Contracts

Question 1

Governing Law

Answer 1

The common law of K’s applies to all K’s, other than the sale of goods, to which the UCC applies.

Goods = all things moveable at the time they are identified to the contract.

merchant = a buyer or seller in goods of the kind.

Question 2

Formation

Answer 2

A valid contract requires an offer, acceptance, and consideration.

Question 3

Bilateral vs Unilateral K’s

Answer 3

bilateral K= promise for a promise

unilateral K= requires acceptance only by performance

Question 4

Offer

Answer 4

An offer consists of:

1. a promise, undertaking or commitment to enter into a K;
2. with the essential terms certain and definite; AND
3. communication of the promise and terms to the offeree.

NOTE: The fact that an offer gives an offeree a choice of terms doesn’t make it too uncertain bc terms will be certain when the offeree accepts

Question 5

Continuing Offer

Answer 5

for a series of K’s, like all offer’s, are revocable unless made irrevocable by statute or payment of consideration

Question 6

Advertisements

Answer 6

ads are generally not an offer but merely an invitation to make an offer UNLESS there’s a specific quantity

Question 7

Lapse of Time

Question 8

Conduct as Terms –

Course of Performance

Answer 8

how parties performed under previous installments of this K

Question 9

Conduct as Terms –

Course of Dealing

Answer 9

what parties did under prior K’s w/ each other

Question 10

Conduct as Terms –

Usage of Trade

Answer 10

what others in the trade do in similar K’s (least important)

Question 11

Risk of Loss – Delivery by Common Carrier

Answer 11

2 types of carrier cases: shipment K’s & destination K’s.

Destination K = K requires seller deliver goods @ particular destination

• ROL passes to buyer when goods are delivered to buyer @ the destination
• “FOB” followed by sellers city

Shipment K = K authorizes/requires seller ship goods by carrier but doesn’t specify particular destination

• ROL passes to buyer when goods delivered to carrier
• “FOB” followed by another city

Question 12

Risk of Loss – Non carrier

Answer 12

Parties did not intend the goods be moved by a common carrier.

Merchant Seller– risk of loss passes to the buyer when they take physical possession of goods

Non-merchant seller – risk of loss passes to buyer upon tender of delivery

Question 13

Revocation of the Offer

Answer 13

A revocation terminates the offeree’s power of acceptance if its communicated to the offeree before she accepts. It can be communicated directly or indirecly if the offeree receives correct info from a reliable source of acts that would indicate to a reasonable person that the offer is terminated. MBR: revocation effective upon receipt Offers not supported by consideration can be revoked at will. Power to revoke limited where: 1) there is an option contract; 2) there. is a merchant’s firm offer; 3) the offeree has detrimentally relied on the offeror’s promise to hold the offer open.

Question 14

Option Contract

Answer 14

Buyer pays consideration to keep offer open, making the offer irrevocable

Question 15

Merchant’s Firm Offer

Answer 15

Merchant’s firm offer must be in writing, and, by its terms, give assurances that the offer will be held open. If no time is stated, it will be held open for a reasonable time. After 3 months it becomes revocable. However, if its not revoked by the merchant, the offeree may still accept the offer.

Question 16

Mailbox Rule

Answer 16

Revocation = deemed effective upon receipt not dispatch. Acceptance = effective upon dispatch and creates K* * UNLESS offer states otherwise OR its an option K where acceptance is effective upon receipt

Question 17

Acceptance

Answer 17

Under common law, acceptance is an unqualified assent to the terms of the offer. Acceptance must be communicated to the offeror and offer may be accepted by any reasonable method unless the offeror limits the form of acceptance. conditional acceptance = rejection counteroffer = rejection of original offer + new offer

Question 18

Shipment of Non-conforming Goods

Answer 18

Shipment of nonconforming goods is an acceptance as well as a breach of the K unless the seller seasonably notifies it’s an accommodation. Buyer may accept or reject goods but rejection must be done w/in reasonable time and buyer must seasonably notify seller of rejection.

Question 19

Battle of the Forms

Answer 19

Under UCC, an acceptance that varies the terms is still a valid acceptance. The first issue is whether the terms are additional or different terms. If different, majority rule is that conflicting terms are both knocked out of the K and replaced w/ gap fillers or course of performance btwn the parties. Under minority rule conflicting terms are treated as additional terms. If additional and btwn merchants, the terms become part of the K UNLESS: 1) offer expressly limits acceptance to terms of the offer; 2) they materially alter the offer; or 3) objection & notice given w/in a reasonable time after notice received. If additional and not btwn merchants, terms not part of the K UNLESS seller does something to accept the proposal.

Question 20

Consideration

Answer 20

Consideration requires a bargained-for-exchange– a legal detriment to the promisor and a benefit to the promisee. Past or moral consideration is insufficient consideration.

