Contract

Question 1

Applicable law

Answer 1

Article 2 of the Uniform Commerce Code (UCC) governs contracts for the sale of goods. Goods are defined as movable things. Otherwise, Common Law dictates, unless it’s a mixed contract, where the predominant purpose of the contract will determine the appropriate law.

1. Predominant purpose of the contract will determine the appropriate law.
2. Gravaman test - Focuses on the part of the transaction giving rise to the dispute.

Question 2

Merchants

Answer 2

A merchant is one who regularly deals in goods of the kind sold in the contract and who holds themselves out as a merchant.

Question 3

Formation

Answer 3

Contract formation requires:
1. An offer:
2. An acceptance:
3. Consideration; and
4. No defenses to formation.

Question 4

Offer

Answer 4

An offer is a manifestation of intent to contract, with clear and certain terms, communicated to an identified offeree.

Question 5

Merchant firm offer

Answer 5

An offer is not revocable if it’s made by a merchant, in signed writing, that gives assurances that it will be held open for the period stated in the writing (or if no time is stated, a reasonable time not to exceed three months).

Question 6

Retraction of a unilateral offer

Answer 6

A unilateral offer may be retracted either by lapse of a reasonable time or earlier, by effective revocation.

Question 7

Revocation

Answer 7

A revocation is a retraction of an offer by the offeror and it’s only valid if communicated to the offeree before acceptance.

Question 8

Counter-offer

Answer 8

A counter-offer is a response made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in terms. It operates as a rejection of the original offer as well as a new offer.

Question 9

Option contracts

Answer 9

An offer is not revocable if the offeree gives consideration for a promise by the offeror to refrain from revoking an offer, for either a stated amount of time, or reasonable time if no time is specified. Option contracts are an exception to the mailbox rule, and are accepted upon receipt, not upon mailing.

Question 10

Acceptance

Answer 10

Acceptance requires a manifestation of assent to the terms of the offer.

Question 11

Mirror image rule

Answer 11

Under the Common Law, an acceptance must mirror the offer.

Question 12

Battle of the forms

Answer 12

Unlike Common Law, where acceptance must exactly mirror the offer, UCC Article 2 allows that acceptance of an offer can be made with different specifics, including clauses, amounts, etc. In order for these changes to be effective and not be considered a rejection and counter offer, both parties must be merchants. Additionally, the new terms may not materially change the contract and there may not be a clause in the offer prohibiting such changes or additions. In a case where such a UCC 2 contract is returned, the receiving party must object to any changes within a reasonable time, or else the contract is considered valid.

Question 13

Bilateral contracts

Answer 13

The start of performance manifests acceptance, where the contract may not be revoked.

Question 14

Unilateral contracts

Answer 14

A unilateral contract is a contract where a party states a requirement without an identified offeree. The start of performance renders a unilateral contract irrevocable, where acceptance exists only when performance is complete. If beginning performance, an offeree must inform the offeror of completion of performance within a reasonable time.

Question 15

Consideration

Answer 15

Consideration is a bargained-for exchange of something of legal value. Consideration can also include enjoining someone from doing something they are legally allowed to do. Courts generally will not question the adequacy of consideration, a “mere peppercorn” may suffice. A promise to refrain is consideration.

Question 16

Gratuitous promise

Answer 16

If consideration is provided for past services, the promise is invalid.

Question 17

Enforcement of an expired debt

Answer 17

An exception to the pre-existing duty rule, no consideration is required to contract to receive a pre-existing defaulted debt.

Question 18

Parol evidence rule

Answer 18

Evidence of a prior or contemporaneous agreement may not be introduced if it contradicts a later integrated writing. Exceptions include:
1. Proof of a condition;
2. Clerical error:
3. To employ a defense of formation;
4. To interpret vague terms; or
5. To supplement a contract that is only partially integrated. If a contract contains no time or date of completion, or no merger clause, then assume the contract is only partially integrated).

