Contracts and Sales

Question 1

State this if Article 2 is tested:

Answer 1

“Article 2 of the Uniform Commercial Code (UCC) applies to transactions in goods. Goods are ‘things moveable’ at the time of identification to the contract. A contract under Article 2 may be made in ‘any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.’ ” (F2022, F2021, S2020, J2018, F2018, F2017, J2015, J2013)

Question 2

What is needed to form a contract?

Answer 2

Offer, acceptance, and consideration.

Question 3

Offer:

Answer 3

A person makes an offer when the person communicates to another a statement of “willingness to enter into a bargain” so that the other understands that “his assent to the bargain is invited and will conclude it.” The terms of an offer need to be reasonably certain (e.g., as to parties, subject matter, price, etc.). (J2018, F2017, J2007)

Question 4

Counteroffer:

Answer 4

at common law, a statement is a counteroffer, rather than an acceptance, when the terms of the initial offer are changed (mirror-image rule). (F2011, J2007)

Question 5

Promise to hold offer open:

Answer 5

Generally, an offer may be revoked before acceptance. A promise to hold an offer open requires consideration in order to be binding (unless the UCC firm offer exception applies). (J2018, F2017)

Question 6

Acceptance:

Answer 6

An acceptance is a manifestation of assent to the terms of an offer made in a manner invited by the offer. It is effective upon dispatch (the mailbox rule). (J2007)

Question 7

Rejection:

Answer 7

A rejection is a manifestation of intent to not accept the offer. It terminates the offeree’s power to accept an offer. It is effective when received by the offeror.

Note: if a rejection is sent and then an acceptance is sent, whichever the recipient receives first is effective. (J2007)

Question 8

Consideration:

Answer 8

Consideration is a legal detriment or bargained-for exchange. A promise to make a gift does not constitute consideration. (F2011, J2009)

Question 9

Preexisting-duty rule:

Answer 9

Under common law, promising to perform a legal duty already owed to a promisor is not valid consideration. Exceptions include if the duty is changed (even slightly), unforeseen circumstances, etc. (F2018, J2014)

Question 10

Material benefit:

Answer 10

some states recognize an exception to past consideration limitations in which a promise is made after receipt of a significant benefit (usually promise arises after a benefit received in an emergency). (J2009)

Question 11

Consideration (UCC):

Answer 11

under the UCC, only good faith is needed to modify a contract. (J2014)

Question 12

Promissory estoppel

Answer 12

Promissory estoppel is a substitute for consideration. If there is (1) a promise, (2) reliance that is foreseeable and justifiable, and (3) enforcement is necessary to avoid injustice, the promise will be enforced. (J2009)

Question 13

Gap fillers:

Answer 13

A contract for the sale of goods doesn’t fail because one or more terms are missing if the parties intended to make a contract and there is an appropriate remedy for breach. Gap fillers include course of performance, course of dealing, and trade usage. (F2022)

Question 14

Performance obligations:

Answer 14

Under common law, a party must “substantially perform” its contractual obligations in order to demand performance (usually payment) from the other party. Courts will look at several factors to determine whether performance was substantial. (F2020, F2012) Note that this is different from UCC Article 2, which requires perfect tender for one-shot deals.

Question 15

Performance exception–divisible contracts:

Answer 15

A contract is divisible so long as (1) it is apportionable and (2) the parties would have contracted for each part separately. A party that performs one or more parts of the contract may collect payment for those parts even if he does not substantially complete performance of his duties. (F2012)

Question 16

Rejection of goods:

Answer 16

A buyer can generally reject goods for any reason under the perfect-tender rule. (There are exceptions to this—e.g., installment contracts.)

