Contracts and Advanced Sales

Question 1

What are the three questions to ask when you get a contracts question?

Answer 1

1) Has an enforceable contract been made?
2) Has the contract been performed (or has performance been excused in any way)?
3) What are the remedies for breach?

Question 2

The law of contracts spans two parallel universes. What are they? What falls under each?

Answer 2

Common Law and the UCC. Common law governs real estate transactions and services. The UCC governs when dealing with goods.

Always figure out FIRST THING when reading a Bar Exam question which “universe” are you in. The laws differ in both.

Question 3

What are mixed contracts? How do they affect whether you are under Common Law rules or the UCC? What are Divisible Contracts?

Answer 3

These are contracts dealing with elements of both goods and services.

All or Nothing Rule - You cannot be in common law and UCC at the same time. You must fall under one or the other.

Predominant Purpose Rule - Look to see which plays a bigger role (the good or the service). If the good makes up more of the contract, then you are under the UCC. If the service makes up the majority of the contract, then you are under Common Law.

Divisible Contracts are the exception to the All or Nothing Rule. This is where an agreement is divided into multiple mini contracts. If properly divided, part of the contract is under the UCC, and the other is under Common Law (ex: $950 for a hot-water heater (UCC) and $50 to install (CL)).

Question 4

What are the four elements to whether a contract has been formed?

Answer 4

1) Agreement (offer and acceptance);
2) Consideration (and related theories for when you have to keep your promises);
3) Defenses to formation (incapacity, duress, etc); AND
4) Statute of Frauds compliance

“All Contracts Don’t Stink”

Question 5

What are the two parts of the “agreement” in a contract. Explain both.

Answer 5

THE OFFER - The manifestation of a willingness to enter into an agreement (by the offeror) that creates a power of acceptance (in the offeree). Governed by an OBJECTIVE STANDARD (secret intent does not matter). Ask whether the outward appearance of words and actions manifests an offer. Does the offeror display an OBJECTIVELY SERIOUS INTENT TO BE BOUND (look at for situations involving anger or humor).

THE ACCEPTANCE - The offeree must accept the offer according to the rules of the offer (the offeror is master of the acceptance). An acceptance is a manifestation of a willingness to enter into the agreement. Acceptance is governed by the OBJECTIVE TEST (has there been an outward appearance of words or actions that manifests an acceptance?).

Question 6

T/F - An offer must usually be specifically directed at someone in order for that person to accept.

Answer 6

True

The Exception - Contest Offers or Reward Offers that promise something to anyone who accomplishes a certain task.

Question 7

Are expressions of opinion considered offers?

Answer 7

No.

Ex: Saying how much you think something is worth is NOT an offer.

Question 8

With regard to the actual contract itself, how specific must the language be to be binding?

Answer 8

It depends:

1) Common Law - ALL ESSENTIAL TERMS must be covered in the agreement. This includes: (a) parties; (b) subject; (c) price; and (d) quantity.
2) UCC - Fills in the gaps. You still must have: (a) parties; (b) subject; and (c) quantity. UCC DOES NOT REQUIRE THE PRICE TO BE IN THE CONTRACT. The law will fill it in with a reasonable price if necessary.

Question 9

It is true that contracts for goods under the UCC must generally always list the quantity to be provided. Are there any valid exceptions?

Answer 9

Yes:

1) Requirements Contracts - “I promise to buy all the materials I will need over the next year from you.”
2) Output Contracts - “I promise to sell you all the materials I make over the next year.”

Both are valid even without a quantity term because they provide a formula for how to calculate the missing quantity term.

Question 10

How are advertisements viewed with regard to offers?

Answer 10

Advertisements are generally INVITATIONS TO DEAL which are NOT OFFERS.

Two Exceptions:

1) Reward Advertisements; and
2) Advertisements that are VERY SPECIFIC and LEAVE NOTHING OPEN TO NEGOTIATION, including how acceptance can occur.

Question 11

What are the six ways that an offer can be terminated? Can the offer ever be revived?

Answer 11

1) Express Revocation by Offeror - The offeror revokes the offer;
2) Constructive Revocation - The offeree learns that the offeror has take an action that is ABSOLUTELY INCONSISTENT with a continuing ability to contract (ex: offeree of a house contract learns the offeror sold the house);
3) Express Rejection by Offeree - The offeree rejects the offer effectively terminating it (“NO . . . I mean YES!” is a termination of the offer);
4) Counter Offer - The offeree makes a counter offer that effectively rejects and terminates the original offer (be careful to distinguish between counter offers and mere counter-inquiry or indecision);
5) Death - The offeror dies effectively revoking the offer (if after the agreement has been reached, then death does not cancel the contract unless special circumstances are present); and
6) A REASONABLE AMOUNT OF TIME PASSES

The offeror can ALWAYS throw out a new offer with the exact same terms as the offer before. This is called REVIVAL.

Question 12

Are offers always revocable by the offeror? Explain in detail.