Question 21

Promissory Estoppel/ Detrimental Reliance

Answer 21

Even if the court finds there is no consideration, the plaintiff may still enforce the promise if they can prove the elements of promissory estoppel.* Promissor estoppel requires: 1) the promisor should reasonably expect to induce definite or substantial action or forbearance; and 2) such action/ forbearance is in induced. * will only be entitled to reliance damages

Question 22

Defenses to Formation

Answer 22

Mistake, Fraud, Misrepresentation,Illegality, Capacity, Duress, Undue Influence Maya Finds Most Inferior Cats Dreadfully Unappealing

Question 23

Mutual Mistake

Answer 23

Rescission will be granted where there is a mutual mistake as to a material fact that goes to the benefit of the bargain. Goes to the nature/ identity of the subject matter not its quality, e.g. sale for horse, baby born is actually a mule.

Question 24

Unilateral Mistake

Answer 24

A unilateral mistake as to a material fact will be grounds for recission if the non-mistaken party knows or should have known of the mistake. However, the modern trend grants rescission if the mistake is basic and party’s hardship outweighs the detriment to the non-mistaken party’s expectations under the K.

Question 25

Fraudulent Non-disclosure

Answer 25

Non-disclosure of material facts + duty to disclose + reasonable reliance on nondisclosure. Grounds for recission

Question 26

Misrepresentation

Answer 26

Misrepresentation requires 1) false representation of a material fact; 2) that the defendant made intentionally, negligently, or innocently; and 3) plaintiff reasonably relied on the misrepresentation to his detriment. Grounds for recession but can only get damages if fraudulent or negligently

Question 27

Illegality

Answer 27

K void is subject matter is illegal/ crime/ tort

Question 28

Capacity

Answer 28

Lack capacity to enter into K on account of age (minors), intoxication, or mental capacity. Incapacitated party seek to affirm or void the K

Question 29

Duress

Answer 29

Duress requires 1) intent to inflict harm; 2) wrongful threat; and 3) no reasonable means to prevent threat. K becomes voidable

Question 30

Undue Influence

Answer 30

Undue influence requires unfair persuasion against a vulnerable party. K becomes voidable

Question 31

Defenses to Enforcement

Answer 31

K is valid but not enforceable Statute of Frauds, Unconscionability

Question 32

Statute of Frauds

Answer 32

Under the SOF, a K must be in writing if it involves: 1) promises in consideration of MARRIAGE; 2) contract cannot be performed in 1 YEAR; 3) creation/ conveyance of any interest in land; 4) sale of goods of $500+; 5) promise by executor to pay estate’s debts out of their own funds; 6) suretyship/ promise to pay debt of another. MYLEGS

Question 33

Exceptions to SOF

Answer 33

1) an admission—evidentiary or judicial; 2) full performance if the contract is for the sale of goods or a service; and 3) if the contract involves real property, any 2 of the following – performance by payment (in whole or in part), possession, or making of valuable improvements.

Question 34

Promissory Estoppel/ Detrimental Reliance

Answer 34

if promisor would reasonably expect promisee to rely on the promise, promisor is estopped from asserting SOF & K is valid.

Question 35

Unconscionability

Answer 35

Unconscionability requires both procedural and substantive unconscionability. Procedural unconscionability = unequal bargaining power, (ex: K offered on take it or leave it basis) Substantive unconscionability = terms of the K are so one sided that they shock the conscience (ex: pre-printed K) If court finds that a K/ clause was unconscionable when made, the court may: 1) refuse to enforce the K; 2) enforce remainder of K without unconscionable clause; 3) or limit application of clause.

Question 36

Third Party Beneficiaries

Answer 36

Third party beneficiary involves whether someone other than the parties to K can enforce its terms. The 1st ISSUE is whether the third party is an intended or incidental beneficiary. Only intended beneficiary can enforce the contract – they are expressly designated/ identifiable at time of performance. The 2nd ISSUE is whether the third party is a creditor or donee beneficiary. If the promisee’s intent was to discharge an obligation, then the third party is a creditor beneficiary. If the promisee’s intent was to bestow a gift, then the third party is a donee beneficiary. Creditor can always sue but donee only if detrimentally relied. The 3rd ISSUE is whether the rights of the third-party beneficiary have vested bc a third-party beneficiary can only enforce a promise once their rights have vested. Rights vest when the beneficiary 1) manifests assent in the manner requested by the parties; 2) sues to enforce the contract; or 3) materially changes their position in justifiable reliance on the promise

Question 37

Assignment

Answer 37

A transfer of rights is an assignment. What rights may be assigned? – All contractual rights can be assigned, except those that would substantially change an obligor’s duty. (personal services cannot) What’s required? – Generally, does not require a writing (except wage assignments, interests in land, causes of action of $5,000+ & security interests). right assigned must be adequately described & indicate an intent to completely and immediately assign the interest to assignee When is it revocable? – revocable unless 1) its given for consideration; 2) obligor has already performed; 3) on delivery of tangible claim; 4) assignment of a cause of action in writing; 5) there’s foreseeable detrimental reliance. Obligor can assert any defenses agains assignee that it had against assignor

Question 38

Delegation

Answer 38

Transfer of duties is a delegation. All duties may be delegated except: 1) duties involving personal judgment and skill; 2) there is special trust in the delegator (ex: attorney, physician); 3) delegation would create a change in the obligee’s expectancy; or 4) the K prohibits delegation Both delegator/ delegate remain liable. Non-delegating party cannot compel delegate to perform unless delegate promises to perform and promise supported by consideration or attempt to perform.

