Contracts

Question 1

Introductory Sentence: Article II of the UCC

Answer 1

Article 2 of the Uniform Commercial Code (UCC) applies to transaction 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.”

Question 2

Contract Formation Requirements

Answer 2

1. Offer
2. Acceptance
3. Consideration

Question 3

Define: Offer

Answer 3

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.”

Question 4

Define: Counteroffer

Answer 4

At common law, a statement is a counteroffer, rather than an acceptance, when the terms of the initial offer are changed.

Question 5

Define: Open Offer

Answer 5

Generally, an offer may be revoked before acceptance. A promise to hold an offer open requires consideration in order to be binding.

Question 6

Define: Acceptance

Answer 6

An acceptance is a manifestation of assent to the terms of an offer made in a manner invited by the offer. It is effective upon dispatch.

Question 7

Define: Rejection

Answer 7

A rejection is a manifestation of intent to not accept the offer. It terminates the offeree’s power to accept an offer. It is effective when received by the offeror.

Question 8

Define: Consideration

Answer 8

Consideration is a legal detriment or bargained-for exchange. A promise to make a gift does not constitute consideration.

Question 9

Define: Preexisting-Duty Rule

Answer 9

Under common law, promising to perform a legal duty already owed to a promisor is not valid consideration.

Exceptions: duty is changed, unforeseen circumstances, etc.

Question 10

What is needed to modify a contract under the UCC?

Answer 10

Good faith

Question 11

When is promissory estoppel a substitute for consideration?

Answer 11

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

Question 12

Define: Gap Fillers

Answer 12

A contract for the sale of goods doesn’t fail because one or more terms are missing if the parties (1) intended to make a contract, and (2) there is an appropriate remedy for breach. Gap fillers include course of performance, course of dealing, and trade usage.

Question 13

What is the difference between performance obligations under common law vs. the UCC?

Answer 13

Common Law: A party must “substantially perform” its contractual obligations in order to demand performance (usually payment) from the other party.

UCC: Requires perfect tender for one-shot deals.

Question 14

When is a contract divisible?

Answer 14

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 the performance of his duties.

Question 15

When can a buyer reject goods?

Answer 15

A buyer can generally reject goods for any reason under the perfect-tender rule.

Note: There are some exceptions to this–e.g., installment contracts.

Question 16

When can a buyer revoke his acceptance of goods?

Answer 16

1. The nonconformity substantially impairs the value to him;
2. He accepted the goods because he had a reasonable belief the nonconformity would be cured (and it wasn’t) or he didn’t discover the nonconformity because the nonconformity was difficult to discover, or because of seller’s assurances;
3. He revokes within a reasonable time after he discovers or should’ve discovered the nonconformity; AND
4. He revokes before any substantial change in condition of the goods which is not caused by their own defect.

Question 17

Define: Anticipatory Repudiation

Answer 17

Anticipatory repudiation 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.

Question 18

Define: Prospective Inability to Perform

Answer 18

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.

Question 19

What is the main different between anticipatory repudiation and prospective inability to perform?

Answer 19

Degree.

Question 20

Can a party retract their repudiation?

Answer 20

Yes.

The party who haas repudiated can retract his repudiation unless the other party cancelled the contract, materially changed his position in reliance on the repudiation, or indicated that she considers the repudiation to be final.

Question 21

Define: Statute of Frauds

Answer 21

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.

Question 22

What types of contracts fall within the statute of frauds?

Answer 22

Mnemonic = MYLEGS

1. Marriage: Contracts made in consideration of marriage
2. Year: Contracts that cannot be performed in a year
3. Land: Contracts for the sale of an interest in land
4. Executor: Promises by an executor to pay a debt of an estate out of his personal funds
5. Goods: Sale of goods for $500 or more (subject to additional UCC rules)
6. Suretyship contracts

Question 23

When is a contract void due to duress?

Answer 23

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.

Question 24

Define: Breach of Express Warranty

Answer 24

Under the UCC, affirmations of fact relating to the goods that are part of the basis of the bargain create express warranties that the goods will conform to those affirmations and descriptions. This warranty is breached if they do not conform.

Question 25

Introductory Sentence: General Damages for Breach of Contract

Answer 25

The normal measure of damages for breach of contract is expectation damages, which aim to give the nonbreaching party the benefit of his bargain.

Question 26

What is required of expectation damages?

Answer 26

1. Foreseeable
2. Proven with reasonable certainty

UCC: Damages put the aggrieved party “in as good a position as if the other party had fully performed.”

Question 27

When can a party recover punitive damages?

Answer 27

When the conduct constituting the breach is also a tort for which punitive damages can be recovered.

Question 28

Define: Restitution Damages

Answer 28

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.

(Also called unjust enrichment or quantum meruit)

Question 29

As a general rule, a party _____ recover damages for a loss that the party could have avoided by _____ _____.

Answer 29

Cannot, reasonable efforts