Answer 12

Generally, the offeror is normally free to revoke an offer at any time prior to acceptance. However, an irrevocable offer can arise in four situations:

1) Option - Offeree pays CONSIDERATION to keep the offer open for the stated amount of time. The offer cannot be revoked during the option period. MERE PROMISE TO KEEP THE OFFER OPEN IS NOT ENOUGH.
2) Merchant’s Firm Offer - Seller HAS TO BE A MERCHANT (basically a business person who REGULARLY DEALS in the type of goods at issue). Must be WRITTEN, with an EXPLICIT promise not to revoke, and must be SIGNED BY THE MERCHANT. The offer must be kept open for a stated period or a reasonable period NOT TO EXCEED 90 DAYS.
3) Part Performance - In a unilateral contract offer (promise for an act), the offer cannot be revoked by the offeror if the offeree has started performance. The law gifts the offeree the right to finish acceptance.
4) Detrimental Reliance - An offer cannot be revoked if the offeree REASONABLE AND DETRIMENTALLY RELIES on the offer in a FORESEEABLE MANNER (this is common in contractor/subcontractor agreements).

Question 13

What is the difference between a unilateral offer and a bilateral offer?

Answer 13

A unilateral offer is a promise for an act.

A bilateral offer is a promise for a promise.

Question 14

What happens when a seller tries to accept an offer by shipping the wrong goods? What about accommodations?

Answer 14

The UCC treats this as ACCEPTANCE of the offer PLUS BREACH of the contract.

HOWEVER, be aware of situations on the bar exam where the offeree sends goods as an “accommodation.” These are mere counter offers and will not be held as an acceptance plus breach.

Question 15

T/F - You can accept an offer directed at someone else.

Answer 15

False, the offer must be directed at you in order to accept it.

Question 16

T/F - With regard to award offers, you must KNOW about the offer in order to accept it.

Answer 16

True.

You can’t return a cat, later find out there was a reward for it, and go back and try to accept.

Question 17

What is the Mailbox Rule, and what does it apply to?

Answer 17

This rule states that ACCEPTANCE sent by mail is VALID WHEN SENT.

Does not apply:

1) If the offeree sends something else first (rejection, counteroffer);
2) To other types of communication (revocations, rejections); or
3) To Option Contracts (those acceptions are valid when received).

It is UNCLEAR whether it applies to other media (fax, e-mail, etc.) I did get a bar exam practice question on this (rejection sent first, acceptance sent second), and the answer was valid acceptance because the acceptance was opened first.

Question 18

If you send a rejection of an offer by mail, and immediately change your mind and send an acceptance by mail (both letters arrive at the same time), what is the result? How does the mailbox rule apply?

Answer 18

It depends on what the offeror opens first. The mailbox rule is lost because the rejection sent destroyed the ability to accept through the mailbox rule.

Question 19

T/F - Unlike an Offer, Acceptance does not generally have to be communicated to the offeror.

Answer 19

False.

You generally must communicate your acceptance (just like an offer) to the other party in order for it to become effective.

Question 20

Is acceptance by silence ever allowed? If so, when?

Answer 20

This shows up when you have a reward offer or some other unilateral offer. Can also show up when there is a PAST HISTORY of silence as acceptance. Can also show up when the offeror says acceptance must come via silence; if this is the case, the offeree must intend to accept the offer by silence.

Question 21

What are implied-in-fact contracts? Are they enforceable?

Answer 21

This is where communication of acceptance occurs without writing or speaking but rather with gestures or actions. These are enforceable.

Example - Walk into a hair salon, get a hair cut without saying a word. You have an implied-in-fact contract). You must pay for the haircut.

Question 22

What happens if the offeree accepts but includes new or different terms in their acceptance than those in the original offer? Explain in detail.

Answer 22

COMMON LAW (services and real estate) - we follow the Mirror Image Rule meaning that the terms in the Acceptance MUST MATCH EXACTLY the term sin the Offer. If it doesn’t match, then we have a rejection and a counter offer instead of an acceptance.

UCC (2-207(1)) - Still have acceptance as long as the acceptance is not made conditional on express assent to the additional or different terms. The additional terms will simply be stricken provided 2-207(2) doesn’t apply.

UCC (2-207(2)) - The new terms will control if ALL of the following are true: (1) both parties are merchants; (2) the new terms don’t materially alter the deal; (3) the offer is not expressly limited to its original terms; AND (4) the offeror does not object within a REASONABLE TIME to the new terms.

Question 23

What classifies as adequate consideration to form a contract?

Answer 23

First ask who is the one making a promise that needs to be supported by law (that person is the promisor / the other person is the promisee).

Second, is there a benefit to the promisor OR a detriment to the promisee? YOU ONLY NEED ONE / NOT BOTH.

Third, was this bargained for? (Did the parties think they were making a deal when they exchanged promises?)

If yes to both questions, you have adequate consideration.

Question 24

T/F - Not doing something you are legally entitled to do is a legal detriment that will be adequate consideration to form a contract.

Answer 24

True

Even if it is “not watching TV for a whole week.”

Question 25

T/F - Gift promises and conditional gifts count as bargained for consideration.

