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Contract Essay: Issues/Rules


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What is the Contract Statement?
The rights and remedies of the parties depend on whether or not they had a valid contract. A CONTRACT is a promise or a set of promises, for the performance of which the law recognizes a duty or right, and the breach of which the law will provide a remedy. Every valid contract is based on an Offer, Acceptance, Legal Consideration, Legal capacity of the parties,Legal Purpose and no viable DEFENSES that would invalidate the contract.
What Laws govern? UCC or CL?
Uniform Commercial Code (UCC) Article 2,governs the SALE OF GOODS, movable property, identified to the contract at Formation.
Common Law (CL) governs all others such as land, services, rentals, employment
Are the Parties merchants?
Under UCC a merchant is a person who TRADES in or otherwise HOLDS himself out as KNOWLEDGEABLE about the goods of the contract
Under Contract law was the communication an offer?
Under contract law an OFFER exists if communicated to the offeree with present contractual intention to be bound to the terms of the offer, such that an objective person would reasonably believe mutual assent would form a bargain. The offer must contain the certain and definite essential terms of the agreement.
Is the newspaper ad a valid offer?
Advertisements are usually not specific enough to be valid offers, but merely invitations for offers from readers of the Ad.
What is the Objective Person Rule?
Under the Objective Person Rule there is intent to enter into a contract presently if an objective observer of the parties would have reasonably believed assent would form a bargain
What are the definite essential terms under Common Law?
Under common law the offer must specify certain and definite essential terms:
parties, subject matter, price, quantity,and time of performance in order to be enforceable.
What are the essential terms under UCC?
Under UCC, an offer must specify the parties and quantity in order to be enforceable. UCC "GAP Fillers" may be used to determine additional terms.
Was the offer an IRREVOCABLE Offer?
Types of Irrevocable offers are Merchants Firm Offer, Options, Detrimental Reliance.
Was this a Merchants Firm-Offer? UCC 2-205
Under UCC 2-205, a Merchants Firm-Offer without consideration, will be held open as long as both merchants act in good faith, the offer will be irrevocable for a reasonable period of time not to exceed 3 months.
Was this an Options Contract?
An Options contract with consideration, will hold the offer irrevocable and open for a specified period of time or if not specified, for a reasonable time. The offeror must receive the acceptance from offeree during the option period.
Was this a Detrimental Reliance?
Promissory Estoppel Doctrine
A Detrimental Reliance on promises will hold an offer open and irrevocable for a reasonable time. An offer may also become irrevocable under the doctrine of Promissory Estoppel. P.E. is when an offeror knew or(shk)that the promise would induce the offeree to act or forbear and believed that the offer was irrevocable for a time, then that offer will be deemed irrevocable for a reasonable time; if this is the only way to prevent injustice of the offeree.
How is irrevocability dealt with in a Unilateral Contract? Common Law and Modern Law.
Under common law a unilateral offer could be revoked at any time prior to the completion of the requested act.
Modern law provides Savings Doctrine that prevent offeror form revoking a unilateral offer if he/she is aware the offeree has commenced the requested act. Must allow the offeree a reasonable time during which the offeree will be allowed to complete the acceptance by performance.
Was the communication an effective revocation?
Under the Mailbox Rule of contract law a revocation is effective upon receipt while an acceptance is often effective upon dispatch. The offeror must notify the offeree directly to effectively revoke his offer prior to acceptance by the offeree.
Was the communication an effective Rejection?
Under the Mailbox Rule of contract law a rejection is effective upon receipt while an acceptance is generally effective upon dispatch.
An exception is made if offeree dispatches acceptance first;changes mind;dispatches rejection; mailbox rule applies unless offeror receives rejection first, and acts on it.
If offeree dispatches rejection first; changes mind; dispatches acceptance; neither will be effective when dispatched. Which ever is received by the offeror first(rejection or acceptance) will apply.
Was the communication an effective acceptance?
