Contracts and Sales

Question 1

What transactions are in the common law world?

Answer 1

Contracts for real estate or services

Question 2

What transactions are in the UCC world?

Answer 2

Contracts for the sale of goods

Question 3

How do you handle a mixed contract for services and goods?

Answer 3

Rule 1: All or nothing UNLESS it is a divisible contract (can be divided into multiple agreements)
Rule 2: The predominant purpose controls

Question 4

What is an offer?

Answer 4

A manifestation or willingness to enter into an agreement that creates a power of acceptance in the offeree. Objective test. Must be directed to a specific offeree. (Except for contest or reward offers.)

Question 5

Essential terms (at common law and UCC)

Answer 5

Common law = parties, subject, price, and quantity

UCC = parties, subject, quantity. BUT not price.

Question 6

Requirements contract

Answer 6

Contract to supply however many of X a party needs over a certain time period.

Question 7

Output contract

Answer 7

Contract to sell however many of X a party produces over a certain time period.

Question 8

Methods for terminating an offer

Answer 8

(1) Expressly revokes by offeror
(2) Constructive revocation: Offeror takes action absolutely inconsistent with continuing ability to offer
(3) Rejection by offeree
(4) Counteroffer by offeree.
(5) Death of oferror
(6) Lapse: reasonable amount of time passes

Question 9

Types of irrevocable offers

Answer 9

(1) Option contract
(2) Firm offer (UCC = merchant + written + explicit promise + signed by offeror. If no time specified = reasonable time not more than 90 days.)
(3) Offeree starts performance of unilateral offer
(4) Detrimental reliance / promissory estoppel

Question 10

Acceptance

Answer 10

Objective manifestation of willingness to enter into agreement by the offeree. Must conform to any conditions for acceptance required by offeror. Must have knowledge of the offer.
Two ways to accept: by return agreement (bilateral agreement) or completing performance (unilateral agreement).
Common law = mirror-image rule
UCC = battle of the forms / 2-207

Question 11

What happens when X receives an offer for sale of goods and then ships the wrong goods?

Answer 11

acceptance + breach

Question 12

Mailbox rule

Answer 12

An acceptance is valid at the time it is sent.
Does not apply when:
(1) offeree sends something else first (rejection, counteroffer, etc.)
(2) other types of communications (revocation, rejections)
(3) offeree has an option contract
(4) other types of media (email, fax, etc.)

Question 13

UCC 2-207 / battle of the forms

Answer 13

2-207(1) = acceptance that does not match terms perfectly is still good, unless it is expressly conditional upon additional/different terms
2-207(2) = new terms in acceptance only control if:
(1) both parties are merchants
(2) terms do not materially alter the deal
(3) initial offer did not expressly limit acceptance to its terms
(4) offeror does not object within a reasonable time.

If there is no contract but parties act like there is, contract is only those terms agreed to by both. All other terms drop out and UCC’s gap-fillers control.

Question 14

Consideration

Answer 14

Parties exchange bargained-for promises involving a legal benefit to the promisor OR a legal detriment to the promisee.
Cannot be inadequate or illusory

Question 15

Preexisting Duty Rule

Answer 15

Common law = prevents a promise to do something that a party was already obligated to do from serving as consideration. Exception for (1) change in performance, (2) third-party promising to pay, or (3) unforeseen difficulties.

UCC = does not follow preexisting duty rule. Modifications made in GOOD FAITH are valid, even without consideration.

Question 16

Promissory Estoppel / Reliance

Answer 16

Substitute for consideration. Three elements:

(1) promise is made that party expects to reduce reliance
(2) promisee takes detrimental action in reliance on the promise
(3) injustice can be avoided by enforcing the promise

Question 17

What is a quasi-contract / contract implied-in-law? What are its elements? (aka “quantum meruit”)

Answer 17

Contract established by law in situations where parties would have contracted if they had the opportunity.

Elements:
(1) πconfers a measurable benefit on ∆
(2) π reasonably expected to get paid
(3) ∆ would be unjustly enriched if not required to pay back the benefit.
Damages usually limited to fair value of the benefit conferred.

