CPA Reg - Module 2

Future Goods—For goods to be manufactured, such as when a company is manufacturing rocking chairs for a furniture store, identification occurs when those rocking chairs are

shipped, marked, or otherwise designated for the buyer.

If a minor wishes to avoid liability (disaffirm), the minor must

show intent to do so and must return any consideration derived from the contract that the minor still possesses or controls.

A ________ invites bids (offers) to perform certain duties. The bid is the offer, the _______ is not an offer.

solicitation

A merchant is defined as

someone who is in the business of selling the goods that are the subject matter of the contract

Goods that a seller cannot resell in his/her ordinary course of business are

special ordered goods/specially manufactured goods

Compensatory—Real Estate Contracts If the seller breaches the contract and refuses to convey title, the buyer has the choice of

specific performance or the difference in cost of buying a substitute parcel.

The _________________ is the time the law imposes by statute for bringing a suit to enforce legal rights.

statute of limitations

Apparent Agency—This is an agency relationship in which the agent does not have an express agreement but

still has authority to act as an agent for a principal because of the appearance of having that authority.

If buyer is insolvent, the seller can

stop any quantity shipped and can also recover goods from the buyer within 10 days after delivery.

If they buyer is not insolvent—The seller can

stop large shipments (carloads, truckloads, planeloads of goods).

If, without fault of the seller, the agreed facilities or type of contract carrier is not available or delivery is impractical but a commercially reasonable substitute carrier is available, seller must use

substitute carrier and buyer must accept delivery and pay.

A principal is liable for the torts of the agents if the principal failed to

supervise properly

Delivery—If a contract merely calls for the seller to deliver at the buyer's destination and there are no other delivery terms, title passes from the seller to the buyer upon

tender of conforming goods at buyer's destination—UCC 2-509(1)(b).

COD (Cash on Delivery)—This term requires the buyer to pay cash upon

tender of the goods.

Buyer can seek recovery of payment—If buyer makes a payment and seller is or becomes insolvent within 10 days of receipt of the payment and the goods are identified, then buyer can

tender the balance owed and is entitled to the goods—UCC 2-502.

Destruction of the specific subject matter of the offer—general rule—If the specific object of the offer is destroyed prior to acceptance, the offer

terminates automatically (perishes) with the destruction.

Termination by a specified event—An agency relationship established to accomplish an event ends when

that event is done

The buyer may receive the goods on a busy Friday afternoon and is not required to inspect them at that time—the buyer would have a reasonable time (at least through Monday)

to conduct the inspection

Conditional acceptances usually are spotted through the use of prepositional phrases, such as

"but I must," "on the condition that," or "provided that."

Unilateral Contract

A type of contract in which one side makes a promise in exchange for an action or performance from the other side.

A seller can form a contract through action, that is, shipment of goods

Acceptance by Shipment of Goods

Ad in newspaper from a clothier: "Dresses 50% off marked price." This is not an offer; it is inviting the reader to come to the store and offer to buy a dress for 50% of the marked price. This is an

Advertisement

Statute definition

An act of a legislature that declares, proscribes, or commands something; a specific law, expressed in writing.

Contract definition

An agreement supported by consideration between two or more persons with competent capacity for a legal purpose.

Voidable Contract

An otherwise valid contract that can be set aside because one party has protection under the law and the right, by choice, to be relieved of liability

Unenforceable Contract

An otherwise valid contract that cannot be enforced because of a statutory or other legal defense. The parties cannot go to court to have the contract enforced.

What is an admission under oath

Any admission under oath (deposition, interrogatory, signing of answer, or on the stand during trial) that an oral contract was made removes the Statute of Frauds as a defense.

What is the general rule of contracts involving an interest in real property

Any contract involving an interest in real property, to be enforceable, must be in writing (unless one of the exceptions in B, below, applies)

What constitutes a good?

Goods are tangible personal property, such as cars, clothes, books, iPads, livestock, groceries, and trees and crops that the seller has already harvested.

What is used to determine intent?

Humor, anger, and context

Liability of Disclosed Principal—Agent has no Actual or Apparent Authority—In this situation, the agent

only is liable to the third party; the principal has NO liability.

_________ are unique in that they are offers that are part of a contract for time.

options

General Rule—Unless a party is in privity (a party thereto) of contract, that party (called a third party) has no enforceable rights to

or obligations under the contract.

A record is tangible evidence of the existence of an

oral contract

Terms are assumed to have their _______ meaning

ordinary

An assignment does not waive or eliminate the contract rights of the

original party to the contract.

In construction contracts, the building may be complete, but the landowner has not yet paid because of loan processing time. The contract is

partially executed

Obligee—Name given to

party in the contract for the party's benefit

Obligor—Name given to party in the contract for the

party's detriment

Once goods are in existence and identified, title and risk of loss can

pass at the time the parties expressly agree or, if there is no agreement, they pass according to UCC Article 2 rules

When entrusting goods to a nonmerchant, delivery is a mere bailment. Unless the original owner has given some indicia of ownership to the bailee to lead a buyer to believe that the bailee either is the owner or has authority to sell, there can be no

passage of title (treat as a void title).

A promise to pay for an act already completed is without (not bargained-for) consideration.

past consideration

Under Article 2, the seller has an obligation to deliver goods that conform to the contract specifications. This requirement is sometimes called the

perfect tender rule

If the object of the contract is unique and damages are inappropriate as a remedy, by court order, the nonbreaching party (usually a buyer) can force the breaching party to

perform the contract.

Contracts that require personal satisfaction—If a condition is precedent, it requires the actual

satisfaction or approval for discharge of the contract.

Sale on Approval—Until the buyer accepts the goods, title and risk of loss remain with

seller

What is the right of assurance

If a party has "reasonable grounds" to believe that the other party will not perform as contracted, he or she may demand in writing that the other party give adequate assurance of due performance—UCC 2-609.

What is performance by buyer

If the buyer takes possession or makes a payment accepted by the seller, the Statute of Frauds is removed (oral contract enforced), at least to the quantity accepted or paid for.

Discharge by Failure of Conditions

If the condition precedent does not occur, then the duty to perform is discharged.

What is the general definition of a minor

In most states and for most contracts, a minor is any person under the age of 18

Replevin—If seller refuses to tender delivery of identified goods to the buyer, and the buyer cannot cover, the buyer can file a suit in equity requiring the

seller to deliver the goods to the buyer—UCC 2-716(3).

Passage of Risk of Loss when There is a Negotiable Document of Title and No Delivery—Risk of loss passes to the buyer upon the

buyer's receipt of the document—UCC 2-401(3)(a).

Under common law, ________ and ________ terms require identification of the parties, the subject matter, the price stated, and the time for performance.

definite & certain

Duties—Duties are the detriment under a contract, and they can be

delegated

Withhold Delivery—If the buyer has repudiated the contract, failed to provide assurances, or is insolvent, the seller can

demand full payment in cash and withhold delivery if the assurances or payment are not given—UCC 2-702, 2-703(a).

Cover—Permits the buyer to make a reasonable substitute purchase (e.g., on the open market) in

good faith and within a reasonable time.

Before answering any question on acceptance, be sure to ask whether the contract is

governed by the UCC or common law.