As a general rule, the offeror is the "master of the offer" and may specify the precise acts or words the offeree must perform or use to properly accept the offer. Offeror request an act for his promise then it is a unilateral contract. If Offeror request a promise for his promise then it is bilateral contract. Mailbox rule states acceptance effective on dispatch, if in the manner specified, or same or faster if not specified.
Discuss the acceptance under Common Law?
Under common law Mirror Image Rule an acceptance is an unequivocal assent to an offer. Silence cannot act as an acceptance unless the offer or the previous conduct of the parties permits/implies acceptance by silence. The offeror is always master and has the power to determine the requisite communication for acceptance by the offeree.
Discuss Acceptance under the UCC Article 2-206?
Under UCC 2-206 an acceptance of an offer not otherwise conditioned may be made in any Reasonable Manner, including a promise to ship or shipment of either conforming or non-conforming goods. But a shipment of non-conforming goods as an Express Accommodation is not an acceptance.
Discuss Acceptance under UCC Article 2-207?
Further UCC 2-207 allows an acceptance containing varying terms to be effective. Varying terms wil NOT be included in the contract where:1) the offer ESPRESSLY LIMITED acceptance and the offeror does not agree to the new terms, or 2) the parties are NOT BOTH merchants, or 3)if they are both merchants the varying terms MATERIALLY ALTER the contract or 4) if not material alteration the party to be bound EXPRESSLY AND TIMELY OBJECTS in writing to the change in contract terms.
Define Legal Consideration under Contract Law
Under contract law an enforceable valid contract must be supported by legal consideration, something of value(such as an act, a forbearance, or a return promise received by a promisor from a promise. Both parties engage in a bargained for exchange of acts or promises and both incur sufficient new legal detriment so that the law will enforce the agreement.
Discuss Legal Consideration and Pre-exiting Duty Rule.
Pre-existing Duty Rule is a logical consequence of the doctrine of consideration and its requirement for detriment. This is particularly true in the area of a modification of an existing contract where, under the modified agreement, one person is only doing or refraining from doing what he or she was already legally obligated to do or not do. This highly debated rule may be used to show that a person did not incur sufficient legal detriment.
What are the three questions that must be tested on each promise (one at a time) to find legal consideration?
The three questions that must be answered affirmatively in order to establish legal consideration are:
1) Does the Promise induce a current exchange of Performance (BARGAINED FOR)
2) Does the Promise cause a legal detriment (LEGAL DISADVANTAGE)
3) Is the Promise binding or obligatory (MUTUALITY, NOT ILLUSORY)
If the promise does not meet these three tests; It is not enforceable. But only one promise per each party is necessary to meet these tests to establish consideration.
Discuss Promissory Estoppel in Consideration.
Under Contract Law, where a contract is otherwise unenforceable at law, a party may still seek enforcement under Promissory Estoppel or promissory reliance where there has been a material change in reliance on the promise. When a party detrimentally, reasonably, and forseeably relies on a promise then the courts will fully enforce the promise to avoid injustice.
What must a party prove to receive relief under Promissory Estoppel?
To receive relief, one must prove the party 1)intended to be bound, 2)made statements of fact, promises or acted with knowledge, 3)for the purpose of inducing reliance and 4)reasonable reliance was induced in the party seeking relief and 5)an injustice will result if the contract is not enforced.
Discuss Modification for Sale of Goods under the UCC.
Under UCC, a contract, supported by legal consideration may be MODIFIED without additional consideration when the modification is reasonable and as long as the parties act in good FAITH as stated Under UCC 2-209 and UCC 1-302.
The modification must also satisfy the Statute of Frauds if over $500 to be binding. Merchant firm-offer is enforceable without consideration.
Was there a Major or Minor Breach under common law?
Under common law a Major Breach is an act which deprives the other party of the Benefit of the Bargain. A major breach EXCUSES the other party from performance and ACCELERATES the contract, so the non-breaching party can seek Immediate Payment of Damages.
Was there a Major or Minor Breach under UCC?
Under the Perfect Tender Rule of the UCC any shipment of non-conforming goods is a MAJOR BREACH of contract.
