Contracts

Question 1

Applicable Law

Applicable Law

Answer 1

Art. 2 of the UCC governs Ks for the sale of goods. The Common Law governs all other Ks. Goods are defined as all things that are movable.

Question 2

Applicable Law

Merchants

Answer 2

• A merchant is one who deals with certain types of goods, or one holding oneself out as having special knowledge or skills regarding the goods involved in the K.
• Special UCC provisions apply when one or more parties are merchants.

Question 3

Contract Formation

Answer 3

A valid K is formed when there is (1) offer, (2) acceptance, and (3) consideration on both sides of the contracting party.

Question 4

Contract Formation

Offer

Answer 4

• An offer is a manifestation of intent to enter into a K with definite and reasonably certain terms communicated to an offeree.
• The UCC will use gap fillers for missing terms except for subject matter and quantity.

Question 5

Contract Formation

Counteroffer

Answer 5

A counteroffer by the offeree is a rejection of the original offer and a new offer.

Question 6

Acceptance

Answer 6

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

(For bilateral Ks, the start of performance manifests acceptance. For unilateral Ks, offer is accepted only when performance is complete.)

Biateral: Both parties make promises to perform.（あなたが車をくれたら、私は100万円払います。）
Unilateral: The offeror’s promise for the offeree’s actual performance of the requested act.（猫を見つけてくれた人に1万円払います。）

Question 7

Revocation

Answer 7

• An offeror can revoke an ordinary offer before acceptance.
• A revocation can be unambiguous words or conduct.
  (e.g. Selling the goods to another party).

Question 8

Option Contract

Answer 8

An offer for an option K is irrevocable when consideration is given for a promise to keep an offer open.

Question 9

Advertisements

Answer 9

• Ads are usually a mere invitation for offers, not an offer.
• However, an ad may be an offer if it includes sufficiently clear and definite terms.

Question 10

Timing of Acceptance/Revocation (Mailbox Rule)

Answer 10

• Acceptance is effective upon dispatch (mailbox rule).
• Revocation of offer is effective when received.

Question 11

Mirror Image Rule & UCC Exception

Answer 11

• The Common Law mirror image rule holds that an acceptance must exactly mirror the offer; any variations constitute a counteroffer.
• Under the UCC, an acceptance does not need to mirror the offer, and additional terms may be added if
  1. both parties are merchants,
  2. the term is not a material change,
  3. the offer does not expressly limit acceptance to the exact terms,
  4. no objection was made within a reasonable time.

Question 12

Output and Requirement Contracts

Answer 12

• In an output K, a seller promises to sell all of the seller’s output of the particular goods to the buyer.
• In a requirement K, a buyer promises to purchase all of the particular goods that the buyer requires from the seller.
• O/R Ks are not illusory because the obligation of good faith is implied.

Question 13

Contract Formation

Acceptance by Shipping Goods

Answer 13

• An offer to buy goods may be accepted by shipping the good (e.g. a “purchase order”).
• The shipment of non-conforming goods is an acceptance of the offer and a simultaneous breach of the same K under the perfect tender rule.

Question 14

Consideration

Answer 14

• Consideration is something of legal value bargained for exchange and can be a promise to do an act, or forbearance from doing an act.

Question 15

Promissory Estoppel

Answer 15

A promise that foreseeably (to the promisor) induces reliance, and is actually relied upon, may be enforceable to prevent injustice, even without consideration.

Question 16

Defenses to Enforceability

Unconscionability

Answer 16

The court may refuse to enforce a term or an entire K if a K is obviously unfair and one-sided in favor of the party with the superior bargaining power.

Question 17

Defenses to Contract Formation

Mutual Mistake vs. Unilateral Mistake

Answer 17

• A K is voidable by mutual mistake if:
  1. the mistake concerns a basic assumption,
  2. the mistake is material, and
  3. the person asserting the mistake did not bear the risk of the mistake.
• For a unilateral mistake, the mistaken party must show the three factors for mutual mistake and that the other party knew or should have known of the mistake.

Question 18

Defenses to Contract Formation

Intentional Misrepresentation

Answer 18

• The tort of intentional misrepresentation may serve as a defense.
• The elements for intentional misrepresentation are:
  1. misrepresentation of a material fact by the D,
  2. the D knew the statement was false,
  3. intent of the D to induce the P,
  4. actual and reasonable reliance by the P, and
  5. damages.

Question 19

Defenses to Contract Formation

Negligent Misrepresentation

Answer 19

• The tort of negligent misrepresentation may serve as a defense.
• The elements for negligent misrepresentation are:
  1. a misrepresentation by the D in a business transaction,
  2. the D was negligent in obtaining or communicating the false information,
  3. intent of the D to induce the P,
  4. actual and reasonable reliance by the P, and
  5. damages.

Question 20

Defenses to Enforceability

Statute of Frauds (SOF)

Answer 20

• The SOF provides that certain types of Ks are unenforceable unless they are:
  1. in writing,
  2. signed by the party to be charged, and
  3. contain all essential terms (parties, quantity, price, description of the property etc.).
• (1) Marriage Ks,
  (2) real property Ks,
  (3) promise to pay debt of another,
  (4) Ks that cannot be fully performed within one year of the making,
  (5) sale of goods for $500 or more,
  are subject to the SOF.

MR. DOG

Question 21

SOF Exception (Performance)

Answer 21

A K that can’t be performed within one year without writing may be enforceable if it is fully performed.