Consideration—An agency relationship can be created with or without consideration and is called a

gratuitous agency relationship

Remedies for Seller if Goods Are in Transit—Neither seller nor buyer

has possession—UCC 2-705.

In an option the offerees

has the right to accept the offer during the option period but is not required to accept.

A principal is liable for the torts of the agent if the principal was negligent in

hiring the agent and/or negligent in retention

When a principal creates an express agency relationship, the agent

holds whatever authority is provided for in the agreement.

Passage of Risk of Loss--Remember—The goods must be

identified or risk of loss cannot pass

Duty to Follow Instructions (Duty of Obedience)—The agent should follow the principal's instructions unless those instructions call for

illegal or immoral acts

if the goods are accepted and acceptance is revoked, risk of loss goes back to the

seller to the extent that the buyer's insurance did not cover the loss—UCC 2-510 (2).

Passage of Title in Delivery (Shipment) Contracts--Tender is the key—A proper tender is the

seller's holding out to the buyer the goods in a reasonable manner, for a reasonable time, to allow the buyer to take possession of the goods—UCC 2-503(1).

C&F (Cost and Freight)—This follows the same rule as in CIF, except procurement of an insurance policy is not required on

seller's part.

If seller is a nonmerchant, risk of loss passes upon

seller's tender of the goods to the buyer.

Unless agreed to the contrary or provided under Article 2 (i.e., a C.O.D. shipment does not allow buyers the right of inspection before payment), a buyer has a right, before paying for the goods,

to inspect the goods at any reasonable time, place, or manner— UCC 2-513.

Inspection allows the buyer to

to open boxes, examine goods, and even conduct tests to see if the goods meet the buyer's needs that were specified in the contract.

Entrusting of goods to a merchant (person who deals in goods of that kind) by a buyer gives the merchant the power to

transfer all rights (including title) to a buyer in the ordinary course of business—UCC 2-403(2)(3).

What is the Remedies for Breach

Damages - monetary recovery

The exception to this is options.

Death or insanity of the offeror or offeree. Because options are separate contracts to hold an offer open, they do survive the death of the offeror.

Terms of the offer must be definite enough to cover the legal minimums for formation (same for acceptance).

Definite Terms

Discharge by Performance

Each party has completed the obligations negotiated under the terms of the contract.

what is conditions concurrent

Each party's duty to perform under a contract is dependent upon the other party's absolute duty to perform at the same time. All contracts have some form of condition concurrent.

what is conditions precedent

Event is required to occur before performance is mandated

This exception applies when the parties have behaved in such a way and provided evidence beyond their own words that there was some kind of contract relationship between them.

Exception to writing requirement for real property rule

An actual agency relationship consists of two types of authority:

Express and Implied authority

Bilateral Contract

1. A type of contract in which both sides make a promise. 2. A promise is made by one party to the contract in exchange for a promise from the other party to the contract. 3. Most business contracts are bilateral contracts.

Acceptance (of goods) occurs under UCC 2-606 when any of the following have occurred:

1. After opportunity to inspect the goods, buyer notifies seller either that the goods are conforming or that buyer will accept even if nonconforming goods. 2. Payment for the goods in and of itself is not acceptance 2. If buyer fails to reject the goods after inspection or after a reasonable opportunity to do so 3. Buyer engages in any act that is inconsistent with seller's ownership

A covenant-not-to-compete is enforceable if it is:

1. Ancillary—a part of a larger contract and 2. Reasonable in restraint in length of time and geographic scope

General Rules of Contracts that Cannot be Performed within One Year of Formation

1. Any contract that is objectively impossible to perform within one year from the date of contract formation (date of acceptance) without breaching the terms must be in writing or have written evidence of it to be enforceable. 2. If the contract could be performed within one year, it need not be in writing to be enforceable. 3. The one-year mark is measured from the date of acceptance; the time frame is not just the period of performance.

When can a buyer revoke acceptance?

1. Buyer was given reasonable assurance seller would cure a nonconforming shipment, and cure has not taken place. 2. Seller has assured buyer that goods are conforming, and it is later discovered that goods are nonconforming. 3. The nonconformity was difficult to detect

Some remedies that are available to buyers in the case of seller nondelivery are also available to buyers when sellers ship nonconforming goods, including:

1. Cancellation 2. Cover 3. Treat as breach of contract and pursue suit for damages 4. Replevin possible for substituting for goods that are damaged or not delivered if the goods meet the equitable standards of uniqueness

Delegations—Duties under a contract can be delegated unless

1. Contract terms prohibit delegation 2. Contract is based on the personal skill of the obligor (personal services contracts)—Or a special trust has been placed in the obligor. 3. Contract performance will materially vary from that expected by obligee

Types of termination of offers by operations of the law

1. Death or insanity of the offeror or offeree 2. Destruction of the specific subject matter of the offer 3. Illegality of the subject matter

What are the elements of innocent misrepresentation?

1. Deception about the subject matter of a contract that involves facts or promises of performance. 2. The misrepresentation must be based on fact-based statements, not sales puffing (the use of superlatives to describe products or property). 3. The deception involves something material: 4. One party has relied on the deception.

Passage of Risk of Loss in Nondelivery Contracts

1. Determine whether the contract is a delivery or nondelivery contract. Unless the parties provide for shipment/delivery, there is no delivery provided under Article 2. 2. Determine whether the seller is a merchant or nonmerchant.

Passage of Title in Nondelivery (Nonshipment) Contracts

1. Determine whether there is a document of title involved with the goods and the contract. 2. If there is no document of title, title passes at the moment the contract is made. Note that in nonshipment contracts for goods, identification and passage of title occur at the same time. 3. If there is a document of title, and the document of title is nonnegotiable, then title passes to buyer upon buyer's receipt of the document—UCC 2-401(3)(a). 4. If there is a document of title, and the document of title is negotiable, then title passes to the buyer upon the buyer's receipt of the document—UCC 2-401(3)(a), 2-509(2)(a).

When can you discharge the duty to perform

1. Discharge by Failure of Conditions 2. Discharge by Agreement or Party Action 3. Discharge by Novation 4. Discharge by Accord and Satisfaction 5. Discharge by Operation of Law 6. Discharge by Performance

Types of Third-Party Beneficiaries

1. Donee (intended) beneficiary—The contract must be made for the direct benefit of the beneficiary and the donee's rights must be given in the contract 2. Creditor beneficiary—There must be a debtor-creditor relationship, and the debtor must make a contract that befits the creditor with a third person. 3. Incidental beneficiary—A third party who receives an unintended benefit has no legal rights in a contract between two parties.

Buyer can accept a sale by:

1. Due notification ("I accept") 2. Failure to reject within the time of trial period (keeps goods beyond trial period) 3. Doing any act inconsistent with seller's ownership.

The Types of Capacity Required for Formation of a Contract

1. Each party must be of legal age (minors are limited in the types of valid contracts they can make). 2. Each party must have the mental capacity to enter into a contract and mental capacity includes being free from a level of intoxication that results in mental incapacity.

