Contracts [the essentials]

Question 1

Common Law v. UCC

Answer 1

CL: services + real estate
UCC: goods

If mixed = predominant purpose wins out

Question 2

Merchant

Answer 2

An individual who regularly deals with goods of the kind sold

Holds themselves out as having special knowledge/skill as to the practices/goods involves

Question 3

Types of Ks

Answer 3

Express Contracts: formed by language [oral or written]

Implied Contracts [formed by conduct]

Quasi-Contracts: are NOT contracts but are the name given when an unenforceable contracts results in unjust enrichment

-this is generally the remedy of last resort–wasn’t a contract BUT..

Question 4

Bilateral Contract

Answer 4

MOST CONTRACTS ARE BILATERAL

An exchange of mutual promises

Can be accepted in any reasonable way

If one starts to perform then there is implied acceptance

Generally acceptance must be communicated (silence not ok)

Exception: if the entities have prior dealings/trade practices (custom), making it commercially reasonable for the offeror to consider silence as an acceptance.

Question 5

Unilateral Contracts

Answer 5

Acceptance by performance

Offeror promises to pay when performance is completed–meaning once the performance is completed, the contract is formed

Language: “my offer can only be accepted by….”

Unilateral contract offer becomes irrevocable once performance has begun [must begin as opposed to “mere preparation”]

Question 6

Warrantes in UCC K

Answer 6

Contracts under UCC automatically include warranty of title

Express Warranties: affirmation of the sellers promises about the goods

Implied Warranty of Merchantability:

-saying goods are fit for ordinary foreseeable purpose

Implied Warranty of Fitness for Particular Purpose: (1) buyer comes with special purpose (2) seller knows (3) seller picks out goods for buyers special purpose (4) buyer relies on sellers skill and judgement

Limitations on warranties: sellers can disclaim implied warranties but NOT express

Limitations on damages: can limit as long as not unconscionable

EXCEPTION: personal injury

Question 7

Requirements to form valid contract

Answer 7

1) mutual assent (offer + acceptance)
2) consideration
3) no defenses

Question 8

Offer

Answer 8

Offeror must manifest objective willingness to enter into agreement

Must give offer power of acceptance

specific terms in offer

Question 9

Terms needed in offer

Answer 9

CL: parties, subject, quantity, price
UCC: don’t need price

Question 10

Ads + offer

Answer 10

Ads generally do not = offers
-considered invitations to deal

Exception:
-contains promise
-terms are certain
-offeree is IDed

Question 11

Acceptance

Answer 11

Manifestation of willingness to enter into the agreement with the offeree

Question 12

Terminating Offer

Answer 12

(1) Revocation by offeror prior to acceptance (2) offeree rejects (3) offeree makes counter-offer (4) lapse of time (5) conditional acceptance = rejection

Rejection is effective when RECEIVED by offeror

Will terminate contract automatically.

1. Death or adjudication of insanity of either party
2. Destruction of the subject matter of the contract

3.Intervening illegality

Question 13

Indirect revocation

Answer 13

Offer may be revoked indirectly if the offeree receives (1) correct information (2) from a reliable source (3) acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer

Question 14

Mailbox Rule

Answer 14

Only applies to acceptances

Acceptance is effective upon dispatch–NOT receipt

Exception: if you write the address wrong–then the acceptance is effective upon receipt

Question 15

Option

Answer 15

Promise to keep offer open for a period of time

CL: must have consideration

UCC: DOES NOT NEED CONSIDERATION.

Merchant Firm Offer Rule applies: If a merchant in a signed writing promises to keep the offer open for a period of time, than that merchant offeror cannot revoke the offer during that time

If no time stated–then the period of irrevocability can’t be more than 90 days

The Mailbox Rule does NOT apply to options–if you want to accept an option that has been held open for you, you have to accept WITHIN the option period (meaning your acceptance must be in the sellers hands by the end of the period)

Question 16

Requirement Contract

Answer 16

Quantity is measured under the buyer’s good faith needs. You do NOT need a set quantity for a requirements contract

BUT–buyers orders must be proportionate with what has been ordered in the past–if disproportionate than seller does not. have to provide the larg(er) order

Question 17

Common Law Acceptance

Answer 17

Must be a mirror image of that offer

Cannot change any terms of offer

if you do change–acceptance = counteroffer (and rejection)

Question 18

UCC Acceptance

Answer 18

No Mirror image–just need to make a “seasonable expression of acceptance + can throw in additional terms

Battle of the Forms [BOTH parties must be merchants for this to apply]

(1) If offeree accepts the offer and makes a material alteration–terms of the offer controls, the added terms are out and we have a contract under the original terms of the offer

(2) If offeree accepts the offers and makes a non-material change to the offer, this change becomes part of the contract unless the offerror timely objects

