Contracts

Question 1

When do you have an actual offer?

Answer 1

(1) Objective Intent to Contract + (2) Definite Terms + (3) Communicated & Heard (e.g., not “I will attempt to get the money” because an attempt is not objective intent to contract)

Question 2

Irrevocable Offers

Answer 2

(1) Unilateral K where performance has been started beyond mere preparation (because now it’s been accepted!)
(2) Option K – cannot be revoked for the time stated, even if the terms are changed or the offeror dies (if common law, additional consideration will be required to keep the option open; this will apply for a random seller ordinarily not in this business)
(3) Only by Merchant - “Merchant’s Firm Offer” - no additional consideration required to keep the option open for a reasonable period (or 3 months) as long as you have (a) Merchant; (b) Signature or Letterhead with Initials; and (c) Assurance that the offer will stay open

Question 3

Bargaining or “Inquiries” Made during the Offer

Answer 3

Not a counteroffer that terminates the original offer! In fact, if they are done bargaining and inquiring, the offeree can accept the original offer.

Question 4

Death or Insanity of a Party will Terminate the Offer UNLESS

Answer 4

It’s an Option K offer, which is required to stay open for the specified or reasonable time period no matter what.

Question 5

Acceptance of the Offer with Additional Terms? Yes, if both parties are merchants (UCC). No, if they’re regular folks (Common Law).

Answer 5

UCC: If they’re both merchants, additional terms will now automatically be part of the contract unless those terms (1) materially change the offer; (2) the offer expressly limited acceptance to the original terms; or (3) offeror objects within a reasonable time
(Look For: Surprise are hardship when new terms are added, like an arbitration clause, which could arguably materially change the offer)

Common Law: Additional terms are not automatically part of the contract. They’re considered “mere proposals.”

Question 6

Pre-existing duty from the original contract will not be adequate consideration in the new contract UNLESS

Answer 6

(1) There’s an HONEST DISPUTE between the parties as to what is owed (e.g., if the parties are arguing if the buyer owes $1,000 or $2,000, the buyer’s settlement check for $1,800 provided the artist re-does the job is valid consideration when accepted by artist; also known as “Contract Discharged by Account Stated”)*;
(2) Pre-existing duty is being given to a NEW THIRD PARTY; or
(3) UNFORESEEN CIRCUMSTANCES make the pre-existing duty sufficient consideration now (e.g., underground excavation contract and emergency fallout)

*Surrendering an invalid claim is still consideration, as long as it is reasonably believed by the person giving it up

Question 7

HOW TO SATISFY SOF: PART #1. It’s an MSOUR contract. How do we satisfy the Statute of Frauds? Signed Writing or Performance.

Answer 7

SIGNED WRITING REQUIREMENTS:

1. For Common Law: PARTIES, SUBJECT, PRICE (essential terms), and SIGNATURE.
2. For UCC: QUANTITY, SIGNATURE*.

• Letterhead + Initials is fine (basically just need proof that it’s a real transaction)
• What about the Price for UCC? Gap-fillers to the rescue.

Question 8

HOW TO SATISFY SOF: PART #2. It’s a UCC contract and I have no Signed Writing (with Quantity & Signature). What else can I use to make sure this satisfies SOF? Memo.

Answer 8

(1) Are you both Merchants?
(2) Did you send a signed Memo memorializing the agreement?
(3) Did the other party fail to respond for 10 days?
BOOM – SATISFIED.

Question 9

HOW TO SATISFY SOF: PART #3: If there’s no writing, Full Performance will satisfy SOF under Common Law and Delivery of Goods will satisfy SOF under UCC. Can delivery of custom-made goods satisfy SOF without a writing?

Answer 9

Only if the seller made a substantial beginning towards their performance, then the SOF will be satisfied for the custom-made goods.

Question 10

What’s the difference between Duress and Undue Influence?

Answer 10

So, both are defenses to contract formation. But Duress is way more severe. Undue Influence involves a dominant party and a vulnerable party being taken advantage of to benefit the dominant party, usually through persuasion. Duress usually involves the threat of force or an unlawful act where the victim has no reasonable alternative but to comply with it.

Question 11

When does a Mistake get you off the hook for Contract Formation?

Answer 11

Only when:

(1) Both parties are mistaken;
(2) Mistake materially affects the agreement; and
(3) Nobody assumed the risk of the mistake**

** Example of Assuming Risk of Mistake - a husband who purchases a straight life annuity contract that pays a fixed benefit until his wife’s death assumes the risk that the wife, the person whose life the annuity is based on, will die before that price is recouped

Question 12

Under the Parol Evidence Rule, we will only admit evidence of earlier agreements when (1) Partially Integrated K, and (2) Earlier terms only supplement. Requirements?

Answer 12

(1) The contract is only partially integrated; and
(2) Earlier terms SUPPLEMENT (rather than contradict) these terms.

Ex: Contract for “ring for $3,000, white gold setting only”

• Oral evidence of rose gold setting being offered? NOT ALLOWED IN BECAUSE IT CONTRADICTS THE K.
• Oral evidence of adding in a free set of earrings? ADMISSIBLE BECAUSE IT SUPPLEMENTS THE K.

