Contracts

Question 1

Missing Price

Answer 1

Not required in anything except land contracts

Under Article 2, the price will be a reasonable price at the time of delivery if the price is not included in the contract. When one party to a contract for the sale of goods has the power to fix the price but fails to do so in good faith, the other party may either cancel the contract or fix a reasonable price herself.

Question 2

Offer

Answer 2

Common Law—Mirror Image Rule: Acceptance must be identical to terms of offer (on every term)

UCC:
Battle of the Forms (Merchants): Acceptance of terms may differ
o If offeree accepts the offer and, at the same time, makes material alteration—material alteration is out and there is a K
o If offeree accepts the offer and makes non-material change to the offer, non-material becomes part of the K unless timely objection
o Material alteration is any change to an offer that affects money, liability, or remedy for breach of K
o If offeree make acceptance conditional upon assent to additional term then you have a COUNTEROFFER!

Perfect Tender Rule: Sellers must deliver perfect tender (delivery) to a buyer. If non-perfect, delivery = acceptance but simultaneous breach.
3 options:
• Buyer accepts goods and pays K price
• Buyer timely reject goods and sue for damages
• Accept in part and reject in part
o By keeping the goods and notifying the seller of their defects, the buyer’s right to rejection under the perfect tender doctrine has been cut off. As stated above, the buyer will be given a reasonable opportunity to inspect the goods.
o Note: Sellers can save themselves with a notice of accommodation accompanying delivery—seen as counteroffer that can be accepted or rejected but not sued upon for breach. (Q148)

Question 3

Mailbox Rule

Answer 3

Acceptance effective upon receipt (only applies to acceptance)

All other things (rejection, modification, etc.) effective upon receipt

Acceptance and then rejection sent then effective when mailed unless rejection arrives first and offeror detrimentally relies

Rejection and then acceptance, whichever arrives first

When revocation is by publication, revocation of the offer is effective when it is published.

Question 4

Bilateral vs. unilateral Ks

Answer 4

Common Law—Unilateral Ks: Acceptance by performance only (ex: promise to give money in exchange for performance of no smoking; beginning performance makes offeror bound but offeree only accepts on full performance) / Bilateral Ks: Acceptance by promise only

UCC—All Ks, acceptance by promise to ship or shipment

Question 5

K Modification

Answer 5

Common Law— (oral or writing) Mod needs consideration to be enforceable
—If parties agree to modify their contract, consideration is usually found to exist where the obligations of both parties are varied. It is usually immaterial how slight the change is
—Modern view permits modification without consideration if it is fair and equitable in view of unanticipated circumstances.

UCC—Mod does not need consideration, just needs good faith reason to modify.

Question 6

Conditions

Answer 6

When a condition is broken, the beneficiary of the condition has an election: (i) he may terminate his liability; or (ii) he may continue under the contract. If a choice is made to continue under the contract, the person is deemed to have waived the condition

Question 7

Merchants

Answer 7

(UCC)—regularly deals with goods sold or holds themselves out as specialized (more business friendly and complex)

Question 8

Shipment

Answer 8

Destination/shipment (seller must promptly notify buyer of shipment); when contemplate using carrier

Absence of Carrier K then at seller’s business; reasonable time; made available

C.O.D. (Cash on Delivery), the buyer has promised to pay without inspecting the goods. When payment is due before inspection, the fact that the goods are defective does not excuse nonpayment, unless an obvious defect appears without inspection or there is fraud

Question 9

Non-Conforming Goods

Answer 9

Ship non-conforming = bilateral acceptance and breach. Exception: If notify that the non-conforming goods are offered as an accommodation, at which point the offeree can accept them all or deny the accommodating goods without being in total breach (seller can then get the accommodation)

The seller has no right to cure beyond the original contract time, unless the seller reasonably believed that the nonconforming goods would be acceptable with or without a money allowance

