CONTRACTS

Question 1

Applicable Law

Answer 1

The UCC governs all contracts concerning the sale of goods. All other contracts are governed by common law. Art. 2 defines “good” as all things movable.

Question 2

Merchants

Answer 2

Those who regularly deal in goods of the kind sold.

Question 3

Formation

Answer 3

A valid contract requires mutual assent (offer and acceptance), consideration, and no defenses to formation.

Question 4

No Formation Issue

Answer 4

A valid K requires offer, acceptance, and consideration. Here, the facts state that the parties entered into a K, which was memorialized in a writing so it is safe to assume there was mutual assent. There was consideration on both sides because ___ agreed to pay __ in exchange for _____. Thus, there are no formation issues.

Question 5

Offer

Answer 5

Must demonstrate a present intent to be bound with certain and definite terms communicated to the offeree in such a way to make the offeree reasonably believe the offeror is willing to enter into the contract.

Certain and Definite Terms:

(1) Identity of offeree
(2) Subject matter
• Real estate - identifies land and price
• Goods - quantity
(3) Price

Question 6

Irrevocable Offer - Merchant’s Firm Offer

Answer 6

A merchant who signs a written promise to hold an offer open for the time stated will not be permitted to revoke the offer for the time stated, but in no case may such period exceed 3 months.

Question 7

Irrevocable Offer - Option Contract

Answer 7

An offer cannot be revoked if the offeree has given consideration for the offeror’s promise to keep the offer open.

Question 8

Irrevocable Offer - Start Performance of Unilateral K

Answer 8

Offer becomes irrevocable once performance begins.
• More than preparation
• Substantial preparation may constitute detrimental reliance

Question 9

Revocation of Offer

Answer 9

An unambiguous statement by offeror to offeree, or conduct by offeror that offeree is aware of which indicates revocation. An offer may be revoked at any time prior to acceptance. Revocation is effective upon receipt by offeree.

Question 10

Termination of Offer by Law

Answer 10

Death or incapacity of either party.

Question 11

Termination of Offer by Lapse of Time

Answer 11

An offer may be terminated by the offeree’s failure to accept within the time specified in the offer or, if no deadline is specified, within a reasonable amount of time.

Question 12

Acceptance

Answer 12

An outward manifestation of assent by one who has the power of acceptance to enter into the contract. An offer must be accepted within the time specified or within a reasonable time if none is stated.

Question 13

Counteroffer - Common Law

Answer 13

Under common law, an acceptance must mirror the offer. If the acceptance has an additional term, it is constituted as a rejection and counteroffer.

Question 14

Acceptance - Unilateral Contract

Answer 14

Can only be accepted by full performance.

Question 15

Acceptance - Bilateral Contract

Answer 15

A bilateral contract can be accepted by performance or promise to perform.

Question 16

Acceptance - UCC

Answer 16

• Promise to Ship; or
• Shipment of nonconforming goods = Simultaneous acceptance & breach
• S can either: 1) accept all; 2) reject all; or 3) accept any commercial units and reject rest
• Shipment of non-conforming goods w/ accommodation = counteroffer

Remedies

B who has rejected nonconforming goods is entitled to prepayment OR if S refuses to refund, can resell to mitigate damages

• B entitled to offset expenses for resale

If B accepts goods that breach one of S’s warranties, the basic measure of DAMAGES is the difference between the value of the goods as delivered and the value they would have had if they had been conforming

• Ex. Difference between market price and actual value

Question 17

Acceptance by Conduct - UCC

Answer 17

Conduct by both parties that recognizes an existence of contract is sufficient to establish contract even if writing does not properly establish a contract.

Question 18

Additional Term - UCC

Answer 18

A response to an offer that adds new terms is treated as an expression of acceptance.

Acceptance that is expressly conditioned on new terms = counteroffer
Whether additional term is part of the K depends on:

- Both merchants, new term is part of K unless:

• new term materially changes the offer
• offer expressly limits acceptance to terms of the offer
• offeror objects to the additional terms w/in a reasonable amount of time
• At least 1 non-merchant, new term is a proposal to the K that can be accepted or rejected

Question 19

Silence or Negative Reply as Acceptance

Answer 19

Silence may be acceptance if the offeror was justified in expecting a negative reply or silence was deceptive under the circumstances. When the offeree knows or has reason to know that services are being rendered with an expectation of compensation, and could have prevented the mistake by notifying the offeror, she is held to an acceptance if she fails to speak.