Question 19

Parol evidence rule under UCC

Answer 19

The course of dealing, course of performance and trade usage can be introduced as evidence to explain or supplement any written contract for the sale of goods.

Question 20

Course of dealing

Answer 20

The sequence of previous conduct between the parties to a particular transaction which establishes a common basis of understanding for interpreting their expressions and conduct.

Question 21

Course of performance

Answer 21

A pattern in the performance of the contract. If a contract involves repeated occasions for performance by either party, and the other party knows of the nature of the performance and has an opportunity to object to such performance, any course of performance accepted or acquiesced without objections is relevant to the meaning of the agreement.

Question 22

Trade usage

Answer 22

A practice or method of dealing that is so regularly observed in a place or trade that it justifies an expectation that it will be observed in the present transaction.

Question 23

Course of dealing, course of performance and trade usage

Answer 23

May supply both additional terms and aid in the construction of the existing terms. A course of dealing, when inconsistent with trade usage, controls.

Question 24

Illusory contract

Answer 24

An illusory contract is an attempt to contract, however is not legally binding. For example, “I will buy, if I decide to” is an illusory contract because it does not offer an actual detriment. If the contract says a party can cancel before a certain date, it is illusory until that date; however, a binding contract after that date.

Question 25

Implied in fact contract

Answer 25

A contract based on a tacit promise, inferred when: 1. Conduct creates a contract, 2. A benefit was received that could have been refused, and 3. It would be fair to presume payment was expected.

Question 26

Requirement contract

Answer 26

A contract where a purchaser will fill their entire requirement for a particular good from the contracted seller. (Think of the bakery owner who enters a requirement contract to buy all the flour he needs from a particular flour mill).

Question 27

Output contract

Answer 27

A contract where a seller of goods will contract with a buyer to sell them all of the goods produced by the seller. (Think about a large cereal manufacturer who will contract with many wheat farms to buy all of the wheat they can grow).

Question 28

Rights of an intended beneficiary

Answer 28

An intended beneficiary can enforce a contract to which is not a party because the parties intended the contract to benefit that beneficiary. However, one party to the contract can assert against the beneficiary claims for breach by the other party to the contract, because the beneficiary stands in the original party's shoes.

Question 29

Delegation of duties

Answer 29

A delegation is a transfer of duties. It generally consists of a situation where the obligor/delegator promises to perform for the obligee, but then delegates their duty to the delegatee. Generally, all duties may be delegated except those that involve personal judgment and skill, or the delegation would alter the rights to the obligee.

Question 30

Assignment of rights

Answer 30

A transfer of rights. This is a situation where an obligor contracts within an assignor. The assignor then assigns their right to the obligor's performance to the assignee. Generally, all contractual rights may be assigned, other than ones that would substantially change the obligor's duty of risk, assign future rights from future contracts, or are prohibited by law.

Question 31

Novation

Answer 31

When all parties to a contract agree to release one of the parties and replace them with a third party.

Question 32

Modifications

Answer 32

Under Common Law, contract modifications require consideration. Exceptions exist, including when there are changed circumstances and the contract is not fully performed. Under the UCC, consideration is not required for contract modifications in good faith.

Question 33

UCC perfect tender rule

Answer 33

A seller must deliver goods that perfectly conform to the contract. In the case of goods that don't perfectly conform, in any respect (including time of tender), a buyer may reject all or a portion of the goods. The seller may cure if the performance due date hasn't arrived. Also, when dealing with installment contracts, if one of the installments does not conform to the contract, that installment must substantially jeopardize the value of the entire contract. Exceptions to the perfect tender rule include trade usage (industry standard) and impracticability.

Question 34

Non-conforming goods sale

Answer 34

Upon receiving non-confirming goods, the buyer may sell the goods in a public or private sale, but must notify the seller beforehand.

Question 35

Rejection of goods

Answer 35

A buyer is required to provide timely notice to the seller that the goods received are rejected.