Answer 25

False. They are not bargained for consideration. You want to ask if there is some way to sue for breach. Example - "I promise to give you my Jeep if you come to my house to pick it up." I'm not bargaining for you to come pick up by jeep. There is no consideration here. I can't sue you if you don't come pick up the jeep.

Question 26

T/F - Nominal consideration is generally not going to be adequate consideration.

Answer 26

True. However, as long as the exchanged item has subjective value to the person receiving it, consideration will be adequate.

Question 27

What are illusory promises? Are they enforceable?

Answer 27

A promisor who fails to clearly commit to the deal has made an illusory promise and has offered no consideration. These are unenforceable. Example: "I promise to buy your Jeep for $5,000 on December 1, if I feel like it."

Question 28

Is past consideration considered adequate consideration?

Answer 28

No

Question 29

Is the promise not to sue considered adequate consideration?

Answer 29

Yes AS LONG AS there is an HONEST BELIEF in the validity of the claim and a REASONABLE BASIS for that belief. You are giving up a legal right to your detriment (that is consideration).

Question 30

What is the Preexisting Duty Rule? How is it relevant in contract law?

Answer 30

This is a COMMON LAW rule which means that a promise to do something that you are already legally obligated to do (by prior contract or otherwise) is NOT consideration. This comes up in contract issues involving MODIFICATION. NOTE: This rule can be passed (and the modification will be valid) if there is a change in performance (new consideration), a third party comes in and promises to pay, OR unforeseen difficulties arise that would normally excuse the performance. UNDER THE UCC - the Preexisting Duty Rule is NOT FOLLOWED. Instead, modifications to a contract will be valid so long as there is GOOD FAITH. Such modifications will be binding even without new consideration.

Question 31

Is promising partial payment for release from a debt obligation binding? Explain.

Answer 31

It depends: 1) If the debt is CURRENTLY DUE AND UNDISPUTED, then the modification to the debt repayment terms are NOT BINDING. 2) If there is NOT CURRENTLY DUE OR there is some DISPUTE as to what is currently owed, then the modification to the repayment terms will be BINDING, and the release from debt is final.

Question 32

What is Promissory Estoppel?

Answer 32

If the following occur, then the promisee will prevail in a claim to enforce a contract: 1) A promise is made that would be REASONABLY EXPECTED to induce reliance; 2) The promisee does indeed take detrimental action in reliance on the promise; AND 3) Injustice can only be avoided by enforcement of the promise.

Question 33

What is a Quasi-Contract? What are the elements? What damages are recoverable for breach?

Answer 33

Also called a contract "implied-in-law." This is where one party conferred a benefit to another party, and it would be unfair if the party receiving the benefit did not have to pay. The elements are: 1) The plaintiff confers a MEASURABLE BENEFIT on the defendant; 2) The plaintiff REASONABLY EXPECTED to get paid; AND 3) It would be unfair to let the defendant keep the benefit without paying. Damages - Limited to the fair value of the benefit conferred (RESTITUTION). Look for this in situations where the defendant had a good opportunity to decline OR had no opportunity to decline. Ex - D has a heart attack and P calls and hires a Doctor (paying the doctor). D will have to pay P back.

Question 34

What is known as the "Half-Theory?" Does anyone use it? Can you give an example of how it works?

Answer 34

Few jurisdictions use this because, normally, past consideration is NOT consideration. However, it may be argued in some jurisdictions that a MORAL OBLIGATION PLUS SUBSEQUENT PROMISE TO PAY creates a binding contract. Example: I swing by and pick you up in my boat to save you from sharks. Thankful, you promise to pay me $500. Is there bargained for consideration? NO. Can you at least argue the Half Theory? Sure (but you probably won't win).

Question 35

Does a seal on a document act as consideration substitution in most jurisdictions?

Answer 35

No.

Question 36

What are the seven defenses to contract formation? Explain what is required for each.

Answer 36

1) Misunderstanding - There is a MATERIAL TERM that is open to two or more reasonable interpretations (subjective test applies here). Each side attaches a different meaning to the term, AND NEITHER side KNOWS OR SHOULD KNOW of the confusion. 2) Incapacity - Minors (under 18) cannot contract. Mental illness is a defense if the person cannot understand the nature and consequences of his actions; OR cannot act in a reasonable manner and the other side KNOWS this. Intoxication means incapacity ONLY IF the other side KNOWS. 3) Mistake - A belief that is not in accord with a PRESENT fact. MUTUAL MISTAKE - The ADVERSELY AFFECTED PARTY may rescind the contract if there was: (a) a mistake of fact existing at the time the deal was made; (b) the mistake relates to a basic assumption of the contract and has a MATERIAL impact on the deal; and (c) the impacted party DID NOT ASSUME THE RISK of mistake. UNILATERAL MISTAKE - can let the adversely affected party rescind if all of the elements of mutual mistake are met plus: (a) the mistake would make the contract UNCONSCIONABLE; or (b) the other side KNEW of, had reason to know of, or caused the mistake. 4) Fraud/Misrepresentation/Nondisclosure - must show: (a) a misrepresentation of a present fact (not opinion); (b) that is material or fraudulent (intentional); and (c) that is made under circumstances in which it is justifiable to rely on the misrepresentation. FRAUD IN THE EXECUTION is when you trick someone into signing something that they don't even know is a contract. A misrepresentation can arise out of NONDISCLOSURE of KNOWN DEFECTS if there is ACTIVE CONCEALMENT or a FIDUCIARY RELATIONSHIP exists. 5) Duress - Can be physical or economical threats of force that improperly deprives a party from making a meaningful choice to enter into a contract. Distinguish this from UNDUE INFLUENCE where a party puts very intense sales pressure on another party who is weak minded or susceptible to high-pressure sales tactics. 6) Illegality - Illegal contracts are unenforceable. However, a contract entered into legally in furtherance of an illegal act is not illegal and will still be enforced. Contracts against public policy are illegal. As far as damages, the law generally leaves the parties where they are, but the MODERN TREND is to provide restitution damages to the less guilty party. 7) Unconscionability - Court determines that a contract is unconscionable if it SHOCKS THE CONSCIENCE. Some courts require both Procedural Unconscionability (hidden term) and Substantive Unconscionability (a rip off).