Requirements for Vicarious Liability

1. Existence of a master-servant relationship 2. Scope of Employment

Types of Contracts that Must Be in Writing under the Statute of Frauds

1. Guaranty of debt contracts 2. Contracts involving an interest in real property 3. Contracts impossible to perform within one year of formation 4. Contracts for the sale of goods priced at $500 or more 5. Promises of executors for personal liability for debts of the estate

Passage of Risk of Loss when There is Delivery (Shipment Contract)

1. If delivery is FOB place of shipment (or ship point) or FOB seller's place of business, warehouse, or residence, then the risk of loss passes at the time the goods are delivered to the carrier. 2. If delivery is FOB place of destination or FOB buyer's place of business, warehouse, or residence, then the risk of loss passes at the time of tender.

Passage of Title in Delivery (Shipment) Contracts

1. If delivery is FOB place of shipment or FOB seller's place of business, warehouse, or residence, then title passes at the time and place of shipments or when the goods are delivered to the carrier. 2. If delivery is FOB place of destination or FOB buyer's city, business, warehouse, or residence, then title passes upon the seller's tender of conforming goods at place of contract destination—UCC 2-509(1)(b).

Between two assignees to the same contract, the one with the most rights is the one who

1. Is first in time of assignment (U.S. rule) or 2. Is first to give notice of the assignment (English rule).

The requirements for and the effect of a merchant's firm offer are that it:

1. Is made by a merchant 2. The offeror states that it will be kept open or gives assurance that the offer will not be withdrawn for a stated period of time. 3. The offer is in a signed writing 4. Does not require consideration 5. Once these elements are present, the offeree holds an irrevocable offer (despite no consideration) for the time stated in the firm offer (or if none is stated, for a reasonable period) but no longer than three months 6. If the parties want an offer for the sale of goods to remain open longer than three months, then there must be consideration, just as with option contracts under common law. 7. If the offeror is a nonmerchant, the rules for common-law options apply, and there must be consideration. 8. A valid firm offer is just like a common-law option; it cannot be revoked, and it ends only upon the expiration of the stated time or three months, whichever is shorter.

To be a contract of necessity, the following criteria must be met:

1. It must be an item of necessity (e.g., food, clothing, shelter, etc.). 2. It must be in value of what the minor is accustomed (standard of living). 3. Minor must not be under the care of a parent or guardian.

What are the elements of fraud?

1. Just as with misrepresentation, the deception involves a material fact about the contract subject matter. 2. Just as in misrepresentation, one party has relied upon and been deceived by the other party's false representations. 3. Intentional deception is the factor that distinguishes misrepresentation from fraud.

When a contract involves both realty and the sale of goods, use the UCC (UCC 2-107) and common law for the sale of the appliances in a home. Examples are:

1. Minerals, oil, gas, or structures on earth to be moved are considered goods if they are to be severed by the seller; if severed by the buyer, real estate law governs. 2. Sales of growing crops or timber are the sale of goods regardless who severs. 3. "Things" attached but not deemed fixtures, which can be severed without material harm to realty, are goods.

Five Types of Defenses to Formation

1. Mistake 2. Fraud (also called fraud in the inducement) or misrepresentation 3. Duress 4. Undue Influence 5. Illegality

Duty of Loyalty requirements

1. No competition 2. No conflict of interest 3. No appropriation of business opportunities 4. No disclosure of confidential information

What are the requirements for the formation of a contract?

1. Offer 2. Acceptance 3. Consideration 4. No defenses

The partial performance exception requires the following:

1. Payment of some part or all of the purchase price has been made. 2. The buyer in possession of the land by living there (residential) or proceeding to develop it (commercial land); and 3. The buyer has made valuable improvements. In some situations, the possession is simply whatever possession is necessary for making the improvements. Courts are looking for some proof beyond one person's word against another's.

What are the different forms of duress

1. Physical force or threat of physical force (that rise to level of criminal assault or battery) to the party or to their family. 2. Threats to disclose private information 3. Economic pressure—if a party does not enter into a contract the other party threatens to ruin his or her business

What are the types of conditions of performance

1. Precedent 2. Subsequent 3. Concurrent

What are the requirements of a Valid Offer?

1. Present Intent 2. Definite Terms 3. Communication of Offer

Apparent Authority—Even if the agent lacks express or implied authority (both being types of "actual authority"), the principal may still be liable for contracts negotiated by the agent if:

1. Principal held agent out as principal's agent; that is, a third party reasonably believed that the agent worked for the principal and had the authority to enter into contracts; 2. Agent acted within scope of apparent authority; and 3. Third party reasonably relied on the appearance in entering into a contract.

Any right can be assigned or delegated unless the following exceptions apply.

1. Prohibited by contract terms (anti-assignment clause). 2. Prohibited by statute 3. Prohibited by personal contracts—Contracts unique to the person receiving services. 4. Prohibited due to increased material risks to the obligor

Any contract involving an interest in real property must be in writing, including:

1. Real property purchase contracts 2. Leases of real property (exceptions in most states apply to leases less than one year in length) 3. Real property mortgages 4. Easements 5. Creation of any other real property interests 6. Real estate broker contracts

If buyer accepts nonconforming goods—The buyer can with notice pursue the following remedies

1. Recover ordinary damages—Incurred in the ordinary course of business and in a proper case receive incidental and consequential damages—UCC 2-714(1). 2. Recover for breach of warranty—Buyer can recover the difference between the value of the goods accepted and the value the goods would have been, had they been as warranted plus, if appropriate, incidental and consequential damages—UCC 2-714(2). 3. Deduction of damages from purchase price (the "self-help" remedy)—Buyer can deduct all or any part of the damages from the price still due and payable to the seller—UCC 2-717.

If the seller delivers goods that fall short of the contract requirements in any way, then the buyer has the following options:

1. Reject the entire shipment; 2. Accept the entire shipment; or 3. Accept any commercial unit and reject the rest.

To reject and pursue remedies, the purchaser must do so properly:

1. Rejection must be within a reasonable time after tender of or delivery—UCC 2-602. 2. Rejection is not effective until known by seller—UCC 2-602. 3. Specific reasons for rejection should be given. If not given, buyer cannot pursue remedies if seller could have cured, or if seller made a request in writing for a written statement of reasons—UCC 2-605. 4. If buyer has possession of the nonconforming goods, the buyer must act as a bailee (use reasonable care over the goods)—UCC 2-602. 5. If seller does not give buyer instructions, buyer can store the goods for seller's account, reship back at seller's expense, or sell the goods deducting costs and sales commission from the proceeds—UCC 2-604.

Discharge by Agreement or Party Action - 3 types

1. Release - a discharge of a party's obligations under a contract 2. Waiver - a relinquishment of rights related to the other party to a contract and his or her breach. 3. Mutual rescission - an enforceable mutual agreement to discharge all contract obligations and restore the parties to their precontract positions.

Exceptions to preexisting duty

1. Rescission and new contract 2. UCC modification for contracts for the sale of goods

what are the requirements for a valid writing/record of a contract

1. Signature 2. Exception—Merchant's confirmation memorandum allows one party's signature to bind both parties (both are merchants) to the agreement. 3. A writing/record need not be in one document or formal. E-mails, letters, and faxes can be grouped together to establish the written/record requirement for a valid contract.

Types of Agents

1. Special Agent—One authorized to conduct a single transaction or series of related transactions on the principal's behalf. 2. General Agent—One authorized to conduct all necessary personal or business transactions for the principal. 3. Universal Agent—One authorized to do all acts that can be legally delegated to an agent. 4. Power of Attorney 5. Independent Contractor—An independent contractor is someone who acts on behalf of a principal, but that principal does not control the agent's day-to-day activities, and the scope of the independent contractor is limited. 6. Subagent—A subagent is an agent hired by another agent on behalf of the principal. 7. Agency Coupled with an Interest — This is an agency in which the agent holds a property right in the subject matter of the agency.