Under UCC a breach with respect to any shipment of goods under a Divisible Contract does not constitute a breach of the entire contract. A Divisible contract is one under which goods are to be delivered in separate shipments that can each be evaluated separately under the contract.
Was the communications an Anticipatory Breach?
Under contract law an anticipatory breach is a clear statement by a party, prior to the time performance is due, that the party will not perform. The effect is that the other party is EXCUSED from performance and can accelerate the contract, seeking immediate payment of damages.
What if one party is unsure of the other party performing?
A party who has reasonable basis to believe the other party will not perform may demand Reasonable Assurances and Refuse to Perform until they are provided. Reasonable assurances means a financial guarantee or payment into escrow usually. This is not an anticipatory breach.
Was the Breaching Party given time to Cure?
Even if one party was in breach of the contract for failing to perform as promised, the other party must allow the breaching party additional time to complete the performance or they may be the cause of a breach. Even the recipient of a material breach is generally required to allow the breaching party TIME to CURE.
Does the Party have Standing to enforce the Contract as a Third Party Beneficiary?
Under contract law a Third Party Beneficiary (TPB) HAS the ability to enforce; and can seek damages for breach of contract between two other parties if the contract was intended to benefit TPB. An incidental Beneficiary, one that was not intended to benefit from a contract between others, has NO ability to enforce the contract or seek damages.
Does the party have a Standing to enforce the contract based on a Valid Assignment?
Under contract law an Assignee can seek damages for breach of contract,if the assignee was expressly assigned the rights of an original promise. The ASSIGNOR, by expression of clear intent, must give the promisor NOTICE of the assignment. Upon notice, the promisor has primary liability to the assignee, and the Assignor has secondary liability.
Discuss Vesting in Third Party Beneficiaries>
A Contract can be enforced by Vested, Intended third party beneficiaries if they are a Donee, intended to benefit as a Gift, or Creditors intended to benefit by Extinguishing a Debt. Vesting occurs when the beneficiary becomes aware of and relies on the existence of the contract.
Was there a valid Delegation of Performance under the contract?
Under contract law the duty to perform under a contract may be Delegated to a Delegatee by an original promisor/delegator. However, the promisor/delegator retains primary liability to the original promise for performances of the contract. If the delegate expressly accepts the delegation of duties, he/she becomes secondarily liable under a third party beneficiary theory.
What are the possible Defenses in Contract Law?
Mistake, Illegality, Duress, Capacity, Unconscionability, Formation, Fraud, Statute of Frauds
Discuss the defense of Mistake. Mutual, Unilateral, Ambiguity of Terms.
A mutual mistake with affirmative assumption the contract is voidable by either party. Unilateral Mistake, no defense, UNLESS the other party knew or should have known the mistake was being made. Ambiguity of Terms "ships in Peerless case, term has more than one meaning,VOID;UNLESS both parties agreed to the term, or one of parties knew of the ambiguity; then other party's understanding of term will rule.
Discuss the modern trend in correcting or reforming a mistake.
Modern trend might allow a correction if no oppression or hardship. The 3 requisites for Reformation in an agreement between the parties are: agreement is in writing; and is a variance between writing and prior agreement, and the mistake is mutual.
Discuss Illegality as a Defense
Illegal Subject Matter will VOID the contract (Illegal Gambling, Murder contacts,etc) Illegal Purpose (Criminal Purpose, attempt of criminal act )will make the contract voidable by the innocent victim party. If the parties are equally guilty, IN PARI DELICTO, the court will not intervene. However, if one party is less guilty, the court may order restitution.
Discuss Duress as a Defense.
Personal Duress is Voidable; Economic or Business compulsion Duress.
Personal Duress is where the wrongful act, undue influence, or threats has forced the victim party into signing a contract. Economic Duress is where the victim party is taken advantage of in a bad situation and the advantaged party caused the bad situation. Is Voidable
Discuss Capacity or Incapacity as a Defense.