Question 20

Mailbox Rule

Answer 20

Acceptance is effective upon dispatch if reasonably transmitted (reasonable steps to ensure delivery) unless: (1) offer stipulates acceptance not effective until received; (2) option K is only effective upon receipt; (3) offereree sends rejection before acceptance (whichever offeror receives first); (4) if offeree sends acceptance before rejection the mailbox rule applies unless the rejection received first and offeror relies on it.

Question 21

Consideration

Answer 21

A bargained for exchange of legal detriment.

Question 22

Consideration - Outputs Contract

Answer 22

In an outputs contract, one where the party agrees to sell all that it manufactures, there is consideration because the promisor is parting with its right to sell the goods to another party and the buyer is parting with its rights to buy from another seller.

Question 23

Past Consideration - Preexisting Duty Rule

Answer 23

Past consideration is generally invalid because parties do not incur legal detriment when they promise to perform or perform an already existing legal obligation

Question 24

Promissory Estoppel - Detrimental Reliance

Answer 24

Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing if the promisor should reasonably expect to induce action or forbearance, and **such action or forbearance is in fact induced. **

Question 25

Exceptions to Preexisting Duty Rule

Answer 25

1. New or different consideration is promised;
2. Promise to ratify a voidable obligation (i.e. a promise to go through with a K despite other party’s fraud)
3. Written promise to pay a time-barred debt
4. Compromise of honest dispute
5. Unforeseen circumstances rising to level of impracticability
6. UCC - good faith modification

Question 26

Defenses to Formation - Statute of Frauds

Answer 26

Certain agreements must be in writing, signed by the party to be charged.

CL - The writing must: (1) identify the subject matter of the contract; (2) indicate that a contract has been made between the parties, and (3) state with reasonable certainty the essential terms of the contract.

UCC - Only requires some signed writing indicating K and specifying the quantity term

• K between Merchants – SOF is satisfied when one party sends confirmatory memo and receiving merchant does not object to terms w/ in 10 days

Writing Required:

• Marriage is consideration for promise (“If you marry…”)
• Promises that cannot be performed within a Year
• Interest in Land
• Promises to pay Estate debts from own funds
• contract for sale of Goods over $500
• Suretyship - promise to answer the debt of another

Question 27

Defenses to Formation - Mistake of Material Fact Existing at Time of K

Answer 27

Mutual Mistake - the K is voidable if: 1) both parties are mistaken, 2) mistake concerns a basic assumption on which K was made; 3) mistake has material effect on K terms; 4) party seeking avoidance did not assume the risk of mistake

Unilateral Mistake - if only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a K. However, the K is voidable if: 1) the nonmistaken party knew or should have known of the mistake; 2) mistake has material effect on K terms; 3) mistaken party did not assume the risk of mistake

Question 28

Modification of Terms - Common Law

Answer 28

Additional consideration is needed to modify terms. Written contract may be orally modified even if contract prohibits oral modifications.

Question 29

Modification of Terms - UCC

Answer 29

No consideration required to modify terms so long as made in good faith. The modification must be in writing if, as modified, contract is for more than $500. UCC gives effect to provisions that prohibit oral modifications.

Question 30

Parol Evidence Rule

Answer 30

Prior (oral or written) or contemporaneous statements are inadmissible to vary, modify, or contradict a fully integrated agreement. However, parol evidence may be admissible to explain ambiguous terms or prove existence of conditions precedent or formation defects (lack of consideration, fraud, duress).

If K is only partially integrated, the written agreement will be considered final as to the terms it states, but agreement may be supplemented by consistent additional terms.

