CONTRACTS RULE STATEMENTS

Question 1

Contract

Answer 1

In order to establish a contract, one will have to show an offer, acceptance, consideration or some substitute thereof, and there must be no defenses to formation and enforcement of the contract.

Question 2

Offer

Answer 2

There must be an intent to enter into a contract and the offer must contain the essential terms (price, quantity, and identity of the parties) and it must be conveyed to the offeree.

Question 3

Acceptance (CL)

Answer 3

Acceptance will depend on the type of contract. Bilateral contracts are accepted by a promise to perform or beginning performance. Unilateral contracts (rewards/prizes or offers specifying they are unilateral) can only be accepted by full performance.

Question 4

Acceptance (UCC)

Answer 4

An offer for the sale of goods is accepted by promising to ship or shipping the goods. (note: if seller ships defective goods with an accommodation letter, that constitutes a counteroffer. If there is no letter, it is an acceptance and breach)

Question 5

Acceptance - Mailbox Rule

Answer 5

Acceptance is effective when sent. Exceptions = an option contract (effective on receipt) or if a rejection then an acceptance is mailed (whichever received first)

Question 6

Terms of Acceptance (CL)

Answer 6

The acceptance must be the mirror image of the offer.

Question 7

Terms of Acceptance (UCC)

Answer 7

The UCC provides that the proposal of additional or different terms does not constitute a rejection and counteroffer. Instead, the acceptance is effective unless it is expressly made conditional on assent to the additional terms. If one or both of the parties to the contract is not a merchant, the new terms do not become part of the contract unless the offeror agrees. Where both parties are merchants, the new terms automatically become part of the contract unless they materially alter the original terms, the offer expressly limits acceptance to the terms of the offer, or the offer has already objected to the new terms or objects within a reasonable time after notice of them.
Where the terms are different and conflict, the majority view is that the terms knock each other out and the terms are supplied with UCC Gap Fillers

Question 8

Consideration

Answer 8

Consideration consists of a bargained for exchange between the parties that constitutes a benefit to the promisor or a detriment to the promisee.
Reliance can be a substitute for consideration if there is a promise and forseeable and justifiable reliance. Enforcement will be granted as necessary to avoid injustice.

Question 9

Modification (CL)

Answer 9

Generally, consideration is necessary to modify a contract. The performance of a preexisting legal duty is not consideration unless it falls into an exception (e.g., unforeseen difficulty, good faith settlement of a lawsuit, good faith payment in full of a due and disputed debt, written promise to pay time barred debt, or if the duty was owed to a third person)
Courts generally will not enforce a clause that prohibits oral modifications because the court believes that parties to a contract should not be deterred from changing their minds.

Question 10

Modification (UCC)

Answer 10

Under the UCC, parties may modify a contract without consideration as long as the modification is sought in good faith.

Question 11

Breach (CL)

Answer 11

To establish a breach of contract, a party must prove that the other party is under a present duty to perform and that duty has neither been performed nor discharged.

Question 12

Anticipatory Repudiation

Answer 12

Anticipatory repudiation occurs if a promisor, prior to the time set for performance of his promise, indicates that he will not perform when the time comes. The anticipatory repudiation must be unequivocal. The nonrepudiating party may treat the repudiation as a total breach and sue immediately. The nonrepudiating party may also suspend his performance and wait and see, treat the repudiation as an offer to rescind and treat the contract as discharged, or ignore the repudiation and urge the promisor to perform.

Question 13

Performance (CL)

Answer 13

Under the common law, one has to substantially perform one’s duties in order for the other parties duties to arise. Generally, where one performance has not been had, the other performance is not yet due. The condition of complete performance may be excused if the party has rendered substantial performance. The rules for determining substantiality of performance are whether the breach of contract by the performing party are material or minor.

Question 14

Performance (UCC)

Answer 14

A buyer is entitled to perfect tender from the seller. A buyer has a right to reject goods in a single delivery contract for any failure to comply with the terms of the contract. However, the seller has an automatic right to cure if (i) there is time left to perform or (ii) the seller reasonably believed that the buyer would accept the nonconforming goods with or without a money allowance such as a discount.

Question 15

Performance - Installment K

Answer 15

The buyer may reject an installment if there is a substantial impairment and the seller cannot cure the installment.
If the defect in the installment substantially impairs the contract as a whole, the buyer can treat it as a breach of the whole contrac.t

Question 16

Delivery (UCC)

Answer 16

Most contracts under the UCC are shipment contracts (either the contract is silent or has term such as “FOB Seller’s Place of Business). The seller only has to get the goods to the shipper and the ROL passes to the buyer at that point. For destination contracts (FOB Buyers Place of Business) the seller has to get the goods to the destination.
If the seller ships nonconforming goods, the ROL is on the seller until the defective goods are cured or the buyer accepts.

