CONTRACTS & SALES Flashcards
UCC Article 2
Article 2 of the Uniform Commercial Code (UCC) is tested about 1/2 the time there’s a Contracts & Sales MEE question.
“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.’ ”
OFFER
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.).
- Counteroffer: at common law, a statement is a counteroffer, rather than an acceptance, when the terms of the initial offer are changed (mirror-image rule).
- Promise to hold an offer open: 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).
CONSIDERATION
Consideration is a legal detriment or bargained-for exchange. A promise to make a gift does not constitute consideration.
- Preexisting duty rule: 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.
- Material Benefit: 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).
- UCC: under the UCC, only good faith is needed to modify a contract.
- 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.
Gap Fillers
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.
PERFORMANCE OBLIGATIONS
note the difference between performance obligations under common law and Article 2.
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. (*Note that this is different from UCC Article 2, which requires perfect tender for one-shot deals.)
- Exception—divisible contracts: 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.
ANTICIPATORY REPUDIATION
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.
PROSPECTIVE INABILITY TO PERFORM & DEMAND FOR ADEQAUTE ASSURANCE IF PERFORMANCE
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.
STATUTE OF FRAUDS
- State: “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.
- UCC: 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.
DURESS
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.
GENERAL DAMAGES FOR BREACH OF CONTRACT
be familiar with general damage principles.
“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.
RESTITUTION (ALSO CALLED UNJUST ENRICHENT OR QUANTUM MERUIT)
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.
MITIGATION
As a general rule, a party cannot recover damages for a loss that the party could have avoided by reasonable efforts.
