Contracts & Sales

Question 1

Contracts & Sales

Choice of Law

Answer 1

The common law of contracts applies to all contracts, other than the sale of goods, to which the UCC applies.

If the contract is for the sale of both goods and services, the dominant purpose governs

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Goods

Aricle 2 of the UCC defines goods as all things moveable at the time they are identified as the goods to be sold under the contract.
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Merchants

A merchant is a buyer or seller who regularly deals in goods of the kind sold.

Question 2

Contracts & Sales

Formation

Checklist

Answer 2

1. Preliminary Note (Unilateral v. Bilateral Contracts)
2. Formation (Umbrella Rule)
3. Offer
4. Revocation
5. Acceptance
6. Consideration

Question 3

Contracts & Sales

Defenses to Formation

Checklist

Answer 3

1. Mistake
2. Ambiguity
3. Fraud
4. Illegality
5. Capacity

Question 4

Contracts & Sales

Breach

Checklist

Answer 4

1. Materiality
2. Anticipatory Repudiation
3. Demand for Assurances (UCC)
4. Implied Covenant of Good Faith & Fair Dealing

Question 5

Contracts & Sales

Excuses/Discharge

Checklist

Answer 5

1. Impossibility
2. Impracticability
3. Frustration of Purpose
4. Accord and Satisfaction
5. Waiver

Question 6

Contracts & Sales - Formation

Formation

Analytical Framework

Answer 6

Chronological Order
1. Offer
2. Acceptance
3. Counteroffer
4. Acceptance
5. Etc Etc

DO NOT FORGET to conclude on each element AND conclude on whether it is a valid contract
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Types of Offers/Contracts

Unilateral Contracts (Rare)
Unilateral contracts mandate acceptance only by performance
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Bilateral Contracts
Bilateral contracts consist of the exchange of mutual promises

Question 7

Contracts & Sales - Formation

Offer

Umbrella Rule

Answer 7

An offer consists of a
1. Promise, Undertaking, or Commitment to enter a contract;
2. With essential terms certain and definite; AND
3. Communication of the Promise and the Terms to the Offeree

Question 8

Contracts & Sales - Formation

Revocation

Answer 8

A revocation terminates the power to accept IF it is communicated to the offeree before they accept.

A revocation can be communicated directly OR where the offeree indirectly recieves correct information from a reliable source of acts that would indicate to a reasonable person that the offer is terminated.
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Direct Revocation
Revocation directly communicated to the offeree by the offeror terminates the offer.

Offers made by publication can be revoked by publication of revocation through comparable means
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Indirect Revocation
The offer may be terminated if the offeree indirectly recieves

1. Correct Information
2. From a Reliable Source
3. of acts the Offeror that indicate to a Reasonable Person that the Offeror no longer wishes to make the offer

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Mailbox Rule
Under the mail box rule, a revocation is only effective when it is received

NOTE: If you are given various dates of communications back and forth, the mailbox rule may be applicable

Question 9

Contracts & Sales - Formation

Revocation

Limitations

Answer 9

An offer can be revoked at will even if the offeror promised to keep it open.

However, the power to revoke is limited where:
1. Option
2. Merchant’s Firm Offer (UCC)
3. Detrimental Reliance
4. Performance of a Unilateral Contract Began
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Option
An offer is irrevocable where the offeree gives consideration in exchange for the offeror’s rpomise to keep the offer open

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Merchant’s Firm Offer
1. If a merchant
2. offers to buy or sell goods in a signed writing, and
3. the writing gives assurances that it will be held open, then
4. the offer is not revocable for a lack of consideration during the stated time, OR if no time is stated, a reasonable amount of time not to exceed 3 months.

NOTE: A firm offer is not automatically revoked and remains open until revocation.
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Detrimental Reliance
An offer will be held irrevocable as an option contract for a reasonable length of time where:
1. Offeror could reasonably expect that the Offeree would rely to their detriment on the offer, and
2. The Offeree does so rely

Question 10

Contracts & Sales - Formation

Acceptance

Umbrella Rule

Answer 10

At common law, an acceptance is unqualified assent to the terms of an offer.

Acceptance must be communicated to the offeror.

An offer may be accepted by any medium reasonable under the circumstances, EXCEPT where the offer limits the form of acceptance, in which case acceptance must comply with the limitation.
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Mailbox Rule
Acceptance by mail creates a contract at the moment of dispatch, UNLESS:
1. The offer stipulates that acceptance is not effective until received or otherwise controls the form of acceptance, or
2. An option contract is involved,

in which case, acceptance is effective only upon receipt.
(Only comes up when there is attempted revocation that does not reach offerre before acceptance)
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Conditional Acceptance
An express rejection by the offeree terminates the offer

A conditional acceptance is not acceptance, but constitutes a rejection.

