Contracts

Question 1

Uniform Commercial Code (UCC)

Answer 1

The UCC applies when sale of goods is involved are both parties merchants (someone who regularly does business with knowledge and experience in particular goods)? If selling/buying high volume, assume merchant. If unknown, assume non-merchant

Question 2

Common law (CL)

Answer 2

If K does not deal with sale of goods, e.g., real estate (house, land), services (construction)

Question 3

Hybrid cases

Answer 3

Predominant purpose of transaction

Question 4

Offer

Answer 4

An offer must create a reasonable expectation in the offeree that the offeror is willing to enter a contract with the offered terms. There must be a promise, definite terms, and communication to the offeree

Question 5

Promise

Answer 5

There must be a present commitment rather than a mere invitation to begin negotiations
1. Public offers (ads, catalogs, price quotes) are invitations for offers
a.
EXCEPT promises to specific offerees (“first come, first served”; “only one can win”)
2. Puffery (jest or exaggeration) does not create reasonable expectation in offeree (Pepsi Points Case)
3. Reward offers are offers to enter into a unilateral K, EXCEPT limit to how many can accept
4. Auctions: Auctioneer is inviting offers; bids are offers, EXCEPT where “without reserve”

Question 6

Definite, certain terms

Answer 6

must sufficiently identify offeree & definite subject matter (LSK: land and price / service K: nature of work / UCC: quantity). Ct may supply reasonable missing terms, except price in LSK

Question 7

Communication:

Answer 7

Offeree must have knowledge of the communication
1. Not preliminary negotiations or mere invitation

Question 8

Termination of offer

Answer 8

Revocation
Rejection: Outright rejection or another method to reject + create new offer
Lapse of time: Offeree must accept w/in specified/reasonable time starting from when offer is received by offeree or when it would have been received (if delayed + offeree knows or should have known); otherwise, offeree allows offer to terminate
Death or incapacity, destruction of subject matter, unconscionability, invalid party (minor, insane, etc.)

Question 9

Revocation of Offer

Answer 9

Retraction of an offer by the offeror, effective when received by offeree, or by publication through comparable means (e.g., can’t revoke offer in business magazine by publishing in home magazine)

Irrevocable if 1) UCC firm offer: Offer by merchant in signed writing to keep offer open during time stated (or, if not stated, reas. time up to 3 months). No payment required. 2) Option (promise to keep offer open for a time for consideration). 3) Detrimental reliance. 4) Part performance

Question 10

Rejection

Answer 10

Outright rejection or another method to reject + create new offer
1.
Counteroffer, not mere inquiry
2.
Nonconforming acceptance (mirror image rule: Acceptance must mirror the terms of the offer)

Question 11

Lapse of time

Answer 11

Offeree must accept w/in specified/reasonable time starting from when offer is received by offeree or when it would have been received (if delayed + offeree knows or should have known); otherwise, offeree allows offer to terminate

Question 12

Acceptance of offer

Answer 12

Offeree must objectively manifest assents to terms and communicate it in any reasonable manner. Expressly or by conduct. Offeree must have knowledge of offer

Question 13

Unilateral K

Answer 13

only complete performance constitutes acceptance of offer. Completed act forms the K

Question 14

Mailbox Rule

Answer 14

Acceptance is effective when dispatched. EXCEPTION: When exercising option K, effective when received. Other types of communication (such as offers) are effective when received

Question 15

If the offeree’s response to offer proposes adding/deleting/changing terms in Common Law

Answer 15

Each and every term of offer must be accepted unequivocally (mirror image rule). Any additional/different terms in the acceptance makes the response a rejection and counteroffer

Question 16

If the offeree’s response to offer proposes adding/deleting/changing terms in UCC

Answer 16

(battle of the forms): A contract can be formed between merchants even though terms of acceptance do not match terms of offer. Additional/different terms are effective as an acceptance, unless acceptance is expressly made conditional on acceptance of proposed terms

Question 17

UCC Contract Modification Either party not a merchant

Answer 17

§ 2-207 is not applicable. Additional/different terms are mere proposals and not part of K unless offeror agrees to the modified terms

Question 18

UCC Contract Modification Both Merchants and Additional

Answer 18

Additional terms become part of K, UNLESS…

Acceptance is made conditional on offeror’s assent to additional or different
terms
Original offer expressly limits acceptance to offer terms
New terms materially alter original terms, e.g., arbitration clause, disclaimer, materially shorten deadline, change usage of trade or past method of dealing
Offeror objects to the change within reasonable time

Question 19

UCC Contract Modification Both merchants + different terms?