MATERIAL CHANGE: Any change to an offer that affects money, liability, or remedies for breach of contract

(3) If offerree makes acceptance conditional upon assent to an additional term–THEN there is a counteroffer

Question 19

Consideration

Answer 19

transfer of legal value in a bargained for exchange

Question 20

Contract Modification

Answer 20

CL: must be supported by consideration

UCC: no consideration requirement
-valid if made in good faith

Question 21

Promissory Estoppel

Answer 21

substitute for consideration

1) promise
2) reasonably foreseeable that the promise would induce action or forbearance
3) justice requires enforcement of contract

Question 22

Defenses [to contract conformation]

Answer 22

Infancy
mental illness
intoxication–if other party had reason to know
necessaries doctrine

Question 23

Mutual Mistake

Answer 23

Arises when both parties are mutually mistaken about the contract terms

If mutual mistake goes to heart of the contract–then it is grounds for reccission

Question 24

Unilateral Mistake

Answer 24

Arises when only one party is mistaken about the contract terms

General Rule: is that unilateral mistake will NOT prevent contract formation

BUT–if non-mistaken party knows or has reason to know of the other parties mistake, they will not be allowed to take advantage of the mistaken party

Question 25

SOF

Answer 25

MUST BE IN WRITING

MYLEGS
-marriage agreements
- contract for term of years (>1 year)
-land sale contracts
-executory contracts
-goods for 500+
-surety contracts–promises to answer for the debt of another

Question 26

Merchants Confirmatory Memo

Answer 26

Merchant’s 10 day exception to the SOF

Requires 2 merchants

If one merchant within a reasonable time after entering into an oral agreement sends a written confirmation to the other merchant of that oral agreement it BINDS THE SENDING PARTY IMMEDIATELY.

If the recipient merchant does not object to the terms of that writing within 10 days of receipt, it BINDS THE RECIPIENT MERCHANT TOO

Question 27

Perfect Tender Rule

Answer 27

UCC

Seller must deliver perfect tender to the buyer

When the PTR is violated–and the seller delivers nonconforming goods to a buyer: considered both an ACCEPTANCE and at the same time a BREACH OF CONTRACT

Buyer has three options:

(1) buyer can accept the goods and pay the contract price

(2) buyer can timely reject the goods and sue for damages

(3) buyer can accept any commercial units and reject the rest

BUT–if the delivery is accompanied by a notice of accommodation–the delivery is instead a COUNTER-OFFER

-basically here is what we had, if you want go ahead and keep otherwise ship back on my dime

Question 28

Covering

Answer 28

UCC

Non-breaching party is expected to minimize damages by covering–getting goods from another party

STANDARD REMEDY UNDER UCC:

[cover price - contract price]

Once the non-breaching party has covered–they may recover the difference from the contract price and the cover price

Question 29

3rd Party Beneficiary

Answer 29

Vesting of Rights: prior to the 3rd party’s rights vesting–the contracting parties can cancel or modify the contract sans the 3rd party’s consent. Once vested–CANNOT CANCEL OR MODIFY WITHOUT 3RD PARTY ASSENT

Rights vest when: (any one of these are fine)

(1) when they learn of the contract and they assent to it

(2) when they learn of the contract and they rely on it

(3) when they learn of the contract and bring an immediate lawsuit to enforce their rights

Question 30

Parol Evidence Rule

Answer 30

Bars the introduction of prior or contemporaneous oral agreements that vary or modify the terms of a completely integrated written agreement

Exceptions:

Evidence of condition precedent–is ALWAYS allowed in

Trade Usage

Contract formation defenses

Course of dealing between parties

Industry practice

To interpret vague or ambiguous term [interpretation] can bring in evidence AND

Course of dealing: what parties conduct was in prior contracts

Course of Performance: parties conduct under prior installment of [current] contract

Question 31

Condition Precedent

Answer 31

An act or event that must occur first before a party is under a duty to perform

Question 32

Anticipatory Breach

Answer 32

An act or event that must occur first before a party is under a duty to perform

Question 33

Demand for Adequate Assurances

Answer 33

Occurs when one party is concerned the other party may not perform–as a result of an expression of doubt as to one’s duty to perform (on the part of the person who is expected to perform)

In such a case the party that has those doubts, may seek adequate assurances OR they can wait around until performance is due and then if the other party doesn’t perform–it’s breach!

