Contracts

Question 1

What are the main sources of contract law?

Answer 1

Common Law and UCC (governs the sale of goods)

Question 2

Sales

Answer 2

Any transaction in which the seller transfers title of goods to buyer.

Question 3

Goods

Answer 3

Any movable item; does NOT include intangibles (IP), money, legal claims, services, or real property.

Question 4

Predominant purpose test

Answer 4

Test to determine whether a contract should be governed by UCC or C/L.
Three Factors:
-Contract Language
-Nature of supplier’s business
-Value of the goods versus the services

Question 5

Implied in Fact Contractual Obligations

Answer 5

Formed by conduct rather than words.

Question 6

Implied in Law Contractual Obligations

Answer 6

Arises where one party bestows benefit on another and it would be unjust not to pay the reasonable value of the benefit. (e.g. surgeon who performs emergency surgery)

Question 7

Offer (Two elements)

Answer 7

(1) Outward manifestation (oral, written, or via conduct)
-jokes/too good to be true does not count

(2) Signal that acceptance will conclude the deal

Question 8

Commercial Advertisements (American Rule and Exception)

Answer 8

American Rule: Ads, catalogs, price lists are invitations for offers, since responses may exceed available supply of goods or services.

Exception: Language that identifies who gets limited supply of goods even if there is an excess demand (e.g. first come, first served, or first 10 customers)

Question 9

Reward Offers

Answer 9

They are considered offers because they are communications that promise money in exchange for performance of specific tasks.

Question 10

What are the four ways to terminate the power of acceptance?

Answer 10

-Lapse of time
-Death or incapacity of either party
-Revocation by offeror
-Rejection by the offeree

Question 11

Termination-Lapse

Answer 11

After time stated in offer or after a reasonable time.

Reasonable time is determined by: (1) subject matter/market conditions, and (2) degree of urgency and means of transmission.

Question 12

Face-to-face conversation rule

Answer 12

An offer made in a face-to-face conversation generally lapses at the end of the conversation.

Question 13

Termination-Revocation

Answer 13

An offeror may revoke an offer at any time for any reasons:
-Must be revoked before acceptance, and
-the revocation must be communicated to the offeree.

Question 14

Direct Revocation

Answer 14

Offeror directly communicates to offeree an intent to withdraw the offer.

Question 15

Indirect Revocation

Answer 15

(1) Offeror takes action that is inconsistent with the intent to go through with the offer; and
(2) Offeree learns of such action from reliable source. (e.g. they sold it to someone else)

Question 16

What are the four ways of preventing revocation?

Answer 16

-American Rule
-Option Contract
-Reliance/Construction
-Firm offer under UCC

Question 17

Preventing Revocation-American Rule

Answer 17

The offeror can revoke even if he gave a specific time to accept.

Question 18

Preventing Revocation-Option Contract (C/L)

Answer 18

(1) Offer
(2) Separate promise to keep it open
(3) Valid mechanism for enforcing subsidiary promise (e.g. give them consideration for the option)

Question 19

Preventing Revocation-Reliance/Construction

Answer 19

Courts will hold offers open when the offeree has detrimentally relied on them, such as when general contractors rely on subcontractor’s bids in forming their own bids on a project.

Question 20

Preventing Revocation-Firm Offer under UCC

Answer 20

Irrevocable offer by merchant to buy or sell goods without consideration:
(1) Offer made by a merchant (in the business of buying or selling goods) +
(2) In a writing signed by the merchant +
(3) Expressly stating it will be held open.
(irrevocable for time stated or reasonable time, BUT no longer than 3 months even if stated otherwise)

Question 21

What are the three ways an offeree may reject an offer?

Answer 21

-Outright rejection
-rejection via counteroffer (rejection + new offer; doesn’t count if mere inquiry)
-rejection via non-conforming acceptance (mirror image rule)

Question 22

Mirror Image Rule (C/L)

Answer 22

Acceptance must mirror the terms, and any variation is a counteroffer (and rejection of the initial offer).

Question 23

Bilateral Contract

Answer 23

Offer seeking acceptance by a promise. A promise for a promise. Once promises are exchanged, both parties are bound.

Question 24

Unilateral Contract

Answer 24

Offer seeking performance in return (e.g. reward offers). Offeror not bound until offeree completes performance, and offeree is NEVER bound.

Question 25

Revocation of a Unilateral Contract

Answer 25

Once the offeree begins performance, an option K is created and offeror may not revoke. Mere preparations do not create an option K, only beginning performance.

Question 26

Acceptance (C/L)

Answer 26

Acceptance must mirror terms of offer + be communicated to the offeror.