Question 22

SOF Exception (Land Contracts)

Answer 22

• An oral land sale K is enforceable against the buyer if the seller conveys to the buyer.
• An oral land sale K is enforceable against the seller if the buyer has done at least two of the following: payment (in whole or part), improvements, or possession.

PIP

Question 23

SOF Exception (Promissory Estoppel)

Answer 23

A promise that foreseeably (to the promisor) induces reliance, and is actually relied upon, may be enforceable to prevent injustice, even without a writing.

Question 24

SOF Exception under the UCC (Merchant’s Confirming Memo)

Answer 24

A signed writing by the party to be bound is not required, if:
1. both parties are merchants,
2. one party receives a signed confirmation (can be letterhead, email, etc.), and
3. the receiving party did not object within 10 days.

Question 25

SOF Exception under the UCC (Goods Accepted or Paid For)

Answer 25

- An oral K for the sale of goods is enforceable against the *buyer* if the buyer accepts the goods, to the extent of such acceptance. - An oral K for the sale of goods is enforceable against the *seller* if the buyer makes a partial payment for the goods, to the extent of such payment.

Question 26

SOF Exception under the UCC (Custom Made Goods)

Answer 26

A seller may enforce an oral K for custom made goods, if: 1. the seller has made a substantial start, and 2. the goods are not suitable for sale to others.

Question 27

# Contract Terms and Other Performance Issues Condition Precedent

Answer 27

A condition precedent is an event that must occur before performance of the other party is due. If it does not occur, performance of the second party is excused.

Question 28

# Contract Terms and Other Performance Issues Waiver of Conditions

Answer 28

A party who has the benefit of a condition can waive it. Failure to insist on compliance can operate as a waiver.

Question 29

# Contract Terms and Other Performance Issues Parol Evidence Rule

Answer 29

- Under the PER, a signed written K may not be contradicted by evidence of any prior or contemporaneous agreement but may be supplemented by evidence of consistent additional terms. - Partial integration is not intended to include all details of the parties’ agreement. As such, evidence of consistent, additional terms to supplement the writing is allowed. - Total integration is intended to include all details of the parties’ agreement. As such, anything outside the written K is not allowed. - A merger clause is evidence that the writing is complete on its face.

Question 30

# Contract Terms and Other Performance Issues Modification of Contracts

Answer 30

- Under *the Common Law*, K modifications must be supported by consideration. Past performance or performance of a pre-existing duty is not adequate consideration (pre-existing duty rule). - Under *the UCC*, there is no consideration requirement for K modifications made in good faith.

Question 31

# Contract Terms and Other Performance Issues Assignment

Answer 31

- Rights and benefits under a K may be transferred to a third party, unless it materially changes the duty or risk of the other party. - Consideration is not required. - Even if the K prohibits assignments, the assignment itself will still be valid, but the assignor will be liable for damages.

Question 32

# Breach of Contract Issues Anticipatory Repudiation

Answer 32

An anticipatory repudiation is an unequivocal expression by a party, occurring before the time for performance is due, that they will not perform under the K. - When an anticipatory repudiation occurs, the non-breaching party may sue for damages immediately or suspend performance.

Question 33

# Breach of Contract Issues Adequate Assurances

Answer 33

* If there are reasonable grounds for being insecure about performance, then a party may make a written request for adequate assurances of due performance. * If the other party fails to respond within a reasonable time, the requesting party may treat that as an anticipatory repudiation.

Question 34

# Breach of Contract Issues Material Breach

Answer 34

* A material breach occurs when a party does not render substantial performance. * A material breach will excuse the non-breaching party’s performance and the non-breaching party may sue for damages immediately.

Question 35

# Contract Breach Issues Time is of the Essence Clause

Answer 35

The failure to perform by a specified date is generally not a material breach unless the K contains an explicit “time of the essence” clause.

Question 36

# Breach of Contract Issues Perfect Tender Rule

Answer 36

Under the UCC, a seller must deliver conforming goods. The smallest non-conformity is a breach and the buyer may reject all, accept all, or accept a portion of the goods.

Question 37

# Breach of Contract Issues Perfect Tender Rule Exception (Installment Contracts)

Answer 37

* The perfect tender rule does not apply to installment Ks. * A buyer can reject only if: 1. the breach substantially impairs the value of the entire K and 2. the seller cannot cure.

Question 38

# Breach of Contract Issues Perfect Tender Rule Exception (Seller's Right to Cure)

Answer 38

If the buyer rejected nonconforming goods, the seller may: 1. cure the defect and make a new tender *within* the time for performance, or 2. make a new tender *after* the time for performance if the seller has reasonable grounds that this would be acceptable to the buyer.

Question 39

# Breach of Contract Issues Minor Breach

Answer 39

If a breach is not material, it is a minor breach and the non-breaching party may recover damages but must still perform.

Question 40

# Breach of Contract Issues Implied Warranty of Merchantability

Answer 40

The implied warranty of merchantability requires that all goods sold by a merchant be fit for their ordinary purpose. (Warranty can be disclaimed – i.e., goods sold “as is.”)

Question 41

Frustration of Purpose

Answer 41

Frustration of purpose discharges performance under a K when: 1. a party's principal purpose is substantially frustrated, 2. by an unforeseeable supervening event out of the parties' control, and 3. both parties knew the purpose.

Question 42

Impossibility

Answer 42

Performance is discharged when it becomes physically or legally impossible to perform (cannot be performed by anyone).

Question 43

Impracticability

Answer 43

Performance is discharged when it becomes extremely and unreasonably difficult or expensive because of unanticipated events (mere increase in cost is not enough).