Discharge by Operations of Law

1. Statute of limitations 2. Bankruptcy decree 3. Discharge by impossibility or impracticability of performance 4. Death or insanity of one of the is generally not an automatic discharge unless the contract is one for personal services. 5. Destruction of the specific subject matter of the contract is an automatic discharge of the contract. 6. Illegality—If legal changes occur that now render the contract illegal, the contract is automatically discharged upon the change in the law. 7. Commercial impracticability

For merchants, if there is a definite statement of acceptance (not conditional acceptance) followed by additional terms, there is a contract WITH the additional terms UNLESS

1. The additional terms are material, such as a waiver of warranties. 2. The offer specifically states, "This offer is limited to these terms." In this situation, a contract is formed, but without the additional terms in the acceptance. 3. The offeror objects within a reasonable time after receiving the acceptance to the additional terms.

Unilateral Mistake—General Rule—If only one of the parties makes a mistake, the mistake is binding on the mistaken party, unless:

1. The other party knows or should know of the mistake or 2. The mistake is material and obvious, as when there is a transposition of numbers, e.g., $501.20 vs. $5012.00. If the mistake is immaterial, e.g., $501.20 vs. $502.10, then the mistake is binding or 3. The error was due to a mathematical calculation (addition, subtraction, division, or multiplication) and the mistake was made inadvertently and not through gross negligence.

Ways to accept by shipment of goods

1. The seller delivers conforming goods (goods that fulfill the buyer's order or offer) to a carrier. 2. The seller can also accept an offer by promising to ship promptly. 3. If the seller is shipping goods that are different from what the buyer ordered or offered to buy (i.e., nonconforming goods), the seller must notify the buyer before shipping that the shipment is offered only as an accommodation.

Distinctions between the UCC Article 2 and Common Law

1. The two sources govern different types of contract subject matter 2. The UCC is codified in statutory form and common law is the law developed in judicial decisions on contracts. 3. Common law requires more details and precision than does UCC Article 2 for formation, terms, and damages. 4. The UCC Article 2 requires less detail than common law does from the parties to a contract and has terms that apply if the parties fail to agree on those terms. In addition, the UCC Article 2 has more flexibility than common law does when it comes to formation and performance.

Deviations from the scope of employment will not alter the principal's liability if:

1. They are minor; or 2. After deviation, A is returning and "reasonably close" to the point of departure. 3. Frolic and detour—Agent has diverted from the principal's business and is completing personal tasks while working on principal's business-no liability for principal's during the frolic and detour. 4. Return from frolic and detour—Agent gets back to the business of the principal after personal business is complete; liability returns.

What are the two Types of Mistakes

1. Unilateral Mistake 2. Bilateral Mistake

Types of Acceptance of an Offer

1. Unilateral Offer 2. Acceptance by Shipment of Goods 3. Bilateral Offer

Within authority—An agent will be held to have acted within the scope of employment when committing the tort if these three questions are answered affirmatively:

1. Was this the type of work agent was hired to do? 2. Did it occur substantially within normal time and space limitations? 3. Was it done to serve the principal in some way?

What are the effects of the duty to perform?

1. When conditions are met, the duty to perform exists. 2. If the conditions are not met, then the duty to perform is discharged.

In order to resell goods the

1. sale must be conducted in a reasonably commercial manner (public or private sale). 2. The seller must always give the buyer notice of private and public sale (except for perishable or rapidly declining value goods). 3. The sale must be conducted at a reasonable time and place. 4. If the goods are specially manufactured and cannot be resold, the seller's remedy is the full contract price.

a legal detriment consists of something of

1. something of legal value 2. a legally sufficiant amount (adequacy of consideration)

What are the exceptions to the parol evidence rule

1. subsequent modification 2. defenses to the formation of the contract 3. if there is not a fully integrated contract, then the parol evidence rule does not apply

Passage of title is found in UCC _____. Passage of risk of loss is found in UCC _____.

2-401; 2-509

Types of Damages

6. 1. Nominal—There is a breach but no financial loss has been suffered. Court awards a nominal amount ($1 or some other small amount). 2. Compensatory—These are all costs or loss actually suffered and proven to be caused by the breach. 3. Incidental damages—Incidental expenses are incurred by the nonbreaching party due to the breach and would include things such as lawyer's fees for recovering for the breach. (See UCC 2-715(1).) 4. Consequential damages—These include any foreseeable loss known by the breaching party (UCC 2-715(2)). 5. Punitive damages—Damages awarded to punish a wrongdoer. 6. Liquidated damages—The parties agree in their contract that a specific sum is to be paid in the event that the contract is breached.

An exculpatory clause is

A clause in a contract, that disclaims any liability regardless of fault. Note: this concept has been on the CPA Exam in the past

What is conditions subsequent

A condition subsequent is something that must be present or occur after a duty to perform has arisen.

What is an Express Contract?

A contract formed wholly by oral and/or written words. Some contracts are required to be in writing, but whether written or oral words, they are called express contracts.

What is an Implied or Implied-in-Fact Contract

A contract formed, at least in part, based on the conduct of the parties or based on the factual circumstances. This type of contract is distinguished from an express contract because it exists through the actions and circumstances of the parties, not through their express oral or written words.

Quasi-Contract or Implied-in-Law Contract

A contract imposed by the courts or by law when some performance has gone forward, even though there is no express or implied contract. The law creates a quasi-contract for the parties in circumstances in which the failure to find a quasi- or implied-in-law contract would result in unjust enrichment of one party by the other.

Reformation is

A contract rewritten to address an issue that affects the parties.

Executed Contract

A contract that has been fully performed by both parties to that contract.

Valid Contract

A contract that has been legally formed and meets all necessary requirements for formation.

A partially executed contract is

A contract that has been performed in part; that is, one side has performed all that was required under the contractual obligation.

Executory Contract

A contract that has not yet been fully performed by the involved parties. One side has completed performance, but the other side has not.

Void Contract

A contract that lacks a legal purpose or is in violation of the law.

Define estoppel

A legal principle that bars a party from denying or alleging a certain fact owing to that party's previous conduct, allegation, or denial.

Define preexisting duty

A preexisting duty is one that exists under a valid contract or perhaps by law. A preexisting legal duty is an enforceable obligation.

Intoxicated Persons and Capacity—General Rule

Any person who becomes intoxicated can avoid any contract (the contract is voidable) made while intoxicated if the intoxication was to such an extent that the person did not understand the binding nature of the contract and did not understand what was actually being conveyed or purchased by the terms of the contract.

_________ __ has a series of sections that supply any missing terms, including price, time of performance, delivery, and payment terms. "I will sell you some Rolex President watches" is not enough for an offer under the UCC, but "I will sell you one hundred Rolex President watches" is sufficient.

Article 2

_________ __ requires only that the offer identify the subject matter (and quantity if more than one is being sold)

Article 2

______________ __ relaxes the requirements of certainty and the definiteness of the terms.

Article 2

The seller, through an auctioneer, invites bids (offers) from prospective buyers. The buyer, not the seller, is the offeror.

