Actg 355 Exam 1

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These are contracts governed by state and case law.

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1. Common law

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Sales of goods are a type of contract involving the transfer of the title of goods from the seller to the buyer for a price. Where the common law is not modified by a code, the common law applies. E.g. employment contracts and real estate contracts.

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Uniform Commercial Code

Article 2:

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is a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty.

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A contract

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– depends on a particular form for its efficacy.

E.g. promissory note
Informal – all others (real estate, employment)

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Formal Contract

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– parties manifest their assent in spoken or in written words.
Implied – formed by conduct.

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Express Contract

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– exchange of a promise for an act or the exchange of a promise for a
Forbearance to act.
e.g. I promise to pay you $50 if you will shovel my driveway; Uncle promises to pay nephew $1 million if he graduates from Yale rather than Harvard.

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Unilateral Contract

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– exchange of a promise for a counter promise.
e.g. I promise to pay you $50 if you promise to shovel my driveway.

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Bilateral Contract

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– no legal effect to the contract.

E.g. a wager, a contract of an individual declared mentally disabled by a court of law.

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Void Contract

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– The law permits one party to avoid his duties. E.g. fraud, duress, contracts of a minor for non-necessities

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Voidable Contract

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– contract fails to satisfy certain requirements. E.g. statute of frauds

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Unenforceable Contract

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– Parties fully performed their duties. E.g. real estate contract closing

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Executed Contract

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– One or more unperformed promises by a party to the contract. E.g. lease.

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Executory Contract

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The parties must manifest to one another by spoken or by written words or by conduct Their offer and their acceptance.

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Manifestation of Mutual Assent

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e.g. job offer, offer to buy a house.

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Offer to contract

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is a definite proposal or undertaking made by one person to another which is effective upon an act, forbearance, or return promise being given in exchange for an offer.

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An offer

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makes the proposal.

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Offeror –

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person to whom the offer is made.

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Offeree –

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An offer always contains a promise. When the _______ receives the offer, he
then has the power to accept.

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offeree

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a. The offer must have been _____________ to the offeree by the offeror. E.g.
e.g. garden club members

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communicated

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Offeree must have _________ of the offer. E.g. reward

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knowledge

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The offeror must manifest an ________ to enter into a contract.

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intention

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Invitations seeking offers are not _______ .

E.g. Newspaper advertisements do
not contain a promise and leave certain terms unexpressed: they are not offers. However, if they are extremely detailed, they may be offers.

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offers

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Objective standard of intent is__________ A promise made jokingly or in excitement or under emotional strain is not an offer.

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necessary.

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The terms of the offer must be ______ and certain as to quality, quantity and price.

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definite

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Upon termination of an offer it cannot be _________ . Up to the point of termination of the offer, the offer confers upon the offeree the power to create rights and duties by the offeree manifesting his acceptance.

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accepted

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If an offer is open for a specified time period than it terminates at the end of the time period. If no time period is stated, then the offer lapses after a reasonable time. E.g. Job offer dated October 1 that must be accepted by October 15 lapses after October 15. E.g. An offer for residential real estate.

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1. Lapse of time

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An offeror may withdraw his offer prior to acceptance. Notice to the offeree is
Required. Notice may be direct or indirect. E.g. real estate , laptop

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1. Revocation

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is a contract in which the offeror is bound to
hold open an offer for a specified period of time. supported by separate consideration. E.g. Seller/offeror agrees not to sell to
anyone else for one year.

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Option contracts:

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– e.g. bids for municipal construction contracts,
pre-incorporation stock subscription agreements (six months).

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Statutory irrevocability

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It is the manifestation by the offeree of his unwillingness to accept an offer. The offer is dead. may be express or implied by conduct.

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1. Rejection

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from the offeree to the offeror which contains a willingness to contract with reference to the subject matter of the offer but on different terms. It operates as a rejection. E.g. real estate offer.

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1. Counteroffer

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It is an overt act by an offeree by which he manifests his assent to the terms of the offer.

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A. Acceptance of an offer

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– acceptance by an act or a forbearance.

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Unilateral contract

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– acceptance by a return promise.

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Bilateral contact

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must be definite. It must be positive and unequivocal.

