Legal Exam 3

What is the Statute of Frauds?

What is the Statute of Frauds?

The Statute of Frauds is a legal principle requiring certain types of contracts to be in writing to be enforceable, mainly contracts for significant transactions like real estate, goods over a certain value, or agreements that can't be completed within one year.

Describe contracts governed by the Statute of Frauds and what it means when it applies to a contract.

It typically applies to contracts for the sale of land, contracts that cannot be performed within a year, contracts for goods over $500 (under the UCC), and certain agreements like marriage contracts. When it applies, a written document signed by the party to be charged is usually required for enforceability.

Policy reasons behind the Statute of Frauds requirements?

The Statute of Frauds prevents fraud and misunderstandings by requiring written evidence of significant commitments. It aims to ensure clarity in contractual obligations and protect parties from unfounded claims.

Under the UCC, does the Statute of Frauds apply to sales of goods? What if the sale is over $500?

The UCC's Statute of Frauds ONLY applies to sales of goods worth $500 OR MORE, requiring a written agreement signed by the party to be charged.

Exceptions:
- When goods are specially made for the buyer and cannot be sold to someone else.
- When a party admits in court that a contract was made.
- When there has already been partial payment or delivery and acceptance of goods.

Does the Statute of Frauds apply to brokerage fees, leases, or mortgages? Why or why not?

Brokerage fees pertaining to real estate, leases over a certain term (often one year), and mortgages fall under the Statute of Frauds and must be in writing because they affect real property rights and entail substantial obligations.

What is a merger (or integration) clause in a contract?

A statement that says, "This document is the complete and final agreement between us." It means that everything the parties agreed on is written in the contract, and they can't rely on things discussed before or outside of it. This clause helps prevent misunderstandings by keeping the agreement focused on what's written down.

What does the Parol Evidence rule mean?

If you have a FINAL WRITTEN CONTRACT, you generally can't use earlier conversations, emails, or other outside statements to change or add to what's written in the contract. This rule helps make sure that the contract itself is the main source of truth, so what's agreed upon on paper is what counts.

What does it mean to assign a contract?

Assigning a contract involves transferring contractual rights from one party (the assignor) to another (the assignee). It allows the assignor to pass benefits from the contract to the assignee.

Example: if someone has a contract to receive monthly payments, they can assign this right to someone else, who would then collect the payments. However, assigning a contract doesn't automatically transfer duties or obligations unless it's explicitly agreed upon.

Difference between assigning rights and delegating duties in a contract?

Assigning rights transfers benefits under the contract, while delegating duties transfers obligations. Rights are freely assignable unless restricted, but some duties, particularly those requiring specific skills or trust, cannot be delegated.

Difference in delegating personalized vs. mechanical services?

Personalized services, like those of an artist, are typically non-delegable due to the unique skill required. In contrast, mechanical services like plumbing are delegable because they do not rely on individual expertise.

What are the requirements of notice when a contract assignment includes a right to payment?

When assigning a contract that includes a right to payment, the notice requirement typically includes: clearly identifying the assigned rights, notifying the obligated party that payment is due, specifying the details of the assignee, and providing a clear indication that the assignor has transferred their right to receive payment to the assignee.

Types of contracts that often get assigned?

Commonly assigned contracts include loans, leases, and insurance policies, where monetary benefits or recurring obligations are involved.

What is an assignment clause in a contract?

An assignment clause in a contract outlines the rules for transferring rights and obligations from one party to another. It specifies whether the assignor can assign their rights and if they need the other party's permission to do so. The clause may also limit certain types of assignments and detail how the assignor must notify the obligor of the assignment. It clarifies that the assignee takes on the same rights and responsibilities as the assignor and describes what happens if an assignment is made without following the rules.

What are conditional contracts and types of conditions?

Conditional contracts are agreements that depend on specific events or conditions happening before the parties are required to fulfill their obligations. Common conditions include precedent, concurrent, and subsequent conditions.