Auctions

This element of consideration means that the promise induces the detriment on each side. You are willing to sign the deed for title to your house because the buyer is willing to pay you $121,000.

Bargained-for Exchange

Exam tip

Before answering any questions about contracts on the CPA Exam, first determine whether the subject matter is UCC or common law. There are differences between the two sources of laws and applying the wrong law will result in choosing one of the available answers that is correct for the WRONG source of law. Look at the subject matter of the contract and ask, "Am I under the UCC or am I under common law?"

If both parties are mistaken and the mistake is one that involves the identity, existence, or quantity of the subject matter, the contract cannot be enforced by either party. This is a

Bilateral (Mutual) Mistake

Our firm promises to do this 10-k audit and you promise to pay the firm a fee of $180,000 for doing it. What type of contract is this?

Bilateral Contract

The bank offers to lend you $150,000 for the purchase of a home in exchange for your promise to grant the bank a mortgage and make monthly payments on the mortgage loan. What type of contract is this?

Bilateral Contract

The car dealership offers to sell you a car in exchange for your promise to make monthly payments for four years. What type of contract is this?

Bilateral Contract

Acceptance (promise) must be absolute, unequivocal, unconditional, and communicated to the offeror.

Bilateral Offer

Communication of Offer—The offer must be communicated by the offeror or authorized agent and received by the offeree or authorized agent. EXAMPLE

BonTon's CEO writes a letter offer to an MBA graduate offering her a position as director of credit at the store. However, the CEO never mailed the letter. There is no offer for the MBA to accept because it was never communicated. Even if the CEO's assistant found the letter in the CEO's desk and told the MBA of the letter, there is no power of acceptance unless and until the CEO communicates the offer or authorizes its communication to the MBA.

Discharge by Novation

By agreement between the original parties to a contract and through a valid subsequent contract, a new party is substituted for one of the original parties, thereby discharging the duties of the parties under the original contract.

A contract for the sale of a home is governed by

Common Law

A contract hiring a real estate broker is governed by

Common Law

If the primary purpose of the contract is the installation of the goods, it is governed by

Common Law

___________ _____________ is also a form of a counteroffer

Conditional acceptance

Define consideration

Consists of the benefit promised by the offeror (promisor) and the legal detriment promised or performed by the offeree (promisee).

Examples of service contracts are:

Contracts for employment, agency agreements, lawn service contracts, car washes, consulting loans, and medical care

Mentally Incompetent Persons—General Rule

Contracts made by a mentally incompetent person, but before a court has adjudged that person incompetent, are voidable by the person or legal guardian (the same as with a minor) during the period of incompetency and for a reasonable time after regaining his or her competency.

Often defined as doing what you are free not to do and not doing what you are free to do.

Legal Detriment

If two merchants have an oral agreement that must be in writing under the UCC Statute of Frauds, that writing requirement is met through a process referred to as a merchant's confirmation memorandum.

Merchant's confirmation memorandum—between merchants (only)

Expressions of possible offers or future offers are not valid offers.

Negotiations

What is Present Intent?

Offer (and acceptance) must be made with serious intent (objective intent).

Define agent

One who acts on a principal's behalf to accomplish a task or consummate a transaction for the principal.

Payment is due at time and place buyer is to receive the goods—UCC 2-310.

Open payment term

Delivery is at seller's business or, if the seller does not have a place of business, at seller's residence—UCC 2-308.

Open place of delivery term

A reasonable or market price at the time of delivery will apply, or if price is to be fixed by either party, good faith is required in doing so—UCC 2-305.

Open price term

Quantity is to be set by output (of seller's factory) or need (All that the buyer needs) (called Outputs or Requirements Contracts). These are valid because there is good faith and past measurements to rein in bad faith.

Open quantity

In absence of agreement, it is a reasonable time—UCC 2-309.

Open time for contracted performance

Define Offeror

Party who makes the offer

Define Offeree

Party with the right to accept the offer

FAS (Free Alongside Vessel)

Place of shipment. Title and risk of loss pass on seller's delivery of conforming goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer—UCC 2-319(2).

FOB—(free on board)

Place of shipment. Title and risk of loss pass upon delivery (possession) of conforming goods to the carrier—UCC 2-319(1)(a), 2-509(1)(a).

Advertisements usually are not offers but rather an invitation to the reader to make an offer. This is an example of

Present Intent

Invite a buyer to offer to purchase at the seller's listed prices (usual notation: "price subject to change"). They are not offers but invitations to buyers to offer to buy at that price.

Price lists

Terminating actual authority—To effectively terminate an Agent's actual authority, the

Principal must end the relationship.

_____________ are liable for certain torts of independent contractors

Principals

An offer is terminated, at any time prior to acceptance, by the offeree saying or writing something as simple as "Terms are not acceptable," "No thank you," or "Funds for purchase are not available at this time."

Rejection

Quasi-contract recover is a

Remedy given when there is no contract.

Study tip

Remember that conditional acceptance is never acceptance, under either UCC or common law. If an offeree uses language such as "I'll take it but. . . ," "I'll take it provided that . . . ," "I'll take it but I must . . . ," or "I'll take it on the condition that . . . .," there is a conditional acceptance. Conditional acceptance is never acceptance, it is a counteroffer. On the exam, watch for those prepositions in attempted acceptances (e.g., but, provided, if, and only if).

_____________ must be received prior to acceptance by the offeree. (See discussion below for timing rules on acceptance).

Revocation

_________ are effective when they are received so they must be communicated.

Revocations

Rights of a BFP when Void Title Has Been Transferred—A void title cannot be

Rights of a BFP when Void Title Has Been Transferred—A void title cannot be

Common Law applies to what kinds of contracts

Service and real estate contracts.

Silence—general rule

Silence generally is not an acceptance.

A contract that promises to pay the debt of another must be in writing under the

Statute of Frauds

Originally, at common law, called the Statute for the Prevention of Frauds and Perjuries, this law (codified in most states) requires certain types of contracts to be in writing (be evidenced by a record, as discussed below) to be enforceable.

The Statute of Frauds

A contract for the sale of a mobile home by a manufacturer is governed by

The UCC

Rights to Determine Performance: Inspection

Upon delivery of the goods, the buyer has the right of inspection.

If the breach is due to fault of the buyer and risk has not passed, risk shifts immediately to the

buyer for a commercially reasonable period after seller learns of the breach, but only to the extent not covered by seller's insurance—UCC 2-510 (3).

What is implied ratification

The minor continues to perform on the contract beyond reaching the age of majority and what would be a reasonable time for disaffirming.

What is express ratification

The minor notifies the other party that he or she intends to honor the contract after reaching the age of majority.

Define principal

The party who delegates authority to another in order to accomplish a task or consummate a transaction.

UCC Article 2 applies to contracts that involve what?

The sale of goods.

If a contract involves providing both goods and services, then the UCC applies if the purpose of the contract is primarily what?

The sale of the goods.

What types of contracts involve both the sales of goods and providing services?

These are called blended contracts.

Discharge by Accord and Satisfaction

This is an agreement whereby the original contract can be satisfied either by completion of the original performance or by a different performance.

What is the goal of UCC Article 2?

To provide efficient ways for businesses to form contracts and deal expeditiously with issues that develop during performance.