Question 13

When can we always admit evidence under the Parol Evidence Rule, regardless of whether the contract is completely or partially integrated?

Answer 13

1. When we need to resolve AMBIGUITIES about the terms (e.g., can use trade usage or course-of-dealing docs);
2. To prove MISTAKE, or MISREPRESENTATION, FRAUD, or DURESS (e.g., evidence that shows a specific term was included as a mistake, or communication that shows the other party was forced into the contract);
3. To prove a CONDITION had to occur before performance (e.g., evidence that shows the parties agreed to have the house inspected before sale); or
4. Agreements made AFTER the writing.

Question 14

What happens if a Seller ships Nonconforming Goods WITHOUT an “Accommodation Notice”?

Answer 14

• This counts as ACCEPTANCE of the offer and BREACH of the contract (unless there’s still time left for performance and the Seller can cure the defect)
• Buyer can now sue for damages because the shipment without an Accommodation Notice was an acceptance of the offer
• Can still sue regardless of decision to keep or reject the nonconforming goods
• Can return the goods or resell them on behalf of the seller (but if he sells them on his own behalf, he may be liable for Conversion)

Question 15

What happens if a Seller ships Nonconforming Goods WITH an “Accommodation Notice”?

Answer 15

• If the Seller hasn’t accepted yet, the shipment + Accommodation Notice will be a COUNTEROFFER and not an acceptance of the original contract
• If the Buyer rejects it, it’s not breach; it’s just turning down a counteroffer and now there’s no K
• If the Buyer accepts it with the Notice, there’s a K

Question 16

When does the Buyer “officially” accept the goods? If the Buyer accepts the shipped goods, can she later revoke that acceptance and send them back?

Answer 16

• Upon DELIVERY + OPPORTUNITY TO INSPECT

- Can revoke acceptance if she discovers a DEFECT within a REASONABLE TIME that SUBSTANTIALLY IMPAIRS the goods’ value

Question 17

Is late performance a Material Breach of contract?

Answer 17

No, you just need to start within a reasonable time, unless there’s a “Time is of the Essence” clause in the contract.

Question 18

Contracts based on the Aesthetic Taste of the Buyer

Answer 18

Buyer can discharge the contract and not pay the other party if there is a Condition based on Aesthetic Taste in the contract. The Buyer’s subjective, honest dissatisfaction will be enough to discharge the duty to pay because the condition has not been met. There is no “Substantial Performance” defense in these types of contracts.

Question 19

Doctrine of Prevention

Answer 19

When one party interferes and prevents another party from meeting a condition. (E.g., magazine promised to pay $100 to photographer if they choose his photo for their cover; if they selected it and then used somebody else’s, they caused the non-occurrence of the condition.) Can sue for breach of Contract due to Party’s Interference with Condition.

Question 20

INSECURITY: Other party won’t give you Adequate Assurances, so what are your options?

Answer 20

(1) First off, if you demand Adequate Assurances and the other party gives them within a reasonable time, now you have to shut up and go do your part of the contract;
(2) You can suspend your performance until Adequate Assurance is given; or
(3) Repudiate the contract, as long as you received no Adequate Assurance within a reasonable time (30 days)

Question 21

ANTICIPATORY REPUDIATION: Other party clearly has bailed on you, so what are your options?

Answer 21

(1) Sue immediately UNLESS the only thing due on your end is payment, in which case you’ll need to wait until the original due date for performance passes;
(2) Suspend performance until due date passes;
(3) Discharge the K; or
(4) Beg other party to perform.

Question 22

Can you take back your ANTICIPATORY REPUDIATION? Yeah, UNLESS:

Answer 22

(1) Performance date already PASSED;
(2) Other party REPLACED YOU in reliance of you canceling;
(3) Other party CANCELED the contract altogether; or
(3) Other party otherwise indicated they consider the repudiation to be FINAL.

Question 23

Impossibility v. Impracticability v. Frustration of Purpose

Answer 23

1. IMPOSSIBILITY - it is objectively impossible to perform based on this unforeseen event (usually a general unforeseen event like an earthquake)
2. IMPRACTICABILITY - it is extremely hard or extremely expensive to perform based on this unforeseen event (performer broke both legs)
3. FRUSTRATION OF PURPOSE - an unforeseen event specifically destroys the whole purpose the parties entered into the K in the first place (zoning ban on selling sweets = K for ice cream parlor)

Question 24

Who can we sue? Someone who did a Novation? Delegator? Or Assignor?

Answer 24

1. Novation - NOPE. Original party is off the hook! Sucker.
2. Delegator - original party is still liable for the third-party’s performance (if there has been no Express Release). Can the third-party be sued? Only if he assumed the entire K’s duties.
3. Assignor - liable under the K.

Question 25

An INTENDED THIRD-PARTY BENEFICIARY is someone who is not a party to the contract but can still sue for breach under it as soon as his rights vest, or as soon as he accepted the K’s benefits or detrimentally relied on them. How do we know if he’s intended?