Question 31

Parol Evidence - UCC

Answer 31

Contract terms may be explained or supplemented by evidence of:

• Course of performance – repeated occasions of performance between parties under current K
• Trade usage – evidence of what parties to similar Ks do
• Course of dealing – sequence of conduct between parties concerning precious transactions
• Gap Filler - 1) price – reasonable price at time of delivery; 2) place of delivery – seller’s place of business; 3) time for shipment/delivery – reasonable time; 4) time for payment – time and place at which buyer is to receive goods

Question 32

Merger Clause

Answer 32

A merger clause (states agreement is complete on its face) is evidence of full integration.

*Here, the contract contained a merger clause which states the contract is a “complete and final statement of the agreement of the parties.” *

Question 33

Promise vs. Condition

Answer 33

Under modern contract law, where language used in a contract is ambiguous as to whether it expresses a promise or a condition, courts will construe the term as a promise, because failure of conditions lead to forfeiture; and courts generally try to avoid forfeitures. On the other hand, use of express language, such as “if,” “on condition that,” “provided,” or “subject to” will lead courts to construe the language as a condition.

Question 34

Performance - Condition Precedent

Answer 34

A condition precedent is one that must occur before an absolute duty of immediate performance arises in the other party.

Failure of a condition precedent excuses the other party’s performance.

Question 35

Excuses to Conditions

Answer 35

A duty of immediate performance does not become due unless the conditions have been performed or have been legaly excused.

• Material breach of the contract
• Anticipatory Repudiation
• Prospective Inability or Unwillingness to Perform (i.e. other party becomes bankrupt)
• Divisibility of Contract - if K is divisible and a party performs one of the units of the K, he is entitled to the agreed upon equivalent for that unit even if he fails to perform the other units. The other party will still be able to recover for damages for failure to perform remaining units.
  
  • UCC Installment Ks - K is not divisible unless it authorizes delivery in several lots
• Estoppel Waiver – When a party indicates that he waves a condition BEFORE the condition has occurred, the party is estopped from asserting the condition if the other party has detrimentally relied on the waiver. Party can retract waiver any time before other party detrimentally relies.
• Election Waiver – When a party continues under the contract AFTER a condition has not occurred, the party is deemed to have waived the condition.
• Substantial Performance - The non-breaching party’s performance obligation is still due and only option is to perform and sue later for incomplete performance.

Question 36

Excuse of Performance - Anticipatory Repudiation

Answer 36

Anticipatory repudiation occurs where a promisor unequivocally (unambiguous) indicates prior to the time set for performance that she will not perform. The non-repudiating party has four options: 1) immediately sue for breach; 2) suspend own performance and wait to sue until date performance is due; 3) treat breach as a rescission and void K; 4) ignore repudiation and encourage performance.

Anticipatory repudiation can be retracted unless relied on

Question 37

Demand for Further Assurances

Answer 37

A formal request that a party re-commit to performance

Prospective inability/unwillingness to perform (PIP): occurs when one of the parties gives an indication, before his performance is due, that he will not substantially perform, but the indication does not rise to the level of unequivocal

• PIP entitles the aggrieved party to suspend performance and make written demand for “adequate assurance of performance.” The other party’s failure to respond within a reasonable time, not exceeding 30 days, will constitute repudiation

Question 38

Excuses to Performance - Impossibility

Answer 38

Contractual duties will be discharged if they are objectively impossible to perform (i.e. death or physical incapacity, illegality, destruction of subject matter).

Question 39

Excuses to Performance - Impracticability

Answer 39

Contractual duties will be discharged if the party has encountered extreme and unreasonable difficulty and/or expense AND its nonoccurrence was a basic assumption of the parties. Mere increase in costs is usually insufficient to discharge a duty for impracticability.

Question 40

Excuses to Performance - Frustration of Purpose

Answer 40

Contractual duties will be discharged if an unforeseeable supervening event not due to the fault of the party seeking discharge destroys the purpose or value of the contract and the purpose was understood by both parties when the contract was made.