Modifies the common law based on a definite expression of acceptance.

UCC Article 2 and Language of Acceptance

The contract is one in which a seller agrees to sell all that it produces to a particular buyer. Under the UCC, this type of open-end quantity agreement is a valid contract that is supported by consideration if the contract is based on an established production or ability to produce by the seller and the seller is required to sell its production to the buyer.

UCC Output Contract

The type of contract is one in which a buyer agrees to purchase all that he needs for his home or business from the seller. The quantity is left open, but under the UCC this type of agreement is enforceable in order to allow businesses and buyers to operate on an as-needed basis.

UCC Requirements Contract

An __________ contract is one that the courts will not enforce, but still can be honored by the parties if they choose. These contracts are not void if the parties decide to proceed with performance.

Unenforceable Contract

"Drive my car from New York to San Francisco, and I will pay you $1,000." If you get the car to San Francisco, you collect the $1,000. The action or performance of mowing the yard or driving the car is given in exchange for the promise to pay. What type of contract is this?

Unilateral Contract

This type of contract is formed by action required by one party in exchange for a promise by the other party. One side is not making a promise—that side simply accepts by performance. Once the party required to act begins that action, the contract has been accepted, and the promising party is bound to do as promised.

Unilateral Contract

If only one of the parties makes a mistake, the mistake is binding on the mistaken party. This is a

Unilateral Mistake

Acceptance takes place upon completion (total performance) of the act required by the offer.

Unilateral Offer

If seller is a merchant, risk of loss does not pass until

buyer actually gets possession

I offer to sell you a Picasso painting, which I know is a fake, for $100,000. You accept. Due to my fraud, you can be relieved of any liability under this contract.

Voidable Contract

Mitigation of Damages

When a breach takes place, the law usually imposes on the nonbreaching party the duty to take actions to mitigate (reduce) the amount of damages owed.

General rule of preexisting duty

You cannot obtain more detriment from the other party in order to perform what you are already legally obligated to do. You are not entitled to more payment (consideration) for what you are already legally obligated to do.

If all three elements of fraud are present, the deceived party is entitled to

damages or can rescind the contract

Under the parol evidence rule

a fully integrated contract (one that is complete, unambiguous, and without defenses in formation) cannot be contradicted, varied, or altered by evidence of the parties' prior negotiations, prior agreements, or contemporaneous oral agreements.

Lapse of time—general rule—An offer automatically terminates at the end of

a stated period for its existence, or, if no period is stated, it terminates after a reasonable period has lapsed.

Limitation—operation of law agency terminations—When agency relationships end by operation of law, as when the principal dies, such a termination ends all

actual and apparent authority

Courts do not generally examine the amount of consideration as long as it is

actually exchanged

For nonmerchants, if there is a definite statement of acceptance (not conditional acceptance) followed by some additional terms, a contract is formed, but without the

additional terms

Duties of the Parties upon Termination—Agency relationships require special steps and duties on the part of principals and agents when the relationship terminates in order to be certain third parties are not

affected adversely

Termination by lapse of time—If an agency relationship is restricted in length and the authorized length of time ends, then the

agency relationship ends

Subagents owe a fiduciary duty to the

agent who hired them as well as to the principal of the agent.

Principals are also liable for inherently dangerous activities conducted by their

agents

If the record of a contract has ________, it is not fully integrated, and parol evidence can be introduced only to clean up the ambiguity.

ambiguities

I offer to sell you my watch for $200. You accept, and we exchange the watch for $200 cash. Since the contractual obligations of both parties have been completed, it is now

an executed contract

What are the two parties to a contract?

an offeror and offeree

Seller can stop shipment of goods at

any time

A principal is liable for the torts of agents if the agent was doing

as the principal instructed or ordered.

Creation of an Agency Relationship by Ratification In this situation, the agent does not have express, implied, or apparent authority, but he or she enters into a contract on behalf of an

assumed principal

The actions of _________ that can be requested also depend on the facts

assurance

A minor who enters into a contract has the right to disaffirm the contract and

avoid liability at any time before reaching majority and for a reasonable time thereafter.

Passage of Title—REMEMBER—When title passes is important for purposes of determining the rights of third parties with respect to the

buyer an seller.

Passage of Risk of Loss when the Goods are Held by a Third Party (Bailee, Warehouseman, Someone Other Than seller) and There is No Document of Title—Risk of loss passes to the buyer when the

bailee acknowledges the buyer's right to the possession of the goods. The risk of loss, in effect, passes upon the equivalent of tender by the warehouseman.

Returning to the original position in cases of cancelations may require that the seller

be given lost profits the amount that the seller could have made had the goods been manufactured and sold.

Sue for Breach of Contract—Used mostly if breach takes place

before delivery or buyer improperly rejects goods.

Cancel and rescind with notice—The contract is rescinded by the buyer with the effect of restoring both buyer and seller back to the positions they would have been

before entering the contract—UCC 2-711.

An oral contract for special ordered-goods is enforceable if the seller has substantially

begun performance, or has made an irrevocable commitment to do so, before the buyer cancels the order claiming the Statute of Frauds.

An agreement (accord) between the two parties on an amount and then payment of that amount is an accord and satisfaction because

both are giving up their right to have the amount due determined by a court.

When independent contractors (as well as agents) are engaged in inherently dangerous activities (radioactive materials, toxic materials), they and their principals are

both liable

A conditional acceptance is never acceptance but rather a counteroffer under

both the UCC and the common law

Partially Disclosed Principals—If an agent is acting for a principal under actual authority, but does not identify the principal, then

both the principal and the agent are liable to the third party

If the assurance is not provided, then the party who has not performed or given assurances has

breached

Sale or Return—An actual sale with title, risk of loss, and possession with the buyer subject to the condition that buyer can restore title and risk upon the seller by a proper return of the goods. Cost of return is on the

buyer

A debtor need not assume responsibility for debts that could be discharged in bankruptcy, but if those debts are exempted from discharge prior to the discharge order, their payment

can be enforced

Cancel and/or Rescind Contract—If the buyer is not performing or has failed to provide assurances, the seller can

cancel or rescind the contract.

In an option the offeror

cannot withdraw the offer during the option period

To Reimburse Reasonable Expenses—The principal must reimburse the agent for expenses incurred in

carrying out the agency agreement

A counteroffer is made when the offeree responds with

changed terms

Usury means

charging a higher interest rate than permitted by law

If your agent or someone else enters into a contract for you without authority, you, as the principal, can

choose to be bound by the agreement.

In reducing an oral contract to a writing or record, parol evidence can be used for obvious typos and ________ _________ because, again, it is not fully integrated.

clerical errors

What are the two sources of contract law?

common law & Article 2 of the Uniform Commercial Code (UCC), also known as "Sales".

When a service contract is breached by the party who hired or retained the other party, the compensatory damages are the

compensation the nonbreaching party would have been paid less any compensation the nonbreaching party earns by working elsewhere.

Agents' duty of loyalty means that they cannot

compete with their principals

Until given notice, the original party to the contract can discharge the contract by

completing performance to the assignor.

For both merchants and nonmerchants, a definite expression of acceptance (not conditional acceptance) that does not change any terms results in a

contract

Examples of voidable contracts include

contracts that involved fraud in formation or where one party lacked the required capacity to form contracts.

