The ABCs of: Contracts and Sales
Here is a collection of 26 important concepts, from A to Z, you need to know about Contracts and Sales for the bar exam:
A – Anticipatory Repudiation: Anticipatory repudiation occurs when a party to a contract clearly and unequivocally communicates, before their performance is due, that they will not fulfill their contractual obligations. This allows the non-breaching party to treat the contract as breached immediately, seek damages, or suspend their own performance while awaiting the breaching party's decision.
BONUS: A – Applicable Law: Applicable law determines which legal framework governs a contract. Article 2 of the UCC applies to contracts for the sale of goods, while common law generally governs contracts for services.
BONUS: A – Assignment: Assignment is the transfer of contractual rights from one party, the assignor, to another party, the assignee. This transfer is generally permitted unless it materially alters the obligor's duties, the contract explicitly prohibits assignment, or it is restricted by law. An assignment must involve clear intent to transfer rights and does not typically require consideration unless specified otherwise.
B – Battle of the Forms: The battle of the forms arises under UCC Article 2 when parties exchange forms with differing terms during contract formation. Additional terms in an acceptance can become part of the contract between merchants unless the offer limits acceptance to its terms, the additional terms materially alter the agreement, or the offeror objects to them within a reasonable time.
BONUS: B – Bargained-for Exchange: Bargained-for exchange is a fundamental component of consideration, requiring that a promise or performance is given by one party in exchange for a promise or performance by the other. The exchange must be mutual and intended to induce the agreed-upon actions or promises.
C – Consideration: Consideration is the legal concept that makes a promise enforceable. It requires a bargained-for exchange where one party incurs a legal detriment or provides a benefit to the other party. Consideration must be of legal value, but courts do not usually assess its adequacy.
BONUS: C – Capacity: Capacity refers to the legal ability of a party to enter into a contract. Certain groups, such as minors, mentally incapacitated individuals, and intoxicated persons, may lack capacity. Contracts entered into by these individuals are generally voidable, meaning they can be enforced or disaffirmed at the incapacitated party's discretion.
D – Divisibility: A contract is divisible if its performance can be separated into distinct parts, each with its own corresponding consideration. If a divisible contract is partially performed, courts may enforce the completed parts even if the entire contract is not fulfilled.
BONUS: D – Duty of Good Faith: The duty of good faith requires all parties to act honestly and fairly in the performance and enforcement of a contract. Under the UCC, this duty is explicitly required for all contracts for the sale of goods and involves adherence to reasonable commercial standards.
E – Estoppel: Estoppel prevents a party from asserting a claim or defense that contradicts their prior representations or actions, which induced another party to reasonably rely on them to their detriment. Common forms include promissory estoppel and equitable estoppel.
F – Firm Offer Rule: Under UCC Article 2, a firm offer is an offer by a merchant to buy or sell goods that remains open for a specified period, not exceeding three months, without the need for consideration. This rule applies if the offer is made in a signed writing.
BONUS: F – Frustration of Purpose: Frustration of purpose occurs when an unforeseen event substantially undermines the primary purpose of a contract, making performance by one party valueless to the other. This doctrine may allow the affected party to be excused from performing.
G – Gap Fillers: Gap fillers are UCC provisions that supply missing terms in contracts for the sale of goods, such as price, time, or place of delivery. These terms are based on reasonable standards and the intentions of the parties as inferred from their conduct.
BONUS: G – Good Faith and Fair Dealing: Good faith and fair dealing require that parties act honestly and uphold reasonable commercial standards in the performance and enforcement of contracts. It ensures that neither party undermines the agreement's purpose.
H – Hybrid Contracts: Hybrid contracts involve transactions combining goods and services. Courts determine which body of law (UCC for goods or common law for services) governs by assessing the predominant purpose of the contract.
BONUS: H – Half-Performance Doctrine: The half-performance doctrine allows partial recovery when a party partially performs under a divisible or unjustly terminated contract. Courts may award damages or restitution proportional to the benefits conferred.
I – Implied-in-Fact Contracts: An implied-in-fact contract is formed through the parties' conduct, rather than explicit words, indicating mutual intent to contract. Courts assess the circumstances and actions to determine whether such a contract exists.
BONUS: I – Implied Warranty of Merchantability: The implied warranty of merchantability ensures that goods sold by a merchant are fit for ordinary use. This warranty arises automatically unless expressly disclaimed in the contract.
BONUS: I – Implied Warranty of Fitness for a Particular Purposeb This implied warranty arises when a seller knows the buyer is relying on their expertise to select goods for a specific purpose. The seller must ensure the goods are fit for that purpose unless the warranty is expressly disclaimed.
BONUS: I – Impossibility: Impossibility occurs when unforeseen events render contractual performance objectively impossible, such as the destruction of the subject matter. This doctrine excuses performance when no party is at fault.
BONUS: I – Impracticability: Impracticability occurs when performance becomes extremely difficult or expensive due to unforeseen circumstances, and enforcing the contract would result in undue hardship. The UCC recognizes this doctrine for sales of goods under certain conditions.
J – Jurisdiction: Jurisdiction refers to a court's authority to hear and decide a case. It encompasses subject matter jurisdiction (authority over the type of case), personal jurisdiction (authority over the parties involved), and venue (geographic location). In contract cases, jurisdiction often depends on the location of performance or negotiation.
BONUS: J – Justifiable Reliance: Justifiable reliance is a requirement for certain contract-related claims, such as fraud or misrepresentation. It occurs when one party reasonably relies on the representations or promises of another party to their detriment.
K – Knockout Rule: Under the UCC, the knockout rule resolves conflicting terms in contracts by eliminating the inconsistent provisions. The contract proceeds with UCC gap fillers to address any missing terms.