BE CAREFUL THO: If you sue just based on an expression of doubt–then you will be in breach

Question 34

Assignment/Delegation

Answer 34

Rules:

NO CONSIDERATION NEEDED

(1) ALL CONTRACTS are assignable and delegable

Except–for unique personal service contracts and long term requirement contracts

(2) they can be oral or in writing

(3) they can be gratuitous or for value

BUT–gratuitous are viewed as being revocable while those for value are not [unless there is some evidence of reliance]

Question 35

Novation

Answer 35

New contract substituting out one of the parties for a new party and all terms otherwise remain the same

Question 36

Bearing Risk of [delivery] loss

Answer 36

Non Common Carrier Case: there is a hierarchy
(1) agreement allocates risk (controls)
(2) agreement where someone is in breach–the breaching party is liable and will bear risk
(2) no common carrier–depends on whether the seller is a merchant (a) merchant bears risk until buyer gets it (b) non-merchant bears risk until tenders goods to seller

[Tenders = seller telling buyer where stuff is + how to get it]

Common Carrier Cases:

Risk of loss will shift to the buyer when seller completes delivery obligation [not when actual delivery occurs]

Delivery obligations:

(1) shipment contract [most common] FOB “Sellers City”–buyer bears risk before they get the goods

(2) destination contract: FOB “not sellers city” [risk passes to buyer when goods are tendered to buyer at destination]

Question 37

Conditions

Answer 37

Limit obligations of the contract

Express Conditions: if NOT satisfied than grants excuse to innocent party

-this CAN be waived

Express Condition Precedent: an event that must occur before performance is due

Conditions Subsequent: events after performance that could cut off an already existing duty

Excuse of Conditions: may be excused by action or inaction of person protected by condition

-failure to cooperation: must cooperate in good faith or forfeit protection of condition

Question 38

Discharge by Recission

Answer 38

Party’s mutual agreement to cancel contract

Question 39

Partial Discharge by Modification of Contract

Answer 39

If a contract is subsequently modified by the parties, this will serve to discharge those terms of the original contract that are the subject of the modification. It will not serve to discharge the entire contract.

Question 40

Discharge by Accord + Satisfaction

Answer 40

Accord = agreement to accept different performance to replace existing duty

-does not get excused just by the accord

-the accord must be satisfied and then original AND accord is discharged

NEED CONSIDERATION

Question 41

Discharge by novation

Answer 41

new contract substitutes new party into a contract that exists already–in place of original party

Everyone has to know whats going on for this to be OK

Question 42

Impossibility/Impractibility

Answer 42

Excuse of performance–a later unforeseen event that makes party’s performance impossible

Examples:

-death/physical incapacity [this generally refers only to specific unique services]

-supervening illegality

-subsequent destruction of contracts subject matter

Question 43

Frustration of Purpose

Answer 43

(1) Both parties understood the central purpose (2) contract excused if contracts essential purpose undermined

Question 44

Breach

Answer 44

The failure to perform a legal obligation

Question 45

Material Breach

Answer 45

CL: Question is material breach OR substantial performance

-if SP then non-breaching party cannot avoid performance–must perform and THEN pursue remedies

Factors to consider re Materiality:

-benefit to non-breaching party

-adequacy of $ damages

-extent of part performance

-hardship to breaching party

-negligent/willful behavior of breaching party

If material breach:

-contract ended

-counter performance by NB party discharged

-IMMEDIATE right to remedies

Failure to perform within stated time does NOT equal MB unless time is of the essence

-courts will look to totality of the circumstances

Question 46

Substantial Performance

Answer 46

SP results in minor breach

Occurs if non-breaching party has gotten substantial benefit of bargain

Courts consider
-benefit received by NB party
-part performance by B party
-hardship to B party

Question 47

Acceptance of goods

Answer 47

Buyers accept if:
-indicate goods conform to contract
-indicate they will keep non-conforming goods
-fail to reject within
reasonable time
-act inconsistent with seller’s ownership

Acceptance can be revoked when:
[within a reasonable time and prior to substantial change to product]

-defect that substantially affects value + buyer accepted on reasonable belief that defect would be cured
-accepted goods because of difficulty discovering defect or sellers assurances that goods conformed

Question 48

Right to cure

Answer 48

UCC

When non-conforming goods are rejected, seller has right to cure within the time for performance

Beyond contract time: if seller had reasonable belief that goods would be accepted, they can get some extra time to cure

Question 49

Specific Performance

Answer 49

Rare! Occurs when money damages are inadequate

CL:

-only with land contracts
-service contracts no because that is involuntary servitude

UCC:
SP for goods: (1) goods unique (2) buyer cannot cover

Question 50

Right to redeem from insolvent buyers

Answer 50

UCC

(1) buyer insolvent at receipt (2) seller demands reclamation within 10 days of receipt

10 day limitation is extended if misrepresentation of solvency within 3 months in writing

Question 51

Liquidated Damages

Answer 51

Only upheld if damages were hard to estimate at time of contact

-MUST be reasonable–otherwise will be thrown out and construed as invalid [a “penalty”]

Question 52

Entrustment

Answer 52

The transfer of goods to a merchant who ordinarily deals in that type of goods. If the merchant subsequently sells them to a good-faith third-party purchaser–original owner has no rights

Original owner can still sue