Legal Exam 3

What is the Statute of Frauds?

A legal doctrine requiring certain contracts to be in writing to be enforceable.

Why is the Statute of Frauds important?

It is a defense that can be raised when enforcing contracts, as it explains why a contract can or cannot be enforced by the courts based on if it was/was not written and signed by the involved parties

What type of contracts are governed by the Statute of Frauds (5)?

- Whose terms prevent possible performance within 1 year

- Promises in consideration of marriage

- Where 1 party must pay the debt of another if the initial party fails to pay

- Related to land interests

- For the sale of goods whose total exceeds $500

In order for the Statute of Frauds to apply to a contract, what does that mean?

The contract must be in writing in order to be legally enforceable by the courts.

Why is the Statute of Frauds important in regards to disputes and contracts?

If a contract's terms fall under the SOF, and there was no written contract formed, then the contract is unenforceable by the courts.

What is the Evidentiary policy behind the SOF?

For contracts falling within the SOF, the written document provides a court proof of its existence and terms

What is the Cautionary policy behind the SOF?

By having a contract in writing, the promisor (the one making the agreement) is able to protect themselves from any casual, poorly thought-out promises --> they prevent the formation of speculative contracts b/c they set definitive terms by which they must follow

What is the Channeling policy behind the SOF?

When writing out a contract, parties are expected (and are likely) to cover more details and be more precise than they otherwise would be when orally forming a contract

Under the UCC, how does the SOF apply to the sale of goods?

Under the UCC, contracts can apply to the sale of goods who have a total value that exceeds $500

What does the State of Frauds require in the case of a sale of goods worth more than $500?

- The contract must state only the quantity of goods sold

- In order to be enforceable in court, the contract has to be signed by the party that would be bringing a suit (usually it's easier to just have both parties sign)

Does the SOF apply to brokerage fees, leases, and mortgages?

Yes --> this is because they each involve interests in land which falls under the SOF

How does the SOF apply to brokerage agreements?

- Brokerage agreements are required to be in writing

- This is because they relate to real estate transactions, and the commissions they make are tied to land interests

How does the SOF apply to leases?

- Leases fall under the SOF only if their terms exceed one year

- Short-term leases (< 1 year) are typically enforceable even if only orally formed

How does the SOF apply to mortgages?

- Mortgage agreements/contracts must be in writing b/c they create a security interest in land

Why is it important that contracts which fall under the SOF are in writing?

- If a dispute arises, and there is no written contract

- The contract becomes unenforceable in court

- So a party may raise the SoF as a defense to prevent enforcement of the contract b/c though it is not void, it cannot be enforced by the courts

What is a merger/integration clause in a contract?

A clause that states that the signed contract represents the final agreement of the signing parties - the signed contract is representative of the involved parties, and they agree only to the reduced, written terms

What is the Parol Evidence Rule?

A rule which states that the court will not admit evidence of agreements/understandings which existed before the contract was signed - the court assumes that the writing was intended to be the parties' final word on the contract

What rule prevents courts from honoring/enforcing side (ancillary) agreements among parties who already have a signed, written agreement?

Parol Evidence Rule

What does it mean to assign a contract?

To assign a contract means to transfer to a third party, one who was not originally a party in the contract, the rights to a contract

Why are contract rights are transferable?

Assignment rights to a contract are property rights, so they are transferable

What are the policy reasons behind allowing assignment of contracts?

- Contract rights can be assigned b/c they're to be treated like property rights --> transferable

- Once a contract's been assigned to a third party who wasn't initially involved, it is in the legal interest of the transferee to take on its duties

- A contract's rights can be treated/transferred in this way b/c people know they're entering contracts and are bound to them - if they can't uphold their end of the bargain, it's up to them to fulfill the duties they willingly took on

What is the difference between assigning rights to a contract and delegating duties under a contract?

Assignment: transferring the benefits of a contract to a third party who was not part of the original agreement (e.g. the right to receive payment)

Delegation of Duties: Transferring the performance of your contractual agreements to a third party, but not the entire rights under the contract

Are you still liable for a contract you entered even if you delegated its duties?

Yes -- you are responsible if the 3rd party fails to perform b/c they aren't receiving the direct benefit of the contract, you will be held liable b/c you must uphold your end of the contract

How is it different to delegate the duty to provide personalized services (such as those of a musician or artist) or to delegate the duty to provide mechanical services (such as plumbing a house or painting a building)?

- Personalized services cannot be replicated, and transferring defeats the point of contracting with that specific individual (given you wanted their artistic style, skill, etc.)

- Mechanical services can be replicated and thus be transferred b/c there is no benefit in having one's style of completing said task

If a contract is assigned, and that assignment includes a right to payment, what are the requirements of notice?

- Notice makes sure that the obligor knows that the right to payment has been transferred to a new party, so they know who they are supposed to pay

- It doesn't create a new agreement or change the duties under the contract—it just directs payment to the correct person

Could a party be sued for paying the initial party if the right to payment has been assigned elsewhere, but they did not receive notice? And if they did receive notice?

