Contracts Essay Rules

Question 1

When is a contract formed under the UCC?

Answer 1

The UCC governs the sale of goods. The UCC applies here because (goods) are involved. Under the UCC a contract is formed if both parties intend to enter a contract and there is a reasonably certain basis for giving a remedy. Other than the identity of the parties and subject matter of the contract, the quantity is the only essential term for forming a contract. The UCC can gap fill if other terms, such as time of delivery, are missing.

Question 2

Sale of Goods statute of frauds

Answer 2

If the sale of goods is $500 or more then the contract must be in writing and signed by the party to be charged in order to satisfy the statute of frauds.

A signature includes any authentication that identifies the party to be charged, such as a letterhead on the memorandum. UCC § 2-201(1), cmt. 1.

Question 3

Statute of frauds exception based on part performance

Answer 3

A contract is outside of the statute of frauds to the extent that payment is made and accepted and to the extent that goods are delivered and accepted.

If 6 out of 10 knives are delivered and accepted then the 6 are taken out of the SOF but the remaining 4 are not
Enforcement of an agreement is limited to the quantity term of the written agreement

Question 4

Merchants and Confirmatory memo
Ex: Chef buys knife from merchant (who is a merchant)

Answer 4

A signature under the statute of frauds is any authentication that identifies the party to be charge such as company letterhead. A merchant is someone who regularly deals in the types of goods involved or who holds themselves out as having knowledge of skills particular to the practice or goods involved in the transaction. A manufacturer is a merchant because they regularly sell goods and a chef is a merchant because he has knowledge of chef’s knives based no his occupation.

If both parties are merchant’s, there is a sale of goods exceeding $500 and a memorandum sufficient against one party is sent to the other party who has reason to know of its contents and does not object to it in writing within ten days, then the contract is enforceable against the receiving party even though they have not signed it.

Question 5

If an offeree creates a merchant’s firm offer what issue comes up?

Answer 5

The issue is that the offeror could inadvertently sign it. To avoid this an offeror must separately authenticate a firm offer when it is prepared in writing by the offeree.

The primary purpose of the signed writing requirement is to ensure that the merchant deliberately makes a current firm offer binding. Therefore, a full handwritten signature is not always required, such as when merely initialing the relevant clause is appropriate under the circumstances, or when the offeror handwrites on her letterhead that she “confirms” that a firm offer was already made. U.C.C. § 2-205, cmt. 2.

NOTE: A firm offer in a form prepared by the offeree must be separately signed by the offeror to protect against inadvertent signing

Question 6

UCC vs Common law and mixed contracts

Answer 6

The UCC governs all contracts involving the sale of goods, and common law rules service contracts.

If a contract includes both goods and services whichever predominates will determine the governing law.

Question 7

Merchants include

Answer 7

A person who regularly deals in the type of goods involved in the transaction.

A person who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.

Any business person when the transaction is of a commercial nature.

Question 8

Offer and terms

Answer 8

An offer includes a promise showing a present intent to enter into a contract.

The offer must be communicated to the offeree

CL: all essential terms must be provided

UCC: the essential terms are the parties, subject matter, and quantity. Court can gap fill the rest.

Question 9

Default place of delivery

Answer 9

Seller’s place of business.

Question 10

Bilateral vs unilateral

Answer 10

A bilateral contract is a promise exchanged for another promise. Can be accepted by a promise or performance.

A unilateral contract is one that can only be accepted by performance

Question 11

Irrevocable offers

Answer 11

Options contracts are irrevocable if the option to hold open the offer is supported by consideration.

Firm offers: Exist when a merchant gives assurance that the offer is open and does so in a signed writing. Can’t exceed 90 days (offer become revocable after 90 days).

Unilateral offers once performance has begun.

Question 12

Revocation

Answer 12

An offer can be terminated by revoking it. Revocation is effected when received.

Constructive revocation: If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked.

Rejection terminates an offer.

Counteroffers terminate the offer.

Lapse of time terminates an offer when not accepted in a reasonable time.

Death of the offeror terminates an offer (but not an option)

Question 13

Mirror-image rule

Answer 13

An acceptance must mirror the terms of the offer any changes constitute a counteroffer (Common law)

UCC doesn’t use mirror image and an acceptance with additional terms constitutes an acceptance.