Answer 19

Knockout rule (majority): Conflicting terms are omitted from K; gaps left are filled by UCC default terms (see § V-a-v)

Minority rule: Alternatively, analyze as if additional terms (see (b) above)

No acceptance but parties perform anyway? Use knockout rule

Question 20

Consideration

Answer 20

Promises must be supported by consideration to be enforceable. There must be a bargained-for
exchange between the parties. Each side must give up something they wouldn’t have but for the promise. That
which is bargained for must be of legal value

Value of promises or requests is irrelevant for validity: Zero-value token is not sufficient consideration, but
“a mere peppercorn will suffice”

Peace of mind or personal satisfaction is sufficient to qualify as a benefit

Consider unconscionability defense (see below) for excessively one-sided bargain

Surrendering a claim: If the claim is invalid, surrendering can still constitute consideration if 1) the claim is
in fact doubtful, or 2) The surrendering party (regardless of other party) believes the claim is well founded

Question 21

Where consideration does not exist

Answer 21

1. Illusory promise: Only one party is bound to perform, leaves performance to discretion of other
   party—“all the widgets I want” (not “I require”), “all you want to sell me” (not “you produce”)
2. Gratuitous promise: A promise to make a gift and no return consideration
   a. Cf. executed gift (legally binding intent to give a gift + actual/symbolic delivery)
3. Past/moral consideration: Promise in exchange for something already given or performed
   a. EXCEPTIONS: New promise to pay anyway
   i. Statute of limitations: Written promise to pay a debt barred by limitations
   ii. Bankruptcy: Written promise to pay a debt discharged by bankruptcy

Question 22

Mutual mistake

Answer 22

as to existing facts: K is voidable by adversely affected pt only if (1) mistake concerns a
basic assumption of K, (2) mistake has a material effect on agreement, and (3) affected pt did not assume
the risk of the mistake (assumption commonly occurs when one pt is in position to better know the risks)

Question 23

Unilateral mistake

Answer 23

K voidable only if non-mistaken pt knew or had reason to know of mistake by other pt

Question 24

Absence of consideration

Answer 24

No K exists

Question 25

Incapacity

Answer 25

Infancy (under 18) or mental incompetence at the time of K. Such incapacitated party may enter into a K
and enforce it, and the K is voidable only by that party
i. Ratification: Once a minor turns 18, may expressly/impliedly ratify and be bound to K
ii. EXCEPTION: Can recover reasonable value for necessaries (food, clothing, shelter)

Question 26

Misrepresentation

Answer 26

K becomes voidable by innocent pt
i. Fraudulent misrepresentation (fraud in the inducement): Inducing another pt to enter into K by asserting (or
conduct such that other pt infers) untrue information. K voidable if justifiably relied on misrepresentation
ii. Nonfraudulent misrepresentation: K voidable if innocent pt justifiably relied on material misrepresentation
1. Materiality: objectively likely to induce a reasonable person to agree with asserted information or
subjectively the maker of assertion had reason to know it was likely to cause someone to agree

Question 27

Fraudulent nondisclosure:

Answer 27

Nondisclosure of material facts + duty to disclose (e.g., fiduciary relationship, assertion
later made untrue, obligation of good faith) + reasonable reliance on nondisclosure. K becomes voidable

Question 28

Undue influence

Answer 28

1) Unfair persuasion, 2) against a vulnerable party (aged, ill). K becomes voidable

Question 29

Unconscionability

Answer 29

The test is whether in light of the general commercial background and needs of the particular
parties, K is so one sided as to be unconscionable under the circumstances at time of formation. Result: Court may
refuse to enforce K, enforce remainder of K w/o unconscionable parts, limit clauses to avoid unconscionable result

Question 30

Public Policy

Answer 30

K void if subject matter is illegal or crime (bribery, prostitution, murder) or performance itself is a tort

Question 31

Statute of Frauds

Answer 31

An oral K is valid in many instances. However, for certain agreements to be
enforceable, they must be evidenced by a writing signed by the party sought to be bound

Question 32

Does a contract fall under the Statute of Frauds?

