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1 .. the. Essential Cheat Sheet for a ar Exam & Law School Ex3ms Jurax Bar Preparation

2 CONTRACTS THE ESSENTIAL CHEAT SHEET TEMPLATES For Bar Exam & Law School Exams Eddie Reyes Jurax Bar Preparation, LLC California

3 Jurax Bar Preparation, LLC, December Copyright 2015 by Jurax Bar Preparation, LLC ("Jurax Bar"). All rights reserved. No part of this book may be reproduced, transmitted, or distributed by any means without the express written consent of the publisher, Jurax Bar. Disclaimer: This book guarantees no results. Furthermore, certain intellectual property here belongs to the State Bar of California and is used in accordance with all written regulations. Moreover, any and all property is used here in accordance with Title 17 of the United States Code and in compliance with any and all other laws. Furthermore, Jurax Bar Preparation is not affiliated with the State Bar of California, the American Bar Association nor with any other company mentioned in this writing.

4 Introduction How To Use This Book. Thank you for taking the time to read this book. Use this book as a guide when practicing writing contracts questions. Also, as you go along and develop your own approach, add or modify the content found here as you see fit. Purpose of This Book. The aim of this book has two purposes. The first purpose is to improve your knowledge of the substantive law of contracts. The second purpose is to aid in your structural approach to contract question. Contracts is a subject that confuses more examinees than any other subject. However, if you have a solid organizational frame, you will know where and when to address the issues. Scope. This book mostly covers the "I" (issue) and the "R" (rule) in IRAC. The "A" for analysis in IRAC is discussed in a different writing. Go to JuraxBar.com to get a copy of the book 1440: Secrets. Even though the analysis is the most important part of the IRAC method, it is also critical for you to identify the issues and the rules. Furthermore, you will not be able to properly analyze the issues if you do not understand the substantive law. Thus, this book is geared heavily at developing your understanding ofthe substantive law. Read this book and use it as a reference when approaching contracts essays. Use it until you know by heart the content found here. Use of California Bar Exams. The samples from the bar exam are taken from actual California bar. The California exam is considered the most difficult in the United States. As such, training from high standards is beneficially to the reader whether the preparation is for other bar exams or for law school exams. Jurisdiction of Law. As for the law, law schools use the common law, the UCC, and other generally accepted law. Most bar exams cover the same jurisdiction. These same legal principles are also used here. So it is a great idea to know the law that is stated here. i.

5 Distinguish This Book From Commercial Outlines and Other Content. Of most importance is for the reader to have a thorough understanding of the law that is contained within these pages. This is because the issues that are covered here tend to appear throughout the years. While your commercial outlines (or other texts) may cover more rules and elements, it is important for you to competently know those rules and elements. However, make the distinction of the rules and elements contained in this text. Here, you must acquire a mastery (versus attaining a competent understanding) of the subject matter. Primarily for this reason, the word "Essential" is contained in the title of this book ("The Essential Cheat Sheet Templates"). Best wishes. Feel free to send comments or questions to this address. We'd love to hear from you: info@juraxbar.com. Eddie Reyes Jurax Bar ii.

6 Table of Contents How to Approach Contracts for Written Exam... 1 Main Heading 1: Applicable Law... 2 Main Heading 2: Contract Formation... 3 Main Heading 3: Defenses to Formation Main Heading 4: Terms Main Heading 5: Performance Main Heading 6: Excuses Main Heading 7: Breach Main Heading 8: Remedies & Conclusion Appendix Appendix Appendix

7 How To Approach Contracts For Written Exams. To excel at Contracts on exams, approach the questions in a systematic manner. Using the order below (Main Headings 1 to 8) will allow you establish a solid foundation to achieve this goal. Using this structure will also facilitate the organization of your response. Keep in mind that the structure below is subject to change depending on the call of the question. However, as a general rule, you want to divide your answer to contract questions in to at least two divisions. The First Division. The first division will contain Main Heading 1, Applicable Law, to Main Heading 3, Defenses. Within this division, be aware of the time frame between the events. This means that your approach should be grounded in chronological order. The Second Division. The second division will occur after Defenses to Formation. Also, approach this section in chronological order. As such, you may have to sort the Main Headings in different order. For example, you may have to deal with a condition (which falls under Main Heading 5, Performance) before you deal with an issue involving the Parol Evidence Rule (which falls under Main Heading 4, Terms). For this reason, you want to practice writing many past bar exams. This way, you will maximize your preparation. MAIN HEADINGS. 1. Applicable Law - Common LaworUCC; 2. Contract Formation; 3. Defenses to Formation; 4. Terms; 5. Performance; 6.Excuses 7. Breach; 8. Remedies. Memorize this order. 1