Question 11

Contracts & Sales - Formation

Acceptance:
Counteroffer

Battle of the Forms (UCC)

Answer 11

Under the UCC, an acceptance that alters the terms is still a valid acceptance

Analysis depends on whether both parties are merchants, and if so, whether the varied terms are different or additional

Types of Battle of the Forms Analysis
1. One Non-Merchant
2. Different Terms
3. Additional Terms
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One Non-Merchant
If any party to the contract is not a merchant, the different or additional terms are considered proposed modifications and are not considered part of the contract UNLESS the offeror expressly agrees
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Different Terms
Different Terms contradict each other.
In dealing with conflicting terms, most courts apply the Knockout Rule, whereby the conflicting terms are both knocked out and are then replaced by a UCC gap filler
If no gap filler exists, then the terms may be replaced by the parties course of performance
Other courts treat different terms the same as additional terms
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Additional Terms
Additional terms between merchants become part of the contract, UNLESS
1. The offer expressly limits acceptance to the terms of the offer;
2. The additional terms materially alterthe offer; or
3. Notice of Objection to the additional or different terms is given within a reasonable time after the terms are received.

Question 12

Contracts & Sales - Formation

Acceptance:
Prompt Shipment (UCC)

Answer 12

Offer to buy goods for prompt or current shipment can be accepted by the promise to ship or the shipment of goods.

Shipment of nonconforming goods is both acceptance and breach, UNLESS the seller seasonably notifies the buyer of the accomodation. In which case, the shipment is a counteroffer and the buyer may choose to either accept or reject and the seller is not in breach.

Question 13

Contracts & Sales - Formation

Acceptance:
Perfect Tender

Answer 13

If goods or tender fail in any respect to conform to the contract, the buyer may accept all goods, reject all goods, or accept some goods and reject the rest.

However, if the seller offers to cure by tendering conforming goods within the time for performance, the buyer must allow the seller to do so.

Rejection must be within a reasonable time after delivery or tender, and requires that the buyer seasonably notify the seller (REMEDIES ISSUE)

Question 14

Contracts & Sales - Formation

Consideration

Umbrella Rule

Answer 14

Consideration requires a bargained-for exchange–a detriment to the promisor and a benefit to the promisee.

Promise given in exchange for something already done (past or moral consideration) is not valid consideration, UNLESS promissory estoppel applied
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Promissory Estoppel
Where consideration fails AND the contract is invalid, reliance damages may be available if:
1. The promisor should reasonably expect to induce definite or substantial action or forebearance, AND
2. Action or forebearance is induced.

NOTE: only the promise is enforced, not the contract, so only reliance is available.

Question 15

Contracts & Sales - Defenses to Formation

Mistake

Types of Mistake

Answer 15

1. Mutual Mistake
2. Unilateral Mistake

NOTE: Mistake in value is not a defense
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Mistake
When both parties to a contract are mistaken about existing facts relating to the agreement, the contract may be voidable by the adversely affected party IF:

1. The mistake concerns basic assumptions upon which the contract was made;
2. The mistake has material effect on the agreed-upon exchange; and
3. The party seeking avoidance did not assume the risk of mistake

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Unilateral Mistake
If only one party is mistaken about facts relating to the agreement, the contract is voidable by the mistaken pary IF:

1. The non-mistaken party knew or had reason to know of the mistake;
2. The mistake has a material effect on the agreed-upon exchange; and
3. The mistaken party did not bear the risk of mistake

Question 16

Contracts & Sales - Defenses to Formation

Ambiguity

Answer 16

If a contract has terms susceptible to two meanings, the result depends on the parties’ understanding of the ambiguity.

If neither or both parties are aware of the ambiguity, the contract is unenforceable. UNLESS both parties intended the same meaning.

If one partyis aware of the ambiguity, the contract is formed based on the ignorant party’s reasonable interpretation of the term.

Question 17

Contracts & Sales - Defenses to Formation

Fraud

Answer 17

If one party induces another party to enter a contract by fraudulent misrepresentation, the contract is voidable by the innocent party if the reasonably relied on the fraudulent misrepresentation.

Question 18

Contracts & Sales - Defenses to Formation

Illegality

Answer 18

Illegal consideration or subject matter renders a contract void

Question 19

Contracts & Sales - Defenses to Formation

Capacity

Answer 19

1. Minors
2. Mental Incapacity
3. Intoxication

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Minors
Contracts with minors under the age of 18 are voidable by the minor.