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1. An acceptance

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An acceptance is effective upon _________ (An offer, revocation, rejection and counteroffer are effective upon receipt.)

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dispatch.

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To be effective upon dispatch, the acceptance must be sent by ________
means. _________ means is the means set forth in the offer. If no
________ means is set forth in the offer, then the means is the
_________ means by which the offer is conveyed.

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authorized

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If the acceptance is sent by unauthorized means, then it is effective upon ________

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Receipt

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________ does not create an acceptance.

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. Silence

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(Auctions)______ are the offerors. They can withdraw their bids at any time.

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Bidders

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In an auction “________”, the auctioneer can withdraw the goods at
any time.

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with reserve

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In an auction “_______”, the auctioneer cannot withdraw the goods unless a bid is not made within a reasonable time.

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without reserve

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___________for a promise is any of the following bargained forand given in
exchange for a promise:

An act other than a promise, or
A forbearance, or
The creation, modification or destruction of a legal relation, or
A return promise

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Consideration

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This is something of value in the eye of the law, either a benefit to the promisor or a detriment to the promisee.

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1. Legal sufficiency

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The parties have negotiated and agreed upon the terms of what each party is giving and receiving.

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1. Bargained for exchange

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is the obtaining by the promisor of what he had no prior legal
right to obtain.

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A legal benefit

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is the doing by the promisee of what the promisee was under
no prior legal obligation to perform or refraining from doing what he was under
no prior legal obligation to perform.

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A legal detriment

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a. A promise is exchanged for an act

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1. Unilateral contracts

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e.g. I promise to pay student $ 50 if student will shovel my driveway

As the promisor I enjoyed a legal benefit because I had no prior right to have my driveway shoveled. As the promise the student suffered a legal detriment because the student was under no prior legal obligation to shovel my driveway.

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Unilateral contracts

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e.g. Uncle A promises his nephew B that if B graduates from Yale rather than Harvard that A will pay B $l million. There is consideration. B suffered a legal detriment because he gave up his right to graduate from Harvard. A enjoyed a legal benefit because he received something he was not entitled to have: his nephew graduating from Yale.

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b. A promise is exchanged for a forbearance.

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a. A promise is exchanged for a promise.

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1. Bilateral contracts

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a. e.g. I promise student $ 50 to shovel my driveway if student will promise to shovel my driveway for $ 50. There is sufficient consideration. I enjoyed a legal benefit because I had no prior right to have my driveway shoveled. I suffered a legal detriment because I had a legal obligation to pay student $ 50.00
Student suffered a legal detriment because student had no prior legal
obligation to shovel my driveway. Student also enjoyed a legal benefit because student had no prior right to $ 50.00.

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1. Bilateral contracts

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Courts are not concerned with whether the bargain was fair but whether there has been a bargained for exchange and the legal benefit/detriment exists.

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1. Adequacy.

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Each party or promisor is bound or neither party is bound. Look at benefit/detriment test.

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1. Mutuality of Obligation

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These occur when performance is optional.
e.g. “Let me know if you want to buy some of my tomatoes.”

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a. Illusory “contracts” are not contracts

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_________ “contracts” are not contracts

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a. Illusory

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is where the entire production of a facility, such as a
plant or a mine, is the subject of a contract. (seller) Seller agrees to sell
all of his output to buyer.

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An output contract

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is where the contract calls for the purchaser to buy all of his materials of a particular kind from a facility. (buyer)

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2) A requirements contract

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These are normally between a manufacturer and a distributor. Each must use his best efforts to supply and sell the goods.

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a. Exclusive dealing contracts

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The performance of a pre-existing public duty is not a detriment to one under a legal obligation to perform that duty.

e.g. A policeman cannot collect a reward for apprehending a criminal.

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a. Pre-existing public obligation

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This is doing what one is already bound to do. It is not a legal detriment to the promisee or a benefit to the promisor.

e.g. An employer hires Wanda to work at $100 a week for 6 weeks. After 2 weeks Wanda asks and receives a promise from her employer that she will be paid $125 a week for the remaining 4 weeks, without additional duties.
The promise of her employer is not enforceable.

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a. Pre-existing contractual obligation.

