Contract

Question 1

Applicable law

Answer 1

Article 2 of the Uniform Commercial 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.

Question 2

Formation

Answer 2

Contract formation requires 1) an offer; 2) an acceptance; 3) consideration; and 4) there must be no appropriate defenses to formation. (If the question states there is a valid written contract, you’re all set. You’ll likely also see that there are no facts to use regarding the offer, acceptance or consideration).

Question 3

Offer

Answer 3

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

Question 4

Merchant firm offer

Answer 4

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

Question 5

Acceptance

Answer 5

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

Question 6

Bilateral contract

Answer 6

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

Question 7

Unilateral contract

Answer 7

A Unilateral Contract is a contract where a party states a requirement without an identified offeree. (I will pay $20 to anyone who mows my lawn). The start of performance renders a unilateral contract irrevocable, where acceptance exists only when performance is complete. If beginning performance, an offerree must inform the offeror of completion within a reasonable time of completion of performance.

Question 8

Retraction of a unilateral offer

Answer 8

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

Question 9

Revocation

Answer 9

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

Question 10

Counter offer

Answer 10

A counteroffer 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 11

Consideration

Answer 11

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. (Think of the case where a business owner paid a vagrant to leave the front of the store). Courts generally will not question the adequacy of consideration - “a mere peppercorn” may suffice. A promise to refrain is consideration.

Question 12

Illusory contract

Answer 12

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 13

Implied in fact contract

Answer 13

A contact based on a tacit promise, inferred when conduct creates a contract, a benefit was received that could have been refused, and it would be fair to presume payment was expected. (Think of a person who sits at a restaurant - the order, and it is implied that the food will be delivered and the patron will pay their bill).

Question 14

Requirement contract

Answer 14

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 15

Output contract

Answer 15

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 16

Option contract

Answer 16

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 period 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. (An option contract allows companies to curtail risk - for example, a producer of automobile tires needs rubber, which has a price that rises and falls with market prices. They can buy option contracts, where they pay a certain fee that is non-refundable, and in return they have a choice to buy rubber at a certain price at a later date. If the price of rubber goes up, they have a lower price locked in. However, if the price of rubber goes down, then can simply buy rubber on the open market at a lower price).

Question 17

Mutual mistake

Answer 17

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

Question 18

Misrepresentation

Answer 18

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.

Question 19

Unilateral mistake

Answer 19

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. (Think about the contractor that places a bid for a service and receives ten proposals, nine for about $1M, and one for $149.95. It’s safe to say the low bidder likely didn’t understand the request for proposal, and is therefore mistaken. If the contractor takes the offer, knowing the price is underbid, the low bidder may be relieved of performance.

Question 20

Condition

Answer 20

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 21

Satisfaction condition

Answer 21

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

Question 22

Breach

Answer 22

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 23

Minor or material breach

Answer 23

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 the 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 24

Time is of the essence

Answer 24

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 25

SOF

Answer 25

The following contracts are not valid unless they are in writing: Marriage, a contract that cannot be performed within a year, land sale or land leases for over a year in length, executor guarantees to pay, contracts for goods valued over $500 and 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 part performance which unequivocally indicates acceptance, a party will be estopped from claiming there was no contract based on a lack of a writing. Can be a number of writings, no need for only one signed document. E-mail messages suffice, including signature or not. (Don’t write the elements that don’t apply! If you are analyzing a land sale contract, the rule statement, “The Statute of Frauds requires all land sale contracts to be in writing” will suffice, there is no reason to talk about marriage or suretyship contracts).

Question 26

SOF Exceptions

Answer 26

Even if the contract is not in writing, contracts that are fully performed, if there is judicial acknowledgement of the agreement, or where there has been a foreseeable, detrimental reliance on the contract will still be enforced. 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 27

Ucc sof exceptions

Answer 27

A contract will be enforced despite not being in writing when a party has received a Merchant’s confirmatory memorandum and the receiving party does not object in a reasonable time, if the goods in question have been received and paid for, or if the goods in question were custom made.

Question 28

Modification

Answer 28

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 29

Duress

Answer 29

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

Question 30

Impracticability

Answer 30

The defense of impracticability is available when some unanticipated event renders performance unreasonably difficult to perform under the contract. (A brick layer is injured and won’t be able to complete a job. Analyze impossibility as well, you’ll need to dance to explain both).