Answer 32

i. Marriage K ii. Year bar: K that cannot be performed w/in 1 year of agreement must be in writing
iii. Land-sale K. EXCEPTION: part performance – improvements, payments, evidence of K in existence
iv. Executor promise: A promise by an executor or administrator to pay estate’s debts out of own funds
v. Guaranty K: A promise to guarantee (not assume) the obligation or debt of another person. EXCEPTION:
1. Main purpose rule: If guarantor’s main purpose in promising is for his own economic advantage
(e.g., as shareholder), writing not required. Oral promise to guarantee such a loan is enforceable
vi. Sale of goods for $500+. EXCEPTIONS:
1. Merchant confirmation: If a merchant sends written confirmation after oral agreement w/in reas.
time, binds recipient if reason to know of contents and no written objection w/in 10 days of receipt
2. Enforceable to extent of quantity of goods shown in writing or paid for (including partial payment)

Question 33

Satisfactory writing for Statute of Frauds

Answer 33

One or more signed writings that reflect material terms signed by party to be charged
(sued, i.e., Δ or its authorized agent). Signature may be typed, initialed, on a letterhead, or electronic.

Question 34

Common law Writing for SOF

Answer 34

Writing includes nature and subject matter of K, essential terms of agreement
1. Several writings: Entire set of writings may be combined into one sufficient to satisfy SOF if 1)
signed writing is attached to other writing by party to be charged, 2) signed writing refers to the
unsigned writings, or 3) signed and unsigned docs clearly refer to the same subject matter.

Question 35

UCC Writing for SOF

Answer 35

Requires quantity of goods. Enforceable up to stated quantity.

EXCEPTIONS: Writing signed by
charged party not required for sale of goods if SWAP:

1. Specially manufactured goods: Goods manufactured to buyer’s specs, substantial reliance by seller
2. Written confirmation by merchant (merchant’s confirmation): Between merchants, signed written
   confirmation of an oral agreement sent w/in reasonable time will also bind recipient, if recipient
   has reason to know of confirmation’s contents (quantity) + does not object in writing w/in 10 days + actually received by the party to be charged
3. Admission in court up to quantity admitted
4. Partial performance, e.g., payment made & accepted, goods received & accepted

Question 36

Promissory/equitable estoppel

Answer 36

Reliance on a promise of creating
signed writing. Quasi-contract: Recovery of value for benefits conferred where there is unjust enrichment

Question 37

Parol evidence rule (PER)

Answer 37

When parties to a contract have put in writing the final and complete expression of their agreement (“completely integrated”), evidence of any other prior or contemporaneous oral or written
agreements (negotiations) are not admissible to vary or contradict (OK to explain) the terms of the writing.

Question 38

Partial Integration of a Writing

Answer 38

when it is a final expression of the agreement but not a complete
expression of the agreement (only reflects a part of the agreement, e.g., missing terms). Evidence may only
be used to supplement (not contradict) partially integrated writing with consistent additional terms

Question 39

When is writing completely integrated?