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an uncontested obligation to pay a sum certain in money. Payment of a sum of money in consideration of a promise to discharge a fully matured and undisputed debt, which debt is larger than the sum paid, is legally insufficient to support the promise of discharge.

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An undisputed debt is

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e.g. Ralph purchased a laptop computer for $ 2,000 at CDW. After Ralph received his credit card bill from CDW, he met with the customer services agent at CDW. The agent agreed to reduce the bill to $1,000 and Ralph paid $ 1,000. CDW can recover the $1,000 difference from Ralph because there has been no benefit to CDW nor has there been a detriment to Ralph.
• CDW didn’t get anything, Ralph didn’t give up the keyboard

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An undisputed debt

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is an obligation which is contested as to its existence or its amount. The good faith tender of a lesser amount when a debt is in dispute is sufficient consideration.

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A disputed debt

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e.g. After David had an emergency appendectomy, Doctor Butcher sent David a bill for $20,000. David was outraged and offered to pay $10,000
to Doctor Butcher. He accepted David’s offer and cashed David’s check . By cashing the $ 10,000 check, Doctor Butcher accepted David’s offer.
There was a benefit to promisor David because he paid less than $ 20,000. There was a detriment to the promisee Doctor Butcher because he give up the right to pursue further collection.

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A disputed debt

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This is wrongful force or threats.

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A. Duress

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1. This occurs when one party is under the domination of another party or by virtue of the trust and confidential relationship between them is justified in assuming that the other party will not act in a manner inconsistent with his welfare. These contracts are voidable.

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A. Undue influence

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It is a false representation of a material fact made with knowledge of its falsity (scienter) or culpable ignorance of its truth with the intention that it be acted on by the party deceived and induce him to contract to his injury.

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A. Fraud

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This deceives the defrauded person as to the very essence of the contract that he is entering into with the other party. These contracts are void. Ab imitio- void from begging

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1. Fraud in the execution

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e.g. individual thinks he is signing a receipt but it is actually a promissory note

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1. Fraud in the execution

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This is the misrepresentation of a material fact made by one party to the other party who consents to enter into a contract in reliance upon the misrepresentation. These contracts are voidable.

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1. Fraud in the inducement

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This is a positive statement or conduct that misleads. Silence is not enough.

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a. False representation

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is sales talk and is not a fact.

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Puffing

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The fact is of sufficient substance to induce reliance.

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a. Material

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This is knowledge of the falsity and the intention to deceive. is present when the defrauding party has actual knowledge or lack of belief in a statement’s truthfulness or reckless indifference to its truthfulness.

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a. Scienter:

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It is an erroneous understanding or inaccurate concept which if acted upon may produce an unfortunate result for the actor. The courts use an objective approach.

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Mistake

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1. Relief is not granted for a _____________ one person is mistaken as to a
Fact. E.g. Buyer of real estate thinks a lot is larger than it really is.

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unilateral mistake:

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1. Relief is only granted where there is a __________ of a material fact by both parties.

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mutual mistake

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A contract is _______ and unenforceable if the formation or performance of the contract
is criminal, tortious or otherwise opposed to public policy.

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illegal

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1. If a contract is illegal by statute it is void and not enforceable. E.g. wagering contracts
fireworks.

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A. Violations of statutes

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– protects the public against unqualified providers of services.
The unqualified person cannot recover for professional services. E.g. CPA, attorney.

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a. Regulatory

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– purpose is to furnish revenue. Recovery is allowed by an unqualified person for services. e.g. plumber.

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a. Revenue

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is illegal because one has no interest other than one arising from
A gain or a loss.

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a. Gambling

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– one pays a premium in exchange for a promise to pay a
Larger amount upon the occurrence of an event. This is legal because it distributes the loss.

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a. Insurable interest

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Certain contracts are prohibited on Sunday but may be ratified on a weekday. e.g. auto sales.

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1. Sunday Statutes

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These state the maximum rate of permissible interest which may be contracted between a lender and a borrower.

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1. Usury statutes

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1. _________ conduct contract is unenforceable. E.g. Contract to break someone’s
knees.

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Tortious

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. Common law restraint of trade agreements are allowable if the following are
Met:

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a. Protect the property interest of the promisee, and

b. Restraint is only reasonably necessary.

