Bar Exam: Contracts Latest Update Already Passed

Bar Exam: Contracts Latest Update Already Passed Accord and Satisfaction An accord is an agreement under which one party agrees to accept some other, different performance from the other party than he would have received under the existing contract. An accord must be supported by consideration. Satisfaction discharges the accord and the original contract. Insolvent Buyer A seller must deliver goods to an insolvent buyer if the buyer tenders cash for their payment Promise to pay a legal obligation barred by the law... is enforceable. If a past obligation, such as a debt, would be enforceable except for the fact that a technical defense stands in the way (e.g. statute of limitations), the courts will enforce a new promise if it is in WRITING or there has been a part performance. No additional consideration is needed in order for the contract to be enforceable. Unilateral Contract one in which the offer requests performance rather than a promise to perform, and under the First and Second Restatements, as well as the UCC, once performance has begun the offer CANNOT be REVOKED as to that performer. The offer can be revoked as to others who have not yet begun to perform. Ambiguity When there is ambiguous contract language...where one party is aware of the ambiguity and the other party is not at the time of contracting, a contract will be enforced according to the intent of the part who was unaware of the ambiguity. If neither party, or both parties, are aware of the ambiguity, no contract would be formed unless both parties intended the same meaning. Option Contract A distinct contract in which an offeree gives consideration for a promise by the offeror not to revoke an outstanding offer. Unequivocal words of rejection by the offer will not extinguish an option, absent detrimental reliance on the part of the offeror. Accommodation When a seller ships both conforming and nonconforming goods along with a note explaining that the nonconforming goods are offered as an accommodation to the buyer, this constitutes a COUNTEROFFER. The buyer is free to accept or reject. A shipment of nonconforming goods without the note would be an acceptance and a breach of contract. Merchant's Firm Offer Applies only when the merchant signs a written offer giving assurances that he will hold the offer open for a stated time period; in such cases, the offer is irrevocable for the stated period or for a reasonable time period if no period is stated (not to exceed 3 months). The intent to create an option contract must be expressly stated in writing, which did not happen here. Specific Performance-Nonbreaching Party's Rights A non breaching party may seek specific performance if the legal remedy (i.e. damages) is inadequate. Damages are generally inadequate when the subject matter of the contract tis rare or unique. However, if the ubsnect matter has already been sole to another, who purchased for value and in good faith (a BFP), the right to specific performance is cut off. F.O.B. (Free on Board) Under an F.O.B. delivery term, the seller is obligated to get the goods to the destination indicated and make a reasonable contract for freight if the destination indicated is not the buyer's place of business. The seller has the risk of loss until the goods make it to the destination, and thereafter the buyer has the risk. Rights of a Donee Beneficiary Rights vest when the beneficiary materially changes position in justifiable reliance on the promise. The promisor may raise any defense against the third party beneficiary that it would have against the promisee, including illegality. when a promisee tells the donee beneficiary of the contract and should foresee reliance by the beneficiary, and the beneficiary reasonably relies to her detriment, the beneficiary can sue the promisee directly under a promissory estoppel/detrimental reliance theory. Additional Terms in Contracts Between Merchants Will be included unless: 1) they materially alter the original terms of the offer; 2) the offer expressly limits acceptance to the terms of the offer; OR 3) the offeror has already objected to the particular items, or objects within a reasonable time after notice of them is received Conditional Acceptance When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer. It can be considered a counteroffer only to the extent that the original offeror may expressly assent to the new terms and thus form a contract. It is NOT considered a counteroffer that can be accepted by performance. Perfect Tender Rule Allows rejection for any defect, and does not require material breach. However, rules permit the seller to cure the defect by giving reasonable notice of an intention to cure and making a new tender of conforming goods within the time originally provided for performance. Where the buyer rejects a tender that the seller reasonably believed would be acceptable, the seller, upon reasonable notification of the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender. Parol Evidence Rule When the parties to a contact express their agreement in a writing with the intent that it embody the final expression of their bargain (the writing is an integration) any other other expressions --written or oral--made PRIOR to or CONTEMPORANEOUS WITH the writing, are inadmissible to vary the terms of the writing. Evidence of custom in the trade can be offered regardless of the completeness of the written agreement. Merger Clause Recites the agreement is the complete agreement between the parties. Usually determinative in large commerce contracts. Gap Fillers In a contract for the sale of goods, the key to forming a contract is the quantity term .If other terms are missing from the agreement, aRticle 2 has gap filler provisions to fill in the missing terms. Place of delivery: if not specific then usually it's the seller's place of business, if he has one; otherwise, it's the seller's home. Time for shipment/delivery: reasonable time Time for payment: payment is due at the time and place which the buyer is to receive the goods Delivery Terms and risk of Loss-Noncarrier case a sale in which it appears that the parties did not intend the goods would be moved by a common carrier. IF the seller is a merchant, risk of loss passes to the buyer ONLY when the BUYER takes physical POSSESSION of the goods. If the seller is NOT a merchant, risk of loss passes to the buyer upon TENDER of delivery. Delivery Terms