Answer 39

1. Under one view, if within the plain meaning of the four corners of the contract it appears intended
   to be the final and complete expression of their agreement. A merger clause
2. Under another view, the existence of extrinsic evidence of an additional term (like an oral
   statement) shows that the original agreement was not meant to be an integrated contract

Question 40

Exceptions to Parole Evidence Rule

Answer 40

1. Oral condition precedent: Oral agreement that K would not be effective until a condition occurs
2. Subsequent agreements or modifications (PER only applies to prior/contemporaneous expressions)
3. Collateral agreements (distinct from completely integrated written agreement)
4. Attack validity of written agreement (show it did not become proper K): ambiguous terms, no
   consideration, mistake, duress, fraud, reformation to correct mistake

Question 41

Default “gap filler” provisions if terms are missing from K

Answer 41

1. Under CL—Price: reasonable value. Duration: employment at will, given assurance of job security
2. Under UCC—Price: reasonable price as of delivery. Time of delivery: reasonable time. Time of
   payment: time and place of receipt by buyer. Place of delivery: seller’s place of business.
   Quantity: Definite, certain term required (§ II-a-ii). But see § V-a-v-3 below

Question 42

Implied warranties of good title, merchantability

Answer 42

(for merchants, goods are fit for ordinary
purposes, unless displaced by “as is” language), fitness for a particular purpose buyer intends to
use them for (seller has good reason to know the purpose + buyer relies on seller’s skill/judgment)
a. Any disclaimer must be in conspicuous writing so that a reasonable person can notice it

Question 43

Express warranties

Answer 43

created by seller’s affirmation/promise, description of good

Question 44

Open quantity term

Answer 44

typically fatal to a K. EXCEPTIONS under UCC:
a. Output K: Buyer agrees to purchase all of a supplier’s output
b. Requirements K: Supplier agrees to supply all of the goods required by buyer
i. Quantity demanded may not be unreasonably disproportionate (higher/lower) to
a stated estimate or comparable prior numbers
ii. Actual “requirement” may be zero (e.g., if company out of business)

Question 45

Satisfaction clauses

Answer 45

where one party pays only if satisfied may be considered illusory, but UCC requires “best efforts” or “good faith effort” by both parties

Question 46

Shipment Contract

Answer 46

If delivery by common carrier other than seller (e.g., FedEx), (states “FOB [free on board] seller”) where risk of loss (ROL) passes to buyer when goods are delivered to carrier
If K does not specify FOB term or allocate ROL, it is a shipment K

Question 47

Destination contact

Answer 47

where ROL is on buyer upon delivery
If delivery by non-carrier (seller must deliver), it is a destination K by nature
If seller is a merchant, ROL passes to buyer when in buyer’s possession (if buyer never
takes possession, seller still has ROL). If non-merchant, ROL is on buyer upon delivery

Question 48

Trade Usage

Answer 48

used to fill in gaps or interpret ambiguous language. Such evidence can trump in conflict:
1. Course of performance (regular performances within K) can establish waiver/modification of
express terms > express terms in K > course of dealing (pattern of previous transactions between
pts) > trade usage (regular industry practice)

Question 49

Time is of the Essence

Answer 49

K if it explicitly so states. By default, time is not of the essence

Question 50

Conditions to Contract

Answer 50

A “condition” is the occurrence or nonoccurrence of an event that triggers, limits, or extinguishes an
absolute duty to perform (“provided”/“if”). K may provide that a party does not have a duty to perform unless some
condition is fulfilled. The party’s failure to perform is justified if that condition was not fulfilled
i. There is an absolute duty to perform if there is no condition, or condition has been excused or satisfied

Question 51

Constructive conditions

Answer 51

Conditions may be constructively implied, where the duty of each party to render performance is conditioned on the other party doing so. If so, what’s the sequence of performance?
1. If simultaneous performance is possible, each pt must tender, to put other under duty to perform
2. If one performance will take longer, its completion is due first as constructive condition precedent

Question 52

Condtions of Contracts vs Promises

Answer 52

Agreement or commitment to do or not do something. May be conditional or unconditional
1. Failure of a promise is a breach and gives rise to liability. Failure of a condition is not a breach
and relieves a party of the obligation to perform

Question 53

Excuse/ Waiver of Condition

Answer 53

Where an obligation is subject to a condition, and the condition hasn’t been
satisfied, the obligation can still become an absolute duty to perform if the condition is excused (i.e., an
absolute duty to perform the obligation arises without the condition occurring)