Additional terms don’t come in but are suggestions if one party is not a merchant.

If both parties are merchants the terms come in unless they materially alter the terms, the original offer limits the acceptance to the original terms, or the offeror objects to the changed or new terms.

Question 14

Mailbox Rule

Answer 14

A mailed acceptance is valid when mailed.

DOESN’T apply for option contracts or firm offers, the acceptance is valid when received.

IF acceptance sent then rejection the acceptance is valid.

IF rejection is sent then acceptance whichever gets there first controls.

Question 15

Consideration

Answer 15

Consideration requires a bargained for change in the legal position between parties. Both sides must have a legal detriment.

Courts won’t look at adequacy of consideration.

Question 16

Preexisting duty rule

Answer 16

A promise to perform a preexisting legal duty will not qualify as consideration because the
promisor is already required to perform by the promisor (i.e., no additional legal detriment
is being incurred).

Question 17

Past Consideration

Answer 17

Under common law a legal detriment occurred in the past could not constitute valid consideration.

Moral consideration: Modern trend where a promise may be enforceable if it is made in recognition of a significant benefit previously received and not intended as a gift. Here the court could reduce the amount of money owed under the promise it it is disproportionate to the benefit conferred by the promisee.

Question 18

Promissory Estoppel

Answer 18

A promise is binding in absence of consideration if:

The promisor should reasonably expect the promise to induce action or forbearance; the promise does induce such action/forbearance; and an injustice can only be avoided by enforcing the promise.

Damages are limited to reliance damages.

Question 19

Mistake

Answer 19

Mutual: Applies if both parties are mistaken as to an essential element of the contract. No contract forms.

Question 20

Reformation of contract

Answer 20

Parties can ask a court to reform the contract and rewrite it when:
* There was a prior agreement (either oral or written) between the parties;
* There was an agreement by the parties to put that agreement into writing; and
* As a result of a mistake, there is a difference between the prior agreement and the
writing.

Question 21

Unilateral Mistake

Answer 21

The mistaken party can void the contract if
1) the mistake would make the enforcement of the contract unconscionable; OR
2) the non-mistaken party failed to disclose the mistake or caused the mistake.

**Must also be an absence of serious prejudice to the non-mistaken party

Question 22

Fraudulent Misrepresentation

Answer 22

An intentional misrepresentation of fact either by lie or non-disclosure that the other party relies on.

Fraud in the factum: Prevents a party from knowing the character or essential terms of the contract and results in a void contract.

Fraud in the inducement: Fraud that gets another to enter into the contract and results in it being voidable by the adversely effected party if they justifiably relied on the misrepresentation.

Question 23

Undue Influence

Answer 23

Undue influence occurs when a party unfairly persuades the other party to assent to the contract. Occurs in certain relationships where innocent party is susceptible to persuasion.

Question 24

Duress

Answer 24

Physical duress will void the contract.

Other duress (threat of civil action in bad faith) makes the contract voidable.

Question 25

Capacity

Answer 25

Defense to enforcement if one party is incompetent due to infancy, mental illness, or intoxication.

Question 26

Statute of Frauds

Answer 26

Applies to Marriage, Contracts that cant be performed within one year, Sale of land, Sale of goods $500 or more, suretyship Requires a signed writing by the person to be charged

Question 27

Writing for SOF

Answer 27

Does not have to be the formal contract. Can be written after the contract is formed. Sale of goods: Only enforceable for the amount shown in the writing. Multiple writings can be put together to satisfy SOF if they reference each other. A document on company letterhead could be enough to satisfy the signature requirement (enough to identify party)

Question 28

SOF exceptions

Answer 28

For contracts over one year, a court will enforce it if either party has fully performed. Full performance for sale of goods will be enforceable (delivered or paid for) Part performance can be enforceable to the extent paid. No writing required for specially manufactured goods.

Question 29

Statute of frauds letter or memo of confirmation

Answer 29

o Both parties are merchants; o A party sends a confirmatory letter/memo that meets the SOF (writing, signed, essential terms of the deal) to the other party; and o The other party knowingly receives the memo and does not object in writing within 10 days. WILL NOT APPLY IF SIGNATURE REQUIREMENT IS NOT MET. Look out for fact pattern where unsigned memo is sent.

