of valid consideration–test is whether offeree could have reasonably believed intent of offeror was to induce the action–if so then gift enforceable under promissory estoppel if sub reliance.

Question 15

Modification

Answer 15

CL–modification of services K must be supported by additional consideration.
E.g. painter did not expressly agree to extra work but did it anyway; the fact that he charged an extra $3K for it shows he did not agree to it at current price thus there was no consideration for alleged modification–if the Ps did not agree to the extra $3K then P not entitled to that amt under expectation damages (BUT may be able to recover that amt under restitution).

vs

UCC–no consideration nec to modify goods K; only reqs GF.
E.g. If P demands increase in price b/c P has no choice but to agree, then BF and ct will invalidate.

“Time is of the Essence” clauses may be seen as modification–but subj to SOF so if not in writing then not valid.

Question 16

Defenses to K Formation–Illegality

Answer 16

Illegal Ks are usually void and there is no recovery for breach; however, a P who sub performed and lacked an illegal purpose may recover–even if he knew of the other P’s illegal purpose–unless:

1) the perf P took action to further that illegal purpose; or
2) the purpose involves grace social harm

Question 17

Defenses to K Formation–Mistake

Answer 17

Must be w/ regard to belief about existing fact not in accord w/ facts as to basic assumption on which K made.

Mutual mistake–voidable if has material impact on transaction.

BUT if conscious ignorance P may bear risk of mistake–i.e. aware of limited knowledge.

Unilateral–when only one of the Ps mistaken as to essential element of K either P can gen enforce K on its terms; BUT mistaken P can void K if:
1) mistake existed at time K was formed;
2) mistake relates to basic assumption of K;
3) the mistake has a material impact on the transaction;
4) adversely affected P did not assume the risk–i.e. did not have any reason to distrust other P–of the mistake; and either
5) enforcement would be unconscionable OR
6) non-mistaken P caused the mistake, had a duty to disclose or failed to disclose the mistake, or knew or should have known the other P mistaken.

Question 18

Defenses to K Formation–Misunderstanding

Answer 18

Both Ps believe agreeing to same material terms but agree to diff terms.

Neither P knows–NO K

One P knows–K exists but may be voidable on grounds of mistake/misrep

Both Ps know–No K; subj

Question 19

Defenses to K Formation–Misrep/Nondisclosure

Answer 19

Nondisclosure–affirmative conduct to conceal or mere nondisclosure of a known fact if P knows:
1) disclosure nec;
2) disclosure would correct mistake

K void unless reasonable diligence would have revealed terms of K; even if non-fraudulent misrep makes K voidable if material impact.

Question 20

Defenses to K Formation–Fraudulent Misrep

Answer 20

Reqs proof of:
1) false assertion of fact (knowingly/recklessly);
2) w/ intent to mislead other P;
3) misrep induces assent to K;
4) adversely affected P justifiably relied.

Assertion of opinion–gen not assertion of fact, BUT if may be reasonably be interp by P as an assertion that the D knew facts to justify that opinion–then false assertion w/ intent to mislead.

E.g. “This store is a money maker”–opinion BUT owner knows store not profitable, so amts to fraudulent misrep.

GF Purchaser–A person who purchases goods from the true owner can transfer good title to a good faith purchaser, even if the true owner could void the sale to the original purchaser because it was fraudulent.

Question 21

Defenses to K Formation–UDI

Answer 21

Can provide P w/ relief where behavior of other P does NOT amt to duress or misrep–can occur by virtue of a confidential rel in which one P dominant and other P dependent or b/c dependent P has diminished mental capacity.

Question 22

Defenses to K Formation–Duress

Answer 22

Improper threat that deprives P of meaningful choice–i.e. does not have a reasonable alt to succumbing to threat; subj test.

Question 23

Defenses to K Formation–Unconscionability

Answer 23

K is unconscionable when it is so unfair to 1 P that no reasonable P would have agreed to it.

Procedural–e.g. hidden K provisions.

vs

Substantive–substance of K itself unduly unfair.

Question 24

Implied-in-fact K

Answer 24

P’s assent to offer is inferred solely from P’s conduct–P must also have reason to know his conduct may cause offeror to understand conduct as assent to offer.