Question 54

Breach

Answer 54

Occurs on failure of duty to perform

Actual/present breach: When one of the parties fails to perform, a breach of contract occurs
1. Material breach: Breach is material if the obligee does not receive the substantial benefit of the
bargain. Nonbreaching pt is discharged from duty and has a right to remedies
a. Failure to perform by stated time is not material if done w/in reasonable time. If timely
performance essential to K, or K expressly provides time is of essence, failure is material
2. Minor breach: Breach is minor if obligee receives the substantial benefit of the bargain despite
obligor’s defective performance. Nonbreaching pt still has duty to perform but may seek damages

Question 55

Anticipatory Repudiation

Answer 55

Unequivocal (not merely prospective inability to perform, manifested by doubt)
statement/conduct indicating pt will commit a breach (before deadline) can be treated as immediate breach
1. Failure to provide reasonable assurances w/in reasonable time (30 days) is treated as a repudiation
2. Retraction: Repudiating party may retract repudiation, UNLESS other party acts in reliance under
repudiation, accepts repudiation (signals it to repudiating party), or brings suit
3. Effects: If repudiated, aggrieved pt may sue immediately, wait, discharge K, or urge pt to perform
a. If repudiation cannot be established, but there are reasonable grounds for insecurity, the
insecure party may demand adequate assurance of performance

Question 56

Modification

Answer 56

Request for modification (after K) must be supported by new consideration (CL) or good faith (UCC)

Question 57

Preexisting duty rule

Answer 57

if one already owes a duty to perform, that performance cannot be used as
consideration for another promise. EXCEPTIONS:
1. Duty owed to 3P: Modernly, a duty is preexisting only if it is owed directly to a promisee. Promise
to perform a duty is valid consideration as long as the duty is not already owed to the promisee
2. Unforeseen burdens: Promise of increased compensation is given in exchange for a promised
performance substantially more burdensome than reasonably anticipated at formation
3. Mutual modification: Parties agree to a different performance that is not a mere pretense

Question 58

UCC Contract Modification

Answer 58

Only good faith (usually there) needed to modify. Mod must be in writing if regarding sale > $500

Question 59

Novation

Answer 59

All parties expressly agree to release and substitute a party. No writing required

Question 60

UCC Perfect Tender Rule

Answer 60

Terms for sale of goods are enforced exactly. If goods or delivery fail to conform to K in
any way, buyer may 1) reject goods within reasonable time of delivery, 2) accept goods, or 3) accept some units
i. Buyer’s right to reject is cut off by acceptance or failure to reject w/in reasonable time
ii. Seller has right to cure: Seller may cure any defects and make conforming delivery after seasonable notice
iii. Buyer has right to revoke acceptance w/in reasonable time if acceptance relied on 1) assurance that defect
would be cured, 2) difficulty of discovering defect, 3) or seller’s assurance that goods conformed to K

Question 61

Excuses for Non Performance

Answer 61

Discharge of duties in unforeseen events:

i. Impossibility

1. Temporary impossibility merely suspends performance
   ii. Impracticability

Frustration of purpose

b. Mistake

i. Unilateral mistake

ii. Mutual mistake

c. Excuses by agreement
i. Rescission
ii. Accord & satisfaction

Question 62

Impossibility

Answer 62

Objective impossibility (i.e., no one would be able to perform) for the promisor to perform
excuses pts from performance, e.g., illegality, death of necessary person, destruction of subject matter
1. Temporary impossibility merely suspends performance

Question 63

Impracticability

Answer 63

A severe burden, cost, or risk to the promisor excuses performance. Examples: shortages
caused by war, local crop failure, unforeseen disasters. NOT if assuming risk of market fluctuations, great
increase in expense of performance, event that makes performance impracticable is fault of pt seeking relief

UCC commercial impracticability: A seller’s absolute duty to deliver goods is discharged if
“performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence
of which was a basic assumption on which the contract was made.” Promisor must
allocate production and deliveries among its customers in a manner that is fair and reasonable

Question 64

Frustration of Purpose

Answer 64

A contingency occurs that dramatically/totally reduces the value of performance to
the receiving party, and principal purpose in entering the K is substantially/totally frustrated