A minor who disaffirms before reaching 18 is not required to perform, BUT they must recieve any consideration recieved that they still possess.

A minor affirms the contract by failing to disaffirm the contract within a reasonable time after turning 18.
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Mental Incapacity
Contract is voidable by the party whose mental capacity is so deficient that they are incapable of understanding the nature and significance of the contract
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Intoxication
One who is intoxicated so as not to understand the nature and signficance of their promise may be held to have made a voidable promise IF the other party had reason to know of the intoxication.

The intoxicated party may affirm the contract when sober.

Question 20

Contracts & Sales - Defenses to Enforcement

Defenses to Enforcement

Umbrella Rule

Answer 20

Defenses to enforcement apply where a contract is made validly but is not enforceable.

1. Statute of Frauds
2. Unconscionability

NOTE: If it is an oral contract you must discuss the Statute of Frauds

Question 21

Contracts & Sales - Defenses to Enforcement

Statute of Frauds

Answer 21

The Statute of Frauds requires certain contracts to be made in writing.

If the contract is not made in writing, contracts subject to the Statute of Frauds are unenforceable at the option of the party being charged.

The party being chaged waives this right if they do not raise it as a defense
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Writing Requirement
Contracts subject to the Statute of Frauds:
1. A promise to pay the debt of another
2. Any interest in land
3. Contracts that cannot be performed within one year; or
4. The sale of goods for $500 or more

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Writing Sufficiency
Any writing satisfies the Statute of Frauds if it:

1. Is signed by the party charged; and
2. References the terms that implicate the Statute of Frauds

Question 22

Contracts & Sales - Defenses to Enforcement

Statute of Frauds Exceptions

List of Exceptions

Answer 22

Lack of writing does not render a contract unenforceable if:
1. Admission
2. Full Performance
3. Goods
4. Real Property
5. Detrimental Reliance

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Admission
Admission in pleadings in court (evidentiary or judicial) renders a contract subject to the Statute of Frauds valid, regardless of whether it satisfies the writing requirement
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Full Performance
Full performance is required if the contract is for services or sale of goods

Goods
(1) When goods have been either:
* specially manufactured, or
* paid for or accepted; AND
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(2) Written confirmation is provided between merchants where the recipient:
* had reason to know of the writing’s contents, AND
* has not objected within 10 days

Question 23

Contracts & Sales - Defenses to Enforcement

Unconscionability

Umbrella Rule

Answer 23

A court may modify or refuse to enforce a contract or a contract provision to avoid unfair terms

Usually, unconscionability is due to unfairness in the bargaining process (procedural unconscionability), and is not simply due to an unfair price.
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Indicia
The most prominent indicia of unconscionability are
1. Whether the terms a reone-sided at the time of formation (especially in a pre-printed contract) and
2. Whether the parties have unequal bargaining power

Question 24

Contracts & Sales - Third Party Beneficiaries & Assignees

Third Party Beneficiaries

Answer 24

Involves:
1. A promisor, the party promising to perform in favor of the third party beneficiary;
2. A promisee, the party who extracts the promise from the promisor in favor of the third party beneficiary; and
3. A third party beneficiary, a non-party who benefits from the promise.

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The issue is whether the nonparty can enforce the contract
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(1) Intended Beneficiaries
* Beneficiaries known at the time of contracting
* Can enforce the contract IF their rights are vested
* Can be either Creditor or Donee beneficiaries

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In determining whether a beneficiary was intended, consider whether:
1. The beneficiary is expressly designated or identifiable at the time of performance
2. Performance is made directly to the beneficiary
3. The beneficiary has rights under the contract
4. The relationship between the beneficiary and the promisee suggests the promisee wishes the beneficiary to be benefited.

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An Intended Third Party Beneficiary can enforce a promise only once their rights have vested.

Third Party Beneficiary rights may be modified or rescinded before they have been vested.

Rights vest when the beneficiary:
1. Manifests assent in a manner requested by the parties
2. Sues to enforce the promise; or
3. Materially changes their position in justifiable reliance of the promise.
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Types

(1) Creditor
* A creditor beneficiary is the person to whom the promisee owes a debt
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(2) Donee
* A donee beneficiary is the person to whom the promisee intendts to benefit gratuitously

RIGHTS
Either a creditor or donee beneficiary can sue the promisor if they fail to perform.