Question 27

What are the two exceptions to the requirement that an acceptance be communicated ? (C/L)

Answer 27

(1) Unilateral Contract
-acceptance is effective only by completing performance.
(2) Acceptance by mail

Question 28

Common Law Mailbox Rule

Answer 28

Acceptance by mail is effective upon dispatch if properly posted.
Default rule unless offer provides otherwise.

Other communications are only effective upon receipt.

Question 29

Mail box rule and option contracts

Answer 29

The mailbox rule is not applicable and acceptance is only effective upon receipt.

Question 30

If a rejection were sent and later an acceptance via mail at the same time, what would happen?

Answer 30

Mailbox rule does not govern if a rejection is mailed before acceptance, and whichever arrives first will be effective.

Question 31

UCC-Acceptance

Answer 31

Seller can accept buyer’s offer to purchase goods for prompt or current shipment in 3 ways:
-promise to ship goods;
-shipping conforming goods; or
-shipping non-conforming goods, unless the seller send the shipment as an accommodation (i.e. a counteroffer)

Question 32

UCC Rejection of the Mirror Image Rule

Answer 32

An offeree’s nonconforming acceptance or confirmation (with additional terms) will operate as an effective acceptance of the offer, thus forming a contract (not a counteroffer)

Question 33

UCC-Effect of Additional or Different Terms

Answer 33

Between merchants, the “additional” terms in offeree’s acceptance or confirmation become part of the K EXCEPT in three circumstances:
(1) The offer expressly limits acceptance to its own terms
(2) If the offeror objects to the additional terms within a reasonable time
(3) If the additional terms would materially alter the K

Question 34

Additional Terms-“Material Alteraction”

Answer 34

Terms that would result in “surprise or hardship if incorporated w/o the express awareness of the other party.”

Ex: warranty disclaimers; clauses that materially shorten the deadline for raising complaints; clauses that change usages of trade or past course dealings.

Question 35

Knock out rule

Answer 35

Different terms in the two writings dealing with the same topic knock each other out.

Question 36

UCC Conditional Acceptance

Answer 36

If the offeree’s “acceptance” is specifically conditioned on offeror first agreeing to the additional terms in the acceptance before offeree will proceed, this nonconforming, conditional acceptance will NOT be effective to form a K (i.e., it’s a counteroffer)

Question 37

Contracts Formed by Conduct

Answer 37

The UCC provides that the parties’ conduct in recognizing the existence of a contract is sufficient to establish a contract even though their writings do not otherwise establish a contract.
The terms of the contract will be:
-terms on which the writings of the parties agree; and
-default terms provided by the UCC.

Question 38

Consideration

Answer 38

General Rule: Promise is unenforceable unless supported by consideration.

Question 39

Bargain Theory

Answer 39

A promise is supported by consideration if based on a bargained-for exchange.
-there was something (goods or services) that was promised, and the promise must have been made in order to obtain something else of value.

Question 40

Benefit/Detriment Test (legal value analysis)

Answer 40

Whether there is a benefit to the promisor and/or a detriment to the promisee.

Question 41

Legal Detriment Test

Answer 41

Whether promisee is:
-doing something he had a legal right NOT to do; or
-forgoing some activity he HAD a legal right to do.

Question 42

Illusory Promises

Answer 42

Promise of performance that leaves performance to the unlimited discretion of the promising party=does NOT constitute consideration.

Ex: You agree to paint my portrait, and I agree to pay you $1,000 if I decide I want it.

Question 43

Gratuitous Promises

Answer 43

Promise to make a gift, generally unenforceable due to insufficient consideration.

Exception: Gratuitous transfers are legally binding. (e.g. giving a gift)

Question 44

Past or Moral Consideration

Answer 44

General Rule: A promise in exchange for something already given or performed is NOT supported by consideration.

Question 45

Exceptions to Past or Moral Consideration

Answer 45

-A written promise to pay a debt barred by limitations.
(only revived to the extent that D promises to pay)
-A written promise to pay a debt discharged by bankruptcy.

Question 46

Material Benefit Test (minority rule)

Answer 46

Promise made in recognition of a past benefit conferred is enforceable if:
-promisee conferred the benefit on the promisor (not a third party); and
-the benefit is material.

Question 47

Promissory Estoppel

Answer 47

Promisee that reasonably relies to his detriment on gratuitous promise may be able to enforce that promise even without consideration. 4 requirements:

(1) A promise;
(2) Foreseeable reliance
(3) Actual reliance (must be induced by the promise
(4) Injustice without enforcement.