No notice: No, they cannot be sued b/c they were not notified of the change

With notice: Yes they can be sued for breach b/c they were notified of the change in who receives the right to payment

How does notice affect who gets paid, and when.

- Notice affects who gets paid in the way that if a contract's right to payment is transferred, then the party who was initially contractually obligated to receive payment is no longer-instead, the payment is to be sent to the newly assigned party instead.

- When payment is to be received should stay the same, as such is defined by the terms of a contract

What are some types of contracts that often get assigned?

- The right to receive payment

- Construction contracts

- Real estate contracts

What is an assignment clause in a contract?

An assignment clause affects the ability of one or both parties to sell or transfer their rights under the agreement to another party

--> E.g. if a party wants to assign their rights, they must get the written consent of the other party to do so to ensure that all involved are on the same page

What are conditional contracts?

Contracts whose performance is contingent upon another event either prior to, or after the contractual duty has been fulfilled

Condition Precedent

something must happen before an obligation under the contract can arise (AKA be enforced)

Condition Subsequent

A condition is built into the contract that terminates the contract (completely) if a certain event occurs.

Concurrent Conditions

Each party's obligation to perform is conditional (dependent) upon the other party performing their duty.

What is "tender of performance"

"Tender of performance" states that involved parties in a contract must show up ready, willing, and able to perform what they were contracted to perform

If one has a contractual obligation that is conditional, and the other party does something that fully prevents you from completing the contracted-for service, then?

Then, the contract is discharged altogether

So long as you tender performance under a contract....

Your contractual obligations are discharged upon their completion

What does it mean to tender performance?

Complete what you were contracted to do

What is substantial performance?

Substantial performance states that when completing a contracted-for service, if said party completes almost all terms and makes an honest effort in doing so, then their contractual obligations are discharged

Why is substantial performance is subjective?

Substantial performance is based upon the fact that the involved party is unable to complete their duties unwillfully -- there was no active, conscious effort to depart from the terms of the agreement, but they made the honest effort to complete all the terms

What is Mutual Agreement?

- A way to discharge a contract by performance

- Both parties choose to walk away from the agreement

What is Substituted Contract?

- A way to discharge a contract by performance

- The parties make a new agreement which displaces/replaces the old one

What is Accord and Satisfaction?

- A way to discharge a contract by performance

- The party's new obligation is not discharged until the new duty is performed

What is Novation?

- A way to discharge a contract by performance

- When a party is substituted out w/another party

- The consent of all parties is required

- Once a new party is substituted in, the former party's obligations are discharged

What is "impossibility of performance"

A doctrine that allows a contract to be discharged when performance becomes objectively impossible due to unforeseen events after the contract has been formed

How is "impossibility of performance" a means of discharging a contract?

It discharges a contract by operation of law, which means that the parties are released from their contractual duties without needing a breach or agreement

What is destruction of subject matter in contract law?

If the specific subject matter of the contract is destroyed through no fault of either party, the contract is discharged and performance is excused.

Example of destruction of subject matter

A contract to sell a specific rare item (like a Stradivarius violin) is discharged if the item is destroyed before performance.

What is death or incapacity in contract law?

If a party necessary to perform a personal service contract dies or becomes incapacitated, the contract is discharged because the service cannot be performed by someone else.

Example of death or incapacity

A graphic artist hired for their unique skills cannot perform if they become incapacitated (e.g., leave the profession), so the contract is discharged.

What is subsequent illegality in contract law?

If a contract becomes illegal after it is formed due to a change in law, the contract is discharged and both parties are excused from performance.

Example of subsequent illegality

A contract to build property is discharged if zoning laws change and make the construction illegal.

What do destruction of subject matter, death/incapacity, and subsequent illegality have in common?

They are all situations where performance becomes impossible or unlawful, so the contract is discharged and duties are excused.

What does the "obligation to mitigate damages" or "avoidance of damages" mean?

if there is a breach in contract, the other party simply cannot give up.

- If the contract has been breached by one side, the other cannot just say, "Well, I'm going to sit here and do nothing and collect damages from you to make up for the breach."

- As the party who is affected by the breach, you must do all you can to recover the damages

- Then you are able to collect damages after you have done all you can to mitigate everything

What are punitive damages?

Punitive damages are monetary awards intended to punish a defendant for egregious misconduct and deter similar future behavior, rather than to compensate the plaintiff.

What is the purpose of punitive damages?

To punish wrongful conduct and deter the defendant and others from engaging in similar behavior.

Can a plaintiff simply request punitive damages?

Yes, but the court will only award them if the defendant's conduct meets a high legal standard (e.g., intentional or reckless wrongdoing)

What are liquidated damages? What do they estimate?

- Liquidated damages are a pre-determined amount of money that the parties agree one party will pay if they breach the contract

- This amount is meant to estimate in advance the actual harm that would result from a breach

What is a "liquidated damages" clause?