Answer 25

(1) There must be AFFIRMATIVE EVIDENCE that the parties intended to give him the benefit of being able to sue.
(2) Does he have to be named in the K? No, as long as it can be inferred that the promisee intended to benefit HIM or someone of HIS CLASS.**

**A Creditor can be an Intended Third-Party Beneficiary. He can sue either party.

Question 26

What’s an INCIDENTAL THIRD-PARTY BENEFICIARY?

Answer 26

Someone who’s fucked. Maybe you stand to benefit from the K in some way, but the parties didn’t really intend it. So you have no rights and cannot sue under it.

Question 27

When are you allowed to revoke an assignment?

Answer 27

When it’s a gratuitous assignment given without consideration (basically a gift). You can revoke it as long as you haven’t received payment yet (Obligor’s performance) or if the donee isn’t relying on it yet. If any of that happened already, it’s irrevocable and you’re stuck.

Question 28

Expectation Damages

what party spent in relying on the contract + money expected

Answer 28

MONEY I ALREADY SPENT ON MATERIALS & LABOR

+

EXPECTED PROFIT

Question 29

Reliance Damages
(what party spent in relying on the contract)
**can’t collect both Expectation & Reliance)

Answer 29

MONEY I ALREADY SPENT ON MATERIALS & LABOR

-

ANY RESOLD MATERIALS

Question 30

Specific Performance: only available for real estate or goods, because you can’t compel someone to do a service (slavery, 13A problems – try an Injunction instead).

Answer 30

• Can sue for Specific Performance to tender a house or art or unique goods
• Cannot sue for Specific Performance to make someone perform at a concert
• Might be able to use an Injunction instead to prevent breach of contract (e.g., injunction enforcing a non-compete clause, trying to get that performer to not sing at a different concert venue)

Question 31

Reformation

Answer 31

Best used if the K incorrectly stated the parties’ joint understanding of the terms. K will be changed to reflect the parties’ original intent.

Question 32

Restitution (no K, but you’re clearly benefitting from my service)

Answer 32

There’s no enforceable K, but one of the parties has been unjustly enriched or they’re still using someone’s product (retail store and computer program hypo). Should be paid the REASONABLE VALUE OF THE BENEFIT OR SERVICE conferred.

Question 33

Liquidated Damages (already in the K) & Lost Profits

Answer 33

LIQUIDATED DAMAGES: Agreed-upon provisions in the K stating a fixed amount of damages to recover; usually only valid if damages are difficult to guess at the time the K was formed

LOST PROFITS: Included. But new businesses or places that haven’t even opened up yet cannot generally recover lost profits because they are too speculative, even if estimated in good faith.

Question 34

Expectation Damages is basically Material Bought or Sold in Reliance + Expected Profit. Does it include incidental damages, like travel expenses you incurred to search for a new job after the other party repudiated on the employment opportunity?

Answer 34

Yes, the Expectation Damages will include the difference in salaries ($10,000 salary on original contract that the summer camp repudiated, and $6,000 salary on new opportunity teacher found) + cost of travel to interview at other places ($200). So teacher will be entitled to $4,200 in Expectation Damages.

Question 35

Under the UCC, two merchants can add in additional terms to the ACCEPTANCE if they do not materially affect the offer, the terms aren’t limited to the first offer, or if one does not refuse. BUT if there was ALREADY AN ACCEPTANCE before the additional terms were sent, they’re out of the contract! If sent after the Acceptance, at most, it’s a request to modify the K.

Answer 35

Already an acceptance where Party 2 ships the goods. Party 2’s “Acknowledgement Form” sent a week later disclaiming consequential damages will NOT BE IN EFFECT because it was sent AFTER the acceptance.

Question 36

Is “Offer accepted. I’d prefer to pay 30 days after the invoice” still an Acceptance?

Answer 36

Likely an acceptance under UCC 2-207 even though it states terms different than agreed upon. He’s saying, “I’m accepting and I hope you can do X” NOT “I’m only accepting IF YOU AGREE to do X” which is conditional.

Question 37

Is a refusal to perform unless the other party gives up a right still a Repudiation?

Answer 37

Yes. A refusal to perform unless the other party gives up a right under the K is a repudiation and a breach

Question 38

If a party contracts to perform a task and the other promises to pay, can the performing party stop halfway and demand payment for progress/installment?

Answer 38

No, if there is no provision in the contract agreeing to progress payments for work partially completed. When one party promises to perform a task and the other party promises only to pay, generally the performing party must complete its performance before the obligation to pay will arise. The paying party is not obligated to pay anything to the performing party until the job has been completed.

Question 39

Express Conditions

Answer 39

Enforced strictly, so failure to meet it will be a material breach. However, even express conditions are subject to interpretation rules.

Question 40

Constructive Conditions vs. Express Conditions (and Minor versus Material Breach)

Answer 40

Do not require strict enforcement, but substantial performance. Therefore, a delay of one day will not be a material breach. Only substantial performance will trigger the other party’s duty to perform, whereas Express Conditions require complete performance.

If there has been a substantial performance in a contract with a Constructive Condition, failure to pay would be a material (or total) breach of the contract. A material breach will relieve the non-breaching party of his duty to perform under the contract. A minor breach means the non-breaching party must perform, but can sue for damages.