Only a creditor can sue the promisee (except for detrimental reliance) if they fail to perform.
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(2) Incidental Beneficiaries
* Beneficiaries who may or may not be known at the time of contracting
* Cannot enforce the contract.
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Defenses
The promisor can raise any defense against the Third Part Beneficiary that the promisor could have raised against the promisee

Question 25

Contracts & Sales - Third Party Beneficiaries & Assignees

Assignment

Key Issues to Look For

Answer 25

The transfer of rights under a contract involves three issues
1. What rights may be assigned,
2. What is required for assignment,
3. When is the assignment revocable

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Assignable Rights
All rights may be assigned except those that change an obligor’s duty

Major contracts included in this exception are:
1. Personal Services Contracts
2. Requirements and Output contracts (may be allowed under UCC), and
3. Assignments that substantially alter the obligor’s risk

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Requirements
The right being assigned must be adequately described in the manifestation of assignment, and the assignor must indicate intent to completely and immediately assign interest to the assignee.

Consideration is not required.

Writing is only required when it is for:
1. Interest in land
2. wages
3. security interest
4. and choses in action up to $5,000

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Revocability
Assignment is revocable, UNLESS
1. The assignment is given for consideration (or taken as security ofr a debt);
2. The obligor has already performaed;
3. A tangible claim has been delivered (e.g. stock certificate)
4. The assignment is of a chose in action in writing;
5. Estoppel of revocation of assignment due to forseeable deterimental reliance

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Defenses
The obligor can assert any defense against the assignee that it had against the assignor, except personal defenses that arose after the obligor had notice of assignment

Question 26

Contracts & Sales - Third Party Beneficiaries & Assignees

Delegation

Answer 26

Delegation is a transfer of duties, rather than an assignment of the entire contract.

All duties may be delected EXCEPT:
1. Duties involving personal judgment and skill
2. Where there is Special Trust in the delegor (Attorney or physician)
3. The delegation would create change in the obligee’s expectancy (requirements and outputs); or
4. There is a contractual restriction on delegation

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Delegator Liability
The obligor can assert any defense against the assignee that it had against the assignor, except personal defenses that arose after the obligor had notice of assignment
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Delegate Liability
The delegate is liable to the non-delegating party ONLY IF
1. The delegate attempts to perform, OR
2. The delegate makes a promise to perform, supported by consideration

Question 27

Contracts & Sales - Construction

Construction

Key Issues/What to Look For

Answer 27

The only significant issue tested on construction is parole evidence

Look for:
1. An excuted written agreement and
2. a prior or contemporaneous oral discussion of other terms.

IF there is a subsequent expression, the parole evidence rule does not apply (extrinsic allowed) –> discuss modification instead

Question 28

Contracts & Sales - Construction

Parole Evidence Rule

Answer 28

Considerations
1. Whether there is a written agreement
2. Whether the parties previously or contemporaneously discussed a term that would contradict or supplement the writing, and
3. Whether the agreement is fully or partially integrated

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Fully Integrated
If a contract is fully integrated, any other written or oral expressions made prior to the writing and any oral expressions made contemporaneously to the writing are inadmissible to vary the terms of the writing.
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If there is a merger clause stating the agreement is complete, it is fully integrated
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Partially Integrated
If a contract is not intended to be fully integrated, the the writing cannot be contradicted, BUT it may be supplemented with consistent terms.

Evidence is allowed to show intent.

Question 29

Contracts & Sales - Construction

Parole Evidence Rule Exceptions

Answer 29

1. Formation Defects (fraud, duress, mistake, and illegality)
2. Condition Precedent to effectiveness of the agreement
3. Interpretations of Ambiguity
4. Showing of True Consideration

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Condition Precedent
If a party asserts there was an oral agreement that the written contract would not become effective until a condition occured, evidence of the understanding is admissible
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Ambiguity
The abiguity must be on the face of the contract.

The oral conversation itself cannot create the ambiguity.
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True Consideration
The Parole Evidence Rule does not prohibit extrinsic evidence showing true consideration paid

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UCC

Under the UCC, a written contract’s terms may be explained or supplemented by extrinsic evidence of
1. course of performance
2. court of dealing
3. usage of trade

Question 30

Contracts & Sales - Construction

Modification

Answer 30

Subsequent expressions made after the execution of a written agreement that are not prohibited by the Parole Evidence Rule may be considered modifications to the contract.

NOTE: Discuss modification separately from Parole Evidene Rule discussion
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Common Law

Under the common law, modification requires additional consideration

However, the modern trend is to allow modification if it is fair and equitable under circumstances not anticipated at the time the contract was made.

“No oral modification” clauses are unenforceable under common law

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UCC

Under the UCC, no additional consideration is required if the modification was made in good faith

The UCC allows “no oral modification” clauses, which prohibit parties from orally modifying the contract.