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An individual reaches the age of majority at the age of 18

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Minors

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____________ contracts for nonnecessities are voidable.

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A minor’s

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One who is mentally disabled is incapable of comprehending the subject matter of a contract, its nature and probable consequences.

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B. Mentally disabled

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When an individual is declared ______________ by a court of law, all of his contracts are void. Only the guardian may enter into contracts if one is declared mentally disabled.

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mentally disabled

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One is intoxicated and not liable on contracts when one cannot comprehend the nature and effect of his actions. The contracts are voidable.

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Intoxicated persons

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Most oral contracts are enforceable. However, some contracts fall “within” the
Statute of Frauds and must be in writing. The following five types of contracts fall
within the Statute of Frauds and must be in writing.

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VI. Statute of Frauds

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The promise to pay for the debt of another must be in writing.

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A. Surety:

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is a collateral promise means it must be in writing, not an original promise: “If he does not pay, I will.”

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1. A surety’s promise

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is evidence which consists of words, spoken or written, which are
Not contained in a written contract or are not incorporated therein by reference.

e.g. letters, oral conversations, testimony or depositions.

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A. Parol evidence

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1. Receipt for goods.

2. Clerical or typographical error which obviously does not represent the
Agreement of the parties.

3. Lack of contractual capacity of one of the parties.

4. Defense of fraud, duress, undue influence, illegality

5. Certain condition agreed upon orally at the time of execution of a written
Contract to which the entire contract was made subject.

6. Parol evidence of custom and usage.

7. Parol evidence is admissible to explain ambiguous terms in the contract.

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A. Exceptions to the Parol Evidence Rule

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This means that the obligations of the parties are terminated. Discharge can be by act
or agreement of the parties or by breach or by operation of law. A contract’s
promises are not always absolute and are usually conditional.

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Discharge of Contracts

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This is any operative event the happening or nonhappening of which affects a duty
of performance under the contract: it prevents the promisee from acquiring a right
or deprives the promisee of a right, but subjects neither party to any liability.

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A. Condition

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It is the operative event to which the performance of the promise is made subject in some manner clearly expressed.

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1. Express Condition

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A _____________ standard applies if satisfaction is to one’s personal taste.
e.g. tailored suit.

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subjective

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An _________________ standard applies if the contract does not clearly state that
Performance is subjective or performance relates to mechanical fitness.
e.g. architect’s certificate that construction of a building complies with municipal building codes and with the architect’s plans and specifications is necessary for an occupancy certificate and final payment to the builder.

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objective

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These are understood by the parties to be part of the contract. E. g. A house painter does not start painting until the homeowner selects the paint.

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1. Implied in fact conditions

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These are imposed by law for a just result. These occur when the time for
Performance has not been agreed upon.

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1. Implied in law conditions

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These are proposed reciprocal and agreed performances of two mutual promisors which are to take place at the same time. E.g. real estate closing.
The time for performance has been agreed upon in the contract.

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1. Concurrent conditions

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It is an operative event the happening of which must precede the creation of a duty of performance under a contract. E.g. mortgage finance clause in a real estate contract.


It is an operative event the happening of which must precede the creation of a duty of performance under a contract. E.g. mortgage finance clause in a real estate contract.

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1. Condition precedent

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It is an operative event which terminates an existing duty of immediate performance under a contract.

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1. Condition subsequent

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If one party to a contract substantially interferes with or prevents performance
By the other party, a discharge occurs.

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1. Prevention of performance

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If a party announces prior to the date of performance that he will not perform there is an anticipatory repudiation and the injured party can bring suit immediately.

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1. Anticipatory repudiation

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is an agreement by the parties to a contract to terminate their respective duties under the contract.

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1. Mutual rescission

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is a contract between an obligee and his obligor whereby the obligee agrees to accept and the obligor agrees to render a substituted performance in satisfaction of an existing contractual duty. Satisfaction is payment. Parties are discharged See III.B.6.g.

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An accord

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It is a formal writing supported by consideration which recites the termination
of rights. A covenant not to sue is imposed as a bar to a lawsuit.