Question 39

Parole Evidence Rule (PER)

Answer 39

Where the parties express their agreement in writing, with the intent that it embody the full and final expression of their bargain, any other expressions, written or oral, made prior to the writing, and any oral expressions made contemporaneous with the writing, are inadmissible to vary the terms of the writing. Writing intended to be final expression? Fully integrated? – To be a final expression, the writing must be signed by both parties. If there’s a merger clause stating the agreement is complete, then its fully integrated. A partially integrated writing cannot be contradicted, but it can be supplemented. Any prior or contemporaneous expressions that vary the terms of the writing? – If there are, they may be barred. Expressions outside the scope of the parol evidence rule? – Exceptions to the rule include evidence of: formation defects (fraud, duress, mistake, and illegality), a condition precedent to effectiveness; and interpretation of an ambiguity. UCC: consistent additional terms allowed unless merger clause state writing is complete exclusive statement. Can use course of performance, dealing, usage of trade to explain/ supplement the K

Question 40

Modification

Answer 40

A K modification is a subsequent expression and thus not barred by PER. Common Law – a contract modification requires additional consideration. Pre-existing duty rule: new consideration required to modify a K; performing pre-existing duty not enough. U.C.C. – no additional consideration is required to modify a K. “no oral modification” clauses are ok Check whether modification implicates SOF.

Question 41

Breach

Answer 41

A breach occurs when a promisor has a duty to perform and fails to do so.

Question 42

Minor Breach

Answer 42

A minor breach is when the obligee gains the substantial benefit of the bargain despite the defective performance, and their duty to perform is not discharged.

Question 43

Material Breach

Answer 43

A material breach is when the obligee does not gain the substantial benefit of the bargain, and they are entitled to all remedies.

Question 44

Anticipatory Repudiation

Answer 44

A party commits an anticipatory repudiation of the K when they clearly inform the other party before the due date of performance that they do not intend to perform. The non-breaching party is entitled to treat it as a breach and may immediately sue for breach of contract.

Question 45

Demand for Assurances – UCC

Answer 45

Implicated when a party becomes aware of circumstances that increase the risk that the other party may not perform, but don’t clearly indicate performance won’t be made. If the circumstances give rise to reasonable grounds for insecurity, a party may demand assurances in writing that performance will be timely forthcoming. Until assurances are received, the party may suspend its own performance & if proper assurances not given w/in reasonable time, part may treat contract as repudiated.

Question 46

Implied Covenant of Good Faith and Fair Dealing

Answer 46

The implied covenant of good faith and fair dealing, which exists in every K, requires that neither party do anything to prevent performance by the other party. Example of breach: - employment contracts – terminating an employee who refuses to perform an illegal act - insurance contracts – when insurance denies coverage in bad faith

Question 47

Discharge of Duties/ Excuse from Performance

Answer 47

impossibility, impracticability, frustration of purpose, accord & satisfaction, waiver

Question 48

Impossibility

Answer 48

An obligor under a K may be excused from performance if the K was impossible to perform. An impossibility must be objective (the duties could not be performed by anyone) and must arise after the contract was entered into.

Question 49

Impracticability

Answer 49

An obligor under a K may be excused from performance if the K was commercially impracticable. Impracticability requires that the party to perform has encountered extreme and unreasonable difficulty and/or expense and the difficulty was not anticipated.

Question 50

Frustration of Purpose

Answer 50

An obligor under a contract may be excused from performance in the event of frustration of purpose, such as where the object of the K is destroyed. Frustration of purpose requires that the purpose of the contract has become valueless because of an unforeseeable supervening act not the fault of the party seeking discharge.

Question 51

Accord and Satisfaction

Answer 51

An accord is an agreement where one party to another party agrees to accept different performance. An accord must be supported by consideration, which can be partial payment of the original agreed-upon price or forbearance to sue. Satisfaction is the performance of the accord agreement and discharges the original contract and the terms of the accord.

Question 52

Waiver

Answer 52

A condition of a contract may be waived, and thus the duty to perform discharged, by words or conduct indicating that the party will not insist on the condition being met. One-time waiver generally not waive future occurrences but series of them may.

Question 53

Sellers Right to Cure

Answer 53

If buyer has rejected goods bc of defect, seller may within time for performance “cure” by giving notice & conforming goods. If it’s beyond time for performance, then seller cannot cure unless

Question 54

Novation

Answer 54

All parties expressly agree to release and substitute a party. No writing required.

Question 55

Merchant Offer

Answer 55

Generally, ads are merely an invitation to an offer.

However, a purchase money order sent to a merchant who deals in goods of the kind is an offer.