Question 31

Unconscionability

Answer 31

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 32

Frustration of purpose

Answer 32

A defense to contract enforcement that relieves the buyer from performance when an unforeseen event destroys the 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.

Question 33

Impossibility

Answer 33

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

Question 34

Frustration of purpose and impossibility difference

Answer 34

FoP involves the “why” the contract was created, whereas impossibility involves the duties directly listed in the contract. For example, a shopkeeper leases space from a landlord to sell widgets. A year into a five-year lease, the city passed an ordinance prohibiting the sale of widgets within the city. The shopkeeper’s purpose is frustrated, and the landlord knew the purpose, so the shopkeeper may be successful in claiming frustration of purpose. A farmer under contract to produce wheat may be excused for performance if a swarm of locusts destroy his crop - since this is beyond his control, he may claim impossibility to perform.

Question 35

Parol evidence rule

Answer 35

Evidence of a prior or contemporaneous agreement may not be introduced if it contradicts a later integrated writing. Exceptions include proof of a condition, clerical error, to employ a defense of formation, to interpret vague terms, or supplement a contract that is only partially integrated. (Price is wrong in contract, but was agreed upon previously? This is a mistake in integration, so it is admissible to reform the contract. If the contract contains no time or date of completion, or no merger clause, then assume the contract is only partially integrated).

Question 36

UCC perfect tender rule

Answer 36

A seller must deliver goods that perfectly conform to the contract. In the case of goods that don’t perfectly conform, 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.

Question 37

Non conforming goods sale

Answer 37

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

Question 38

Mirror image rule

Answer 38

Under the common law, an acceptance must mirror the offer.

Question 39

Merchant

Answer 39

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

Question 40

Battle of the forms

Answer 40

Unlike common law, where acceptance must exactly mirror the offer, UCC Art 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 counteroffer, 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 41

Promissory estoppel

Answer 41

A plaintiff can pursue damages when they reasonably and foreseeably relied on a promise, to their detriment, the promisor should have reasonably expected such an action, and failure to rule for the plaintiff would result in an injustice.

Question 42

Adequate assurance

Answer 42

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 43

Anticipatory repudiation

Answer 43

Occurs when a party unambiguously communicates they will not perform before performance is due. The aggrieved party may treat the anticipatory repudiation as a breach and sue immediately, suspend performance and wait to sue when performance is due, treat the repudiation as an offer to rescind/contract as discharged or ignore the repudiation and urge performance.

Question 44

Anticipatory repudiation retractions

Answer 44

A repudiation can be retracted unless the aggrieved party has actively cancelled the contract, materially changed position (i.e. hired someone else to complete the contract), or accepted the repudiation as a final decision not to perform.

Question 45

Expectation damages

Answer 45

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 the non-breaching party in the position they would have been in if there was no breach.

Question 46

Expectation damages requirement

Answer 46

In order to receive expectation damages, such damages must have been foreseeable, causal, certain and unavoidable. Also, these damages may not be awarded should there have been a failure to mitigate damages.

Question 47

Reliance damages

Answer 47

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

Question 48

Liquidated damages

Answer 48

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 49

Incidental damages

Answer 49

These are damages that are smaller, reasonable costs that stem directly from the breach. (Have a contracted employee that leaves town and walks out on their contract? The cost for the newspaper ad to find a new employee is an incidental damage).

Question 50

Consequential damages

Answer 50

These are damages that stem indirectly from the breach, however are foreseeable and certain. (Get hit by a car? It is reasonable to believe you would receive consequential damages for the salary you lost while hospitalized).

Question 51

Assignment of rights

Answer 51

A transfer of rights. This is a situation where an obligor contracts with 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 or risk, assign future rights to arise from future contracts, or are prohibited by law.

Question 52

Gratuitous promise

Answer 52

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

Question 53

Delegation of duties

Answer 53

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 of the obligee.

Question 54

Enforcement of expired debt

Answer 54

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

Question 55

Quasi contract

Answer 55

When there is a failed contract, the defendant is required to make restitution to the plaintiff. Requires 1) plaintiff confers a non-gratuitous benefit to defendant, 2) the defendant knows the plaintiff’s 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 56

Illegal contract

Answer 56

A statute to raise revenue will not prevent contract enforcement if the contractor has not obtained a statutorily required license. Typically occurs when a client refuses to pay an unlicensed contractor, and claims the contract was illegal, therefore unenforceable.

Question 57

Novation

Answer 57

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