Question 18

Moral Obligation + Subsequent Promise (“Half Theory”). Are these enforceable?

Answer 18

Generally: No obligation to keep promise for a prior-conferred benefit. But some jurisdictions allow a subsequent promise to become binding based upon past consideration.

Question 19

What are the 7 defenses to contract formation?

Answer 19

1) Misunderstanding
2) Incapacity
3) Mistake
4) Fraud/Misrepresentation/Nondisclosure
5) Duress
6) Illegality
7) Unconscionability

Question 20

Misunderstanding elements

Answer 20

(1) Parties used terms reasonably open to two or more interpretations
(2) Each side assigns a different meaning to the terms
(3) Neither party knows or should know of the confusion

Question 21

What counts as an incapacity?

Answer 21

(1) minors (less than 18yo) (except for necessities)
(2) mentally ill
(3) Very intoxicated persons (if the other side knows of the intoxication)
Contract made under incapacity/minor is voidable by the incapacitated person/minor.

Question 22

Mistake elements (mutual and unilateral)

Answer 22

A belief that is not in accord with a present fact.
Mutual mistake = affects both parties. Both parties can rescind if:
(1) mistake of fact exists at the time the deal is made
(2) mistake relates to a basic assumption of the contract and has a material impact on the deal, AND
(3) Impacted party did not assume the risk of a mistake

Unilateral mistake = only affects one party. Must prove ALL elements of mutual mistake PLUS:

(4a) mistake would have made the contract unconscionable OR
(4b) other side knew of, had reason to know, or caused the mistake

Question 23

Fraud / misrepresentation elements

Answer 23

Party must show:

(1) misrepresentation of a present fact (not opinion)
(2) that is material OR fraudulent (intentional)
(3) made under circumstances that justify the party’s reliance on the representation

Question 24

Fraud in execution

Answer 24

Trick someone into signing something that the party doesn’t know is a contract.

Question 25

Nondisclosure

Answer 25

Generally: no duty to tell the other side about all material facts related to a deal. Exception: (1) special/fiduciary relationships OR (2) active concealment

Question 26

Duress

Answer 26

Threat that deprives a party from making meaningful choice. | Includes economic duress and undue influence.

Question 27

Illegality

Answer 27

Contract for illegal acts are unenforceable. BUT contracts that further an illegal act by providing an act that is not itself illegal WILL be enforced.

Question 28

Unconscionability (procedural and substantive)

Answer 28

Procedural unconscionability = A defect in the bargaining process itself, such as a hidden term (surprise) or an absence of meaningful choice (no other contracting option); Substantive unconscionability = A rip-off in some term of the contract. Some jurisdictions require both procedural and substantive. Others require only one.

Question 29

Statute of Frauds satisfied if...

Answer 29

(1) writing signed by the one asserting SoF defense that (a) indicates contract was made (b) identifies parties, and (c) contains essential elements of the deal. OR (2) full performance of service / partial performance of real state contract + two of: (a) possession, (b) payment, OR (c) improvements to land / partial performance of sale of goods but only to those goods delivered

Question 30

Statute of Frauds is applicable for...

Answer 30

"M.SOUR" (1) Mariage (2) Suretyship (BUT "main purpose exception" if the party taking on the debt of another odes so for that party's own economic advantage) (3) One-year (cannot possibly be performed within one year by its terms) (4) UCC = goods sold for $500 or more (5) Real property

Question 31

Real state contract partially performed will satisfy SoF if...

Answer 31

(a) possession (b) payment, OR (c) improvements to land

Question 32

UCC Statute of Frauds exeptions

Answer 32

(1) partial performance of delivery, but only to those goods delivered (2) Custom-made goods (as soon as maker makes a substantial beginning toward making the goods) (3) Judicial admissions (4) Failure to object to a confirming memo within 10 days if BOTH PARTIES are MERCHANTS

Question 33

Do contract modifications need to fulfill Statute of Frauds?

Answer 33

Only if the modification would independently trigger the SoF.

