Contracts Rules

Question 1

Applicable law (CL)

Answer 1

The common law governs contracts for services.

Question 2

Applicable law (UCC)

Answer 2

The Uniform Commercial Contract (“UCC”) governs contracts for the sale of goods. Goods are moveable, tangible items.

In addition, under the UCC, there are special rules for merchants. A merchant is one who regularly deals in the type of goods involved in the transaction or has specialized knowledge of the goods subject to the contract.

Question 3

Contract formation

Answer 3

A valid contract requires an offer, acceptance, consideration, and no defenses to formation (cover SoF)

Question 4

Ambiguous term (definition)

Answer 4

An ambiguous term is one that is subject to more than one interpretation.

Question 5

How determine if term is ambiguous

Answer 5

In determining if a term is ambiguous, the court will apply the plain-meaning rule, which provides that the objective definitions of contract terms control the meaning of the contract.

Question 6

Trade Usage

Answer 6

If a term is ambiguous, evidence of trade usage or even local custom may be used to show that a particular word or phrase had a particular meaning.

Question 7

Parole Evidence Rule

Answer 7

Under the PER, evidence of prior or contemporaneous negotiations and agreements, written or oral, that contradict or modify contractual terms is inadmissible to vary the terms of the contract as written.

Question 8

First step in PER

Answer 8

The first step is to determine whether the written contract is intended as the final agreement of the parties (i.e., an integration).

Question 9

Total integration (definition)

Answer 9

A total integration is a writing that completely expresses all of the terms of the parties’ agreement.

Question 10

Partial integration (definition)

Answer 10

A partial integration is a writing that sets forth the parties’ agreement about some, but not all, terms.

Question 11

Partial integration rule

Answer 11

For a partial integration, the parties are permitted to introduce supplementary extrinsic evidence (oral or written) of other terms as long as the evidence is consistent with the writing, but not if the evidence contradicts the terms of the writing.

Question 12

Modification rule

Answer 12

To be valid, a modification at common law must be supported by additional consideration.

Question 13

Express condition (def)

Answer 13

Express conditions are expressed in the contract.

Question 14

Condition Precedent (def)

Answer 14

A condition precedent is one that must occur before an absolute duty of performance arises in the other party.

Question 14

Substantial performance rule

Answer 14

When a party has almost completely performed his duties, but has breached in some minor way, the rule of substantial performance avoids forfeiture of a return performance.

(A party who fails to substantially perform is in material breach.)

Question 15

Implied or constructive condition rule

Answer 15

a party who substantially complies with an implied or constructive condition can trigger the obligation of the other party to perform.

Question 16

Substantial performance remedy

Answer 16

The doctrine of substantial performance permits a party who substantially performs to recover on the contract even though that party has not rendered full performance.

In general, a party who substantially performed her contractual obligations can recover the contract price minus any amount that it will cost the other party to obtain the promised full performance.

Question 17

When substantial performance not available

Answer 17

Express conditions generally must be complied with fully unless excused

Question 18

Expectation damages (definition)

Answer 18

Expectation damages are those damages that put the non-breaching party in the same position he would have been in had the breach not occurred.

Question 19

Restitution (def)

Answer 19

When a defendant is unjustly enriched by the plaintiff, restitution generally allows the plaintiff to recover on the benefit conferred by the plaintiff upon the defendant.

Question 20

Reliance (def)

Answer 20

Reliance damages put the party in the same position as if the contract were never formed.

Question 21

Reliance (how calc)

Answer 21

Reliance damages are based on the out-of-pocket expenses incurred by the nonbreaching party?

Question 22

Specific performance

Answer 22

For the court to grant the equitable remedy of specific performance, there must be an inadequate legal remedy, definite and certain terms in a valid contract, feasibility, mutuality, and no defenses.

Question 23

Inadequate legal remedy

Answer 23

The legal remedy is inadequate when the subject matter is rare or unique.

Question 24

Feasibility for specific performance

Answer 24

Enforcement of the contract must be feasible.

It may not be feasible if the court lacks jurisdiction or if it requires too much supervision.

In addition, it is not feasible in a service contract because of difficulty in supervision and because the courts feel it is tantamount to involuntary servitude in violation of the 13th Amendment.