Precedent: events that must occur before a party has to perform their part of the contract, like a buyer needing to secure financing before purchasing a home

Subsequent: events that can terminate the contract after it has been formed, such as a lease ending if the property is severely damaged

Concurrent: require that both parties fulfill their obligations at the same time, like a buyer paying for goods when they are delivered

What is "tender of performance," and how might it discharge obligations?

Tender of performance is an offer to fulfill one's contractual obligations. It can discharge obligations by completing the required performance, allowing the party to fulfill their duties.

What is "substantial performance," and how can it discharge obligations?

Substantial performance occurs when a party fulfills enough of the contract to warrant payment and discharge obligations. The contract may allow deductions for minor breaches or errors. If the other party does not want to fulfill this payment, you can seek legal remedies.

Ways to discharge a contract by performance?

Complete Performance: This occurs when both parties fulfill all their contractual obligations exactly as specified. Once all terms are met, the contract is fully executed and discharged.

Substantial Performance: In this case, one party completes most of their obligations, even if some minor details are left unfinished. The party may still be entitled to payment for the completed work, as they have fulfilled the contract's main purpose.

Partial Performance: If both parties agree to accept incomplete work or modifications to the original contract terms, this can result in a discharge of the contract. The parties may renegotiate payment based on the level of completion.

Impossibility of Performance: When unforeseen circumstances make it impossible for one or both parties to fulfill their obligations, the contract may be discharged. This could include events like natural disasters or legal changes that prevent performance.

Mutual Agreement: The parties involved can mutually agree to discharge the contract. This may involve negotiating new terms, modifying obligations, or simply deciding to cancel the agreement altogether.

Waiver: If one party voluntarily waives their right to enforce a specific term of the contract, this can discharge the obligations related to that term.

What is "discharge by operation of law"?

The termination of a contract or the release of a party from their contractual obligations due to certain legal events or circumstances. Alteration of the contract, bankruptcy, tolling of the statute of limitations, impossibility of commercial impracticability, and frustration of purpose are all situations in which a contract may be discharged by operation of law.

What does the "obligation to mitigate damages" mean?

If someone suffers a loss because another person broke a contract, they must take reasonable steps to lessen that loss. If they don't make any effort to reduce their losses, a court might say they can't claim all the damages because some of those losses could have been avoided.

Example: If a person orders a custom piece of furniture, and the store fails to deliver it, the buyer should try to find another place to get a similar item rather than just waiting and losing money.

What are punitive damages and when might they be awarded?

Extra money and other compensation that is awarded in a lawsuit to punish one party and to discourage others from doing the same thing. Punitive damages may be awarded in cases of gross negligence, intentional hurt, fraud, etc.

What are liquidated damages and a "liquidated damages" clause?

Liquidated damages are a specific amount of money that parties agree upon in a contract to be paid as compensation if one party fails to fulfill their obligations. A liquidated damages clause is a provision within a contract that outlines the specific amount of liquidated damages that will be owed in the event of a breach.

Meaning of foreseeability of lost profits (Hadley v. Baxendale)?

A party can only recover damages for lost profits if those damages were foreseeable at the time the contract was formed. Hadley v. Baxendale (1854) set a precedent in contract law regarding the recoverability of consequential damages.

Case: In this case, a mill owner (Hadley) hired a carrier (Baxendale) to transport a broken mill shaft to be repaired. The carrier delayed the delivery, resulting in the mill owner losing profits during the downtime. When Hadley sought to recover those lost profits, the court ruled that he could not because the carrier was not aware that the delivery delay would cause a significant loss of profits.

What does it mean when a court awards specific performance?

The person who broke a contract must do exactly what they originally promised to do, instead of just paying money to the other person.

Example: If someone agrees to sell you their house but later changes their mind, you could go to court and ask for specific performance. If granted, the court would require the seller to go through with the sale instead of just paying you for your trouble.