Question 10

SoF

Answer 10

To satisfy the Statute of Frauds, there must be one or more writings that reflect the material terms of the contract signed by the person sought to be held liable on the contract. The Statute does not require both parties to sign, only the party to be charged

[MYLLEGS] Marriage/Years(Contract that can’t be performed in 1 year)/Land(The writing must contain all essential terms, and the price is considered an essential term / Lease if over $1K)/Executorwill/Goods($500+; exception if oral agreement subsequently followed up by writing within 10 days (without objection) by merchants (buyer and seller) is enforceable)/Surety (unless primarily to benefit guarantor; Such a promise must be collateral to another person’s promise to pay rather than a primary promise (a promise to pay directly for the benefits given to another))

Exception to Land: A court may enforce an oral contract in equity under the doctrine of part performance if the buyer has performed two of the following acts: Taken possession of the land; made substantial improvements to the land, and/or Paid all or part of the purchase price. Some courts will accept as part performance additional acts showing the buyer’s detrimental reliance.

Exception: Dead Man Act provides that a party or person interested in the event, or her predecessor in interest, is incompetent to testify to a personal transaction or communication with a deceased when such testimony is offered against the representative or successor in interest of the deceased.

Question 11

PER

Answer 11

Let the K speak, bars intro of prior or contemporaneous oral agreements that vary, contradict, or add to the terms of a complete or totally integrated agreement

Complete integration discharges all prior agreements; but partial integration (UCC assumes) then some prior agreements are valid if they do not contradict existing terms and are a) consistent and b) would naturally be made separable

Exceptions
o Trade usage
o Course of dealing b/w parties
o Industry practice
o Condition precedent*** (act or event that must occur first before a party is under a duty to perform)
o Whether or not it is integrated
o Formation of the K: Ambiguous terms (if knew of ambiguity then bound); legality; fraud, duress; mistake; etc.

Question 12

3rd Party Rights

Answer 12

Can 3rd party sue; what defenses?
o Creditor: can sue obligee on original obligation
o Donee: cannot sue the obligee (person setting out to do the thing; just a failed gift) but can sue obligor

third-party beneficiary of the agreement between the buyer and her friend, and able to enforce performance of the friend’s promise to pay.

Modified or cancelled without consent of 3rd party
—Can modify before interest vested learned of rights AND:
Assents to K
Detrimentally relies on K
Brings lawsuit to enforce the K

Vesting does not occur just because they learned of the K
Once vested, K-ing parties cannot cancel or modify without 3rd party beneficiary’s blessing

As long as the defense is inherent in the contract, such as failure of a condition, it is always available against an assignee because it was in existence when the contract was made (even if whether the obligor would be able to utilize it was uncertain)

Question 13

Assignment

Answer 13

Creates PoK—A complete transfer of the tenant’s entire remaining term is an assignment of the lease. However, the original tenant can still be held liable on his original contractual obligation in the lease to pay rent; i.e., on privity of contract

Assignments for value are IRREVOCABLE/gratuitous assignment is revocable

Question 14

Delegation of Duties

Answer 14

Creates PoK—Obligor delegates duty to perform

Unless contrary intention appear, words assigning K or rights under K include duties as well

can’t materially alter obligee’s rights. All allowed to be delegated except: personal services K requiring special skills; illegality; against the K; change obligee’s expectation

Delegator remains liable on the K— However, personal service contracts are discharged in death only if the services involved are unique. If the services are the kind that can be delegated, the contract is not discharged by the death of the person who was to perform them

Question 15

Mistake or Misunderstanding

Answer 15

Mutual mistake (must concern basic assumption on to which K is made with a material effect on exchange and must not have assumed the risk of mistake/asymmetric risk awareness): cancel K or modification

Unilateral: not a defense except: if non-mistaken party knew or should have known of the mistaken (ex: grossly misstated price)

Question 16

Discharge of Duties

Answer 16

Impracticability and Frustration of Purpose—Conditions arise making performance impracticable to perform, or frustrating the primary purpose of the K at a substantial burden. Paying money is never impracticable but may get under frustration (purpose of K destroyed by unforeseeable act and both parties knew the purpose when King)

Modern courts recognize that impracticability due to excessive and unreasonable difficulty or expense is a defense to breach of contract for nonperformance. Unlike destruction of the building itself before completion, which will not discharge a contractor’s duty, the erosion of the lot, which destroys the means of performing the contract, will generally not be one of the risks that a builder will be deemed to have assumed.