For individuals under age 18 and the mentally infirmed or intoxicated person. Effective when the other party knew or should have known of their incapacity. Any contract which they enter into; is voidable at the incapacitated party's option---They can enforce the contract or avoid it.
If incapacity ceases; their actions of continuance ratifies the contract. May occur by inaction to disaffirm, expressly, or by conduct.
Discuss Unconscionability as a Defense.
Procedural and Substantive Unconscionability is tested at the time of formation. Procedural is where one party is greatly superior to the other party (Adhesion Contract) take it or leave it. Substantive is where the terms are unfair and damaging. The court will rewrite or reform the contract to make fair. voidable to the victim
Discuss the Formations Defenses.
Formation Defenses are defenses when all the elements of the Offer, Acceptance, and Consideration have not been Satisfied. There is no Contract if this is the case.
Discuss Fraud as a Defense.
Fraud can be in the execution or can be in the inducement. The Contract is VOID if Fraud is in the execution where someone signed a document different than what they intended.(Fool the signer) Fraud in the inducement is voidable where victim party was deceived.
Discuss Statute of Frauds. Is there a need for a writing?
If common law governs, Under the Statute of Frauds(SOF) certain types of contracts must be in writing, signed by the party to be charged in order to be enforced, and these types are:
Marriage, Year +, Land, Executor, Guarantor
SOF Marriage (writing)
Any agreement made on consideration of marriage. Applies to promises for money, property,child support and negative covenants of marriage or divorce.
SOF Year plus (writing)
any agreement that will not have completed performance within the space of one year, calculated from its formation. One year employment contract if work begins more than one day after formation; writing required. Work begins next day no writing required. If there is a possibility of completion within a year, no writing required. Full performance on one side renders a contract within the one year section enforceable. Part performance on one side does not entitle either party to sue to enforce the contract, UNLESS the contract is divisible.
SOF Executor of Estate
Promises to be personally liable for the debt of the deceased.
SOF Guarantee of Another's Debt and Main Purpose Rule.
Under the Main Purpose Rule (to prevent fraud): two elements are necessary 1)Consideration for D's promise; 2)the consideration is not beneficial to D. Oral is sufficient if Beneficial to D. The benefit is personal,immediate,pecuniary, and direct. And required to be in writing.
Under UCC (writing)
UCC 2-201(1)Sale of goods for $500 or more is not enforceable unless a sufficient writing,signed, by the party against whom enforcement is sought, or by authorized agent or broker.
UCC 2-201 (2) Sales Confirmation
Article 2-201 (2) states that between merchants,a written SALES CONFIRMATION by one listing quantity will bind both parties if it is received within a reasonable period of time, and the receiving party has reason to know of the contents of the writing; and does not object within 10 days.
UCC Article 2-201 (1) Exceptions
Article 2-201 (1) exceptions: that are enforceable. If the goods are to be specifically made for the buyer and are not suitable for others; or if the party against whom enforcement is sought admits in his pleading, testimony, or otherwise in court that a contract for sale was made, or with respect to goods which payment has been made and accepted, or goods have been received and accepted.
If required, is the writing sufficient as a Total Integration, and does it satisfy the statute of frauds?
If a writing is determined to be a partial integration: the Williston test or Four Corners Rule is to look at the document to find a total integration and is used to determine if reasonable people similarly situated would have naturally omitted (the omitted term), if so, the court will allow admission of that term into evidence. If Unnatural; no admision. Under Corbin All evidence, testimony, and the surrounding circumstances are considered in determining if there is a total integration writing.
There are three types of requisite tangible evidence that must be established to make a writing sufficient to satisfy the SOF:
1)Writing,2)Performance of Obligations3)Promissory Estoppel
Will the Parol Evidence Rule Bar introduction of other prior negotiated agreements to add, vary, or contradict a Total Integration Writing?