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Release

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It involves three parties and is an agreement among them to substitute a new
obligor in place of an existing obligor. The old obligor is discharged. All three parties must sign the agreement

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Novation

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occurs if no one is able to perform. E.g. destruction
Of the subject matter or the means of performance or death

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a. Objective impossibility

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The purpose of the contract is frustrated by
Fortuitous circumstances which deprive the performance of the value
Attached to it by the parties. E.g. coronation cases

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a. Frustration of purpose:

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is the manifestation of an assignor’s intention to transfer a right by
Virtue of which the assignor’s right to performance by the obligor is extinguished
In whole or in part and the assignee acquires a right to such performance.

It is simply the transfer of rights under a contract to a third person.

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An assignment

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are wage assignments, accounts receivable and rights
Expected to accrue in the future.

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A. Types of assignments

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a. Materially increase the risk or burden upon the obligor

b. Transfer of highly personal contract rights (13th amendment)

c. Transfer prohibited by contract e.g. lease

d. Transfer prohibited by law, e.g. liquor license

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1. Unassignable rights

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occurs when a promisor agrees to render a certain per-
Formance not to the promisee but to a third party who is a beneficiary.

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A third party beneficiary

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1. The purpose of the promisee in bargaining for and obtaining the promise from
The promisor was to make a gift to the beneficiary.

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A. Donee beneficiary

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1. The promisee intends the performance of the promise to satisfy a legal duty
Owed to the beneficiary who is a creditor of the promisee.

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A. Creditor beneficiary

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occurs when one party to a contract defaults or breaches and does not
Respond to demands for performance of his contractual promise.

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A remedy

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These provide compensation to the plaintiff which will place him in as
nearly good a position as if the defendant performed under the contract.

e.g. breach of an employment contract

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1. Compensatory damages

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a. These are recoverable when it is readily forseeable that they will occur
As a result of breach. Lost profits.

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1. Consequential damages

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These are granted if there is no loss but there is a breach of contract.

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1. Nominal damages

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These punish and discourage the defendant and others from wrongful
Conduct. They are not granted for breach of contract.

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1. Punitive damages

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One party promises to pay the other party a fixed sum of money in the
Event of his breach. They must bear a reasonable relationship to the
Amount of probable loss.

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1. Liquidated damages

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It is the return to the injured party of the consideration which the injured party
Gave to the other party. It is not available to a party in default. E.g. auto

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A. Restitution

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a. It is a formal order of court commanding a person to refrain from an act or
in rare instances, commanding a person to do a specific act.

b. e.g. Pollution – permanent injuction

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1. Injunction

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is the transfer of title to goods for a consideration known as a price.

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A sale

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Each particle or unit of measurement of fungible goods is equal to the other particle or unit of the same goods.

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Fungible goods:

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– the transferor receives nothing for his promise. requires donative
Intent, delivery and acceptance.

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1. Gift

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– it is the transfer of possession of personal property without title.
e.g. dry cleaning.

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1. Bailment

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it is the transfer of the right to possession for a period of time in
Exchange for a payment. See UCC Art 2A consumer lease and finance lease

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1. Lease –

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– it is the transfer of the title to goods as security for the
Payment of a debt.

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1. Chattel mortgage

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– it is the transfer of goods as security for the payment of a
Debt.

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1. Pledge of goods

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If there is no price set forth in a contract, then the price is a reasonable one. A
Price can also be fixed by a market or a third person.

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A. Price

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These are harsh at the time they are made.

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A. Unconscionable contracts

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A merchant is bound to keep an offer open for a maximum of three months if the
Merchant gives assurance in a signed writing that it will be held open.

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A. Firm offer

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1) Title passes at the time and place of shipment if the seller is not required
to deliver the goods to the destination.

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a. Shipment contract

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2) e.g. The goods are manufactured in Chicago and they are delivered to
the carrier FOB Chicago for transport to Toledo, Ohio. Title passes at
the place of shipment, which is Chicago.

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a. Shipment contract

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1) Title passes at the time and place of tender at the destination if delivery
is to the destination.

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a. Destination contract

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2) e.g. In the above example, if the goods are FOB Toledo, Ohio, then the
title passes upon tender at Toledo, Ohio.