Question 37

What happens if you make a contract with a person who lacks capacity?

Answer 37

The contract is VOIDABLE meaning that the incapacitated party can disaffirm. HOWEVER, you are always LIABLE TO PAY FOR NECESSITIES (food, clothing, shelter, etc.) The incapacitated party can ratify the deal by keeping the benefits of the contract after the capacity is obtained.

Question 38

What are the various situations in which the Statute of Frauds applies and must be complied with?

Answer 38

1) Marriage Contracts (prenups) 2) Suretyships (guaranteeing the debt of another) - SoF doesn't apply here if the main purpose of agreeing to pay the debt of another is for the surety's own economic advantage ("The Main Purpose Exception") 3) A contract that by its terms cannot (in any possible way) be performed within ONE YEAR from its making. Look out for situations where a guy contracts for life (he could die within a year, thus you don't need SoF compliance). NOTE: leases of one year or less are not in SoF world. 4) UCC: SoF applies to all goods contracts for a price of $500 OR MORE (if for $500, need SoF compliance). 5) ALL contracts for the sale of an INTEREST in real property.

Question 39

How can the Statute of Frauds be satisfied? Explain

Answer 39

1) Writing, OR 2) Performance If by writing, it must be signed by the party whom the contract is asserted against. The writing must cover the following facts: (a) that a contract has been made; (b) the identification of the parties; and (c) contain the essential terms of the deal. If for goods, you don't need the price term. Services Contracts - Need FULL PERFORMANCE to satisfy the Statute of Frauds here. Part performance is NOT enough. Real Estate Contracts - Part performance can satisfy by obtaining two of the following: (1) Possession; (2) Payment; and (3) Improvements to the land. Goods - Part Performance will satisfy the Statute of Frauds BUT ONLY for the quantity DELIVERED AND ACCEPTED. Custom-made or Specially Manufactured Goods - ARE EXEMPTED FROM THE STATUTE OF FRAUDS AS SOON AS THE MAKER MAKES A SUBSTANTIAL BEGINNING TOWARD PRODUCTION. A judicial admission about the existence of a contract satisfies the SoF under the UCC. IF BOTH PARTIES ARE MERCHANTS - Failure to object to a CONFIRMING MEMO within 10 DAYS will satisfy the SoF.

Question 40

Do you need a signed writing to authorize an agent to form a contract that is in Statute of Frauds world?

Answer 40

Yes This is known as the "Equal Dignity Rule."

Question 41

Do you have to satisfy the Statute of Frauds for modifications to a contract?

Answer 41

Not automatically. If the deal with the alleged modification would need to comply with the Statute of Frauds, then the Statute of Frauds must be met. If not, there is no Statute of Frauds requirement, even if the initial deal was in Statute of Frauds world.

Question 42

What is are the four main areas to consider to see if a contract has been performed? Explain each.

Answer 42

1) Parol-evidence Rule 2) Warranties 3) Conditions 4) Excuses of performance obligations "Pizza With Crawling Escargot"

Question 43

Explain the Parol-evidence Rule.

Answer 43

This applies where you have a written contract that the court finds is a final agreement; HOWEVER, one party wishes to bring in EARLIER ORAL OR WRITTEN statements about the deal. If the court finds that the written contract is a COMPLETELY INTEGRATED writing, then the Parol-evidence Rule is likely going to keep earlier written or oral statements about the deal out of evidence. If partially integrated (final writing with missing terms), then earlier oral or written statements may come through.

Question 44

What makes a contract fully or partially integrated? What is the effect on Parol-evidence?

Answer 44

First, look for a MERGER CLAUSE stating that the writing is the "entire agreement between the parties and no representations or promises have been made save for those set out in this writing." If a merger clause is present, you have a fully integrated writing. Second, ask whether, under the circumstances, an extrinsic term of the agreement would "naturally be omitted" from the writing. If so, evidence can be introduced if it does not contradict the writing. IF UNDER THE UCC - the UCC is more forgiving and PRESUMES ALL CONTRACTS ARE PARTIALLY INTEGRATED UNLESS the parties would have CERTAINLY included a disputed term in the writing.