Question 48

Factors to Analyze the “injustice” requirement of Promissory Estoppel

Answer 48

-Strength of proof of the other three requirements;
-blameworthiness or willfulness of the breach;
-relative position or equities of the parties;
-extent to which the reliance was detrimental; and
-availability of alternatives short of enforcing the promise.

Question 49

Statute of Frauds

Answer 49

General Rule: Oral and written Ks are equally enforceable.
Exception: If the K falls under the SOF it must be (1) in writing and (2) signed by the party against whom enforcement is sought.

Question 50

Categories of Contracts Subject to SOF (MYLEGS)

Answer 50

-Marriage Ks
-Ks that can’t be performed within one Year of their making
-Ks for the sale of Land
-Ks of an Executor or administrator to answer for a duty of a decedent
-Ks of Guarantee or suretyship
-Ks for the Sale of goods at a price of $500 or more

Question 51

Contracts Not to be Performed within a Year

Answer 51

Measured from date K is made, not the date the performance begins.

Must ask: at the point of formation, is it at all possible (even if not probable) to complete the required performance within 1 year?

Question 52

Main Purpose Exception

Answer 52

Applies to guaranty/suretyship agreements
-Although guarantee contracts (secondary obligation) are generally within the SOF, a primary exception is the main purpose doctrine. That is, where the main purpose of the guarantor is to protect his own economic interest, the guarantee agreement is not governed by the SOF.

Question 53

SOF-Writing Requirement

Answer 53

All that is necessary is that the writing be a memorandum of the agreement which can be prepared before, during, or after formation.

Required terms:
-Identity of the parties
-the nature and subject matter of the K; and
-the essential terms of the agreement, such as price and date for performance.

Question 54

SOF-Signature Requirement

Answer 54

Any symbol with intention to authenticate the writing (e.g. initials, typed, stamped, etc.)

Question 55

SOF: Performance

Answer 55

SOF may be satisfied with respect to some categories of governed contracts via part performance, in an action for specific performance.
-Land sale Ks
-One-year Ks

Question 56

Part Performance-Land Sale Ks

Answer 56

Part performance requires a showing of any combination, or all three of the following:
-payment of all or part of purchase price
-taking possession of land
-making substantial improvements to property

Question 57

Part Performance-One Year Ks

Answer 57

If fully performed enforceable despite SOF.
If only partially performed not enforceable.

Question 58

UCC SOF

Answer 58

Ks for sale of goods for $500 or more are under the UCC SOF.

Question 59

Main way to satisfy UCC SOF

Answer 59

A signed writing:
-writing,
-quantity, and
-signed by the party against whom enforcement is sought.

Question 60

Merchant’s Confirmation

Answer 60

Two merchants enter an oral agreement, one send the other written confirmation of agreement. SOF satisfied against the recipient merchant if:
-both sender and recipient are merchants;
-writing is in confirmation of the K and contains a quantity; and
-recipient does not send written objection within 10 days.

Question 61

SOF-Judicial Admission

Answer 61

Party admits K formation in pleading, testimony, or otherwise in court.

Satisfies the SOF.

Question 62

UCC Partial Performance-SOF

Answer 62

Despite absence of writing, an otherwise valid K is enforceable for:
-goods for which payment made/accepted; or
-goods which have been received/accepted.

Question 63

UCC SOF-Specially Manufactured Goods

Answer 63

SOF satisfied against buyer who orders custom goods from a manufacturer if:
-manufacturer detrimentally relied by beginning performance before buyer’s withdrawal; and
-manufacturer can’t resell the goods in the ordinary course of business.

Question 64

Warranty of Title (UCC)

Answer 64

For the sale of all goods, there is an implied warranty of:
-good title to the goods;
-rightful transfer of the goods; and
-no liens or security interest are attached to the goods.

Question 65

Warranty of Title-Exclusion/Modification

Answer 65

Can only be excluded or modified by:
-specific language; OR
-circumstances which give buyer reason to suspect seller does not claim unencumbered title.

Question 66

Warranty of Merchantability (UCC)

Answer 66

Goods fit for ordinary purposes for which those goods would be used.
ONLY applies if the seller is a merchant.