BONUS: K – Knowledge: In contract law, knowledge pertains to the awareness of facts or circumstances that may affect a party's obligations or rights under an agreement. Knowledge can impact the enforcement of warranties or conditions.
L – Liquidated Damages: Liquidated damages are a predetermined amount agreed upon by the parties to compensate for a breach. Such provisions are enforceable if the amount is reasonable and not a penalty, and actual damages would be difficult to ascertain.
BONUS: L – Lack of Mutual Assent: Lack of mutual assent occurs when the parties do not have a meeting of the minds on essential terms of the contract. This can render the agreement void or unenforceable.
BONUS: L – Lost Volume Seller – A lost volume seller is a seller who, despite reselling goods after a buyer's breach, loses the opportunity to make an additional sale. Under the UCC, such sellers may recover damages equal to the profit they would have made on the original contract, provided they had sufficient capacity to supply both buyers.
M – Mitigation of Damages: The doctrine of mitigation of damages requires the non-breaching party to take reasonable steps to reduce their losses after a breach. Courts may reduce recovery if the non-breaching party fails to mitigate.
BONUS: M – Material Breach: A material breach is a significant failure to perform under a contract that excuses the non-breaching party from further obligations and allows for immediate remedies.
BONUS: M – MY LEGS Acronym – The MY LEGS acronym is a mnemonic for the types of contracts that fall under the Statute of Frauds and must be in writing to be enforceable: Marriage, Year (contracts that cannot be performed within one year), Land (contracts for the sale of land), Executor (promises by executors to pay debts from their own funds), Goods (sale of goods $500 or more under the UCC), and Suretyship (promises to answer for the debt of another).
N – Novation: Novation is the replacement of one party to a contract with another, with the consent of all involved parties. The new party assumes the obligations, and the original party is discharged from liability.
BONUS: N – Nonconforming Goods: Nonconforming goods fail to meet the terms of the contract. Under the UCC, a buyer may reject, accept, or partially accept such goods and may also seek remedies for breach.
O – Option Contract: An option contract is a promise to keep an offer open for a specified period, supported by consideration. It binds the offeror and prevents revocation during the agreed time.
BONUS: O – Output and Requirements Contracts: Output contracts obligate the seller to sell all goods they produce to the buyer. Requirements contracts obligate the buyer to purchase all goods they need from the seller. Both are enforceable if they meet good faith and reasonable quantity standards.
P – Parol Evidence Rule: The parol evidence rule excludes prior or contemporaneous external agreements that contradict a fully integrated written contract. Exceptions include evidence to clarify ambiguities, prove fraud, or establish conditions precedent.
BONUS: P – Promissory Estoppel: Promissory estoppel enforces a promise even without consideration if a party relies on the promise to their detriment and enforcement is necessary to prevent injustice.
Q – Quantum Meruit: Quantum meruit is an equitable remedy allowing recovery for services rendered when no contract exists or when a contract is unenforceable. The recovery amount reflects the reasonable value of the services provided.
BONUS: Q – Quasi-Contract: A quasi-contract is not a true contract but is imposed by law to prevent unjust enrichment when one party benefits at the expense of another without a valid agreement.
R – Restitution: Restitution aims to restore a party to the position they were in before entering a contract. It is often awarded when a contract is rescinded or deemed unenforceable, or in cases of unjust enrichment.
S – Specific Performance: Specific performance is an equitable remedy requiring a breaching party to fulfill their contractual obligations. It is typically available when monetary damages are inadequate, such as in contracts involving unique goods or real estate.
BONUS: S – Statute of Frauds: The Statute of Frauds requires certain contracts to be in writing and signed by the party to be charged. Examples include contracts for the sale of land, contracts lasting more than one year, and contracts for the sale of goods over $500.
T – Tender of Performance: Tender of performance occurs when a party offers to perform their obligations under the contract. A valid tender discharges the party's obligations and may entitle them to remedies if the other party refuses to perform.
BONUS: T – Termination Clause: A termination clause specifies conditions under which a contract may be ended. It often includes provisions for notice and defines the consequences of termination.
U – Unilateral Contracts: A unilateral contract is one in which only one party makes a promise, and acceptance occurs through performance. An example is a reward offer: the promisor is bound once the promisee completes the requested act.
BONUS: U – Unconscionability: Unconscionability occurs when a contract is so one-sided that it is unfair to one party. Courts may refuse to enforce unconscionable contracts or modify their terms.
V – Void and Voidable Contracts: A void contract is unenforceable from the beginning and has no legal effect, such as agreements for illegal activities. A voidable contract is valid but can be disaffirmed by one party due to factors like fraud or incapacity.
BONUS: V – Valid Offer: A valid offer must include definite terms, be communicated to the offeree, and demonstrate an intent to be bound upon acceptance.
W –Waiver: A waiver occurs when a party voluntarily relinquishes a known right under the contract. It can be express or implied by conduct.
X – Express Warranty: An express warranty is a seller's promise or affirmation regarding the quality, description, or performance of goods sold. Such warranties are created through statements, descriptions, or samples provided by the seller and become part of the basis of the bargain.
Y – Yielding to Public Policy: Courts may decline to enforce contractual provisions that conflict with public policy. For example, contracts that restrict competition unreasonably or involve illegal activities are unenforceable.
BONUS: Y – Yearly Contracts: Contracts that cannot be performed within one year from their formation fall under the Statute of Frauds and must be in writing to be enforceable.
Z – Zealous Representation: In legal practice, contracts often involve clauses requiring parties to act in good faith and represent their interests zealously without engaging in bad faith or unethical conduct.