Question 45

Are there any situations in which the Parol-evidence Rule does not apply to bar earlier written or oral evidence?

Answer 45

Yes 1) Evidence relevant to a defense against contract formation (duress, mistake, fraud, etc.); 2) Evidence of a second separate deal; and 3) Prior communication that is designed to interpret an AMBIGUOUS TERM in the final agreement.

Question 46

What is the effect of a warranty?

Answer 46

It is a promise about a term of the contract that explicitly shifts the risk to the party making the promise.

Question 47

There are four warranties in UCC universe. What are they?

Answer 47

Express Warranties - An affirmation of fact or promise about a good that is part of the basis of the bargain. Mere opinions are not express warranties. Express warranties don't have to be written. They can be created by the use of a sample or a model. Implied Warranty of Merchantability - Seller has to be a Merchant DEALILNG IN THE GOODS AT ISSUE. This warrants that the goods are fit for ORDINARY COMMERCIAL PURPOSE. Can be disclaimed if conspicuous and in writing, but CANNOT be disclaimed as to damages for personal injury. Implied Warranty of Fitness for a Particular Purpose - Triggered when the buyer relies on a seller's expertise to select a special type of good that will be used for a special purpose. The seller does NOT have to be a merchant here. This can be disclaimed if written and conspicuous. Implied Warranty of Title - All sellers warrant that title is good and that the transfer is rightful

Question 48

Besides a warranty, what is another tool that can be used to shift the risk to another party? Explain.

Answer 48

Conditions - a condition shifts the risk by stating that one party's contractual obligation will kick in only if some future event takes place. Express Conditions - created by language in the contract. These must be STRICTLY SATISFIED. This is normally based on an OBJECTIVE STANDARD. However, in cases of aesthetic taste, such as art or tutoring services, the satisfaction will be judged on a SUBJECTIVE STANDARD. Claiming dissatisfaction in bad faith will be a breach.

Question 49

Can a condition be waived? If so, how?

Answer 49

Yes 1) The PARTY RECEIVING THE PROTECTION of the condition may waive the condition by words or by conduct; OR 2) The condition will be waived if the other party WRONGFULLY INTERFERES or HINDERS the occurrence of the condition (judged on a good faith standard).

Question 50

What is the Constructive Condition of Exchange? How does it apply in the Common Law and UCC universes?

Answer 50

The Constructive Condition of Exchange (CCE) says that one party's performance is conditioned on the other party's performance. Thus, both sides must be ready and willing to perform to carry out the contract. COMMON LAW - CCE does not need to be strictly satisfied. The doctrine of SUBSTANTIAL PERFORMANCE applies here and says that the CCE will be satisfied of there is not a material breach. ONLY WORKS IF THE FAILURE TO PERFORM IS NOT WILLFUL. UCC - Requires PERFECT TENDER (meaning PERFECT GOODS and PERFECT DELIVERY). Substantial Performance is NOT an answer here UNLESS the parties contract otherwise. If there is no Perfect Tender, the buyer can reject the goods, but must give the seller time to cure if there is time left to perform OR the seller had a reasonable belief that the buyer would accept the goods.

Question 51

Can a party who materially breaches the Constructive Condition of Exchange under common law rules seek anything on the contract?

Answer 51

No, not on the contract. Maybe under quasi-contract theory.

Question 52

T/F - In a divisibility contract of mixed goods and services, can the doctrine of Substantial Performance be used?

Answer 52

Yes as the the services portion of the contract.

Question 53

Is there an exception to the UCC Perfect Tender requirement? Explain.

Answer 53

Yes, Installment Contracts. Here, the buyer can reject a specific delivery that isn't perfect ONLY when there is a substantial impairment in the installment that CANNOT BE CURED.

Question 54

What happens if a buyer later finds out that the goods delivered were not "perfect?"

Answer 54

He can revoke an acceptance of the goods if the defect is discovered within a REASONABLE TIME.

Question 55

What does "tender at sellers place of business mean?"

Answer 55

This means that the seller must simply give the goods to the buyer at the seller's place of business.

Question 56

What is a shipment contract? What is a destination contract?

Answer 56

If the contract is a shipment contract, then the seller must do the following: 1) Get the goods to a Common Carrier; 2) Make arrangements for Delivery; AND 3) Notify the Buyer A Destination Contract means the seller must get the goods to the BUYER'S PLACE OF BUSINESS AND NOTIFY THE BUYER.

Question 57

Who bears the risk of loss in a shipment contract if the goods are destroyed in transit?