Question 65

Mistake

Answer 65

Requires materiality—mistaken facts must significantly impact transaction, e.g., rarity or nature of item
i. Unilateral mistake: One pt mistaken about material facts is NOT excused (NOT voidable), UNLESS other
pt knew or had reason to know of mistake (failure to act in GF) or serious clerical error by mistaken pt
ii. Mutual mistake: Voidable by disadvantaged party who did not bear the risk of mistake

Question 66

Recission

Answer 66

Consideration is provided mid-performance by each party to discharge the other’s duties

Question 67

Accord and Satisfaction

Answer 67

New agreement (accord suspends duty; cf. modification alters) where obligee
promises to accept substituted performance in satisfaction of obligor’s original, existing duty

Question 68

THIRD-PARTY BENEFICIARIES

Answer 68

(whether 3P beneficiary has standing to enforce the K)
a. A (promisee) contracts with B (promisor) such that B must perform for C (3P beneficiary)
Who can sue? Intended beneficiaries, not incidental beneficiaries. 3P must 1) receive performance directly from
promisor, 2) be expressly designated in the K, or 3) have a relationship with the promisee implying intent to benefit
c. When does right to sue vest? When 3PB 1) brings suit to enforce, 2) changes position in reliance on K, 3)
manifests assent to K at request of promisee or promisor, or 4) expressly vested under K

Question 69

Assignment

Answer 69

X (obligor) contracts with Y (assignor); Y assigns
right to X’s performance to Z (assignee).

Pts may only assign rights that they could enforce
themselves. Assignee steps into assignor’s shoes

personal service, requirements K, public-policy
violation, anti-assignment (AA) clauses

AA clause only prevents transfer of duties but not right to performance: Assignor may be liable for breach,
but assignee may enforce (obligor must still perform for assignee)

Establishes privity of K b/w obligor and assignee.
Removes original privity b/w obligor and assignor

Assignee may sue obligor (under assignor’s rights)
and assignor (implied warranties: Assignor will do
nothing to impair value of assignment; assignor
has actual right to assign)

Question 70

Delegation

Answer 70

Y (obligor/delegator) promises to perform for X
(obligee); Y delegates its duty to Z (delegatee).

3P agrees to satisfy a performance obligation owed
by one of the parties to a K

personal service, requirements K, prohibited by K
(fully enforceable unlike AA clauses)

Obligee must accept performance from delegatee of
all duties that may be delegated

Delegator may still be sued by obligee absent
novation (expressly releasing delegator).
Delegatees who receive consideration from delegator
(not gratuitous) may be sued by delegator or obligee.

Question 71

Legal remedies

Answer 71

Expectation damages put the non-breaching party where it would have been had the promise been
performed. Expectation damages must be reasonably foreseeable at K formation

ii. Reliance damages: If expectation dmgs too speculative, cost of performance made in reliance of K

iii. Consequential damages: Losses resulting from breach that a reasonable person would have foreseen

iv. Incidental damages (K for sale of goods): Expenses reasonably incurred incident to breach

Question 72

UCC Seller Remedies

Answer 72

K price – resale price (exercise good faith) or FMV (if not resold)

Lost volume sellers assumed to have as many items as he can sell (effectively unlimited)
a. Damages = lost volume profits (profit on the lost sale) + any incidental damages

Question 73

UCC Buyer Remedies

Answer 73

K price – cover price (exercise good faith) or FMV (if not covered)
1. Merchant buyer’s duties as to rightfully rejected goods that are perishable or quickly devaluing:
Make reasonable efforts to sell for seller, and be reimbursed up to 10% gross proceeds

Question 74

Liquidated Damages

Answer 74

Parties may include terms providing for custom damages
a. Enforceable only to compensate for breach: 1) Pts intended it to be LD clause rather than
penalty, 2) LD clause was reasonable estimate of damages in re anticipated harm
b. Clause unenforceable and stricken from K if designed as penalty to punish a breach
2. Provisions limiting damages OK unless unconscionable (personal injury from consumer goods)