A ________ made at any time prior to acceptance is a form of rejection.

counteroffer

example of contracts in restraint to trade

covenants-not-to-compete

Reasonable Care—The agent should discharge all responsibilities carefully and is theoretically liable in negligence to the principal for

damage caused by carelessness

Scope of Employment—"Scope of employment" means that the agent (in the master-servant relationship) commits the tort while the agent is

doing something for the principal

Legal value can be measured by

dollars and/or market value

Any ambiguity will be construed against the party who

drafted the contract

In the destruction of the specific subject matter of the offer, If the items that are destroyed are fungible goods or commodities, the general rule does not apply because the offeror can

easily obtain the same product to deliver to the offeree.

Timing of an acceptance—If sent by an authorized medium, the acceptance is

effective

Fungible goods are those that

either cannot be distinguished because of homogenous qualities or are so mixed together that they cannot be distinguished by individual units

In an option the offeree's rejection during the option period does not

end the option. The offeree has the right to that offer during the full option period.

In the undisclosed principal situation, the agent is functionally a party to the contract and may

enforce it against the third party

If the agent reveals the identity of the principal or the principal decides to disclose his or her identity, then the principal can

enforce the contract against the third party.

Licensing statutes—If the purpose of the licensing law is mainly revenue generation, the contract with the unlicensed person may be

enforceable

an executory contract that is oral and required to be in writing cannot be

enforced

A void contract cannot be enforced by the courts because

enforcement would violate public policy and encourage illegal conduct.

Contracts Contrary to Public Policy—Contracts may be void not because they violate a statute but rather because

enforcing them would undermine public policy goals and standards.

No Commingling Funds—The agent should always keep any of the principal's funds in the agent's custody separate from agent's own funds and should always be able to tell the principal

exactly where the funds are located

I offer to sell you my watch for $200 with the payment and transfer of the watch to take place in 10 days. You accept. Since no performance has taken place but a valid contract has still been formed, it is called

executory contract

Misrepresentations must be based on fact-based statements such as

expert opinions (e.g. audit opinion or an appraisal)

A valid contract can also be an

express or implied contract

Reasonable grounds for insecurity depend on the

facts

Termination by unilateral act of one party—("You're fired" or "I quit")—When the principal or agent fails to

fails to perform the duties under the agency agreement, the agency relationship ends

Seller can seek to recover damages noted—the compensatory damages of the contract purchase price plus any incidental damages incurred because of the buyer's

failure to pay

Lingering Apparent Agency—This type of agency exists when the principal

fires an agent (ends the actual or express agreement), but the agent continues to act as an employee.

Consideration is required, along with offer and acceptance, for the

formation of a contract

Parties to a contract have _____ years from the time the contract is formed or from the time of the breach (depending on the reason for the suit) to enforce their rights.

four

The statute of limitations for bringing suit for breach of contract under the UCC is ________ years from the time the breach occurs.

four

The parol evidence rule does not prohibit the introduction of evidence that shows a defense to formation, such as

fraud or duress

Any minor's contract that is ratified by the minor after reaching the age of majority (now an adult), results in the minor being

fully liable

Accounting—The agent has a duty to provide the principal with an accounting for all

funds of the principal

Liquidated damages—The parties by agreement in the contract can predetermine the amount of damages in case of a

future breach

Before any interest in goods (title or risk of loss) can pass from a seller to a buyer, the goods must be

in existence and identified to the contract—UCC 2-105(2).

Any contract for the sale of goods priced at $500 or more must be

in writing or record, or an applicable acception

Parol evidence can be admitted to "fill in" the gaps because an ______ _____ is not a fully integrated contract.

incomplete contract

If a seller tenders delivery of nonconforming goods prior to the contract date, and buyer rejects the goods, the seller can, with notice,

indicate an intent to cure (fix whatever problem the buyer has pointed out as the reason for rejection)

Principals are also liable for any harms caused by the actions of their agents that involve

inherently dangerous activities

"Would you consider selling your car for about $3,000?" This is an example of

inquiries about buying or selling

Exception to the grounds for termination—A principal cannot (i.e., has neither the right nor the power to) terminate an agency coupled with an

interest

Duress is

is a defense when one party in the formation stage is deprived of his or her free will or choice for entering into the contract.

Bob buys a house from Fred who told Bob that the house met current building code standards. Fred was mistaken about the building code compliance. Because there was misrepresentation, even though Fred believed the house was in compliance, the contract

is voidable at Bob's option. The decision is Bob's

Retain Buyer's Deposit—Where the seller justifiably withholds delivery of goods and the buyer has made a deposit or payment and there is no liquidated damage clause, the seller may

keep $500 or 20% of the purchase price, whichever is less.

Specific performance—Requiring the other party to perform the contract; available when there are rare goods (antiques) or for buyers of

land (land is unique).

Buyers have the right of specific performance in contracts for the purchase of

land.

Sue for breach of contract—The buyer can treat the nondelivery as a breach of contract and pursue a

lawsuit to recover damages.

Disclosed Principal with Actual Authority (Express or Implied)—In this situation, the principal

only is liable to the third party.

Undue influence arises when there is a special relationship, often called a confidential relationship, whereby one party, because of this relationship, can exercise undue influence over the free will of the other in rendering decisions. Examples include

lawyer/client; priest/parishioner; child/elderly parent

Real estate contracts include

leases, mortgages, liens, and contracts for the sale and purchase of real estate.

Delivery "Ex-Ship"—Title and risk of loss do not pass until the ship arrives at a port of destination and not until the goods

leave the ship's "tackle" or are otherwise properly unloaded. This is the converse of a delivery FAS, previously described—UCC 2-322.

A ___________ debt is one in which the amount due and owing is clear to both parties.

liquidated

Assignor—Party (usually one of the original contracting parties) who

makes the assignment (the contractor in the above example)

Delegator—Party who

makes the delegation (XYZ Company in the above example)

Measure of damages is difference between

market price at time and place of tender and the unpaid contract price plus incidental (costs of breach) damages—UCC 2-708.

A rain check is an example of a

merchant's firm offer

Article 2 applies to merchants and nonmerchants alike—Certain sections apply only when a seller, buyer, or both are

merchants

Jane, age 16 (a minor), buys a car from a car dealer using fake ID. The contract is voidable because

minors do not have the capacity to contract.

A covenant that is too broad in time or geographic scope can be

modified by the court so as to make it valid.

Specific performance—Available when the goods are unique, or

n other proper circumstances such as where the remedy to cover is not available (e.g., rare goods, antiques).

Passage of title occurs at different times depending on whether the contract is

nondelivery or delivery

I orally offer to sell you my real property for $125,000. You accept. This contract is unenforceable because it is

not in writing

If the purpose is to regulate public welfare (e.g., a doctor or lawyer), the contract with the unlicensed person is

null and void

An assignment is not binding on the other party to the contract until the

obligor has notice of the assignment:

A counteroffer is not only a rejection of the original offer by the offeree but also a new offer that makes the original offeree an

offeror

The agency relationship cannot reasonably be completed within

one year

Undisclosed Principals—If an agent with actual authority does not disclose to the third party the fact that he or she is acting on behalf of a principal, and the third party believes the agent is acting on his or her own behalf, the agent and principal are both

personally liable on the contract.