Question 17

Grounds for Insecurity (UCC)

Answer 17

If there are reasonable grounds for insecurity with respect to the other party’s performance, a party may demand adequate assurances that the performance will be forthcoming at the proper time. The demand for assurances must be made in writing. Until the party receives assurances, she may suspend her performance. If assurances are not given within 30 days, she may treat the contract as repudiated.

Question 18

Frustration of Purpose

Answer 18

Frustration of purpose occurs when the primary purpose of the contract known by both parties at the time of contracting is substantially frustrated by an unforeseeable even that occurred after the contract was entered into.

Question 19

Impossibility

Answer 19

A contract becomes impossible when an event that renders performance impossible occurs after the contract was made, it was not reasonably foreseeable at the time of the contract, the nonoccurrence of which was a basic assumption of the parties, neither party is at fault, and neither party bears the risk. Must be an objective impossibility.
At common law, subsequent destruction of the contract’s subject matter could render contractual duties objectively impossible to perform if the parties were specific as to either the subject matter or the source of the subject matter, that is, if the goods were identified to the contract,
Under the UCC, where the contract requires for its performance goods identified when the contract is made and the goods are totally or partially lost without fault of either party, the contract is avoided if the loss is total, and if the loss is partial or no longer conforms, the buyer may inspect and either avoid or accept the goods with due allowance from the contract price.

Question 20

Impracticability

Answer 20

Contractual duties also may be discharged where performance has become impracticable. Duties are rendered impracticable where the performing party has encountered (i) extreme and unreasonable difficulty and/or expense and (ii) this difficulty was not anticipated. Courts will allow relief against performance where subjective impossibility is found.

Question 21

Warranties

Answer 21

Under the UCC, if a seller breaches a warranty by delivering goods that do not conform to the parties’ contract, the buyer may seek damages measured by the difference between the value of the goods as delivered and the value the goods would have had if they were as warranted.
An express warranty arises out of any affirmation of fact or promise made by the seller to the buyer, any description of the goods, or any sample or model, if the statement, description, or sample, or model, is part of the basis of the bargain.
The implied warranty of merchantability is made by a merchant and warrants that goods are fit for their ordinary purpose. This warranty can be disclaimed.
The implied warranty of fitness for a particular purpose can be made by any seller who knows of the buyer’s specific purpose and the buyer relies on the seller. It can be disclaimed.

Question 22

Parol Evidence Rule

Answer 22

If the parties intend their written agreement to be the final and complete integration of their agreements, then any other expressions made prior to or contemporaneous with the writing are inadmissible to vary the terms of the writing. Contradictory or supplemental evidence will be excluded. If it was only a partial integration, the writing cannot be contradicted, but it may be supplemented by evidence of consistent additional terms. The parol evidence rule does not apply to FICCL (formation defenses, interpretation of a term, condition precedent failure, clerical error, or a later modification)

Question 23

Third Party Beneficiaries

Answer 23

To determine the promisee’s intent, courts use a 4 part test: (1) is the 3rd party expressly designated in the K, (2) does the 3rd party have any rights udner the K, (3) is perfomrance to be made directly to the 3rd party and (4) does the 3rd party have a relationship to the promsiee such that one could infer that the promsiee wanted to make a promise for the 3rd party’s benefit?
If 3rd party rights do exist, they vest when the 3rd party has been notified and assents to the promise, the 3rd party brings suit to enforce the promise, or the 3rd party materially changed position in justifiable reliance on the promise.
An intended third party have rights under the contract once they vest. Incidental 3rd partys do not have rights under the K.

Question 24

Relief in Quasi Contract

Answer 24

If it is found that no contract was formed, or the contract was breached, there may be recovery in quasi-contract. To establish a right to quasi-contractual relief, a party must prove (i) one party has conferred a benefit by rendering services for the other (ii) this person had a reasonable expectation of being compensated (iii) the person conferring the benefit was not a volunteer and (iv) if the defendant is allowed to retain the benefit without compensating the plaintiff, the defendant would be unjustly enriched. The measure of recovery is the reasonable value of services rendered.

Question 25

Liquidated Damages Clause

Answer 25

For a liquidated damages clause to be enforceable, it must be that (i) damages for breach must have been difficult to ascertain or establish at the time the contract was formed and (ii) the amount agreed upon must have been a reasonable forecast of compensatory damages in case of breach. The test for reasonableness is the comparison between the amount of damages prospectively probable at the time of contract formation and the liquidated damages figure. If they are unreasonable, courts will construe them as a penalty and refuse to enforce.

Question 26

Divisible Contract

Answer 26

A court might analyze the contract by applying the rule of divisibility. The question of divisibility is one of contract interpretation and is designed to achieve equity between the parties, avoiding unnecessary hardship to one. A contract is divisible if three elements are met (i) the performance of each party is divided into two or more parts under the contract, (ii) the number of parts due from each is the same; and (iii) the performance of each part by one party is agreed upon as the equivalent of the corresponding part from the other party – quid pro quo for the other.