Obligation excused during this time, person not liable (unless K says)

Question 17

Anticipatory Repudiation

Answer 17

Before performance is due, 1 person clearly signals he will not perform

Clear expression of nonperformance

Non-repudiating party can seek adequate assurances if unclear (most can do if drop in credit rating)

Non-repudiating party may sue or make alt arrangements if there is anticipatory repudiation

Retraction: can do if no detrimental change and in reasonable time.

Damages: When a buyer anticipatorily, either difference b/w K price and mkt price as of time of performance OR difference b/w K price and resale price—if neither puts in as good a position as performance and lost volume seller then may recover lost profits PLUS incidental

Question 18

Barred by Law

Answer 18

If a past obligation/debt is barred by law (or other technical defense to enforcement stands in the way) courts will enforce the new promise if it is in writing or there has been part performance

Question 19

Accord and Satisfaction

Answer 19

An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other, different performance.

Satisfaction is the performance of the accord agreement. Satisfaction discharges not only the original contract but also the accord contract. If a monetary claim is uncertain or is subject to a bona fide dispute, an accord and satisfaction may be accomplished by a good faith tender and acceptance of a check when that check (or an accompanying document) conspicuously states that the check is tendered in full satisfaction of the debt.

Question 20

Novation

Answer 20

Arises when the parties enter into an agreement to subs a third party for one of the parties in a contract, releasing the party who was substituted. All parties must agree to the substitution (distinction from delegation)

The elements for a valid novation are:(i) a previous valid contract;(ii) an agreement among all parties, including the new party (or parties) to the new contract; (iii) the immediate extinguishment of contractual duties as between the original contracting parties; and (iv) a valid and enforceable new contract.

Question 21

Impossibility

Answer 21

The total destruction by an act of nature of a renovation in progress discharges the contractor’s duties by impossibility. If the original building no longer exists, it is impossible to renovate it. The construction of a new building, even if destroyed during progress, is not impossible and thus will not discharge the contractor’s duty to perform. However, if the destruction was not caused by the contractor, courts typically will extend the time for the contractor to perform.

Ex: renovate house and it’s destroyed; unique personal services and person becomes unavailable

Question 22

Warranties

Answer 22

Default is warranty of title (Specific disclaimer)

Implied warranty of merchantability if sold by merchant (general or specific disclaimer)

Implied warranty for a particular fitness (any seller, merchant if not) but only with reason to know (general or specific disclaimer)

Damages: Usually difference between goods tendered and as warranted (can also recover incident and consequential in special circumstances)

Question 23

Legal Damages

Answer 23

Expectation: sufficient damages for him to buy a sub perf. Require foreseeability

Reliance: awards the plaintiff the cost of his performance, i.e., his expenditures in performing his duties under the K.
——Only available if cannot measure expectation damages

Consequential: Special damages above and beyond expectation requires foreseeability from a reasonable person of the unique circumstances

Compensatory damages will contain both an expectation and a reliance component. May include incidental expenses reasonably incurred.