Answer 57

The analysis is as follows: 1) Check whether the parties have already dealt with the risk of loss issue in the contract. If so, the agreement controls. 2) If not, ask whether either party has breached. If so, the breaching party bears the risk of loss EVEN IF THE BREACH IS UNRELATED TO THE DELIVERY DAMAGE. 3) If not, ask what type of delivery contract it is. If it is a shipment contract, the risk of loss during delivery rests with the BUYER. If a destination contract, the risk of loss rests with the SELLER. 4) If none of the above, ask whether the seller is a merchant. If so, the risk of loss stays with the seller until the BUYER RECEIVES the goods. If not, the risk of loss moves to the buyer when the seller TENDERS the goods.

Question 58

What are the excuses to a contract not being performed? Explain in detail.

Answer 58

1) Impossibility / Impracticability - Examples: (a) performance becomes illegal; (b) the subject is destroyed; and (c) if a "special person" dies or becomes incapacitated (such as a famous painter). MUST HINDER THE ABILITY TO PERFORM / NOT JUST AN EXPENSIVE COST TO PERFORM. 2) Death After Contract - Only if there is something special about the person such that it makes no sense to continue the contract if they die. Normally, an estate will be on the hook for contractual obligations absent this set of facts. 3) Frustration of Purpose - Performance can still occur, BUT something has happened to undermine the entire reason for the creation of the contract. 4) Modification or Cancellation - Performance can be excused if both parties simply wish to walk away from the contract. ONLY ALLOWED IF BOTH PARTIES ARE LEAVING SOMETHING ON THE TABLE. Can't rescind the deal if full performance has already been completed. 5) Accord and Satisfaction - Parties agree that performance will be satisfied instead by the completion of a different performance. The Accord is the new performance. The Satisfaction is the excusing of the initial performance obligation. 6) Novation - Both parties agree that a substitute person will take over the contractual obligations. NEED AGREEMENT OF BOTH PARTIES. Otherwise it is a "delegation." A novation makes the original promisor excused from performance.

Question 59

What happens if the accord in an "Accord and Satisfaction" is not performed?

Answer 59

Then the non breaching party can sue the other side for either the original obligation or the new promise.

Question 60

What is anticipatory repudiation? What is the result?

Answer 60

This is where a party manifests CLEARLY AND UNEQUIVOCALLY that they will not be performing the rest of their obligations on the contract. The non-breaching party has two options: 1) Treat the repudiation as a breach and sue immediately for damages (NOT allowed if simply waiting for payment and full performance has already been given); OR 2) Ignore the repudiation, demand performance, and see what happens.

Question 61

Is it possible to retract a repudiation?

Answer 61

Yes, IF the other side has not: 1) Commenced a lawsuit; OR 2) Acted in reliance on the repudiation by materially changing its position.

Question 62

Is there a remedy for those who have a reasonable belief that the other side is going to breach?

Answer 62

IN UCC (goods contracts) ONLY: If there is REASONABLE GROUNDS for insecurity about the other side's performance, a party may demand ADEQUATE ASSURANCE OF PERFORMANCE. If the questionable party fails to respond within a REASONABLE TIME, then you can treat this as repudiation.

Question 63

What are the typical damages in a breach of contract? How are these damages computed?

Answer 63

MONEY DAMAGES are calculated in NUMEROUS ways: 1) Expectation Damages - These are the usual damages. Put the non breaching party in the same economic position they would be in if the contract had been performed. Measured by comparing the value of the performance without the breach to the value of the performance with the breach. Expectation damages have limits! 2) Restitution Damages - give the non-breaching party the value of the benefit conferred to the other side. 3) Reliance Damages - Put the non-breaching party back to the economic position they were in before the contract began (includes incidental damages) 4) Liquidated Damages - These are set out in the contract and are ONLY accepted if it is NOT A PENALTY, the damages are REASONABLE, and actual damages from breach would be uncertain in amount and difficult to prove. 5) Punitive Damages - NEVER ALLOWED UNLESS A TORT IS INVOLVED.

Question 64

What are the limits on expectation damages?

Answer 64

1) Must be proven with REASONABLE CERTAINTY. 2) UNFORESEEABLE CONSEQUENTIAL DAMAGES ARE NOT RECOVERABLE. These are ONLY recoverable when the breaching party had some reason to know about the possibility of these unforeseeable consequential damages (The Hadley Rule). These are damages that are UNIQUE to the plaintiff. 3) A non-breaching party must take REASONABLE steps to reduce or MITIGATE damages from breach. Mitigation efforts must be SIMILAR TO THE ORIGINAL CONTRACT. What if you fail to mitigate? The law will reduce your damages as if you did reasonably mitigate.

Question 65

When can a non-breaching party receive Lost Volume Profits?

Answer 65

If the seller is a RETAILER who sells the type of product at issue all the time, the seller can try to argue for Lost Volume Profits. He would get the PROFIT he would have made on the sale (NOT the entire purchase price).

Question 66

How are damages calculated in a situation involving incomplete performance in a construction contract?

Answer 66

EXPECTATION DAMAGES = CONTRACT PRICE - AMOUNT ALREADY PAID - AMOUNT NEEDED TO FINISH THE JOB.

Question 67

What damages are available if an entire job is completed, except there is a defect to the extent that lowers the value of the finished product?