Question 25

Implied-in-law “Quasi” Ks

Answer 25

Ct may allow restitutionary recovery if:
1) P has conferred measurable benefit on D;
2) P acted w/o gratuitous intent; and
3) would be unfair to let D retain benefit b/c either:
–D had opp to decline; or
–P had excuse for not giving D opp to decline–e.g. emergency medical care.

Question 26

Material Benefit Rule

Answer 26

Modern trend even though no consideration–When P confers unrequested material benefit onto other P, perf P can enforce promise of payment made by other P to extent value of promise is not disprop to benefit received.

NOT enforced when the performing party rendered the services without the expectation of compensation.

Question 27

Express Warranty

Answer 27

A promise that affirms or describes the goods and is part of basis of bargain, unless merely seller’s opinion–CANNOT be disclaimed by a subsequent writing but can still limit relief under breach of express W in writing.

Use of sample model creates express W that the goods will be like sample.

Question 28

Implied W of Merchantability

Answer 28

Triggered only when seller is merchant dealing in goods at issue.

Warrants goods are fit for ord comm purpose–can disclaim IF:
1) conspicuous language in writing (or can disclaim using “as is” or “w/ all faults” language); and
2) has term “merchantability” oral or written.

Question 29

Implied W of Fitness for Particular Purpose

Answer 29

Triggered when B relies on S’s experience to select special type of good that will be used for special purpose.

–Applies to any S–including non-Ms;

–Disclaimer MUST be in writing

Question 30

Satisfaction Conditions

Answer 30

Typically obj standard–is most reasonable ppl would satisfied then condition met.

BUT Ks involving aesthetic taste–e.g. art–then subj standard; can still breach if claim of dissatisfaction in BF.

Question 31

Express Condition Precedent/Subsequent

Answer 31

Performance is generally due once a contract is formed, but a duty to perform can be:
1) delayed by a condition–i.e. a certain event must occur before perf becomes due; condition precedent;
or
2) discharged by a condition—excuses perf once a specified event occurs; i.e condition subsequent

An express condition precedent will be excused if–a party whose performance is subject to that condition wrongfully prevents or interferes with its occurrence—i.e by breaching the duty of good faith and fair dealing (which includes the duty to cooperate) that is implied in every contract. When this occurs, the condition no longer needs to occur for the interfering party’s performance to become due.

Question 32

Waiver / Reinstatement of Express Condition

Answer 32

A party to a contract whose duty is subject to a condition can waive the condition, either by words or by conduct.

In addition, that party may reinstate the condition if:
(i) the waiving party communicates a retraction of the waiver before the condition is due to occur; and
(ii) the other party has not already suffered detrimental reliance.

Question 33

Implied/Constructive Condition / Doctrine of Sub Perf (usually services K under CL)–EMPHASIZE

Answer 33

Unlike express conditions–a P who has sub performed his duties and sub complies w/ an implied or constructive condition can trigger the ob of other P to perf even if the P has breached in some minor way.

Expectation Damages–A P who sub perf her K obs can recover the K price minus any amt that it will cost the other P to obtain the promised full perf.

Question 34

Discharging K Obligation due to Impracticability

Answer 34

Performance can be discharged due to impracticability if:

1) an unforeseeable event has occurred;
2) the contract was formed under the basic assumption that the event would not occur; and
3) the party seeking discharge of performance is not at fault.

–But if a party assumed the risk of an event happening that made performance impracticable, then the party’s performance will not be discharged by impracticability.

–Impracticability NOT a defense just b/c P merely made a bad deal and will have to pay more than originally contemplated–i.e simply not being in ideal financial position does not discharge duty to perf.

Question 35

Discharging K Obligation via Accord Agreement

Answer 35

An existing contractual obligation can be discharged by an accord agreement. Under this agreement, a contracting party agrees to accept performance that differs from what was promised in an existing contract in satisfaction of the other party’s existing duty. When a party agrees to accept a lesser amount in full satisfaction of its monetary claim, there must be consideration or a consideration substitute for the party’s promise to accept the lesser amount. Consideration can exist if the other party honestly disputes the claim or agrees to forego an asserted defense. When a claim is unliquidated or otherwise subject to dispute, it can be discharged by accord and satisfaction if:

1) the person against whom the claim is asserted tendered a negotiable instrument (e.g., a check);

2) the instrument was accompanied by a conspicuous statement indicating that it was tendered as full satisfaction of the claim (e.g., “payment in full”) and

3) the claimant obtained payment of the instrument.