Question 27

Statute of Frauds

Answer 27

To be enforceable, certain types of agreements must be evidence by a writing containing the essential terms of the contract and be signed by the party to be charged. The types of agreements that must be in writing are contracts that involve marriage as consideration, contracts that cannot be performed within one year, contracts the involve the sale or transfer of land, contracts that involve promise by executors to pay estate debts, contracts the involve a promise to act as a guarantor or surety, and contracts for the sale of goods value at $500 or more.

Question 28

Exceptions to the SOF

Answer 28

Land where there has been part performance. Part perfromance is present when the buyer does two of the following three (i) takes possession, (ii) improves the land significantly, or (iii) pays a substantial amount of the purchase price.
Sale of Goods
1. Merchants confirmatory memo
2. seller has made substantial beginning in manufacture or commitments for specially manufactured goods not suitable for sale to others
3. judicial admissions
4. part performance
Surety
A promise to pay the debt of another if the other does not pay falls within the SOF unless the main purpose of the surety promise is to serve a pecuniary interest of the person making the promise.
Cannot be performed within a year
Full performance by one side will serve as a substitute for a signed writing.

Question 29

Capacity Defenses

Answer 29

DUI
1. Duress
- Duress is present when a party threatens to commit a wrongful action that would threaten the other party’s finances, property, well-being, or life. Generally, taking advantage of another person’s economic needs is not a defense.
2. Undue Influence
- Undue influence is present when there has been an unfair persuasion by a persion in a position of trust, confidence, or dominance and they used that position to convince another to enter into a contract that is not in that partys best interest.
3. Incapacity
- Incapacity is present when the contracting party is a minor, incompetent, or is an intoxicated person. However, they may be liable for necessities.
Also, fraud in the inducement/coercion.

Question 30

Lack of Contract Formation Defenses

Answer 30

1. Mutual Mistake
   - If both parties are mistaken about a basic assumption of fact that materially affects the agreed upon exchange and neither bears the risk, the contract is voidable.
2. Unilateral Mistake
   - If a party knew or had reason to know of the other party’s mistake, that party will not be allowed to take advantage of the other party and the contract is voidable.
3. Mutual Misunderstanding
   - There is no contract if both parties have a different understanding of a material term that is open to at least two reasonable interpretations and neither party has any reason to know of the meaning attached by the other.
4. Illegal Subject Matter
   - The contract is void if it is for an illegal purpose it is voidable by the party who didn’t have the illegal purpose if he didn’t know the purpose or knew the purpose but didn’t facilitate it and it didn’t involve serious moral turpitude.
5. Unconscionability
   - When the terms are so one sided as to be unconscionable under the circumstances at the time the contract was formed, the contract is voidable. Two necessary elements - (i) procedural unconscionability: unfair bargaining process and (ii) substantive unconscionability: grossly unfair terms.
6. Fraud in the inducement
   - Where one party induces another to enter into a contract by using a fraudulent misrepresentation, the contract is voidable by the innocent party.

Question 31

General Rule for Remedies

Answer 31

The general rule is that the damages party recovers expectation damages. This is the loss of value of the breaching party’s performance plus incidental damages plus consequential damages minus any expenses saved as a result of the breach. Mitigation of damages is required. Incidental damages are those related to avoiding the loss from the breach (storing goods after breach). Consequential damages are those that are forseen at the time the contract is entered into.

Question 32

UCC Damages Formulas

Answer 32

Seller breaches and buyer has goods
- buyer gets the value of the goods as contracted for minus the value of the goods as delivered plus incidental and consequential damages.
Seller breaches and seller has goods
- buyer gets the difference between the market price (or replacement price) and contract price plus incidental and consequential damages minus expenses saved.
Buyer breaches and buyer has goods
- seller gets the contract price
Buyer breaches and seller has goods**
- seller gets the difference between the contract price and market price (or resale price) plus incidental damages minus expenses saved
**Loss volume seller
- The seller gets lost profits plus incidentals.

Question 33

Specific Performance

Answer 33

Specific performance is a court order requiring the breaching party to perform or face contempt charges. Specific performance is available when the legal remedy is inadequate. Damages are inadequate when the subject matter of the contract is rare or unique. Not available for service contracts even if the services are rare or unique (involuntary servitude) but can get an injunction to prevent the person from going to work for someone else.

Question 34

Rescission

Answer 34

Rescission is an undoing of the contract when the contract is void or voidable. Parties can agree to rescisison. Unilateral rescission is an option where only one party desires to discharge the contract. To be granted rescission, the party must have legal grounds (mistake, misrepresentation, duress, or failure of consideration).