Question 34

Parol Evidence Rule (PER) (common law and UCC approach)

Answer 34

If a written contract completely integrates all terms of the agreement, do not look at oral/written statements that came before the deal. Look for a "merger clause." Common law = Ask whether the term would "naturally be omitted." UCC = presumes the contract is only a partial integration UNLESS parties "certainly would have included the disputed term." Can look at prior statements for purpose of a defense or clarify an ambiguous term. Can look at statements made after. These are modifications.

Question 35

Types of warranties

Answer 35

(1) express warranty (2) Implied warranty of merchantability (3) Implied warranty of fitness for a particular purpose

Question 36

Implied warranty of merchantability

Answer 36

Goods are fit for ordinary commercial purposes. Only applies to MERCHANTS

Question 37

Implied warranty of fitness for a particular purpose

Answer 37

Triggered when a buyer relies on a seller’s expertise to select a special type of good that will be used for a special purpose. Warranties it will be good for that special purpose. Applies to all sellers (merchant or otherwise).

Question 38

Express conditions

Answer 38

Must be strictly satisfied. Usually objective standard of satisfaction (reasonable person would find it satisfied) Aesthetic-taste conditions = met with subjective test.

Question 39

Constructive Condition of Exchange (“CCE”)

Answer 39

One party's performance is conditioned on the other side's performance. Common law = CCE need NOT be satisfied perfectly. Only not meant if the breach is material or willful. UCC = Perfect tender (perfect goods + perfect delivery)

Question 40

UCC's perfect tender rule

Answer 40

Perfect goods + perfect delivery Exception: Installment contracts cannot be rejected or terminated unless there is "substantial impairment" that cannot be cured.

