Contracts & Sales

Question 1

When the UCC Applies

Answer 1

The UCC Article 2 governs contracts for the sale of goods. Goods are tangible, movable items at the time of identification to the contract. Contracts involving both goods and services are governed by the predominant purpose test: whichever aspect (goods or services) predominates governs the entire contract. If the contract is divisible, UCC applies to the goods portion only.

Question 2

Definition of a Merchant (UCC)

Answer 2

A merchant is someone who regularly deals in goods of the kind sold, holds themselves out as having knowledge or skill related to the goods or practices involved, or employs an agent with such knowledge or skill. Merchants are subject to special UCC rules, such as the firm offer rule, and additional terms in 2-207.

Question 3

common law contract formation

Answer 3

A valid contract requires mutual assent (offer + acceptance), consideration, and no defenses to formation.

Essential terms (parties, subject matter, price, quantity) must be definite and certain.

Question 4

UCC contract formation

Answer 4

A contract is formed if the parties intend to be bound and there is a reasonably certain basis for giving a remedy.

Only the quantity term is essential—other missing terms (e.g., time, delivery, price) are filled by UCC gap fillers.

Question 5

Requirement & Output Contracts:

Answer 5

A requirements contract is a contract in which the buyer agrees to purchase all of its required goods exclusively from the seller. The specific quantity is not fixed, but is based on the buyer’s needs. This satisfies the UCC’s quantity requirement because the quantity is determined by the buyer’s good faith requirements.

An output contract is a contract in which the seller agrees to sell all of its output of certain goods exclusively to the buyer. The quantity term is satisfied by the seller’s good faith production.

Valid under the UCC despite lack of specific quantity, so long as they are made in good faith and not unreasonably disproportionate to prior dealings or stated estimates.

Question 6

offer (CL & UCC)

Answer 6

An offer is a manifestation of a present intent to contract, communicated to the offeree, and creating the power of acceptance. Courts use an objective standard to determine intent.

Question 7

termination of an offer

Answer 7

An offer terminates by:

• Lapse of time,
• Revocation (effective upon receipt),
• Rejection or counteroffer,
• Death/incapacity of either party before acceptance.

Question 8

acceptance

Answer 8

At common law, acceptance must be the mirror image of the offer.

Under the UCC, acceptance can occur by any reasonable means unless specified otherwise.

Silence is generally not acceptance unless (1) the offeree takes benefit with reasonable opportunity to reject, or (2) prior dealings make silence reasonable.

Question 9

mailbox rule (CL)

Answer 9

Acceptance is effective upon dispatch unless the offer specifies otherwise.

Revocation, rejection, and counteroffers are effective only upon receipt.

Question 10

irrevocable offer - option contract (CL)

Answer 10

An option is a separate contract supported by consideration, wherein the offeror promises to keep the offer open for a stated time.

Question 11

irrevocable offer - firm offer rule (UCC)

Answer 11

An offer by a merchant to buy/sell goods is irrevocable if:

1. It is in writing,
2. Signed by the offeror,
3. States it will be held open.

No consideration is needed. The offer is irrevocable for up to 3 months or for a reasonable time, whichever is shorter.

Question 12

Consideration (CL & UCC):

Answer 12

A bargained-for legal detriment. Gifts, past acts, or pre-existing legal duties do not count. Modification at common law requires new consideration.

Question 13

UCC Modification Rule:

Answer 13

Under the UCC, modifications are valid if made in good faith, even without new consideration.

Question 14

Promissory Estoppel:

Answer 14

A promise is enforceable without consideration when:

1. The promisor reasonably expected reliance,
2. The promisee actually relied, and
3. Injustice can only be avoided by enforcement.

Remedy is usually reliance damages.

Question 15

UCC 2-207 – Battle of the Forms

Answer 15

RULE
An acceptance that includes new or different terms is valid unless it is expressly conditional.

If one party is not a merchant → new terms are proposals and do not become part of the contract.

If both parties are merchants, new terms become part of the contract unless:

1. The offer limits acceptance,
2. The terms materially alter the offer, or
3. The offeror objects.

Confirmatory Memo (UCC Statute of Frauds Exception):
Between merchants, a written confirmation sent within a reasonable time binds the receiving party unless they object in writing within 10 days.

Question 16

UCC SoF – $500+ Rule:

Answer 16

Contracts for the sale of goods $500 or more must be in writing, signed by the party to be charged, and include the quantity term.

Question 17

SoF exceptions

Answer 17

Exceptions:
1. Specially manufactured goods,
1. Admissions in court,
1. Part performance (goods received or paid for),
1. Merchant’s confirmatory memo (if not objected to in 10 days).

Question 18

CL SoF categories

Answer 18

Marriage,

Contracts >1 year,

Land interests,

Executor promises,

Sale of goods $500+,

Suretyship.

Question 19

Parol Evidence Rule

Answer 19

A final written agreement may not be contradicted by prior or contemporaneous agreements, but may be explained or supplemented by:

• Course of dealing,
• Usage of trade,
• Consistent additional terms (if not fully integrated).

Exceptions: Ambiguity, fraud, duress, mistake, or conditions precedent.

Question 20

Perfect Tender Rule (UCC):

Answer 20

A buyer may reject goods if they fail in any respect to conform to the contract. If time remains, seller may cure.

Question 21

Installment Contracts (UCC):

Answer 21

A buyer may cancel only if a nonconforming installment substantially impairs the value of the whole contract.