8 Start by reading the call of the question. MAIN HEADING 1: APPLICABLE LAW. For contracts, it will usually involve a question that sounds similar to the one below. Call of the Question: Is there a valid contract present and if so, is there a breach? Then Move to Main Heading 1. the Applicable Law. Area of Focus: 1. Common Law. 2. UCC. 1) Common Common Law shall be used when the contract involves t----l~services. PPLICABLE AW. CC applies to all sales of goods hether or not both parties are erchants. 2) ucc UCC shall be used when the contract involves the sale of goods. UCC has special provisions that apply when both parties are merchants. For example, (1) Battle of the Forms under 2-207; (2) Modifications (2-209); and (3) Merchant's Confirmation (2-201). Alert: Use caution when the contract involves the sale of goods. The contract may also involves the sale of those goods. Then, the common law will apply because the agreement involves services (selling the goods). For example, parties enter into an agreement to sell widgets. The common law will apply because services are involved (one party is required to sell widgets). Now on to Main Heading 2: Valid Contract Formation. 2

9 MAIN HEADING 2: CONTRACT FORMATION. Main Heading 2 Nalid Contract Formation) Requires all Three: (1) Offer: (2) Acceptance: (3) Consideration. OFFER DISCUSSED FIRST. 1. Must manifest an intent to contract. (1) Offer. 2. Communicated to the offeree. 3. Certain and definite terms are stated. Note that you may have different elements to define the rule for Offer. This is fine. Bar graders are looking for key words. Later you will see actual responses from model answers that have been released by the State Bar of California. Key words that reasonably meet the rules are sufficient. This applies throughout the bar exam for all subjects. Acceptance and Consideration discussed below. Other Offer Issues...., See next page. 3

10 OFFER CONTINUED. Area of Focus - Other Offer Issues: (1) Termination: (2) Preliminary Negotiations: (3) Advertisements: (4) Bilateral v. Unilateral. C.L. requires, / consideration. Termination 1f' ' i~,~ Revocation. r...."' Option. UCC's Firm Offer. It does ~ not require consideration. The offeror must be a merchant. pther Off 1. Preliminary Negotiations are not offers. Issues. er ~~- Advertisements usually create an invitation to pffer and are not offers. Alert: If the fact pattern states the words "newspaper advertisement", or something along those lines, briefly mention these issues. This is true whether or not the f----+ issue applies to resolve the dispute. Remember to state why they do not apply if that is the case. This shows mastery of the subject matter. ilateral or Unilateral. Under a Bilateral Contract, offeror wants a promise that the offeree will perform. e.g., Offeror/ Patient expects a promise of acceptance from the t Doctor/Offeree that the the doctor will take care of his medical needs until his death. Under a Unilateral Contract, the offeror expects acceptance through performance. \ Revocation of Unilateral Offer. 4 ~ e.g., The State offers a reward for -/' the capture of a fugitive. A person can accept by capturing the fugitive. A promise to capture him will not form an acceptance. Cannot revoke if part of actual performance has been made.. However, mere preparation of performance will not stop a revocation on the part of the offeror. Now on to Acceptance. J

11 MAIN HEADING 2: CONTRACT FORMATION CONT. Focus: Acceptance. Focus: Overview of Acceptance Under the Common Law & the UCC See also Appendix 1 for Acceptance under both the Common Law and the UCC. 1. Offer. (1) Common Law. Due to the importance of this section, it~ is given particular attention. See Appendix 1 for Acceptance under the ucc. 2. VALID CONTRACT ~~ FORMATION. -. UCC-2-207(1) or 2. / UCC-207(2) Acceptance.l\..r /.. ' ' (2) ucc Accept by Shipment: 1. Conforming goods; or 2. Non-conforming goods. 3. Consideration. This section is included within this content. See Page 7 that follows. 5 Now on to Acceptance under the common law.