Under the Parol Evidence Rule, parol evidence of any Prior written or oral negotiations or Contemporaneous oral negotiations MAY NOT be introduced to Vary or Contradict the terms of an agreement after completion of a Final Fully Integrated Writing (Total Integration) unless it is to show evidence of (DAM FOIL)
What evidence is allowed if the Parol Evidence Rule Applies?
Oral Condition Precedent
Lack of Consideration

Modifications agreed upon after the writing may add, vary, or contradict the terms of the contract.
What are the possible Remedies?
Non-Breaching Buyer Seller
Breaching Buyer Seller
Legally Enforceable
Lost Profits
Liquidated Damages
Receives Title Buyer
Reliance Damages
Restitution Damages
Expectation Damages
What is the REMEDY for the NON-BREACHING
Buyer? Under CL?
Under Contract Law, the general rule is Compensatory Damages.
For Common Law, a non-breaching buyer can use Specific Performance to force the seller to transfer title of unique property, such as land, but not to force performance of personal services. Where the item in dispute is not unique,the non-breaching buyer can demand the Benefit of the Bargain-difference between the item as represented(or current market value) and the value (if any) delivered.
What is the REMEDY of the NON_BREACHING Buyer? Under UCC?
Under UCC, the Perfect Tender Rule of the UCC a non-breaching buyer can either ACCEPT, or REJECT non-conforming goods. Also they can REPUDIATE the contract and COVER, or they can AFFIRM the contract and DEMAND CONFORMING GOODS. The measure of damages is the difference between market or cover price and the contract price. If the goods are unique, they can use SPECIFIC Performance to force the seller to transfer possession and title.
What is the REMEDY of the NON-BREACHING Seller? Under CL?
Under contact law the non-breaching seller can demand the Benefit of the Bargain--the difference between the Contract Price and the Market Price at the time of Breach.
What is the REMEDY of the NON-BREACHING Seller? Under UCC?
Under the UCC a non-breaching seller has the following remedies:1)in a LOST-VOLUME situation, where the seller cannot replace the lost sale by selling the same goods to someone else, can demand the BENEFIT OF THE BARGAIN--difference between the Contact Price and their cost of acquiring the goods;2)The seller can demand SPECFIC Performance if the goods have been custom made or for some other reason can not be sold elsewhere;AND3)The seller can sell the item at PUBLIC or PRIVATE SALE (with NOTICE to the breaching buyer) and demand the difference between Contract Price and the SALVAGE SALE price.
What is the REMEDY of the BREACHING BUYER?
Under contract law a buyer who breaches may still seek Return of Amounts PAID to the non-breaching seller, if they exceed the seller's actual damages.
Under contract law a seller who breaches after PARTIAL PERFORMANCE can seek QUANTUM MERUIT reimbursement sufficient to prevent an unjust enrichment to the buyer.
For UCC, Under UCC a seller is given a REASONABLE TIME TO CURE his breach through the shipment of conforming goods where it is the result of a shipment of non-conforming goods that the seller reasonably believed would satisfy the needs of the buyer.
What is the REMEDY where the contract is LEGALLY UNENFORCEABLE?
Under contract law, where a contract is otherwise unenforceable at law, a party may still seek QUANTUM MERUIT reimbursement or RESTITUTION in equity to prevent UNJUST ENRICHMENT.
Can the non-breaching party recover LOST PROFITS?
Under Hadley v. Baxendale, a party to a contract may recover CONSEQUENTIAL DAMAGES such as LOST PROFITS only if it can be shown the damages were (CCCC)
1)Contemplated(foreseen)by both parties at the time of contract,2)Certain (measurable)as to dollar value, 3)Clearly Caused by (resulting from) the breach and 4)the loss Couldn't be avoided.
Can the non-breaching party recover LIQUIDATED DAMAGES?
Under contract law a court will not award punitive damages. Therefore, a LIQUIDATED DAMAGE CLAUSE will be enforced only if it can be shown that it is not punitive because 1)At Time of contract the actual losses that would result from a breach were UNFORESEEABLE with certainty, and 2)the amount set in teh liquidated damages clause is a REASONABLE AMOUNT.

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