Question 41

Shipment contract

Answer 41

``` Seller must: (1) give goods to a common carrier (2) arrange for delivery (3) notify the buyer Buyer bears risk of loss. ```

Question 42

Destination contract ("F.O.B.")

Answer 42

Seller must get the goods to the buyer's business and notify the buyer. Seller bears risk of loss.

Question 43

Excuses to performance

Answer 43

(1) impossibility / impracticability (2) frustration of purpose (3) modification or cancelation (4) accord and satisfaction (5) novation

Question 44

Accord and satisfaction

Answer 44

Parties to an earlier contract agree that performance will be satisfied by completion of a different performance. If party fails to perform the new accord, other side can sue on either the original or new obligation.

Question 45

Novation

Answer 45

Both parties agree to substitute a third-party to take over contractual obligations. (Distinguish from a delegation)

Question 46

Anticipatory repudiation occurs when...

Answer 46

Other party repudiates performance under the contract. Can demand adequate assurances of performance under UCC.

Question 47

Types of money damages

Answer 47

(1) expectation damages (2) reliance damages (3) restitution (4) liquidated damages

Question 48

Expectation Damages

Answer 48

Put the party in the same economic position that it would be in had the contract been performed. Calculate: Value of performance without breach – value of performance with breach

Question 49

Limitations on expectation damages

Answer 49

(1) must prove with reasonable certainty (2) "Hadley rule" = not liable for unforeseeable consequential damages unless breaching party had reason to know about them (3) doctrine of mitigation

Question 50

Lost volume profits (LVP)

Answer 50

Exception to mitigation doctrine when non-breaching party is a retailer that commonly sells many of this time of product.

Question 51

Economic waste / diminution in market value

Answer 51

Instead of cost to complete the job, expectation damages become the diminution in market value based on the breaching performance. Only available when breaching party acted (1) innocently and (2) unintentionally.

Question 52

Reliance damages

Answer 52

Put party in the same economic position that it would have been if the contract had never existed.

Question 53

Restitution damages

Answer 53

Give π an amount equal to the economic benefit that π has conferred on the ∆. Permitted in cases where the nonbreaching party has partially performed a below-market-price contract

Question 54

What are liquidated damages? When are "punitive" liquidated damages allowed?

Answer 54

Damages explicitly set out in the contract that parties negotiated as part of the deal. Punitive liquidated damages are not allowed unless their amount is (1) reasonable AND (2) actual damages are uncertain in amount or difficult to prove

Question 55

Punitive damages

Answer 55

Almost never allowed in contract law.

Question 56

Specific performance

Answer 56

Allowed only when monetary damages are inadequate. For goods, goods must be unique. Presumptively available in real estate sales. Presumptively not available in contracts for personal services. BUT might get injunction preventing work for a competitor (Lumley doctrine)

Question 57

When can a seller assert right of reclamation over goods delivered to a buyer?

Answer 57

An unpaid seller can reclaim goods when: (1) buyer is insolvent at time of purchase (2) seller demands return of goods within 10 days of receipt (3) buyer still has the goods

Question 58

Third parties can sue on contract when...

Answer 58

They are an intended beneficiary (initial parties intended to convey a right to enforce a breach). Includes creditor beneficiaries and donee beneficiaries. Incidental beneficiaries cannot sue.

Question 59

Can initial counter-parties revoke/modify a third-party's right to enforce a contract?

Answer 59

Yes, if the rights have not yet vested in third-party. Rights vest when: (1) third party detrimentally relied (2) third party manifests assent to the contract/rights (3) third party files a lawsuit to enforce the rights

Question 60

Assignment of contract rights

Answer 60

Transfers rights under a contract to another, in whole or in part.

Question 61

Delegation of contract duties

Answer 61

Transfers duty to perform to another. Delegatee is not liable for breach unless she receives consideration from delegating party. Both original party and delegatee are liable for failure to perform (contrast with novation). (Sometimes also called "assignment")

Question 62

Priority of multiple assignments

Answer 62

If the rights are assigned without consideration, then the last assignment controls. If the rights are assigned for consideration, then the first assignment for consideration will typically hold.

Question 63

What are "consequential damages"?

Answer 63

Losses that result from general or particular requirements or needs of the buyer. Buyer is entitled to recover for them if the seller, at the time of contracting, had reason to know about them.

Question 64

Are non-compete clauses subject to enforcement by injunction? Or merely count as breach?

Answer 64

Can be enforced by injunction

Question 65

Who may a third-party intended beneficiary of a "gift promise" sue?

Answer 65

Only the promissor.

Question 66

Who may a third-party intended beneficiary to whom the promisee owes money sue? (creditor beneficiary)

Answer 66

Either party.

Question 67

When does a third-party intended beneficiary's rights vest? (prohibiting recision of the contract)

Answer 67