Question 36

Rejection of Goods under UCC

Answer 36

In contrast to Doctrine of Sub Perf under CL/Services K…

UCC reqs Perfect Tender–i.e. requires the seller to deliver goods by K date that conform perfectly to the contract. If not, the buyer may accept or reject the nonconforming goods and sue for damages.

May reject delivery for imperfect tender if:
1) they seem ok when delivered but defect discovered w/in reasonable time;
2) a single delivery would be unreasonable–e.g. the buyer in a requirements K would have no room to store the excess goods if they were delivered all at once.

Seller has right to cure nonconforming goods if time left on K.

Question 37

Requirements Ks

Answer 37

A contract under which the buyer agrees to purchase as many goods as the buyer requires from the seller.

–Under the perfect-tender rule, the goods and the seller’s tender of those goods must fully conform with the terms of the agreement. Substantial performance will not suffice.

Question 38

Delivery / Risk of Loss

Answer 38

If K reqs S to deliver goods through 3P carrier, the ROL passes to B at diff times depending on whether the K is:

1) Shipment contract (presumed if K silent) –a contract that does not require delivery at a particular location, in which case the risk of loss passes to the buyer when the goods are delivered to the carrier and a proper contract for their shipment is made; i.e. often identified by words “Free on Board Seller’s Place of Business.”
*FOB–means ROL is transferred from S to B at that location.

Vs. Destination contract–a contract that requires delivery at a particular location, in which case the risk of loss does not pass to the buyer UNTIL goods are delivered at the named location.

In all other cases (no shipment via 3P)–Q is whether S is M:
Yes–ROL w/ S until B receives;
NO–ROL w/ B when S tenders

Question 39

SOF Applies to

Answer 39

1) K Promising to guarantee debt of another (unless for surety’s own econ advantage);

2) Service K that cannot be perf w/in 1 yr

3) Goods K $500 or more

4) Transfer of RP

Question 40

Service Ks NOT Perf w/in 1 yr–SOF satisfied by…

Answer 40

1) Full perf of K by either side; or

2) Writing signed by P against whom K is asserted and covers fund facts–i.e. shows K was made; identifies Ps and contains essential elements of deal.

Question 41

Transfer of RP–SOF satisfied by…

Answer 41

1) Signed writing; or

2) Part perf of K if any two of three elements met:
–Poss;
–Payment of all or part;
–Improvement to land

Question 42

Goods K $500 or more–SOF satisfied by…

Answer 42

1) Signed writing–does NOT need to mention price but must state quantity; K enforceable for quantity in writing
*Not applicable to custom-made goods–i.e. can be enforceable via oral agreement.

2) Part Perf–BUT only for quantity delivered and accepted.

3) Confirming Memo–failure to object w/in 10 days satisfies but ONLY if both Ps Ms.

Question 43

Different Writings for Ks Subject to SOF

Answer 43

In order to satisfy the Statute of Frauds, at least one of the writings must reference the other–otherwise the writings are NOT sufficient under the Statute of Frauds even if together they state the essential terms of the bargain.

Question 44

PER–EMPHASIZE

Answer 44

Prevents earlier statements /writings from contradicting K terms.

Merger clause=complete integration–e.g. “this is the entire agreement b/t Ps”; overrides UCC presumption of partial integration.

UCC presumes partial integration–i.e. can bring in outside evidence as long as evidence consistent w/ writing; cts ask whether disputed term is one that would naturally be left out of agreement–if not then K likely fully integrated.

Even if complete integration P can intro evidence of:
1) 2nd sep deal;
2) Prior comm designed to interp ambiguous term in final agreement;
3) D against K formation–e.g. fraud in the inducement or unilateral mistake.

Question 45

Ambiguous Term

Answer 45

NOT incorporating PER (no prior comm about the term):

First–Ct will apply the plain-meaning rule, which provides that the objective definitions of contract terms control the meaning of the contract.

Second: Trade usage–In event term is deemed ambiguous even after applying plain-meaning rule, ct may go outside the doc and look at trade usage to interp or clarify the ambiguity.

Incorporating PER (applying prior comm about term)–if term ambiguous then outside evidence may be introduced to explain.