Question 67

Warranty of Merchantability-Displaced

Answer 67

Displaced by:
-specific use of the word “merchantability” and conspicuousness if in writing; OR
-any other language or circumstances that would be reasonably understood by a buyer to exclude the warrant (“as is” or patent defects)

Question 68

Warranty of Fitness for a Particular Purpose (UCC)

Answer 68

Goods being sold are fit for the particular purpose buyer intends to use them for.
ONLY applies when, at the time of contracting, seller has reason to know:
-the particular purpose for which the goods are required; AND
-the buyer is relying on seller’s expertise to select reasonable goods

Question 69

Warranty of Fitness for a Particular Purpose-Negated

Answer 69

Warranty is negated when:
-disclaimer is written, clear, and conspicuous; OR
-goods have patent defects which were easily detectable.

Question 70

Express Warranties

Answer 70

Goods will conform to some standard, arises whenever seller expressly makes them as part of the basis of the bargain in the following ways:
-any affirmation of promise or fact;
-any description of the goods; or
-any sample or model
Vague or “sales talk” (puffery) does not count

Question 71

Revocation of an Offer to Multiple Offerees (Functional Equivalents Rule)

Answer 71

Where an offer is made by advertisement in a newspaper or other general notification to the public, the power of acceptance is terminated when the notice of revocation is communicated by advertisement or other general notification equivalent to that used for the offer.

Question 72

What are the three ways an offeree may reject an offer?

Answer 72

(1) Outright rejection
(2) Rejection via a counteroffer; and
(3) Rejection via Nonconforming acceptance

Question 73

May an offeree make inquiries about the offer?

Answer 73

Yes, not all statements or question about an offer are considered counteroffers. An offeree may test the waters by making a “mere inquiry” about the offeror’s willingness to negotiate without creating a counteroffer.

Question 74

May an offer be revived?

Answer 74

Yes, the maker is the master of the offer. Therefore, an offeror has the power to revive an offer that the offeree has rejected or has lapsed. All the offeror must do is communicate the revival to the offeree.

Question 75

Requirements for an enforceable option contract at common law

Answer 75

(1) An offer
(2) A subsidiary promise to keep the offer open
(3) A valid mechanism for securing enforcement of the subsidiary promise.

Question 76

When may a court enforce an option contract despite it having no consideration?

Answer 76

Under promissory estoppel, courts will sometimes enforce a subsidiary promise to keep an offer open where the offeree has foreseeably and reasonably relied on the option, and injustice can only be avoided by enforcing the promise.

Question 77

Rule for Option Contracts and Construction

Answer 77

Majority Rule: Where a general contractor uses a particular subcontractor’s bid to formulate his own, an implied option contract is created via promissory estoppel. This prevents the subcontractor from revoking the bid despite the fact that the subcontractor hasn’t promised to keep the bid and the general contractor hasn’t provided any consideration to keep the bid open.

Question 78

Option Contracts-UCC Firm Offer Rule

Answer 78

A merchant can make a firm offer (an irrevocable offer) to either buy or sell goods without consideration so long as:
-the offer is made by a merchant
-the offer is made in a writing signed by the merchant
-the offer expressly states by its terms that it will be held open

Question 79

Merchant (UCC definition)

Answer 79

A merchant is defined in terms of his special knowledge or skill with respect to the practice or goods involved in a transaction. A person may be considered a merchant even if he only has knowledge of the goods, or knowledge of the practices.

Question 80

When is an offeror bound under a unilateral contract?

Answer 80

(1) The Offeror is bound only when the offeree completes performance in accordance with the terms of the offer; and
(2) The offeree is never bound to perform because he has never promised to perform

Question 81

Revocation of a Unilateral Contract (C/L and Majority)

Answer 81

C/L: The offeror was free to revoke the unilateral offer up until the moment that the offeree actually completed performance
Modern Majority: Once the offeree begins performance, an option contract is created and the offeror may not revoke.
-Exception: An offeror may revoke where the offeree is engaged in “mere preparations” to perform rather than the beginning of performance itself.

Question 82

Communicating Acceptance under CL

Answer 82

2 General Requirements:
(1) Under the mirror image rule, the acceptance must mirror the terms of the offer; and
(2) The acceptance must be communicated to the offeror.

Question 83

Acceptance by Silence (3 acceptable scenarios)

Answer 83

(1) Where the offeree takes the benefit of the offeror’s services with a reasonable opportunity to reject them and with reason to know the offeror’s intention;

(2) Where the offeror has given the offeree reason to understand that acceptance may be communicated by silence, in which case the offeree’s silence will operate as acceptance if he intends as such; and

(3) Where, because of pervious dealings or other circumstances, it is reasonable that the offeree should notify the offeror if he does not intend to accept, in which case his silence will operate as acceptance.

Question 84

Acceptance (UCC)

Answer 84

Unless the contract or circumstances unambiguously indicate otherwise, acceptance may be made in any manner and by any medium reasonable under the circumstances.