and risk of Loss-Carrier case A sale in which the parties intended the goods to be moved by a carrier. Shipment contract: if contract requires seller to ship goods but not to particular destination, it is a shipment contract and the risk of loss passes to the buyer when the goods are DELIVERED to the CARRIER. Destination contract: if the contract requires the seller to deliver the goods to a particular destination, the risk of loss passes to the buyer when the goods are TENDERED to the buyer at the DESTINATION. Common Delivery Terms C.I.F: cost, insurance, and freight. The price in the contract includes the price of the goods,t he cost of shipping them to the buyer, and the cost of insurance for the benefit of the buyer. ALWAYS SHIPMENT CONTRACTS. F.A.S. free alongside. The terms is used when goods are shipped by boat. risk of loss passes to the buyer once the goods are DELIVERED to the DOCK. F.O.B. free on board. Always followed by a location and the risk of loss passes to the buyer at the named location. The seller bears the risk and expense of getting the goods to the named location. implied warranty of merchantability Implied in every contract for sale by a merchant who DEALS IN GOODS OF THE KINDS SOLD To be merchantable, goods must be fit for the ordinary purposes for which such goods are used. Implied Warranty of Fitness for a Particular Purpose will be implied in a contract for the sale of goods whenever: i) any seller, merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller's skill and judgment to select suitable goods; and ii) the buyer in fact relies on the seller's skill or judgment Modification of Contract Terms CONSIDERATION: under general contract law, a contract cannot be modified unless the modification is supported by new consideration, but under the UCC, good faith promises of new and different terms by the parties to a sales contract are valid without consideration. WRITTEN: a written contract can be modified orally. If the contract as modified falls within the STATUTE OF FRAUDS then the modification must be in writing. Election Waiver When a condition does not occur or a duty of performance is broken, the beneficiary of the condition/duty must make an election; she may: 1) terminate her liability, OR 2) continue under the contract. Choosing to continue will waive the condition or duty. Cannot be withdrawn even if the other party has not relied on it. Mutual Mistake When both parties entering into a contract are mistaken about exciting facts relating to the agreement, the contract may be voidable by the adversely affected party if: 1) the mistake concerns a basic assumption on which the contract was made; 2) the mistake has a material effect on the agreed upon exchange; AND 3) the party seeking avoidance did not assume the risk of mistake Discharge by Frustration Frustation will exist when: 1) there is some supervening act or event leading to the frustration; 2) at the time of entering into the contract, the parties did not reasonably foresee the act or even occurring; 3) the purpose of the contract has been completely or almost completely destroyed by this act or event; AND 4) the purpose of the contract was realized by both parties at the time of making the contract Unilateral Mistake Where only one of the parties is mistaken about facts relating to the agreement, the mistake usually will to prevent formation of the contract; however, if the non mistake party is aware of the mistake made by the other party, he will not be permitted to snap up the offer. Installment contracts A contract that authorizes or requires deliveries in separate lots. A buyer may declare a total breach of an installment contract only if the defect substantially impairs the value of the entire contract. Anticipatory Repudiation Occurs when a promisor, prior t the time set for performance of his promise, indicates that he will not perform when the time comes. Prospective Inability to Perform prospective failure of condition occurs when a part has REASONABLE grounds to believe that the other party will be unable or unwilling to perform when performance is due. The innocent party can suspend further performance until she receives adequate ASSURANCES that performance will be forthcoming. Novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had belonged to one of the original parties under the terms of an existing contract. All parties must agree that the contractual duties between the original parties are extinguished. Condition Precedent Where the re is an oral condition precedent, evidence of the condition falls outside the parol evidence rule. Statute of Frauds Covers promises: 1) by an executor or administrator to pay the estate's debts out of her own funds; 2) to answer for the debt of another; 3) made in consideration of marriage; 4) creating an interest in land; 5) that by its terms cannot be performed within one year; 6) for the sale of goods at a price of $500 or more. Rules of Construction Contracts are to be construed as a whole, words are to be construed according to their ordinary meaning, or custom and usage in the particular business and locale should be considered. Donee Beneficiaries a 3rd party donee beneficiary has no cause of action against the promisee, because the promisee's act is gratuitous and he may not be held to it, unless the promisee tells the beneficiary of the contract and should foresee reliance by the beneficiary, and the beneficiary reasonably relies to his detriment. mailbox rule-option contracts Typically an acceptance is effective on dispatch; however, it does not apply to option contracts. Rights of 3rd Party Beneficiaries Right do not vest until: 1) it manifests assent in a manner invited or requested by the parties 2) it learns of the contract and detrimentally relies on it, OR 3) it brings a lawsuit to enforce its rights before any modification *until the rights have vested, a modification of the contract can take place without the consent of the third party. Parol Evidence-Condition Precedent Admissible to show a condition precedent to the existence of a contract. Generally, parol evidence rule bars oral evidence contradicting a written agreement which was intended to be a final and exclusive embodiment of the parties. Gratuitous Assignments Can be revoked. An assignor can be estopped from revoking if he reasonably foresees that the assignee will change his position in reliance on the assignment and such detrimental reliance occurs.