Question 36

Consequences of a rejection of goods

Answer 36

A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance REVESTS title to the goods in the seller. Such revesting occurs by operation of law and is not a sale. After the rejection, any exercise of ownership by the buyer with respect to any commercial unit is wrongful against the seller. If they transfer possession of goods that they don't have property rights to (without notifying the seller and receiving authorization), to another person, they can be sued for conversion.

Question 37

Anticipatory repudiation

Answer 37

Occurs when a party unambiguously communicates they will not perform before performance is due. The aggrieved party may treat the anticipatory repudiation as: 1. A breach, and sue immediately: 2. Suspend performance, and wait to sue when performance is due; 3. To treat the repudiation as an offer to rescind or have the contract discharged; or 4. Ignore the repudiation and urge performance. Sue immediately Suspend performance Urge performance Rescind/Discharge SSURD. Because anticipatory repudiation is absurd!!

Question 38

Adequate assurances

Answer 38

A party to a contract with legitimate concerns they will not receive their contracted performance may request adequate assurances. An adequate assurance is some form of evidence or confirmation that the contract will be fulfilled. If the other party does not provide these assurances within a reasonable time, the requesting party may treat that as an anticipatory repudiation.

Question 39

Anticipatory repudiation retraction

Answer 39

A repudiation can be retracted unless, they aggrieved party has: 1. Actively canceled the contract; 2. Materially changed position; or 3. Accepted the repudiation as a final decision not to perform.

Question 40

Breach

Answer 40

A contract breach occurs when a party fails to perform when: 1. Conditions precedent are satisfied; 2. Time to perform arrives; and 3. Performance is not discharged.

Question 41

Conditions

Answer 41

A condition makes performance obligatory only when the condition occurs. Concurrent conditions occur simultaneously, but each functions as a condition precedent to the other.

Question 42

Satisfaction conditions

Answer 42

Can be viewed subjectively, but in good faith. Even if objectively satisfactory by reasonable persons, the client decides his own objective satisfaction.

Question 43

minor or material breach

Answer 43

If a party does not receive the substantial benefit of their bargain, the breach is material and they are no longer obligated to continue performance under the terms of the contract. The non-breaching party will have an immediate right to all remedies available. A breach of contract is minor if a party gains a substantial benefit of their bargain despite defective performance. A minor breach does not relieve the aggrieved party of performance under the contract, it merely gives them a right to damages for the minor breach.

Question 44

Time is of the essence

Answer 44

Contract performance is required within a reasonable time as specified in the contract. However, if the contract contains a 'time is of the essence' clause, failure to perform by that date results in a material breach of contract. (Remember, even if the contract has a specific date in which performance is required, a material breach does not occur until a reasonable amount of time has passed beyond that date).

Question 45

Mutual mistake

Answer 45

A contract is voidable when both parties are mistaken as to a basic assumption of the contract which is material to the contract, and the party claiming the mistake did not obligate to bear the risk of such a mistake.

Question 46

Unilateral mistake

Answer 46

A mistake by one party that is unknown to the other party, concerning a basic assumption that is material to the contract. A unilateral mistake may be a defense to formation if one party knew or had reason to believe that the other party was mistaken.

Question 47

Misrepresentation

Answer 47

Defendant makes a misrepresentation of material fact for the purpose of inducing the plaintiff to rely on the misrepresentation to their detriment. Nominal damages are not available. 1. Fraudulent - Intentional 2. Negligent - Not international

Question 48

Duress

Answer 48

Duress is a wrongful pressure exerted upon a person in order to coerce that person into a contract that he or she wouldn't ordinarily enter.

Question 49

Impracticability

Answer 49

The defense of impracticability is available when some unanticipated event renders performance unreasonably difficult to perform under the contract.

Question 50

Impossibility

Answer 50

Impossibility discharges performance if it would be objectively impossible to perform due to unforeseen circumstances.

