Contracts

Question 1

Applicable Law

Answer 1

All contracts are governed by either Common Law or the UCC Article 2. Whether the contract is a sale of goods determines which applies.

Question 2

UCC

Answer 2

The UCC Article 2 governs the sale of goods. Additionally, if the parties of the K are both merchants, special rules apply.

Question 3

Common Law

Answer 3

Any K that does not involve the sale of goods should be treated under common law contract principles.

Question 4

Mixed Deals

Answer 4

If a K involves both goods and services, the PREDOMINANT PURPOSE dictates the applicable law.

-If the K DIVIDES payment of goods from any services, apply UCC and CL to each portion separately.

Question 5

Formation

Answer 5

All Ks require valid offer, acceptance, and consideration to be binding.

Question 6

Offer

Answer 6

A proposal manifesting a PRESENT INTENT to K that creates a power of acceptance.

-A reasonable person standard is applied to “intent” determination.

• terms must be DEFINITE and CERTAIN.
• UCC –> quantity must be certain or determinable.
• Real Estate –> price and ID of land required.

Question 7

Termination of Offer

Answer 7

An offer may be terminated by an act of the parties or by operation of law.

• Revocation by Offeror (must be unambiguous and revocable)
• Rejection by Offeree
• Lapse of Time
• Death or Insanity of either party
• Destruction of K’s subject matter
• Supervening Illegality

Question 8

Acceptance

Answer 8

At Common Law - a valid acceptance must MIRROR the OFFER’S TERMS (Mirror Image Rule).

At UCC - if additional terms are added during acceptance, still valid unless material change. A MERCHANT can also accept by PROMPT SHIPMENT or promise to ship.

Male Box Rule - Delayed communications (mail); Offers and Revocations effective upon RECEIPT, but Acceptance is effective upon DISPATCH.

Question 9

Consideration

Answer 9

A BARGAINED-FOR LEGAL DETRIMENT incurred by EACH PARTY to a K by promise, forbearance, or performance.

A PRE-EXISTING LEGAL DUTY is NOT consideration.

-SUBSTITUTES: Promissory Estoppel, Good Faith Modification under UCC, and past debts given new written promise.

Question 10

Defenses to Formation (IF D SCUMM P)

Answer 10

There are many defenses to an otherwise valid formation of K that invalids the contract.

• Illegality
• Fraud/Misrepresentation

-Duress

• Statute of Frauds
• Capacity
• Unconscionability
• Mistake
• Misunderstanding

-Public Policy

Question 11

Capacity

Answer 11

Infants and mentally incompetent persons do not hold capacity to contract.

• Intoxication - creates lack of capacity if other party should have known of intoxication.
• Implied Affirmation - a K can be enforced if incapacitated party gains capacity and RETAINS BENEFITS. (think 17 year old kid, turns 18 and continues to receive benefit of K)

Question 12

Statute of Frauds

Answer 12

Certain Ks must satisfy SoFs thru a WRITING, SIGNED by the party attempting to invalidate.

Required for:

• Performance Ks that CANNOT BE COMPLETED WITHIN ONE (1) YEAR,
• Sale of Goods for $500+,
• Interest in Land,
• Executor promises (answer for decedent’s debts), or
• Marriage Ks (consideration IS marriage).

Question 13

Unconscionability, Illegality, Fraud, and Duress

Answer 13

Unconscionability - If Unfair Surprise (Procedural) or hidden oppressive terms (Substantive), not enforceable.

Illegality - if illegal subject matter or know illegal purpose AT TIME OF K, not enforceable.

Fraud/Misrepresentation - if false assertions, concealment, or misstatements about a MATERIAL FACT were RELIED UPON, not enforceable.

Duress - if K made while under ECONOMIC or PHYSICAL coercion, not enforceable.

Question 14

Mistake and Misunderstanding

Answer 14

Misunderstanding - K viodable if: 1) material term is reasonably susceptible to multiple interpretations, 2) each party ATTACHES different meaning, and 3) neither KNEW OF the others interpretation.

Mistake - K voidable if: 1) BOTH parties are mistaken, 2) it concerns a BASIC ASSUMPTION of fact, 3) it MATERIALLY AFFECTS K, and 4) adversely affected party did not bear the burden of risk.

Unilateral Mistake - if one party was mistaken, AND OTHER PARTY KNEW OF MISTAKE, K is voidable.

Question 15

Interpretation of Terms

Answer 15

If there is a dispute as to the meaning of the terms in a K, we analyze in the following order:

1) Course of Performance (same parties, same K type)
2) Course of Dealing (same parties; different, but similar, K)
3) Custom and Usage in industry.

Question 16

Parol Evidence Rule

Answer 16

If a written K is a COMPLETE AND FINAL INTEGRATION, evidence of a prior agreement is INADMISSIBLE.

Exceptions: mistake in integration, an ambiguity in terms, defenses, or subsequent modification will allow prior evidence.

Question 17

UCC Default Terms for Delivery and Risk of Loss

Answer 17

The UCC has default standards for both delivery and risk of loss of goods.

FOB - location = risk of loss passes once seller delivers to location (can be to common carrier if seller’s city).