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a. Destination contract

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means free on board

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F.O.B.

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means free alongside

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F.A.S.

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means cost, insurance and freight

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C.I.F.

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means cost and freight

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C & F

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means collect on delivery.

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C.O.D.

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Title and risk of loss do not pass to the buyer; only possession passes to the buyer. If goods are damaged or destroyed during the trial period, the risk of
Loss remains on the seller. If the buyer fails to return the goods during the
Trial period, then the risk of loss passes to the buyer. E.g. art gallery

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1. Sale on approval

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The buyer has the title and the risk of loss. These items are usually for
Resale. E.g. newsstand

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1. Sale or return

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Buyer has the title and risk of loss. E.g. designer clothes at Nordstrom

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1. Sale on consignment

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a. If a seller ships nonconforming goods, then the risk of loss remains with the seller until cure by the seller or acceptance by the buyer.

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1. Breach by the seller

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If conforming goods are identified and the buyer repudiates before the risk of loss passes to the buyer, then the seller may place the risk of loss on the buyer to the extent of any deficiency in the seller’s insurance coverage.

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1. Breach by the buyer

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2-30l: The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.

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A. Basic duties of performance

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2-507 (1) Tender of conforming goods by the seller entitles him to acceptance thereof by the buyer and payment of the purchase price according to the contract.

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A. Performance by the seller

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a. Tender must be at a reasonable hour and the goods must be kept available
For a period reasonably necessary to enable the buyer to take possession of
Them.

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1. 2-503 Time and manner of delivery

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a. If the contract is silent as to the place of delivery of the goods, then the place of delivery is the seller’s place of business; if the seller has no place of business, then the place of delivery is the seller’s residence.

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Place of tender

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a. 2-513 The buyer has the right to inspect before payment or acceptance.

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1. Right to inspection

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a. If a contract requires payment before acceptance, then nonconformity
Does not excuse the buyer from making payment and payment is not
Acceptance. The buyer is allowed a reasonable time to inspect the goods.
e.g. C.O.D.

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A. Performance by the buyer

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If the goods do not conform, then the buyer can reject the goods, accept the goods, accept some commercial units and reject the rest of the commercial
Units.

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1. Right on improper delivery

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is the manifestation by the buyer of his unwillingness to become
The owner of the goods. It must be done within a reasonable time. Buyer must give seller reasonable notice of rejection.

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a. Rejection

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It is the willingness of the buyer to become the owner of the goods tendered or
Delivered to the buyer by the seller. It precludes rejection. It is the alternative to rejection.

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1. Acceptance

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A buyer may revoke his acceptance if the goods do not conform and the
Nonconformity impairs their value to him. Buyer must give notice to the seller. A buyer may revoke his acceptance in two situations:

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1. Revocation of acceptance

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Payment is due at the time and place that the buyer is to receive the goods.

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1. Obligation of payment

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creates a duty on the part of the seller for breach of which the buyer may
Recover a judgment against the seller for damages.

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A warranty

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is an explicit undertaking by the seller with respect to the
Quality, description, condition or performance of the goods. If they are basic to the bargain, reliance is implicit.

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1. An express warranty

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It is the obligation of a merchant that the goods are reasonably fit for the general purpose for which they are manufactured and sold and that they are
Of fair, average, merchantable quality.

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1. Warranty of Merchantability 2-314

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Any seller, including merchants, who impliedly warrants that goods, new or used, are reasonably fit for the particular purpose of the buyer for which the goods are required if at the
Time of contracting:

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1. Warranty of fitness for a particular purpose

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At common law recovery was not allowed for breach of contract unless the plaintiff was in privity of contract with the defendant.

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A. Privity of contract

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– The UCC relaxed the horizontal privity rules and allows
Recovery for injuries to the buyer’s family and guests.

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1. Horizontal privity

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The UCC relaxed the vertical privity rules and allows
recovery for the buyer, family and his guests from remote
sellers in the chain of title.

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Vertical privity

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1. The liability is only on the person in the business of selling the product. In
Order to recover the product must be in a defective condition or be unreas-
Onably dangerous. It extends to personal injury and property damage to the
Consumer. 402A of the Restatement of Torts.

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A. Strict liability in tort