Question 30

SOF Sale of land

Answer 30

If the contract involves the sale of land, the contract will be enforced if at least two of the following three acts have occurred: * The purchaser pays part or all of the purchase price; * The purchaser takes possession of the land; or * The purchaser substantially improves the property. Note: Additionally, when a party to an oral contract who has promised to convey real property performs, that party can enforce the other party’s oral promise unless the promise is itself the transfer of a real property interest.

Question 31

Illegality Unconscionability

Answer 31

A court will not enforce a contract that has involves illegal consideration or performance. A court will not enforce a contract that is so unfair, no reasonable person would agree to it. o Remedies: The court may refuse to enforce the entire contract, strike the unconscionable portion of the contract, or limit the unconscionable terms. Two types of unconscionability:  Procedural: Bargaining process leading to the formation of the contract is unfair  Substantive: Actual terms of the contract are significantly unfair

Question 32

Express Warranty

Answer 32

Any promise or description that is part of the basis of the bargain is an express warrantly unless it is merely opinion. Disclaimer clauses that conflict with express warranties are ignored.

Question 33

Implied warranty of merchantability

Answer 33

Implied when the seller is a merchant and the goods must be fit for their ordinary purpose; and pass without objection in the trade under the contract description. Disclaimed: A clear written statement using "as is" or an oral statement that uses merchantability.

Question 34

Implied warranty of fitness for a particular purpose

Answer 34

A warranty that the goods are fit for a particular purpose is implied if the seller has reason to know: * The buyer has a particular use for the goods; and * The buyer is relying upon the seller’s skill to select the goods.  The seller need not be a merchant for this implied warranty to apply.  Disclaimer: This warranty can be disclaimed by general language such as “as is”, but the disclaimer must be in writing and be conspicuous.

Question 35

Common Law modification

Answer 35

1) Common law At common law, modification of an existing contract must be supported by consideration. Agreements to modify a contract may still be enforced if: i) There is a rescission of the existing contract by tearing it up or by some other outward sign, and then the entering into of a new contract, whereby one of the parties must perform more than she was to perform under the original contract; ii) There are unanticipated difficulties, and one of the parties agrees to compensate the other when the difficulties arise if the modification is fair and equitable in light of those difficulties; or iii) There are new obligations on both sides. If the modified contract falls within the SOF, it must be in writing unless an exception applies (see the exceptions to the SOF, above). o Provisions prohibiting oral modifications: A provision requiring a modification to be in writing even though the modification would not otherwise fall within the SOF is not enforceable.

Question 36

UCC Modification

Answer 36

Only need be done in good faith. Statute of Frauds: If the modified contract falls within the SOF, it must be in writing unless an exception applies (see the exceptions to the SOF, above). o Provisions prohibiting oral modifications: A provision prohibiting oral modifications to a sales contract is valid—even if the modification would not otherwise fall within the SOF.

Question 37

Accord and Satisfaction

Answer 37

When there is a genuine dispute over the validity of the contract or the amount owed, a party can agree to accept a different performance from what was agreed upon in the contract. * Accord: A new agreement where a party agrees to accept a different performance than what was agreed upon * Satisfaction: Occurs when the different performance is completed by the other party, which discharges the original contract duties and the accord agreement duties

Question 38

Parol Evidence Rule

Answer 38

Under the PER, extrinsic evidence of oral or written communications prior to/contemporaneously w/ the written contract (e.g., contract negotiations) are generally inadmissible for contradicting the terms of the contract.

Question 39

PER integration

Answer 39

The PER only applies if the writing in question is “integrated” (i.e., intended to be the final agreement regarding the terms of the contract). o The court will look at the words in the contract to determine if the parties intended for it to be a total or partial integration .  Total: The writing contains all the terms of the agreement. * No parol evidence is admissible. * Merger clause: If the contract has a “merger” clause stating that the contract is the final and complete understanding of the parties, it is likely to be a total integration.  Partial: The writing contains some of the terms of the agreement. * Parol evidence is admissible to supplement the writing, as long as it is consistent with the writing (and do not contradict any of the terms).