Question 17

Revocation of acceptance of goods:

Answer 17

If a buyer accepts the goods, he can no longer reject them. But, a buyer can revoke his acceptance of the goods when: (1) the nonconformity substantially impairs the value to him; (2) he accepted the goods because he had a reasonable belief the nonconformity would be cured (and it wasn’t), or he didn’t discover the nonconformity because the nonconformity was difficult to discover, or because of seller’s assurances; (3) he revokes within a reasonable time after he discovers or should’ve discovered the nonconformity; and (4) he revokes before any substantial change in condition of the goods which is not caused by their own defect. A buyer who revokes his acceptance may recover the purchase price paid. (S2020, J2010)

Question 18

Anticipatory repudiation:

Answer 18

This occurs when there is an unequivocal manifestation by one party to the other that the party cannot or will not perform its obligations under the contract (a mere expression of doubt is not enough) and this statement is made before the repudiating party’s performance is due. The other party may wait for a reasonable time for performance or resort to any remedy for breach of contract. (J2015, F2013)

Question 19

Prospective inability to perform:

Answer 19

This occurs when a party has reasonable grounds for insecurity that the other party is unable or unwilling to perform. This is merely doubt, it does not rise to the level of an anticipatory repudiation. Under the UCC, the party may then, in writing, demand adequate assurance of performance, and until she receives such assurance, may suspend her performance. If such assurance is not given within a reasonable time, not exceeding 30 days, the
other party may treat it as a repudiation. (F2013)

Question 20

Retracting a repudiation:

Answer 20

the party who has repudiated can retract his repudiation unless the other party cancelled the contract, materially changed his position in reliance on the repudiation, or indicated that she considers the repudiation to be final. (J2015, F2013)

Question 21

State this for a Statute of Frauds question:

Answer 21

“A contract within the Statute of Frauds satisfies that statute and is enforceable if it is evidenced by a writing signed by ‘the party to be charged,’ which (1) reasonably identifies the subject matter of the contract, (2) is sufficient to indicate that a contract has been made, and (3) states with reasonable certainty the essential terms of the contract.”

Contracts that are within the statute include (mnemonic=MYLEGS): contracts made in consideration of marriage, contracts that cannot be performed in a year, contracts for the sale of an interest in land, promises by an executor to pay a debt of an estate out of his personal funds, sale of goods for $500 or more (subject to additional UCC rules, see next), and suretyship contracts. (J2007)

Question 22

Statute of Frauds - UCC:

Answer 22

A contract for the sale of goods for a price of $500 or more is not enforceable unless there’s a writing signed by the party against whom enforcement is sought that is sufficient to indicate that a contract for the sale of goods has been made between the parties. The writing need not contain all terms of the contract, but it’s not enforceable beyond the quantity of the goods shown.

Exceptions to be aware of: merchant confirmatory memo, part performance, specially manufactured goods, and judicial admissions. (F2022, F2021, J2015, J2013)

Question 23

Merchant’s confirmatory memo:

Answer 23

In contracts between merchants, if one party, within a reasonable time after an oral agreement is made, sends to the other party a written confirmation of the agreement that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if: (1) he has reason to know of the confirmation’s contents and (2) he does not object to it within 10 days of receipt.

Question 24

Duress:

Answer 24

a contract is voidable when it is established that a party’s manifestation of assent is induced by an improper threat that leaves the party no reasonable alternative. (J2014)

Question 25

Breach of express warranty:

Answer 25

Under Article 2, affirmations of fact relating to the goods that are part of the basis of the bargain create express warranties that the goods will conform to those affirmations and descriptions. This warranty is breached if they do not conform. (J2010)

Question 26

General damages for breach of contract - state:

Answer 26

“The normal measure of damages for breach of contract is expectation damages, which aim to give the nonbreaching party the benefit of his bargain.”

Expectation damages must be foreseeable and proven with reasonable certainty.

This is similar to the UCC rule, which puts the aggrieved party “in as good a position as if the other party had fully performed.” A buyer may recover the difference between the cost to “cover” by purchasing in good faith substitute goods and the contract price. (F2022, J2019, J2015, F2011, J2008)

Question 27

Punitive damages:

Answer 27

punitive damages are generally not recoverable in a breach of contract action “unless the conduct constituting the breach is also a tort for which punitive damages can be recovered.” (F2011)

Question 28

Restitution (also called unjust enrichment or quantum meruit):

Answer 28

a party may be able to recover restitution for any benefit conferred by way of part performance in excess of the loss that he caused by his own breach. (F2012)

Question 29

Mitigation:

Answer 29

as a general rule, a party cannot recover damages for a loss that the party could have avoided by reasonable efforts. (J2019, J2008)