Oral modification waives the written clause

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Statute of Frauds

If the modification brings the contract within the Statute of Frauds, it must be in writing

Question 31

Contracts & Sales - Conditions

Conditions

Answer 31

The failure of a condition precedent, or occurence of a condition subsequent, constitutes an excuse from performance and avoids breach
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Condition v. Promise

The occurence of a condition paves the way for breach if the duty is not performed and is an excuse for non-performance if the condition does not occur, in which case there would be no breach.

Promise = Commitment to do or refrain from doing something

Condition = An event, other than the passage of time, that will extinguish, modify, limit, or create a duty to perform. A condition modifies a promise.
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Condition Precedent

Conditions precedent to effectiveness must occur for the contract to be effective
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Conditions precedent to performance must occur before the particular duty to perform arises

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Condition Subsequent

Conditions subsequent terminate the duty to perform
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Constructive (Implied) Conditions

A condition that implies a duty to render performance, even though it is not explicitly stated in the contract

Question 32

Contracts & Sales - Breach

Breach

Umbrella Rule

Answer 32

A breach occurs when a promisor has a duty and fails to perform it.

If the obligee received the substantial benefit of the bargain, despite defective performance, it is a minor breach and the nonbreaching party must still perform.

If the obligee did not receive the substantial benefit of the bargain, it is a material breach and the obligee’s duty to perform is discharged.
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Minor

Obligee’s performance is not excused, but they can either:
1. Deduct the cost of the breach from payments due under the contract OR
2. Obtain damages attributable to the breach,

Question 33

Contracts & Sales - Breach

Anticipatory Repudiation

Umbrella Rule, Effect on Parties, & Analysis Tips

Answer 33

When one party to a contract clearly informs the other party that they do not intend to perform before the date of performance is due, the first party has committed an anticipatory repudiation of the contract.

The nonrepudiating party is entitled to treat anticipatory repudiation as breach and may immediately sue

Question 34

Contracts & Sales - Breach

Demand for Assurances (UCC)

Answer 34

Under the UCC, if circumstances give rise to reasonable grounds for insecurity regarding the party’s performance, the party to whom performance is owed may demand assurances in writing that performance will be timely forthcoming.

Until assurances are received, the party requesting assurances may suspend performance.

If proper assurances are not given with a reasonable time, the requesting party may treat the contract as repudiated

Question 35

Contracts & Sales - Breach

Implied Covenant of Good Faith & Fair Dealing

Answer 35

The implied covenant of good faith and fair dealing exists in every contract and requires the parties to do nothing that would prevent the performance of the other party.

Question 36

Contracts & Sales - Excuse/Discharge

Excuse/Discharge

What to Look For/When to Apply

Answer 36

If a call of the question asks whether breach or performance is excused, it is asking for a discussion of various grounds for discharge of contractual duty.

Any time impossibility, impracticability, or frustration comes up, discuss all three

Question 37

Contracts & Sales - Excuse/Discharge

Impossibility

Answer 37

Parties may be relieved if performance becomes impossible.

An impossibility must:
1. Be objective, meaning neither party can perform its duties,
2. Arise after the contract has been formed, and
3. Not have been caused by one of the parties.

Question 38

Contracts & Sales - Excuse/Discharge

Impracticability

Answer 38

Impracticability requires:
1. The party to perform to encounter extreme and unreasonable difficulty or expense
2. The difficulty was not anticipated; and
3. The difficulty was **not created by **one of the parties.

Economic Disruptions can be anticipated and are not usually considered impracticable.

Question 39

Contracts & Sales - Excuse/Discharge

Frustration of Purpose

Answer 39

An unforeseeable supervening act that renders a contract valueless.

Requirements
1. A supervening act not created by either party
2. Which the parties did not reasonably foresee at the time of contracting;
3. The supervening act completely or almost completely destroys the purpose of the contract; and
4. Both parties were aware of the purpose when making the contract

Question 40

Contracts & Sales - Excuse/Discharge

Accord & Satisfaction

Answer 40

Essentially a new contract in place of the old one

Accord
An accord is an agreement where one party to an existing party agrees to accept, in lieu of the agreed-upon performance, some other, different performance.

An Accord must be supported by consideration, which can be partial payment of the original agreed-upon price and forebearance to sue.

Satisfaction
Satisfaction is the performance of the accord agreement.

Satisfaction discharges the original contract and the terms of the accord.

Question 41

Contracts & Sales - Excuse/Discharge

Waiver

Answer 41

A condition of a contract may be waived by words or conduct indicating that the benefitted party will not insist on the condition being met.

A one-time waiver will generally not waive the condition on future occurences.

A series of waivers may result in a permanent waiver of a condition