In the absence of an agreement, delivery is at the seller's

place of business or, if the seller has none, at the seller's residence.

Police officers cannot collect rewards for catching a criminal because they have a legal obligation to do so as part of their work. This is an example of a

preexisting duty

Present intent requires that the parties do something more than

preliminary negotiations (Examples are: price lists, solicitation of bids, auctions, negotiations, inquiries about buying or selling, or an announcement of future plans)

Because an agent is a fiduciary, the agent owes a supreme duty of loyalty to his or her

principal

Two Parties—There are two parties in an agency relationship

principal and agent

Termination by mutual agreement—An agency relationship ends when the

principal and agent agree that they wish to end their relationship.

Duty of Disclosure—The agent should immediately inform the principal of any important information that the

principal would want to know

Duty of Loyalty—As a fiduciary, an agent acts in the best interest of the principal and does not make profits on transactions at the

principal's expense

Identify Goods to the Contract—The seller can set aside the goods for the contract. If the seller is still in the process of manufacturing the goods when the buyer repudiates the contract or fails to respond to assurances, the seller can

proceed to complete the manufacturing and resell the finished product rather than sell the unfinished goods as scrap (UCC 2-704).

In a bilateral contract, both the offeror and offeree are

promisors (those making a promise) and promisees (those receiving the promise).

A promise, which induces another party to rely on that promise and results in the party materially changing their position, estops the other party from refusing to honor that promise based on a claim of no valid consideration.

promissory estoppel

A principal is liable for the torts of agents if the principal hires an agent who is not

qualified to perform the job assigned (sometimes called negligent entrustment).

Objective intent is measured by a

reasonable person's interpretation of the acts, language of the parties, and the circumstances surrounding the transaction.

Passage of Risk of Loss when There is no Delivery and a Nonnegotiable Document of Title—Risk of loss passes to buyer after

receipt of the document and buyer has had a reasonable time to present the document, to receive the goods, or to give directions to the bailee.

A rejection is effective when it is

received

Once a party is entitled to and demands reasonable assurance, that party can suspend performance without liability until he or she

receives the assurance requested

If buyer received the goods on credit while insolvent, seller may

reclaim the goods within 10 days of receipt by buyer.

The writing requirement is now referred to as a ________ because a writing includes the E-sign forms of communication.

record

Rights of a BFP when There Is a Voidable Title—A title, that even though passed to a buyer, can be

recovered. There is one exception—if the buyer in turn passes title to a BFP— UCC 2-403(1).

Incidental Damages Common Law—Under both services and real estate contracts, the incidental damages would include the costs of

rehiring or finding another job and the costs of searching for another piece of land or another buyer as well as any expenses made in trying to close the sale or prepare the property.

If goods are nonconforming due to seller's breach and the buyer has a right to

reject the goods, risk of loss does not pass to the buyer until the defects are cured or buyer accepts goods despite their nonconformity—UCC 2-510 (1).

An inquiry is not a

rejection

Asking "Would you consider a lower price" is not a

rejection

The mutual rejection by both parties to a contract of their existing contract (rescission) and then making a new one ($355,000 to build the house above)

rescission and new contract

Vicarious Liability—Even if the principal has not done anything wrong personally, he may be vicariously liable under the doctrine of

respondeat superior

REMEMBER—In most cases the determination of risk of loss is important because it controls which of the parties' insurers will be

responsible for reimbursement for the loss.

The breaching party must restore the nonbreaching party to his or her original position, but the nonbreaching party cannot

retain the benefits that he or she has received as unjust enrichment.

Timing of acceptance is important in a

revocation

general rule—An offer can be revoked at any time prior to acceptance.

revocation

What are examples of termination of offers

revocation, revocation of irrevocable offers, rejection, counteroffer, termination of offers through lapse of time by operation of law

Assignee—Party to whom

rights are assigned (Home Depot in the above example)

Language of acceptance—Determination of acceptance is controlled by whether

the UCC Article 2 or common law applies.

An assignee (delegate) can acquire no better rights than those possessed by

the assignor (delegator)

Termination by fulfillment—An agency relationship is terminated when

the conduct authorized under the agency relationship is complete.

Rescission and restitution—In rescission, the parties, in effect, go back to their corners and are restored to the same positions they were in before

the contract was entered into

Define obligation

the duty to perform

Contracts for usurious loans are void. The remedy may be that

the entire contract is void, the interest is void, or the interest charged above the usurious rate is void.

For breach of warranty, the statute of limitations begins to run when

the goods are tendered to the buyer

The assignment of rights is a contract separate from

the original agreement

Discharge by material breach—If one party has materially breached the contract,

the other side is no longer obligated to perform and the other party's duties under the contract are discharged.

For goods in existence at the time the contract is entered into, identification occurs at the time

the parties enter into the contract

Agency by Estoppel or Ostensible Authority—For the purposes of the exam, this agency relationship is another form of apparent authority agency that is created when

the principal acts as if another is his or her agent.

On COD deliveries, the buyer must pay before the carrier will turn over the goods, but the buyer does not lose

the right of inspection

CIF (Cost, Insurance, Freight)—Title and risk of loss pass from seller to buyer when

the seller delivers (possession) identified conforming goods to the carrier, obtains a negotiable bill(s) of lading covering transportation to a named destination, procures an insurance policy, and forwards to buyer all documents—UCC 2-320(2)(a).

Revocation must take place within a reasonable time of discovery or time in which the buyer should have discovered the defect, and revocation is not effective until

the seller has notice of it

Disclosed Principal—In this situation, the third party is aware that the agent is acting for a principal and

the third party knows who that principal is.

Contract Relationships of Principals, Agents, and Third Parties—The liability of the principal and agent to third parties for contracts and the ability of third parties to enforce contracts against principals and agents depend on two factors:

the type of authority the agent had and whether the principal was disclosed to the third party.

Breach affects risk of loss, but not

title. Title passes according to the rules despite the breach.

Rescission is the

undoing of a contract to return the parties to their original position.

If the Statute of Frauds requires a contract to be in writing and it is oral, then it is

unenforceable

An _____________ _______ is one in which the parties acknowledge that money is due and owed, but they disagree on the amount.

unliquidated debt

Under the UCC (UCC 2-202), a written contract can be explained, but not contradicted, by

usage of trade, course of performance, or course of dealing.

An executory contract can also be a

valid contract

Contracts in violation of a statute are

void

You and I agree that if I pay you $10,000, you will burn down the classroom building. Since the performance required under the contract is arson (i.e., a crime), not for a legal purpose, the contract is

void

Gambling contracts—These contracts are illegal and

void but payment of the gambling debt may be only voidable.

Contracts entered into under undue influence are

voidable

When the service contract is breached by the person hired, the damages will be the difference between

what the hiring party would have paid and what it had to pay to find a substitute.

Compensatory—Real Estate Contracts If the buyer breaches, the seller is owed

whatever price difference results from the sale to another buyer.

Undue influence exists when

when there is a relationship of trust and dependence and one party takes advantage of the other party because of the dependence.

The determination of whether the offeree has made a counteroffer is controlled by

whether the subject matter is under common law or UCC

Delegatee—Party to

whom the duties are delegated (ABC Company in the above example)

With the passage of the E-sign law, all states are required to accept electronic and fax communications as evidence of a

written agreement