Answer 67

Non-breaching party can seek Diminution in Market Value (DMV). Calculated by asking "how much lower is the market value of what you got versus what you wanted?" Though the normal damages would be cost of completion, sometimes the cost to complete will dramatically overcompensate the plaintiff (imagine having to tear everything down and rebuild). Thus, DMV is the correct award for damages sometimes.

Question 68

When may a non-breaching party seek Specific Performance or an Injunction as a remedy for a breach of contract?

Answer 68

These are awarded when monetary damages are for some reason inadequate to compensate the non-breaching party. Real Property - Specific Performance is presumed here because real property is UNIQUE. Personal Service - Specific Performance is presumptively NOT available here. However, a court may rarely grant an INJUNCTION prohiiting a breaching party from performing services for a competitor for a reasonable period of time/place (Lumley Doctrine). Goods (UCC) - Specific Performance is ONLY available for UNIQUE GOODS like art or custom-made items.

Question 69

What is the right of reclamation, and when does it arise?

Answer 69

This is the equitable right of an UNPAID SELLER to reclaim goods when the buyer is insolvent. To assert this remedy, the following facts must be present: 1) The buyer is insolvent at the time of purchase; 2) The seller must demand return of the goods WITHIN 10 DAYS of receipt or within a reasonable time if the buyer misrepresented his solvency to the seller; AND 3) The buyer must still have the goods.

Question 70

Can third parties sue to enforce a contract?

Answer 70

It depends: 1) Intended Beneficiaries CAN sue. 2) Incidental Beneficiaries CANNOT sue. To determine what kind of beneficiary we are dealing with, ask "did the initial counter-parties (promisor and promisee) intend to convey enforcement rights to the third party in the even of a breach?" A "donee beneficiary" is a type of intended beneficiary when there is no preexisting obligation, but the promisee CLEARLY INTENDS to confer a gift of enforcement on a third party. Creditors are a type of intended beneficiary when the promisee strikes a deal with the promisor in order to repay an earlier debt to a third party.

Question 71

Can the original parties to a contract modify or revoke the enforcement rights of an intended third-party beneficiary?

Answer 71

It depends on whether the third-party beneficiary KNOWS about the promise and has changed her position in reasonable reliance on the promise. If so, the third party may be able to make out a claim under promissory estoppel. A third party will NEVER lose enforcement rights if ANY of the following facts is TRUE: 1) The beneficiary DETRIMENTALLY RELIES on the rights; 2) The beneficiary MANIFESTS ASSENT to the contract/the rights; OR 3) The beneficiary FILES A LAW SUIT to enforce the contract.

Question 72

What are the defenses available against a third party under a contract suit?

Answer 72

Any contract defense that would be allowed to assert against an original party to the contract.

Question 73

What is the difference between Assignments and Delegations, and what is the effect of an Assignment?

Answer 73

An assignment is the transfer of ALL RIGHTS under a contract. A delegation is a transfer of DUTIES under the contract. Both are acceptable as long as they are not prohibited. Almost all contract rights can be assigned UNLESS prohibited or invalidated. Prohibited - if the contract prohibits assignments, then the assigning party has breached, BUT the third party can STILL RECOVER from the guarantor. Invalidated - If the contract invalidates assignments, then the third party CANNOT recover (because there is no power or right to assign).

Question 74

What happens if someone assigns the same rights twice?

Answer 74

The answer depends on if the assignee has paid consideration for the rights: 1) If no, then the last assignment controls; 2) If yes, then the first assignment for consideration will typically hold UNLESS the later assignment if he does not know of the initial assignment and is the first to obtain PAYMENT or a JUDGMENT.

Question 75

Who is liable for breach of contract if the breaching party has delegated its duties?

Answer 75

A delegatee is generally not liable for breach UNLESS she receives consideration from the delegating party. The delegator REMAINS LIABLE ALWAYS.

Question 76

You contract to sell your home for $100,000. Is this governed by the UCC?

Answer 76

No, this is real estate. Falls under common law.

Question 77

You contract to sell your ice fishing hut for $100,000. Is this governed by the UCC?

Answer 77

Yes, IF the structure will be severed from the land by the seller.

Question 78

Nokia contracts to sell a patent to Apple. Is this governed by the UCC?

Answer 78

No, intellectual property and other intangible assets are NOT GOODS.

Question 79

You contract to buy a share of Nokia stock. Is this governed by the UCC Article 2?

Answer 79

No, the sale of investment securities is governed by Article 8, not Article 2, and out of the scope of goods.

Question 80

Under the UCC, if no specific acceptance method is required by the contract, then what constitutes acceptance?

Answer 80

UCC permits acceptance to take place by return promise OR by return performance (usually by shipping goods).

Question 81

What happens if there is not a real contract but the parties still act as if there is an agreement?

Answer 81

UCC gives parties a RESET and all terms are going to drop out EXCEPT for those the parties have agreed to in writing. The court will fill the gaps where writing is missing.

Question 82

How do auction contracts work?