12 MAIN HEADING 2: CONTRACT FORMATION CONT. Focus: Acceptance Under the Common Law. Focus: Acceptance Under the Common Law (versus Acceptance under the UCC). If acceptance differs or adds terms, it is a rejection and a counter-offer can follow. This is a major difference from acceptance in UCC. Note: Important to remember that if it is NOT a mirror image of the offer, then NO CONTRACT IS FORMED. Acceptance must be a mirror image of the offer. 1. Communicated to Offeror. 2. Acceptance Under th e Common Law. Mirror Image Rule. When Acceptance becomes Effective. 1. Offeree benefits from the offeror's services; or 2. Offeror has communicated that acceptance by silence will be permited. Communication of acceptance is required by Offerer. Whether or not to communicate is under the discretion of the offeror. Alert: Do not confuse "Performance Under Unileteral Contract" here with Partial Performance or Substantial Performance principles. Those are covered under the topics of Statute of Frauds Exceptions and Conditions, respectively. Performance Under Unilateral Contract. 4. Mail Box Rule. 2nd Scenario Alert: Pay close attention to whether. communication of acceptance through a promise or by performance is required by the offeree. Communication of acceptance is not required by Offeror. Acceptance effective upon dispatch. Acceptance effective upon completion of performance whether or not offeree informs offeror. Difference Between Bilateral and Unilateral Contract. Bilateral Contract: Offeree can accept with a promise to perform. Unilateral Contract: The offeree can accept by performance. 6 Mailbox rule does not apply to revocations, counter-offer, rejections. For Acceptance under UCC 2-207, see Appendix 1. The next page will only cover "acceptance" by shipment.

13 Acceptance under the UCC 2-207(2). Area: Accept by Shipment. Before proceeding, it is highly suggested that Appendix 1 be read. The section here covers a variation of acceptance. In summary, it is not an acceptance but an accommodation. Reading the case below will be helpful to understand the difference. Case Law: Corinthian Pharmaceutical Systems v. Lederle Laboratories. Facts: Plaintiff Corinthian Pharmaceutical ("Buyer") made an offer to buy DTP vaccine ("Goods") from Defendant Lederle Laboratories ("Seller"). Seller responded by shipping goods in the following manner: Seller sent 50 of the goods that conformed to the buyer's offer. The other 950 items did not conform to the offer. As such, seller shipped non-conforming goods. Seller also notified the buyer that the shipment was an accommodation. This notice occurred within the invoice that Buyer sent to seller. Issue: Whether shipping the non-conforming goods was an acceptance or an accommodation. Holding: For Seller. Seller made an accommodation and his response was to be treated as a counter-offer. Rationale: Seller made a counter-offer when he shipped non-conforming goods and when he notified buyer of the accommodation. In other words, the seller did not accept the buyer's offer. Furthermore, the seller stated that the acceptance of the order was expressly conditioned upon buyer's assent to the seller's terms. Last, an important definition of accommodation was cited by the court: "An accommodation is an arrangement or engagement made as a favor to another." No major issue usually arises here. However, do recognize that an l offer can be accepted by shipment on the seller's part. l 1. Conforming. (1) Seller can accept by I promise conforming to terms. Or (2), Seller can Agruo, If a"'"""'' -off<" '""'''""" to the - NO VAliD accept by prompt shipment of goods conforming CONTRACT IS FORMED. to terms. / ~ i Acceptance Under UCC v 2. Ex~~.ltiQn: Cont. Non-Conforming. / See ccxtnth;an """" above. Counter-offer 1. Conforming Seller can / (versus Acceptance or accept by acceptance) 2. shipping created when the Non-conforming v non-conforming seller notifies ~ Seller avoids liability here. Acceptance goods. A valid that shipment is contract will be formed. ~e)lwqrg : Notification and Accommodation. J ' an "accommodation". Buyer can then accept or reject. Seller does not avoid liability here. I / ' If no notice of an accommodation, then the Seller accepts. A valid contract is formed. Furthermore, if no accommodation is made, the seller is also liable for breach. ' ~ ~ Perteotteodec cole" \_ Note' The bceaoh will be \, Note: In this specific area, ~ also discussed under under the perfect tender both an acceptance and a Conditions. rule. breach is formed by the seller. 7 ~ ~ ' Consideration. Now on to I l

14 MAIN HEADING 2: VALID CONTRACT FORMED. Focus: Consideration. Focus: Consideration. Note: This is the first section on consideration (after covering offer and acceptance). "'1 Consideration is the last segment of Heading 2, Contract Formation. 3. Consideration. ~ Promisor bargains for exchange and Promisee suffers a legal detriment. ~ If consideration is met, _p. valid... contract may exist. Detriment: must do something he does not have to do OR refrain from doing something he has a right to do. ~ ~ 1. Promise is made by the promisor; 2. The reliance is foreseeable; and 3. Promisee detrimentally suffers. Note: Promissory Estoppel is also an exception to the Statute of Frauds. Promises as Consideration. Note: Promissory Estoppel can also be applied when a general contractor submits a bid on a construction project. If the general contractor relies on the subcontractor's bid, promissory estoppel will apply if the subcontractor backs out and the general contractor incurs higher costs. Think of this an exception to consideration. ucc Merchant's Firm Offer. Offer by merchant is irrevocable if (1) signed writing; and (2) it gives explicit assurance that the offer will be held open. Requires no considerationn. UCC Also, offer must be in writing. Open for time stated or for reasonable time. But not open for more than 3 months. Consideration not sufficient. See following page. 8