Question 25

Mutuality (specific performance)

Answer 25

Mutuality requires that the party seeking SP has already fully performed or can show that he is ready, willing, and able to perform.

Question 26

Unclean hands

Answer 26

Unclean hands is a defense to an equitable remedy (e.g. specific performance) when the party who seeks equitable relief himself engages in serious misconduct in close relation to the claim. Must be unethical or immoral.

Question 27

Statute of Frauds for UCC

Answer 27

The SOF requires contracts for the sale of goods for $500 or more to be in writing and signed by the party to be charged.

Question 28

Modifications (CL v UCC)

Answer 28

At common law, modifications to a contract require additional consideration, while under the UCC only good faith is required. Further, all modifications are subject to the SOF.

Question 29

Anticipatory Repudiation (UCC)

Answer 29

Under the UCC, in cases where the other party’s words, actions, or circumstances make it unequivocally clear that he is unwilling or unable to perform, the aggrieved party may: (i) sue immediately, (ii) suspend his own performance and wait and see until the due date, (iii) treat the repudiation as an offer to rescind and treat the contract as discharged, or (iv) ignore the repudiation and urge performance.

Question 30

Reasonable Assurance (UCC)

Answer 30

Under the UCC, if reasonable grounds for insecurity arise regarding the seller’s ability to perform, then the buyer may in writing demand written adequate assurances of due performance. Until the seller offers assurances, the buyer may suspend his own performance. If no assurances are provided within a reasonable amount of time (usually not more than 30 days), the buyer may treat the contract as repudiated.

Question 31

Expectation damages (UCC)

Answer 31

Expectation damages put the non-breaching party in the place he would have been in had the other party fully performed.

Under the UCC, the buyer has alternative options if the seller fails to tender the goods.
- The buyer may recover the market price minus the contract price. The market price is the price that existed at the time of the breach at the place where tender was to occur under the contract.
- Alternatively, the buyer may purchase similar goods elsewhere and recover the replacement price minus the contract price.

Question 32

Checklist - level 1

Answer 32

Applicable Law
Formation
Terms
Performance
Breach
Remedies

Question 33

Checklist - level 2

Answer 33

Applicable Law

Formation
- Offer
- Acceptance
- Consideration
- Defenses to formation (mistake, misrep, duress, capacity)
- Defenses to enforcement (illegality, unconscionability, SoF)

Terms
- Modification (SoF!)
- Parole Evidence Rule

Performance
- Conditions (excuse: waiver, wrongful interference, estoppel)
- Discharge of Duty (impossibility, impracticability, frustration of purpose)
- Warranties

Breach
- Repudiation
- Material Breach
- Minor Breach
UCC
- Perfect Tender
- Right to Cure
- Method of Tender

Remedies
- Legal (expectation, consequential, incidental, mitigation)
- Equitable (reliance, quasi-K, restitution, specific performance - laches, unclean hands)
- UCC (limitation of Remedies, risk of loss)

Question 34

Adequate assurances

Answer 34

Under the UCC, if reasonable grounds for insecurity arise regarding the seller’s willingness or ability to perform, then the buyer may demand in writing adequate assurances of performance.

Until the seller offers such assurances, the buyer may suspend his own performance.

If no assurances are provided within a reasonable amount of time (not more than 30 days), the buyer may treat the contract as repudiated.

Question 35

Duty to mitigate

Answer 35

A party to a contract must take steps to reasonably avoid or mitigate damages to the extent possible.

Question 36

Unilateral mistake

Answer 36

A person who is alleged to be in breach of a contract can defend against the claim by showing that there was no “meeting of the minds” due to a mistake. When only one of the parties is mistaken as to an essential element of the contract, either party can generally enforce the contract on its terms. However, the mistaken party can void the contract if: (i) the mistake existed at the time the contract was formed; (ii) the mistake relates to a basic assumption of the contract; (iii) the mistake has a material impact on the transaction; (iv) the adversely affected party did not assume the risk of the mistake; and either (a) enforcement of the contract would be unconscionable or (b) the non-mistaken party caused the mistake, had a duty to disclose or failed to disclose the mistake, or knew or should have known that the other party was mistaken. There must be an absence of serious prejudice to the other party for recission of the contract to be granted.