When the beneficiary: (1) detrimentally relies on the contract (2) manifests assent to the contract at one of the parties' requests (3) files a lawsuit to enforce the contract

Question 68

What happens when a third-party intended beneficiary's rights vest?

Answer 68

The original parties must preform the contract. Any efforts to rescind or modify are void unless made with third-party's consent.

Question 69

Can the promisor raise any defenses against a third-party beneficiary? Counterclaims?

Answer 69

Yes. Can raise all defenses against third-party that it could against the original promisee. Can also bring counterclaims against third-party, but liability cannot exceed the amount the promisor owes under the contract.

Question 70

Who may void a contract with a minor?

Answer 70

Contract is voidable, but only by the minor. Other party is bound.

Question 71

Does a shipment of goods in response to an offer constitute acceptance?

Answer 71

Yes. If goods are non-conforming = acceptance + breach Exception: If the seller indicates that the shipped goods are an "accommodation," shipment counts as a counteroffer. No contract is formed unless buyer accepts the accommodation.

Question 72

Can two or more writings fulfill the statute of frauds?

Answer 72

Yes. But only if the writings reference one another.

Question 73

What party holds the risk of loss under the UCC?

Answer 73

Merchant sellers hold risk of loss until goods reach the buyer unless contract provides otherwise. BUT if buyer is in breach, risk shifts to the buyer.

Question 74

What is a "reserve auction"?

Answer 74

Goods may be withdrawn until auctioneer announces completion of sale. Default type of auction.

Question 75

What is a "non-reserve" auction?

Answer 75

Goods cannot be withdrawn unless no bid received.

Question 76

When must a party object to a order confirmation memo in the sale of goods?

Answer 76

If both parties are merchants, failure to object within 10 days of a confirmation memo binds the parties to that memo's terms. Also satisfies SoF.

Question 77

What is the consequence of the destruction of identified goods without the fault of either party under the UCC?

Answer 77

If destruction happens before loss passes to the buyer, contract is void. If partial destruction, buyer can choose to accept the part not destroyed at a reduced price. After risk of loss passes to buyer, the seller may demand performance by buyer.

Question 78

What is the default rule when parties fail to agree on a method of delivery for UCC goods?

Answer 78

Any commercially reasonable delivery method may be used and must be accepted

Question 79

When is a contract void for impracticability?

Answer 79

Occurrence of circumstance that both parties impliedly assumed would not occur, and that circumstance has material effect on seller’s ability to perform (unforeseen natural disaster, war, strike, embargo). Includes failure of an explicitly specified source of goods in the contract. But must be more than a mere increase in cost of performance.

Question 80

What must a seller do if it falls short of having enough goods to supply to multiple buyers?

Answer 80

Seller must allocate available supply between customers (can include regular customer not under contract) in fair and reasonable manner. Buyer can terminate K if prospective deficiency substantially impairs value of entire K

Question 81

When can a party to a contract demand assurances of performance?

Answer 81

When "reasonable grounds for insecurity" arise as to other party’s performance

Question 82

In what time frame must a party respond to a proper demand for reasonable assurances?

Answer 82

Within 30 days

Question 83

Can a party that repudiates a contract retract that repudiation?

Answer 83

Yes, until repudiating party’s next performance is due, repudiation may be retracted UNLESS aggrieved party has: (1) canceled the K, (2) changed position, or (3) otherwise indicated belief that repudiation is final

Question 84

When does the seller have an insurable interest in goods under the UCC? When does the buyer?

Answer 84

Seller = as long as the seller has title to the goods (i.e., until delivery) or a security interest in the goods Buyer = when the goods have been specifically identified

Question 85

After a buyer rejects goods, what is the buyer's responsibility if the seller fails to give instructions?

Answer 85

(i) store the goods for seller’s account, (ii) reship them to seller, OR (iii) resell them for seller’s account

Question 86

What is a seller's right to cure?

Answer 86

After a rejection, if time for performance has not expired, seller may notify buyer of intent to cure and within time permitted by K to do so. For installment contracts = Nonconforming tender may be cured within installment period

Question 87

What actions by a buyer constitute acceptance despite a non-conformity in the goods delivered?

Answer 87

(1) Buyer signifies to seller that he will take or retain goods despite nonconformity (2) After reasonable opportunity to inspect, buyer fails to reject goods, OR (3) Engages in conduct inconsistent with the seller’s ownership of the goods

Question 88

When may a buyer revoke acceptance of goods?

Answer 88

(1) Defect substantially impairs value to buyer; AND (2a) Buyer accepted goods on reasonable belief that seller would cure defect but seller has failed to do so; OR (2b) Buyer accepted goods w/o discovering defect and acceptance was reasonable because induced by difficulty in discovering defect or seller gave assurances that goods were conforming Time limit: Revocation of acceptance must occur within a reasonable time after the buyer discovered or should have discovered the nonconformity. BUT can still sue for damages after this time.