Answer 82

Each individual bid is an offer. ACCEPTANCE occurs with the FALL OF THE HAMMER. Auctions are PRESUMED to be WITH RESERVE (meaning the seller can withdraw the auction property before the hammer falls. If made explicitly WITHOUT RESERVE, then the auction property cannot be withdrawn once an initial bid has been received. A seller can ALWAYS withdraw before the bidding starts. Each piece of property is a new individual auction.

Question 83

What happens at an auction when a bidder bids exactly when the hammer falls?

Answer 83

Under the UCC, an auctioneer has discretion to either: 1) Re-open the bidding OR 2) Declare the auction final.

Question 84

At an auction, can bidders retract their offers? If so, what happens to prior bids?

Answer 84

Yes, as long as the auction is not finished. This does NOT revive the prior bid.

Question 85

Under the UCC, if goods are not tendered perfectly, then the buyer can reject the goods. How must he or she do so?

Answer 85

1) Notify the seller of the rejection within a reasonable time; 2) Notify the seller of the PARTICULAR DEFECT; AND 3) HOLD the goods for a reasonable time so the seller can get them back.

Question 86

T/F - If a buyer properly rejects defected goods, she retains a security interest in the goods if there has been full or partial payment.

Answer 86

True

Question 87

If the buyer properly rejects goods, and the seller doesn't give adequate instruction on what to do with the goods, what are the buyer's options?

Answer 87

Three options: 1) Continue to store the goods on the seller's account; 2) Ship the goods back; OR 3) Resell the goods FOR THE SELLER.

Question 88

T/F - Under the UCC, perfect delivery means a reasonable delivery.

Answer 88

False. Perfect delivery means ONE DELIVERY.

Question 89

What insurable interests do a buyer and seller have?

Answer 89

Seller - insurable interest as long as she has title or a security interest. Buyer - insurable interest when goods are SPECIFICALLY IDENTIFIED.

Question 90

I contract to sell you all of the potatoes that I harvest in my garden for $500. Do you have an insurable interest.

Answer 90

Yes, as soon as they are PLANTED and become specifically identified.

Question 91

What are the buyer's performance obligations?

Answer 91

1) Payment is due at the time and place of receiving goods. 2) Tender of payment is a condition to the seller's duty to complete its obligation. 3) Seller may ship under reservation and retain right to hold goods until buyer pays. 4) Payment in any REASONABLE MANNER (unless cash is demanded and necessary time is given). 5) BUYER HAS THE RIGHT TO INSPECT GOODS. Buyer must pay for the inspection UNLESS goods do not conform AND are rejected.

Question 92

T/F - Seller can demand cash payment if she gives any extension of time necessary to procure cash.

Answer 92

True

Question 93

What is the effect of a contract that requires payment on delivery (COD)?

Answer 93

Buyer does not have the right to inspect before payment.

Question 94

T/F - Partial inability to perform due to supply deficiency fully excuses the seller from performing.

Answer 94

False Seller must allocate the available supply among customers in a FAIR AND REASONABLE MANNER.

Question 95

What happens if the agreed upon method of delivery in a contract becomes commercially impractical?

Answer 95

If without the fault of either party, then ANY COMMERCIALLY REASONABLE method of delivery MUST BE TENDERED AND ACCEPTED.

Question 96

T/F - Consequential damages can be limited or excluded in the contract.

Answer 96

True, as long as it wouldn't be unconscionable to do so. Limiting consequential damages for personal injury is prima facie unconscionable. Limiting consequential damages for commercial loss is ok.

Question 97

T/F - Retail sellers are required to mitigate damages upon breach by a buyer.

Answer 97

False. This would be a punishment to the retailer. We allow them to get lost volume profits (LVP).

Question 98

What is replevin?

Answer 98

Remedy where the buyer can recover SPECIFICALLY IDENTIFIED GOODS when she cannot cover a breach by the seller after making reasonable efforts. Buyer can assert replevin where partial payment has been made and the seller goes insolvent within 10 days of the payment (similar to the seller's right of reclamation).

Question 99

T/F - A seller can stop goods that are in transit if it learns that the buyer is insolvent or if the buyer fails to make a payment that is due.

Answer 99

True

Question 100

Can a buyer and seller sue a third party for damage to the contract goods?

Answer 100

Yes, as long as they have an insurable interest. Under the UCC, the seller can sue if she retains title or has a security interest. The buyer can sue if the goods are specifically identified.

Question 101

What is the Statute of Limitations to bring a contract claim? Can it be modified?

Answer 101

4 years It can be modified down by contract, but not less than one year. CANNOT BE MODIFIED UP.

Question 102

Can a person with voidable title transfer good title to a good faith purchaser for value?

Answer 102

Yes, even when: 1) The seller was deceived by the buyer's identity; 2) The buyer's check bounced; AND 3) Delivery was procured through fraud. NOTE: TITLE CANNOT BE OBTAINED BY THEFT. Even a good faith purchase by a subsequent buyer cannot normally cut off the rights from the true owner if there has been theft. TWO EXCEPTIONS: 1) The buyer has made improvements to the goods; OR 2) The true owner indicates, by words or conduct, that the thief had good title.