- A liquidated damages clause is a provision in a contract that sets a specific dollar amount (or formula) of damages that will be owed if one party breaches the agreement.

- It is used when actual damages would be difficult to calculate at the time of breach.

What do U.S. courts consider when deciding whether to enforce liquidated damages clauses?

- In the US, liquidated damages are enforced if they are not punitive.

- They are found to be valid only if they reflect an honest effort by the parties to anticipate probable damage that would result from breach.

What does "foreseeable damages" mean in contract law?

Damages are foreseeable if, at the time the contract was made, the breaching party knew or had reason to know they would likely result from a breach.

When must damages be foreseeable?

At the time the contract is formed, not at the time of breach.

What case established the foreseeability rule for contract damages?

Hadley v. Baxendale.

What are "lost profits" in contract damages?

Profits a party expected to earn but did not because the other party breached the contract.

When are lost profits recoverable?

Only when they were foreseeable at the time the contract was made.

Core rule from Hadley v. Baxendale

Contract damages are limited to those that are foreseeable—that is, those that naturally arise from the breach or were within the parties' contemplation when the contract was formed.

What does it mean when a court awards specific performance?

Specific performance is a court-ordered remedy that requires a party to actually perform their obligations under a valid contract, rather than paying money damages.

What does UCC stand for?

Uniform Commercial Code

Is the UCC a federal law?

- No, it is not a federal law

- It is a "model" law that governs commercial contracts, and has some state-by-state variations

- It provides many of the contract terms that would likely be negotiated if merchants, or buyers or sellers of goods, sat down face-to-face.

- it creates efficiency, so merchants don't have to create multitudes of contracts, and all contracts will be similar in terms.

What are goods under the UCC?

- Tangible things that are movable at the time of identification to the contract for sale.

- They must be physical (tools, vehicles, fabrics, computers)

- They are NOT Intellectual Property like as royalties, patents, etc.

What is a "merchant" under the UCC?

A merchant is a person or business who regularly deals in goods of the kind involved in the transaction or otherwise holds themselves out as having special knowledge or skill in those goods

How is a merchant held to a different standard than an ordinary buyer or seller?

- A merchant is held to a higher standard than an ordinary buyer or seller because the UCC assumes they have professional knowledge and experience in commerce.

- They better understand business norms than casual buyers or sellers

What is a "firm offer" under the UCC?

A firm offer must be made in writing and it must give assurance that it will be irrevocable at least up to three months.

How does acceptance differ under common law contracts vs. the UCC?

Under common law, acceptance must exactly match the offer (mirror-image rule); any change or addition creates a counteroffer.

Under the UCC (sale of goods), acceptance can still form a contract even if it includes additional or different terms.

Does the mirror-image rule apply to contracts under the UCC?

- Under the UCC (for the sale of goods), a response can still count as acceptance even if it includes additional or different terms.

- Those terms may become part of the contract unless they materially alter the agreement, the offer limits acceptance, or the offeror objects.

- The UCC allows more flexibility and does not require an exact "mirror" of the offer for acceptance to be valid.

Under the UCC, what happens if someone receives an offer, then accepts the offer but changes the terms of the contract?

- Under the Uniform Commercial Code, if someone accepts an offer but changes or adds terms, it can still be a valid acceptance and still form a contract.

- Unlike common law (which would treat this as a counteroffer under the mirror-image rule), the UCC allows a contract to be formed even with additional or different terms.

What is "usage of trade" under the UCC?

A "usage of trade" is any practice or method of dealing that is so regularly observed in a particular industry, place, or trade that parties can reasonably expect it to apply to their transaction.

--> industry customs that are so common that both parties are expected to know and follow them

How do warranties get into UCC contracts? Do they have to be explicitly agreed to?

Unlike common law contracts, UCC contracts contain implied warranties. These exist whether or not the the parties negotiate for them, or include them in the contract.

What does the UCC mean by "warranty of title"?

Warranty of title: the UCC assumes that the seller has good and valid title to the goods

What does the UCC mean by "warranty of merchantability"?

When purchased from a merchant, the goods are what any reasonable consumer would expect them to be, and will do what such a consumer would expect them to do.

How does the UCC handle an "open price" term in a contract?

If price is not stated, the UCC supplies a reasonable price at the time of delivery based on market conditions.

How does the UCC handle an "open delivery place" term?

If not specified, delivery is made at the seller's place of business (or seller's residence if no business location).

How does the UCC handle an "open time for performance" term?

If no time is specified, performance must occur within a reasonable time based on the nature of the transaction.

How does the UCC handle duration of ongoing contracts?

A party may terminate an ongoing contract only in good faith and with reasonable notice.

Big idea behind UCC "open terms"

The UCC allows contracts for the sale of goods to be enforceable even if key terms are missing by supplying reasonable default terms based on commercial standards.