Question 41

Excuses to Performance - Rescission

Answer 41

Mutual Recission – K may be discharged by an express agreement between the parties to rescind if the duties are executory on both sides.
Unilateral Recision – A unilateral K may be rescinded where one party still has duty to perform if: 1) there is an offer of new consideration by the nonperforming party; 2) elements of promissory estoppel; or 3) manifestation of an intent by the original offeree to make a gift of the obligation owed to her

Question 42

Excuses to Performance - Novation

Answer 42

Occurs when a new K substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old K. Novation releases original party and **extinguishes old K. ** The 4 elements must be met:

1. A previous valid K
2. Agreement among all parties, including the new party to the new K
3. Immediate extinguishment of contractual duties between the original K parties
4. Valid and enforceable new K

Question 43

Excuses to Performance - Accord & Satisfaction

Answer 43

Accord is an agreement where one party agrees to accept a different performance that one that was originally agreed upon. Requires consideration or a bona fide dispute.

Satisfaction is the performance of the accord, which discharges accord and original contract.

Question 44

Breach - Common Law

Answer 44

A contract is breached when a party fails to perform in accordance with the terms of the contract when there is a duty to perform.

Minor Breach - Obligee gains the substantial benefit of the bargain so nonbreaching party must perform. The non-breaching party may not cancel the K, but has a right to damages for the minor breach (setoff).

Majori Breach - Obligee does not gain substantial benefit of the bargain so no duty to perform. The nonbreaching party may treat the K as terminated and will have an immediate right to all remedies for breach of the entire K.

Breach is considered material based on: 1) the extent of performance, 2) the willfulness of breach, 3) seriousness of breach; and 4) likelihood of cure

Question 45

Breach - UCC - Perfect Tender Rule

Answer 45

If the goods fail to conform to the contract in any way, buyer may:

• Accept the entire shipment + sue for damages
  
  • Once buyer accepts, he cannot later reject
  • Payment w/out opportunity to inspect is not acceptance
  • Implied acceptance once buyer retains goods after opportunity to inspect
• Reject the entire shipment + sue for damages
• Accept some units and reject rest + sue for damages

Question 46

UCC - Seller’s Right to Cure

Answer 46

Seller has right to cure before time for performance if: 1) seller gives reasonable notice of intent to cure; and 2) seller makes a new tender within time for performance;

Seller has a right to cure beyond time for performance if: 1) prior deals between the parties gives seller reason to believe that nonconforming goods were acceptable; or 2) seller could not have known of defect despite proper business conduct (i.e. packaged goods purchased from third party)

Question 47

UCC - Installment Contracts

Answer 47

Authorize delivery in separate lots that are separately accepted. An installment can only be rejected if the nonconformity substantially impairs the value of the installment AND cannot be cured.

The contract is breached only if the nonconformity of the installment **substantially impairs the value of the entire contract. **

Question 48

Damages - Expectation

Answer 48

Gives the non-breaching party the benefit of the bargain to put her in the same position she would have been had the breach not occurred.

Question 49

Damages - Reliance

Answer 49

Awards cost of plaintiff’s performance to put nonbreaching party in the position she would have been in had the contract never been formed (i.e. expenditures in preparation for performance). Recoverable if expectation damages (amount of profit plaintiff would have made) are too speculative.

Question 50

Damages - Consequential

Answer 50

Reflect losses over and above expectation damages. These damages are recoverable if, at the time the K was made, such damages were foreseeable as a probable result of the breach. The breaching party must have known or should have known of the circumstances that would give rise to consequential damages.

Question 51

Damages - Liquidated

Answer 51

Liquidated damages clauses are enforceable if: (1) actual damages were difficult to calculate at the time contract was formed; (2) amount specified is a reasonable approximation of the likely damages.

If the clause is invalid, it is a penalty and only actual damages recoverable. If clause is valid, only liquidated damages are recoverable.

Clause that provides that party can elect to recover either actual OR liquidated damages is invalid

Question 52

Damages - Land Sale Contract

Answer 52

Difference between the contract price and FMV

Question 53

Damages - Employment Contracts

Answer 53

Employer Breach - full contract price.

Employee Breach - cost to replace employee.