Restitution: When a party’s duty of performance is discharged, other party entitled to restitution of any benefits that he has transferred to the discharged party in an attempt to perform on his side measured at the benefits’ FMV
—Difference b/w cost of performance vs. value of benefit conferred—usually FMV of material benefit conferred (quasi-K)

Liquidated: Accurately forecast cost of breach and damages difficult to forecast

Lost Profits: Seller who can obtain as many goods as can be sold (ex: car dealer)
• K price - wholesale price + breach costs (lost profits)

Unique Item Sellers: Damages = K price – resale price

Question 24

Rescission

Answer 24

Available when K is voidable

Agreement to rescind is a K supported by consideration (by giving up what they were going to get) and, thus, a valid K

Question 25

Reformation

Answer 25

Because of mistake or misrepresentation; reforms K to reflect parties’ original intent

Question 26

Breach of Employment K

Answer 26

Standard measure of the employee’s damages is based on the full contract price. However, a nonbreaching party cannot recover damages that could have been avoided with reasonable effort. If a breaching employer can prove that a comparable job in the same locale was available, the damages against the employer will be reduced by the wages the plaintiff would have received in that comparable job.

Question 27

Consideration

Answer 27

Adequacy not considered by courts of law BUT courts of equity may consider the relative values of the consideration and deny an equitable remedy if they find a contract to be unconscionable

The mere fulfillment of a condition to receive a gift is not adequate consideration. The fulfillment of the condition must be of some benefit to the promisor to constitute proper consideration. The benefit to the promisor need not have economic value. Peace of mind or the gratification of influencing the mind of another may be sufficient to establish bargained-for consideration

The presence of valuable consideration will make an executory bilateral contract fully enforceable from the moment of formation. While a substitute for consideration, such as promissory estoppel, may permit enforcement of an agreement, only the presence of valuable consideration on both sides of the bargain will make an executory bilateral contract fully enforceable from the moment of formation

Exception for Duty Owed to 3rd Party: However, under the modern view a duty is a preexisting duty only if it is owed to the promisee. Thus, a promise to perform a duty is valid consideration as long as the duty of performance is not already owed to the promisee. In other words, if the duty is owed to a third party, a promise to perform given to another is valid consideration as long as it was bargained for.

Modern courts would hold that a promise to forbear suit on a claim that the promisor/claimant (subjective belief) honestly and reasonably believes to be valid is good consideration to support an agreement, even if the claim ultimately turns out not to be valid.

Question 28

K Formation

Answer 28

To accept an offer, must know of the offer (ex: lost dog; not knowing of reward after finding dog). Not finding knowledge of dog before finding the dog does not stop consideration; just before performance (i.e., returning the dog)

Question 29

K Termination

Answer 29

Offeror revoked prior to acceptance
Offeree rejects
Offeree makes a counteroffer (always conditional acceptance)
Lapse of time
Illegality
Fraud

Question 30

Option

Answer 30

C-law: For valid option, it must be supported with consideration.

Mailbox rule does not apply to options. In such cases, acceptance is effective when received by the offeror

UCC Merchant’s Firm Offer Rule: Offer by a merchant (offeror) in a signed (by the offeror) writing, which by its terms gives assurance it will be held open is irrevocable for the time stated. If no time is stated the period of irrevocability may not exceed 90 days. (Q142)

Subject to RAP since assignable, but does not apply to options connected to leaseholds

Question 31

Time is of the Essence

Answer 31

Generally, courts assume that time is not “of the essence” in real estate contracts. This means that the closing date stated in the contract is not absolutely binding in equity, and that a party, even though late in tendering her own performance, can still enforce the contract if she tenders within a reasonable time after the date.
—Not as much between merchants

Time is of the essence clause—and specifically negotiated then it gets more favor than any other clause n the deal

Question 32

Requirement for Quantity in ______ and Price in _____

Answer 32

Quantity required for goods and price required for real property

Quantity Exception: No quantity required here (usually required); quantity measured by buyer’s good faith needs
—Buyer’s current orders must be proportionate with what they ordered in the past.

Real property Exception: Taken possession of the land; made substantial improvements to the land, and/or Paid all or part of the purchase price.

Question 33

Minor Breach

Answer 33

A breach of contract is minor if the nonbreaching party gets the substantial benefit of her bargain, despite the other party’s defective performance. A minor breach does not relieve the nonbreaching party of her duty to perform under the contract, although she will be entitled to remedial damages for the breach.