Question 18

Warranties

Answer 18

UCC attaches warranties to any sale of goods:

• Implied Warranty of Merchantibility (MERCHANT = goods fit for particular purpose)
• Implied Warranty of of Fitness For A Particular Purpose (if goods are for a purpose, seller was aware, and buyer relied on seller’s expertise)

Question 19

Conditions

Answer 19

Terms that create the obligation of performance. Can be conditions PRECEDENT, CONCURRENT, or SUBSEQUENT.

Question 20

Express Conditions

Answer 20

If a condition exists that is express in the K, strict liability is imposed (party MUST perform to specifications).

Exceptions: Good faith/Avoidance of forfeiture (think Reading Pipes), Estoppel, or Waiver.

Question 21

Substantial Performance

Answer 21

Common Law K conditions - if one party has begun performance and completed a “SUBSTANTIAL” amount, opposing party is obligated to perform (they can seek damages for the remaining performance omitted).

Question 22

Perfect Tender (UCC)

Answer 22

Under a UCC K, the seller is required to deliver PERFECT GOODS (fulfill any conditions in K for goods).

Question 23

Rejection of Goods

Answer 23

If not a perfect tender of goods, the buyer can accept all, reject all, or accept conforming and reject rest (then sue for damages to make whole).

For a valid Rejection, buyer must:

• notify seller in reasonable time,
• hold rejected goods using reasonable care, and
• give seller reasonable time to remove goods (buyer can sell goods only if no response from seller, and profits are for the seller, not buyer)

Question 24

Seller’s Ability to Cure

Answer 24

Upon receiving notice of an imperfect tender of goods, a seller may cure if:

-time for performance has not lapsed,
-seller reasonably believed nonconformity was acceptable,
or
-seller gives buyer notice of intent to cure.

Question 25

Acceptance of Goods

Answer 25

Despite an imperfect tender, a buyer accepts goods under UCC if either:
-after reasonable time for inspection, buyer indicates through word or action inconsistent with seller’s ownership (payment is NOT RELEVANT).

B

Question 26

Revocation of Acceptance of Goods

Answer 26

A Buyer can only revoke acceptance of NONCONFORMING goods if

1) nonconformity substantially impairs value,
2) Buyer relies on sellers assurance of satisfaction, or
3) Buyer revokes after discovering nonconformity

Question 27

Later Contract (Rescission, Accord & Satisfaction, Modification, and Novation)

Answer 27

Rescission - Both parties may agree to cancel K if both have performance remaining; quasi-K remedies remain.

Accord & Satisfaction - (substituted performance) a separate agmt is created to accept a different performance that suspends original K; once accord is completed, discharges original perf. owed.

Modification - (substituted agmt) Under CL, must have consideration for new agmt; under UCC, must be in good faith.

Novation - (substituted party) agmt by BOTH PARTIES to sub in a new party excuses old party.

Question 28

Improper Performance

Answer 28

Under CL, if one party materially breaches the K, the other party is excused from their performance. MATERIAL = question of fact

Under UCC, if one party does not supply perfect tender, the other party is excused from performance.

Question 29

Prevention of Performance

Answer 29

A party is excused from performance if the opposing party INTENTIONALLY or NEGLIGENTLY hinders satisfaction of the conditions necessary for complete performance.

Question 30

Unforeseen Events

Answer 30

Impossibility - (objective standard) No one could have performed.

Impracticability - (subjective standard) Extreme & Unreasonable Difficulty or Expense that was not anticipated at time of K

Frustration of Purpose - supervening event that was not foreseeable at time of K DESTROYS Ks AGREED UPON PURPOSE

Unforeseen Events - if death, subsequent illegality, or destruction and limited inventory occurs, can be validly released from K.

Question 31

Anticipatory Repudiation

Answer 31

Arises when one party makes an UNAMBIGUOUS statement, PRIOR TO PERFORMANCE, that he/she will NOT PERFORM.

• This immediately grants the other party an excuse of non-performance, as well as right to sue for breach.
• Repudiating party can retract statement BEFORE IT IS ACCEPTED by opposing party, and typically gives ADEQUATE ASSURANCES.

Question 32

3rd Party Beneficiaries

Answer 32

If two parties contract with some intent of benefiting a third party, that third party is a 3rd Party Beneficiary.

Intent to benefit must be:

• express designation in the K,
• by direct benefit from performance in K, or
• inferred from the relationship with the promisee of the K.

Question 33

3rd Party Rights

Answer 33

In order to enforce rights as a 3rd party beneficiary, they must vest. Vesting occurs when:

• TPB assents to the promise as stated in K,
• TPB brings suit to enforce promise, or
• TPB materially changes position in reliance.

TPB can only sue promisee if a creditor beneficiary, otherwise must sue promisor.

Question 34

Assignment

Answer 34

All rights under K may be freely assigned if there is a MANIFESTATION of IMMEDIATE INTENT to completely transfer rights.

Exceptions: 1) substantial change to K, 2) prhibited by K or law, or 3) a future right to a future K.

Question 35

Assignment Rights

Answer 35

Revocation - Any assignment for consideration is IRREVOCABLE.

Gratuitous Assignments ARE revocable so long as no detrimental reliance and obligation has not yet been performed. (Can be revoked thru death, notice, or subsequent assignment)

Question 36

Delegation

Answer 36

All duties under a K may be delegated, subject to exceptions:

• duties involve PERSONAL JUDGMENT or SPECIAL SKILL,
• K language prohibits delegation,
• party has placed special trust in delegator, or
• delegation would materially change the expectancy of an OUTPUT K.