Question 46

Anticipatory Repudiation

Answer 46

The doctrine of anticipatory repudiation generally applies when a contracting party clearly and unequivocally indicates an unwillingness to perform a promise before the time for performance is due. Upon repudiation, the nonrepudiating party may:
1) treat the repudiation as a breach of the contract and sue immediately; or
2) ignore the repudiation and demand performance.

However, this doctrine does NOT apply when the date of performance has not passed and the nonrepudiating party has fully performed–under those circumstances, the nonrepudiating party must wait until the repudiating party’s performance is due before filing suit.

Question 47

Adequate Assurances

Answer 47

Even if not anticipatory repudiation…

Under UCC–if reasonable grounds for insecurity arise regarding the S’s ability to perf, then the B may in writing demand written adequate assurances of due perf; until the S offers assurances, the B may suspend his own perf–if no assurances provided w/in reasonable amt of time (usually not more than 30 days) the B may treat K as repudiated.

Question 48

3P Beneficiary

Answer 48

Intended Bs–have right to sue to enforce K once rights have vested.

i.e. did initial Ps intend to convey enforcement rights to 3P?

Typically:
1) creditor 3P B–i.e. repaying some debt to 3P;
2) Donee 3P B–no preexisting ob but promisee intends to confer enforcement rights on 3P.

3P B Rights Vested When:
1) B detrimentally relies on right;
2) B manifests assent to K; or
3) B has filed lawsuit to enforce K

Promisor can raise any K defense against 3P that would be entitled against promisee.

Question 49

Assignment

Answer 49

Transfer of rights under K

Distinguish from 3P B b/c 2 steps:
1) K formation; and
2) Transfer of K benefits to 3P

If K “invalidates” assignments 3P cannot recover b/c no power/right to assign
Vs “prohibit” then still have power to assign.

Rights twice assigned:
–w/o consideration last assignment controls;
–w/ consideration first assignment controls

Question 50

Delegation vs. Novation

Answer 50

Delegation–P outsources duties under K; P still on hook for breach if delagatee breaches; delegatee only liable for breach if receives consideration.

Vs Novation–P not liable for beach; BOTH Ps agree that substitute person will assume K obs.

Question 51

Compensatory Damages–EMPHASIZE

Answer 51

Purpose: Place nonbreaching P in same position as if K has been performed–includes:

1) Expectation Damages (“Benefit of your bargain”)–i.e. diff b/t the value of the perf w/o breach (what was promised) and the value of perf w/ the breach (what was received); B can either:
—Recover the mkt price minus K price; or
—“Cover” by purchasing similar goods elsewhere and recovering the replacement price minus K price.
–ED do NOT include atty’s fees

2) Incidental damages–reimbursement for commercially reasonable expenses (e.g. shipping costs) that the nonbreaching party incurred as a result of the breach; and

Also breached-against P must mitigate damages–if not then right to incidental damages (e.g. shopping costs) likely reduced by amt P could have mitigated shipping costs by.

3) Consequential damages–need to be:
1) proven w/ reasonable certainty; and
2) reasonably foreseeable by D–i.e. natural and probable consequence of breach or “in contemplate of Ps at the time K was made.”
*Ps to a K can exclude or limit consequential damages–agreement gen enforceable unless there is BF.

High Volume S–gets profits from both sales (LVP).

Incomplete Perf of Service K:
ED= expected profit + costs incurred – amt paid by breaching P – anything sold to 3P

Question 52

Reliance Damages

Answer 52

Purpose: When expectation measure too speculative, place nonbreaching party in same position as if no contract had been formed.

Nonbreaching party may recover for any expenses incurred in reasonable reliance that the contract would be performed; expenses MUST be reasonable.

However, recovery of reliance damages may be reduced by the amount spent by the nonbreaching party on materials that could reasonably be repurposed for another job–e.g. a painter will not be able to recover for cost of paintbrushes he can easily use for other job.

Question 53

Land Sale K–S Remedies

Answer 53

Recission–i.e. rescind agreement and recover poss of property;

SP–seek an injunction ordering B to pay agreed purchase price (may be unavailable if $ damages adequate);

Damages–can include:
1) loss of bargain–K price - mkt value at time of breach;
2) Liquidated damages=amt designated in the sales K as compensation (enforceable if the amt bears reasonable relation to anticipated damages–i.e. <15% of purchase price reasonable);
3) Incidental and Consequential damages