15 MAIN HEADING 2. CONTRACT FORMATION. Focus: Consideration Continued. Consideration. -..I Offerror bargains for exchange and Offeree suffers legal detriment. j Alternatives to Consideration. Moral! Consideration. Pre-existing _/ Debt. 1. Alternatives to -- Illusory Consideration Promises. ~ obligation. r-. ~ When a promise is made to compensate another party for a benefit already received due to a sense of moral No bargain is present. ~ Exception: Moral consideration is enforceable where the promisor receives a material benefit. This is the Material Benefit Rule from Webb v. McGowin. This is both a modern rule and applied to a minority of jurisdictions. A party promises to do what he is already legally obligated to do. Leaves performance to the discretion of the promising party. Consideration is not met. \ Gratuitous Promises. r-.. Consideration is not met. Past ~ Consideration. r-- Where the promise is made in return for detriment previously suffered. See also Moral Consideration above. E x~egtiqn:2 to CQn:2di!i:lrS!tiQn, First Exception: a promise to pay a debt barred by a statute of / limitations. The promise is considered a new promise and so only the terms of the new promise are enforceable. Three (3) Second Exception is a promise to perform a voidable obligation. Exceptions. -.. Promise is enforceable despite absence of new consideration e.g.: The minor that turns 18 years and makes a new promise without consideration. Third Exception is promises to pay debts discharged by bankruptcy. 9 End of consideration and end of Main Heading 2. Now to ~ Main Heading 3: Defenses to Formation.

16 MAIN HEADING 3: DEFENSES TO FORMATION. Focus: If (1) Offer, (2) Acceptance, and (3) Consideration are met, a valid contract exists unless any of the following defenses apply. Welcome to Main Heading 3: Defenses to Formation. Note: There will be a heavy emphasis on the Statute of Frauds ("SOF"). Many times, a party will attempt to avoid the contract by using the Statute of Frauds defense. As such, its placement is appropriate here. Mnemonic C/DFILM us 3. Defenses. 1. Capacity 2. Illegal 3. Duress 4. Fraud 5. Impossible 6. Latent Ambiguity 7. Mistake 8. Unconscionable 9. Statute of Frauds Statute of Fraud ("SofF") is discussed further below. SofF is a highly tested area. If no defenses above apply, a contract is formed. Furthermore, if a defense does apply, you must still go through the entire script of defenses to reach your conclusion. This means that you should at least make a mental note as you consider whether any particular defense applies. Note: "Defenses" are distinguished from "Excuses" in that Excuses arise after a valid contract is formed, terms met, and performance met. As such, despite all these being met, the contract can still be "excused". See below under Main Heading 6 - Excuses. But for now, we'll continue with defenses to formation. Now we move along to the Statute of Frauds. See next page. 10

17 MAIN HEADING 3. DEFENSES TO FORMATION CONTINUED. Focus: STATUTE OF FRAUDS. Focus: Statute of Frauds C"SOF"l. Under the UCC, the SOF requires the quantity term. SOF Includes: 1. Writing 2. Parties 3. Subject 4. Terms 5. Signed Note: Different way of stating this - contract which is impossible to be fully performed within a year falls within SOF. Statute of Frauds 1. Marriage. 2. Year. 3. Land. 4. Executor. 5. Guarantee. 6. Sale of Goods. Year. SofF does not apply where performance can be completed within one year. 3. Land exception. No consideration needed when 2 of 3 elements are met: (1) Pays money; (2) Possesses land; or (3) Makes -Improvements. Note: When approaching essays, pay close attention to this provision. This exception also appears under the Exception to SOF section further below. There, it is listed under "Partial Performance". Land exception is used in Real Property as well. Statute of Frauds Exceptions. Statute of Frauds Exceptions. ' See Next Page. 11