Question 22

Substantial Performance (CL):

Answer 22

A party who substantially performs can enforce the contract, minus damages. A material breach defeats substantial performance.

Question 23

Divisible Contracts:

Answer 23

If a contract is divisible and one unit is performed, recovery is allowed for that unit even if other units are breached.

Question 24

Anticipatory Repudiation

Answer 24

Occurs when a party unequivocally refuses to perform before performance is due. The nonbreaching party may:

• Treat the contract as breached and sue,
• Suspend performance,
• Demand assurances.

Retraction is allowed if performance is not yet due and the other party has not relied or sued.

Question 25

Expectation Damages:

Answer 25

**Default remedy**. Puts the nonbreaching party in the position as if the contract were fully performed.

Question 26

Consequential Damages (CL):

Answer 26

Recoverable if: 1. Foreseeable at formation, 1. Arise from special circumstances, 1. Proven with reasonable certainty.

Question 27

Reliance Damages:

Answer 27

Compensate for costs incurred in reliance on the contract when expectation damages are too speculative.

Question 28

Restitution (Unjust Enrichment):

Answer 28

Permits recovery of the benefit conferred when one party unjustly retains a benefit without paying for it.

Question 29

Duty to Mitigate:

Answer 29

Nonbreaching party must take reasonable steps to mitigate damages. Failure reduces recovery.

Question 30

Economic Waste Doctrine:

Answer 30

If the cost to fix the breach is grossly disproportionate to the benefit, damages may be limited to diminution in value, unless the breach was willful.

Question 31

suretyship

Answer 31

A suretyship is a promise to assume responsibility for a duty incurred by another.  Unless a suretyship is made for the promisor's own economic advantage, it is subject to the statute of frauds—ie, it must be in writing and signed by the party against whom enforcement is sought. NOTE: A one-year contract is not subject to the statute of frauds if it is possible to perform within one year (even if the parties agree on a later completion date).

Question 32

illusory promise

Answer 32

An illusory promise is one that imposes no obligation on the promising party and therefore fails to provide the consideration needed for contract formation.

Question 33

settlement agreements

Answer 33

Unless stated otherwise, each party's duty to perform under a settlement agreement is conditioned upon the other party's performance.  This means that a breach of the agreement excuses the nonbreaching party from performing, and the breaching party cannot enforce the agreement.

Question 34

UCC - no oral modification clause

Answer 34

The UCC will enforce a "no oral modification" (NOM) clause even if the modification would not otherwise need to be in a writing that satisfies the statute of frauds.  NOM clauses can be waived through the parties' words or conduct, and the waiver cannot be retracted if a party has materially changed position in reasonable reliance on the waiver.

Question 35

battle of the forms - both parties merchants

Answer 35

"Under the battle-of-the-forms rule, an acceptance is effective even when it contains new terms.  If both parties are merchants, the new terms become part of the contract ***unless*** (1) the offer expressly required the offeror's assent to new terms, (2) the offeror objected within a reasonable time, or (3) the new terms materially alter the contract. **NOTE: Jurisdictions are split **on whether the addition of an arbitration term materially alters a contract, so the court would need to decide this issue to determine whether the arbitration term became part of the contract."

Question 36

UCC perfect tender rule

Answer 36

"Under the UCC perfect-tender rule, a buyer may reject goods in a single-delivery contract—ie, a one-time bargained-for exchange—that fail to conform to the contract in ANY way.  In a single-delivery contract, the buyer may reject nonconforming goods.  But if there is still time to perform under the contract, the seller has the right to cure the defect by (1) giving the buyer reasonable notice of its intention to cure and (2) making a conforming delivery within the time for performance under the contract."

Question 37

divisible contracts

Answer 37

Divisible contracts contain two or more bargained-for exchanges, each of which can be enforced separately.  Under such a contract, a party is entitled to return performance (eg, payment) for any completed or substantially performed promise.  This is true even if that party breaches the other, separately enforceable agreement.  However, the nonbreaching party may deduct from any payment made to the breaching party damages stemming from the breach.

Question 38

trade usage under the parole evidence rule

Answer 38

Under the UCC parol evidence rule, evidence of trade usage can be used to explain or supplement the express terms of a final, written contract so long as the evidence is reasonably consistent with (ie, not negated by) those terms.  Trade usage refers to a practice or method of dealing that is observed with such regularity in the industry that the parties to a contract would be expected to observe it.

Question 39

specific performance for personal services

Answer 39

"Specific performance is an equitable remedy whereby a court orders a breaching party to perform a contractual duty when monetary damages would be inadequate—eg, breach of contract for the sale of land.  However, this remedy is **not available to enforce a contractual duty to perform personal services **because courts are unwilling to compel personal associations after a dispute. **NOTE ALSO:** The equitable defense of **laches** is commonly asserted in specific-performance actions.  To prevail on this defense, the breaching party must show that the enforcing party's **unreasonable delay in bringing the claim has resulted in prejudice**—ie, substantially increased the cost or difficulty of performance."

Question 40

when a breach delays the use of property

Answer 40

"If a breach delays the use of property, the nonbreaching party may recover damages based on (1) the fair rental value of the property during the delay period or (2) interest on the value of the property made unproductive by the breach. NOTE ALSO: consequential damages arising from the nonbreaching party's special circumstances are only recoverable if the breaching party (1) knew about the special circumstances or (2) could have reasonably foreseen the harm, in light of those circumstances, that would result from the breach. "