Question 54

Damages - Construction Contracts

Answer 54

Breach by Owner:

• Before construction - builder’s prospective profits
• During construction - contract price minus cost of completion
• After completion - full contract price + interest

Breach by Builder:

• Before or during construction - cost of completion + compensation for delay
• Late completion - value of lost use

Question 55

Damages - UCC - Buyer’s Damages for Nondelivery or Rejected Goods

Answer 55

The buyer’s basic damages where the seller does not deliver or buyer rejects delivered goods is the difference between the contract price and EITHER the market price at time buyer learns of breach OR cost of buying replacement goods (cover), plus incidental and consequential damages, **less any expenses saved. **

Question 56

UCC Damages - Buyer’s Right to Cover

Answer 56

A buyer that makes a reasonable contract to purchase replacement goods on the market at the time of breach in good faith and without unreasonable delay may recover the difference between the contract price and cost of replacement goods.

Question 57

Damages - UCC - Buyer’s Damages for Accepted Nonconforming Goods

Answer 57

If buyer accepts nonconforming goods and gives seller notice of defect within a reasonable time, buyer may recover the difference between the value of the goods delivered and the value they would have had if they had been according to the contract, plus incidental and consequential damages.

Question 58

Damages - UCC - Seller’s Damages for Rejected Goods or Buyer’s Anticipatory Repudiation

Answer 58

The seller’s basic damages where the buyer rejects delivered goods or anticipatorily repudiates the contract is the difference between the contract price and EITHER the market price at time and place for delivery OR resale price, plus incidental damages (no consequential), **less any expenses saved. **

A seller that resells the goods in good faith at a commercially reasonable private sale or public auction may recover the difference between the contract price and resale price.

Question 59

Damages - UCC - Lost Volume Seller

Answer 59

The seller is a lost volume seller when he can obtain or manufacture as many goods as it can sell. If seller would have made 2 sales, but for the buyer’s breach, the seller may recover for lost profit, measured by the contract price with the breaching party minus the cost to the seller to get the goods from wholesale/dealer, offset by any down payment made by buyer.

Question 60

Damages - UCC - Seller’s Damages for Full Contract Price

Answer 60

If buyer has accepted goods and not paid, seller is unable to resell the goods at a reasonable price, goods were lost or damaged when risk of loss was on buyer, the seller may recover the full contract price.

Question 61

Avoidable Damages - Duty to Mitigate

Answer 61

Nonbreaching party has a duty to mitigate damages. A non breaching party may not recover damages that could have been avoidable by procuring substitute performance at a reasonable price.

Question 62

Restitution

Answer 62

Compensates the non-breaching for a benefit conferred on the other party to prevent unjust enrichment.

Question 63

Quasi-Contract

Answer 63

Restitution may be available in quasi-contract when a contract was made, but it is unenforceable and unjust enrichment would result.

Ex. parties discharged for impossibility - builder will be able to recover for improvements made to house before it got destroyed

Ex. One party dies and is discharged from performance - other party can recover payments made from deceased’s estate.

Restitution may be available in quasi-contract when no contract was formed if: (1) plaintiff conferred a benefit on the defendant by rendering services; (2) plaintiff conferred the benefit with a reasonable expectation of being compensated; (3) D had reason to know of P’s expectation; and (4) D would be unjustly enriched if he did not have to compensate P. P can recover for the reasonable value of his services.

Ex. Dr. aids a victim in a car accident.

Question 64

Non-Monetary Damages - UCC

Answer 64

Buyer’s Remedies: 1) Cancellation; 2) Buyer’s right to Replevy Identified Goods (if buyer has made part payment or is unable to secure adequate substitute goods); 3) Specific Performance – unique goods (subject to defenses: laches, unclean hands, sale to BFP).

Seller’s Remedies: 1) Withhold Goods; 2) Right to recover goods from insolvent buyer; 3) Right to Demand Assurances.

Question 65

Delegation of Duties

Answer 65

A party may delegate its duties under the contract unless performance by the delegatee will materially change the obligee’s expectation under the contract.

Question 66

Defenses to Formation - Incapacity

Answer 66

Infancy

Mental Incapacity

Duress

Undue Influence

Question 67

Defenses to Formation - Misrepresentation

Question 68

Defenses to Formation - Unconscionability

Question 69

Specific Performance

Answer 69

Feasibility - specific performance for services contract are not feasible b/c it would be unconstitutional as involuntary servitude under 13th Amendment.

Question 70

Specific Performance - Defenses

Answer 70

Laches

• Fact RE statute of limitations

Unclean Hands