Question 85

New Terms-UCC & Consumer

Answer 85

When at least one party to the transaction is not a merchant, the additional or different terms are construed as proposals for addition to the contract. Thus, they are not part of the contract unless the offeror expressly agrees to the additional terms.

Question 86

New Terms-UCC & Merchants

Answer 86

Additional Terms become part of the contract unless:
(1) the offer expressly limits acceptance to the terms of the offer;
(2) the offeror objects to the additional terms within a reasonable time after receiving notice of them; or
(3) the additional terms would materially alter the contract.

Question 87

“Materially Alter” (UCC Definition)

Answer 87

Terms that materially alter the contract are those that would result in surprise or hardship if incorporated without the express awareness of the other party.

Ex: Clause negating warranties, would vary in a significant way to an established usage of trade.

Question 88

Knock out rule

Answer 88

With respect to different (conflicting) terms, the majority of decisions employe the knock out rule and omit both the offeror’s original provision and the offeree’s differing provision from the resulting contract.

Question 89

Written Confirmations- Different terms (UCC)

Answer 89

If the transaction is between merchants:
(1) any additional terms are automatically part of the contract unless:
-they would materially alter the contract; or
-the receiving party objects to them within a reasonable time
(2) any terms in a confirmation that differ from the terms of the prior agreement are proposals for inclusion in the contract, which the receiving party is free to accept or reject; and
(3) if both merchants send written confirmations and those confirmations contain conflicting terms, then the knockout rule applies and neither party’s term is in the contract.

Question 90

Gratuitous promises

Answer 90

The promisee has neither promised nor given anything in return to the promisor, leaving the consideration requirement unsatisfied.
-these transactions are generally unenforceable under the doctrine of consideration

Question 91

Failure of consideration

Answer 91

A claim that the party has not performed in accordance with his promise.

Question 92

The Preexisting Duty Rule

Answer 92

A promisor cannot provide consideration where that consideration is a duty the promisor is already obligated to perform.
-they are not deemed consideration

Question 93

Illusory Promises

Answer 93

A promise to perform that leaves performance to the discretion of the promising party is an illusory promise and won’t constitute consideration.

Question 94

Forbearance of a Claim or Defense

Answer 94

Valid consideration exists when a party agrees to forbear a claim or defense in exchange for a promise or performance by the other party.

Question 95

Forbearance of an Invalid Claim or Defense

Answer 95

It is not consideration unless:
(1) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law; or
(2) the forbearing party believes that the claim or defense may be fairly determined to be valid.

Question 96

Past or Moral Consideration

Answer 96

As a general rule, a promise given in exchange for something already given or already performed will not satisfy the bargain requirement.

Question 97

Exceptions to Past or Moral Consideration

Answer 97

(1) A written promise to pay a debt barred by the SOL is binding; and
(2) A written promise to pay all or part of an indebtedness that has been discharged in bankruptcy is binding.

Question 98

Past or Moral Consideration-Minority Rule

Answer 98

A minority of jurisdictions will enforce a promise made in recognition of a past benefit conferred so long as:
(1) the promisee conferred the benefit on the promisor and not on a third party; and
(2) the benefit is material.

Question 98

Promissory Estoppel

Answer 98

Allows for the enforcement of certain promises even where there is no consideration in return.
There are four requirements for promissory estoppel to be available:
(1) A promise,
(2) Foreseeable reliance,
(3) Actual reliance; and
(4) Injustice without enforcement.
-The actual reliance must be induced by the promise.

Question 99

SOF: Performance within 1 Year (measuring 1 year)

Answer 99

-Measured from the date of the contract’s formation rather than the date of the beginning of performance.
-A contract that contemplates a duration of less than a year may nonetheless fall under SOF if performance is not to be completed until more than one year after the formation.
-When a contract does not specify a date by which performance is to be completed, the question of whether a particular contract is to be performed within one year of the making thereof is answered by determining whether it is at all possible to complete the required performance within a year’s time.

Question 100

SOF: Guaranty/Suretyship Rule and Exceptions

Answer 100

Rule: A promise to answer for the debt of a third party-a suretyship or guaranty agreement-is subject to the SOF.
Exception 1: When the creditor discharges the original debtor from his obligation on the faith of a guarantee by a third party to pay the debt, these agreements are not governed by SOF and do not require a signed writing.
Exception 2: If the main purpose of the guarantor’s promise is to protect or promote his own economic interests, rather than the interest of the debtor, then the agreement is not within the SOF. (mere selfish intent in not enough)