What does "UCC" stand for? Is it federal law?

The Uniform Commercial Code (UCC) is a standardized set of commercial laws governing sales and transactions. It is not federal law but is adopted by states.

What are "goods" under the UCC?

Goods are tangible, movable items.

Examples of Goods Under the UCC:
- Consumer products, like furniture, electronics, and vehicles.
- Agricultural products, such as crops and livestock.
- Minerals and oil, but only if they are to be severed from the land by the seller.

Exclusions from "Goods":
Certain items are specifically not considered goods under the UCC:
- Real estate and land
- Intangible assets (intellectual property, securities)
- Services

Definition of a "merchant" under the UCC and how they are held to a different standard?

A merchant is someone who deals in goods of the kind or has specialized knowledge. They are held to a higher standard because they are expected to have more knowledge and experience with the goods they deal in; they must act in good faith and follow industry standards for fair dealing.

What is a "firm offer" under the UCC?

A firm offer is a written, irrevocable offer by a merchant to keep an offer open for a certain period of time without the need for payment to hold it open.

How does acceptance under the UCC differ from common law?

Acceptance under the UCC differs from common law mainly in its flexibility. Under common law, acceptance must mirror the terms of the offer exactly ("mirror image" rule). If there are any changes, it counts as a counteroffer. Acceptance under the UCC allows for more flexibility; an acceptance can include terms that differ from the offer without being considered a counteroffer. This flexibility encourages smoother business transactions.

What is "usage of trade" under the UCC?

A common practice or method of doing things in a particular industry that is so well-known and regularly followed that anyone working in that industry expects it to apply to their contracts. The idea is that both parties are familiar with these unwritten rules and assume they apply.

Example: Imagine you're buying coffee beans from a supplier, but the contract doesn't say anything about packaging. In the coffee industry, it's standard practice (usage of trade) to pack coffee beans in airtight bags to keep them fresh. Even though it's not written in the contract, the supplier is expected to use airtight bags based on this usage of trade.If they deliver the beans in regular, open bags, you could argue they didn't meet the standard expected in the coffee industry—even though the contract didn't mention packaging.

How do warranties get into UCC contracts?

Express Warranties: These are specific promises made by the seller about the goods. (Example: waterproof)

Implied Warranties: These are automatic guarantees that come with the sale, even if the seller doesn't say anything about them.

^There are two main types^:

- Warranty of Merchantability: This means the product should work as expected and be of average quality.

- Warranty of Fitness for a Particular Purpose: This applies when the buyer tells the seller what they need the product for, and the seller recommends something. The product should work for that purpose.

Usage of Trade: This refers to common practices and standards in a specific industry. If certain practices are widely accepted in an industry, they can create an unwritten warranty about how products should perform.

Meaning of "warranty of title" under the UCC?

a type of implied warranty that assures buyers that the seller has good title to the goods being sold, the right to transfer ownership, and that the goods are free from any undisclosed liens

Meaning of "warranty of merchantability" under the UCC?

This warranty ensures that goods are of average acceptable quality and fit for their ordinary purpose when sold by a merchant.

ECQ: What does a NOTICE clause do?

This clause sets forth how notices must be delivered between the parties and when the notice is effective.

ECQ: What does a RELATIONSHIP clause do?

This clarifies the nature of the relationship between the contracting parties. Its primary purpose is to prevent any misinterpretation or assumption that the contract creates a partnership, joint venture, employment, or agency relationship beyond what is explicitly stated.

"open term" under UCC : PRICE

A reasonable price is supplied at the time of delivery

"open term" under UCC : PAYMENT

Payment due at the time & place where the buyer is toreceive the goods

"open term" under UCC : DELIVERY

The place for delivery is the seller's place of business

"open term" under UCC : TIME

The contract must be performed within a reasonable time

"open term" under UCC : DURATION

The party that wants to terminate an ongoing contractmust use good faith and give reasonable notification