Question 51

Frustration of purpose

Answer 51

A defense to contract enforcement that relieves the buyer from performance when an unforeseen event destroys a buyer's purpose for creating the contract. In order for the buyer to be excused, the seller must have known the buyer's purpose at the time of contract formation. You rent a hotel room to watch the Super Bowl parade from the balcony. • The hotel is fine. • The room is available. • But the parade gets canceled. You can still stay in the room. BUT the reason you rented it is gone. 👉 That is frustration of purpose.

Question 52

Unconscionability

Answer 52

A contract may be void where the provisions are so one-sided that they are unconscionable at the time of formation. Applies where one party has unequal bargaining power.

Question 53

Illegality

Answer 53

Illegality can be a valid defense to contract formation, deeming a contract unenforceable if it involves illegal activities or violates public policy.

Question 54

Illegal contract - raise revenue

Answer 54

A statute to raise revenue (not to protect the public welfare) will not prevent contract enforcement if the contractor has not obtained a statutory required license.

Question 55

Illegal contract - protect public welfare

Answer 55

If a party is prohibited from doing an act because of his failure to comply with a licensing requirements, any agreement to do that act is unenforceable on grounds of public policy if: 1. The requirement has a Regulatory Purpose; and 2. The interest in the enforcement of the promise is clearly outweighed by the Public Policy behind the requirement.

Question 56

Infancy

Answer 56

Infancy refers to the legal status of being a minor. Allows minors to avoid contractual obligations, meaning they can choose to not be bound by a contract they entered into.

Question 57

Voidable Contracts

Answer 57

Contracts made with minors are not automatically void (invalid), but rather, they are voidable, meaning the minor has the option to either affirm or disaffirm (cancel) the contract.

Question 58

Minor's Choice

Answer 58

The minor can choose to uphold the contract and be bound by it, or they can disaffirm it, even if the contract is otherwise valid.

Question 59

No Need for Cause

Answer 59

A minor can disaffirm a contract without needing to show any specific reason, other than their age.

Question 60

Limited Exceptions

Answer 60

There are exceptions to this rule, most notably for contracts for necessities like food, clothing, and shelter, where the minor may be held liable for the reasonable value of the goods or services.

Question 61

Time Limit

Answer 61

In most states, a minor can disaffirm a contract up to the age of majority, and sometimes for a reasonable time afterward.

Question 62

Statute of Frauds

Answer 62

The following contracts are not valid unless they are in writing: (MYLEGS) 1. Marriage 2. contracts that cannot be performed within a Year 3. Land sale or land leases for over a year in length; 4. Executor guarantees to pay: 5. contracts for Goods valued over 500; and 6. Suretyships. Writings must be signed by the party charged, reasonably identify the subject matter, indicate there is a contract and state the essential terms. Where there is a part performance which unequivocally indicates acceptance, a party will be estopped from claiming there was no contract based on a lack of writing. Can be a number of writings, no need for only one signed document. Email messages suffice, including signature or not.

Question 63

Statute of Frauds exceptions

Answer 63

Even if the contract is not in writing, contracts that are: 1. Fully performed: 2. If there is a judicial acknowledgment of the agreement; or 3. Where there has been a foreseeable, detrimental reliance on the contract will still be enforced. 4. Also, the promise will not fall under the Statute of Frauds when the purpose of making the guarantee was to benefit the person making the promise.

Question 64

Statute of Frauds - Partial performance exception in land sale contracts

Answer 64

A buyer may seek to specifically enforce an oral land sale contract under the doctrine of partial performance, that unequivocally indicates that the parties have contracted for the sale of lands. 1. Payment in whole or part; 2. Possession/and or 3. Valuable improvements. 4. A purchaser of an interest in land may only enforce the contract in equity, meaning they can only sue for specific performance, not damages.