Question 89

When can a buyer assert right of replevin over goods still held by a seller?

Answer 89

(1) goods are specifically identified (2) buyer made partial payment (3) seller goes insolvent within 10 days of that payment

Question 90

How can buyers and sellers modify the normal 4 year SoL under the UCC?

Answer 90

Can modify by contract to anything between 1–4 years. Cannot go below 1 year. Cannot increase beyond 4.

Question 91

Is course of dealing admissible under the UCC when there is a writing that is the complete integration of the deal?

Answer 91

Yes. Course of dealing is still admissible under the UCC.

Question 92

Is a promise to pay all or part of a debt enforceable if the statute of limitations has run on collection of the debt?

Answer 92

Yes. A promise to pay part of an debt barred by the statute of limitations is an exception to the requirement of consideration for a promise. It is binding without consideration.

Question 93

In what time frame can a buyer revoke acceptance of goods?

Answer 93

must occur within a reasonable time after the buyer discovered or should have discovered the nonconformity. Also must be before any substantial change in the condition of the goods not caused by the defect. BUT can still sue for damages after a reasonable amount of time

Question 94

When does a contract violate the statute of frauds provision for one-year contracts?

Answer 94

When it cannot possibly, BY ITS EXPLICIT TERMS, be fully performed in one year.

Question 95

What is needed for a proper rejection of goods?`

Answer 95

(1) notice to the seller (2) within a reasonable time (3) before acceptance

Question 96

What may a buyer of non-perishable goods who successfully rejects the goods do with them?

Answer 96

In absence of seller's instructions, buyer can... (1) store goods at seller's expense (2) reship goods to seller (3) sell goods for seller's account

Question 97

What may a buyer of perishable goods who successfully rejects the goods do with them?

Answer 97

If seller has no local agent to collet them, buyer must sell the goods on seller's behalf.

Question 98

What are the two exceptions to the rule that suretyship contracts must be in writing to comply with the statute of frauds?

Answer 98

(1) indemnity contracts | (2) main purpose exception = if the main purpose for the party agreeing to the suretyship is his own economic advantage

Question 99

At common law, when can an existing contract be modified without new consideration? (3 ways)

Answer 99

(1) rescission of existing contract and entering into the new one (2) unforeseen difficulties that would make performance impractical, for which the other party agrees to compensate (3) new obligation on both sides

Question 100

When is an accord and satisfaction sufficient to reduce a debt owed to a creditor?

Answer 100

Only when there is (1) some dispute over the validity of the debt or the debt amount, OR (2) when payment is of a different type than called for by the original contract

Question 101

What is an illusory promise?

Answer 101

A promise that essentially pledges nothing because it is (1) vague or (2) promisor can choose whether to honor it. This promise is not valid consideration. Two exceptions: (1) promise based on occurrence within party's control (court implies "best efforts" to bring about occurrence) (2) promise based on satisfaction with goods/services (required to act in good faith)`

Question 102

When can a promise to forego bringing a legal action count as consideration?

Answer 102

Only when (1) promisor has honest belief in validity of the claim, AND (2) there is a reasonable basis for that belief.

Question 103

When does a merchant's confirmation memo satisfy the statute of frauds?

Answer 103

(1) Both parties are merchants (2) Within a reasonable time after making an oral agreement, one party can send a memo that is sufficient under the statute of frauds to bind the sender. (3) Recipient is bound if he (a) had reason to know of the memo's contents, and (b) does not object within 10 days of receipt. (no recipient signature required)

Question 104

When is a writing not required under UCC Art 2?

Answer 104

(1) specially manufactured goods (made specifically for buyer + unsuitable for others + substantially begun or commitments for its purchase) (2) party admits contract in judicial proceeding (3) by performance (if goods are received/accepted OR paid for = contract is enforceable for that quantity of goods)

Question 105

What is the merchant's "firm offer" under the UCC?

Answer 105

Option contract is enforceable even without consideration if... (1) made by a merchant (2) written offer (3) signed by merchant (4) includes "words of firmness" If no time specified = implied reasonable time. Time limit = No greater than 3 months.

Question 106

For contracts involving third-party intended beneficiaries, what is the difference between a "donee beneficiary" and a "creditor beneficiary"?

Answer 106

An intended beneficiary of a "gift promise" (a donee beneficiary) may sue only the promisor. An intended beneficiary to whom the promisee owed money (a creditor beneficiary) may sue either the promisor or the promisee on the underlying obligation, or both. (But only one recovery is allowed.)

Question 107

When can accord and satisfaction be used to reduce a debt?

Answer 107

Only when there is a good faith dispute as to the validity or amount of the debt. Cannot be used if the debt is undisputed.