Question 65

UCC SOF exceptions

Answer 65

A contract will be enforced despite not being in writing when: 1. A party has received the Merchants Confirmatory Memorandum and the receiving party does not object in a reasonable time; 2. If the good in question has been received and paid for; or 3. If the goods in question were custom made.

Question 66

Accord and satisfaction (UCC)

Answer 66

Discharges the debtor from the contract. A creditor who cashes a check marked 'in full settlement' will lose his claim as long as: 1. The check contained a conspicuous statement that it was tendered as full satisfaction of the claim; 2. The claim was subjected to bona fide dispute; and 3. The debtor acted in good faith.

Question 67

Compensatory damages

Answer 67

These damages are required to compensate a plaintiff for their contractual damages and includes both expectation damages and consequential damages. In order to receive compensatory damages, they must have been: 1. Foreseeable, 2. Causal, 3. Certain and 4. Unavoidable, 5. (and may not be awarded, or may be reduced should there have been a failure to mitigate damages).

Question 68

Expectation damages

Answer 68

These damages include all expected profits or costs that would have been realized if the contract was fully performed by the breaching party. These damages place a non-breaching party in the position they would have been if there was no breach. Expectation formula = Loss in value + Other loss - Cost avoided - Loss avoided

Question 69

Consequential damages

Answer 69

These are damages that stem indirectly from the breach, however are foreseeable and certain. (Lost salary while hospitalized).

Question 70

Reliance damages

Answer 70

If a plaintiff's expectation damages are too speculative to measure, they may elect to recover based on the reasonable reliance on the contract. Reliance damages award the plaintiff the cost of performance and are designed to place a plaintiff in the position they would have been if the contract was never formed.

Question 71

Liquidated damages

Answer 71

These are damages specified within the writing of the contract. Liquidated damages require that the damage be Difficult to Estimate and will not be enforced if the damages are Unreasonable, or if used as a Penalty for non-performance.

Question 72

Incidental damages

Answer 72

These are damages that are smaller, reasonable costs that stem directly from the breach. (Cost for the newspaper ad to find a new employee).

Question 73

Restitution (Impossibility, Impracticability, FOP)

Answer 73

If an event occurs during the performance of a contract that is unexpected be either of the parties at the time of the contract, and which affects the feasibility of even performing the contract, both parties will be discharged by the doctrine of impossibility. If part performance has been rendered by either party before the impossible event occurred, that party will have the right to recover in quasi-contract for the reasonable value of their partial performance. This type of recovery is permitted when contractual duties are discharged by impossibility, impracticability, or frustration of purpose.

Question 74

Promissory estoppel

Answer 74

A plaintiff can pursue non-contractual damages when: 1. They reasonably and foreseeably relied on a promise, to their detriment; 2. The promisor should have reasonably expected such an action; and 3. Failure to rule for the plaintiff would result in an injustice.

Question 75

Quasi-contract

Answer 75

When there is a failed contract, the defendant is required to make restitution to the plaintiff. Requires: 1. The plaintiff confers a non gratuitous benefit to the defendant; 2. The defendant knows the plaintiffs expectation because they knew of the benefit and did not decline; and 3. The defendant would be unjustly enriched if they retain the benefit.

Question 76

Termination/Cancellation

Answer 76

A contract is discharged when both parties terminate or cancel the agreement, releasing each other from further obligations. May occur by mutual agreement, operation of law, or upon occurrence of a condition.

Question 77

Rescission

Answer 77

Mutual agreement to undo a contract, restoring both parties to their pre-contract positions. Can also be a unilateral remedy in cases of fraud, mistake, duress, or undue influence.

Question 78

Novation

Answer 78

All parties to a contract agree to release one of the parties and replace them with a third party.

Question 79

Accord & satisfaction

Answer 79

1. Accord - An agreement to accept a different performance in satisfaction of an existing duty. 2. Satisfaction is the performance of that new agreement. If satisfaction is not completed, the non-breaching party may sue on either the original contract or the accord.