18 MAIN HEADING 3. DEFENSES TO FORMATION. Focus - Statute of Frauds Exceptions. Area of Focus: Exceptions to the Statute of Frauds ("SOF"). Q- Quasi-K: to prevent unjust enrichment. Where a plaintiff has rendered performance to the defendant. Note: Do not confuse Partial Performance with Substantial Performance doctrine. Substantial Performance is discussed under Conditions below. Q- Quasi Contract ("K") P- Partial Performance P - Promissory Estoppel G- Goods Delivered S - Substantial Reliance P- Partial Performance and Land: 1. Possession 2. Improvement of land 3. Payment Note: Promissory Estoppel also applies in the area of consideration. Land exception. No consideration needed when 2 of 3 elements are met: (1) Pays money; (2) Possesses land; or (3) Makes Improvements. S - Substantial Reliance by the seller of specially manufactured goods. The Following Only Applies to the UCC. Merchant's Confirmation. Two merchants orally agree and one sends a written confirmation. SOF met if the recipient does not object to the confirmation in a timely fashion. 12

19 Pause To Recap Recap. So far, we have covered the following areas: Main Heading 1: Applicable Law. Main Heading 2: Contract Formation. Main Heading 3: Defenses to Formation. The next section is Main Heading 4: Terms. However, before proceeding, we'll cover Main Headings 1 through 3. These are actual samples from the California Bar Exam. The importance of contract formation must be emphasized because it is a crucial part of contracts. Variations From Actual Bar Exam Text. The following charts will highlight how examinees engaged the issues. Notes will also be made to emphasize certain points. Also, the words may be in bold or in a reduced font size. This is done in this text for instructional purposes. Also, when stating content from the examinee's response, the text will appear in quotation marks (e.g. "Text."). The complete questions and the model answers as they appeared on the bar exam are attached here in the appendix section. It is strongly recommended that the reader carefully review the questions and model answers. It is also strongly suggested that the student write out the answer and then compare it with the model answers. The Offer. This set is from February 2006, Question 5. It will focus on the offer. A statute of frauds example will also follow. The actual bar exam question is attached here as Appendix 2. 13

20 CBX. February Question 5 Essay Question to be discussed: Is there a valid Offer? Major Issue: Whether a missing price term means that the offer lacks the "sufficiently definite" element? Relevant Facts: Marla is a manufacturer of widgets. Larry is a lawyer who regularly represents Marla in legal matters relating to her manufacturing business. Larry is also the sole owner and operator of a business called Supply Source ("SS"), in which he acts as an independent broker of surplus goods. During their telephone conversation, Marla told Larry that, if he could find a buyer for her excess inventory of 100,000 widgets, Larry could keep anything he obtained over $1.00 per widget. Although Marla thought it unlikely that Larry would be able to sell them for more than $1.25 per widget, she said, "... and, if you get more than $1.25 each, we'll talk about how to split the excess." Larry replied, "Okay," and undertook to market the widgets. [Note how the terms on price is stated "If you get more than $1.25 each, we'll talk about how to split the excess." l Steps to Approach: After determining that the common law is the applicable law, go to Main Heading 2: Contract Formation. There, you have "offer", "acceptance", and "consideration". Start with the offer. "An offer is a communication between two persons or entities, and... " Examinee states the facts. This is helpful to ~ "... it is made where reasonable people would "iron out" the facts when they appear to be believe that acceptance of the offer would lead the stated in a confusing manner. The facts are 1/ Offer. participants to be bound by its terms." in regular font (versus being in bold). (1) "Tne terms ot tne otter must also be sufficiently definite. " I Major Issue Analysis falls under this element. I Major Issue Analysis is in bold font. f v relationship, ~ "As a finder, Larry would be entitled to the portion of the proceeds between ---. $1.00 per widget and $1.25, and then a portion of the proceeds above $1.25. In this case the terms of the contract were sufficiently definite even though the portion of proceeds above [$]1.25 had not been definitively determined. Given their preexisting, ongoing and that both are merchants it is fair to assume that they could finalize the contract terms at a later date, after the sale of the widgets." - Answer A. The Take Away: Seems pretty manageable right? It is. \'11. But orgamzat1on and pract1ce 1s cruc1al. Now for a statute of frauds example. See next page. 14

21 CBX. February Question 5 Example of where Statute of Frauds does not apply. The Take Away: Use all of the facts when writing your essay. Relevant Facts (Same Facts as Above): Marla is a manufacturer of widgets. Larry is a lawyer who regularly represents Marla in legal matters relating to her manufacturing business. Larry is also the sole owner and operator of a business called Supply Source ("SS"), in which he acts as an independent broker of surplus goods. During their telephone conversation, Marla told Larry that, if he could find a buyer for her excess inventory of 100,000 widgets, Larry could keep anything he obtained over $1.00 per widget. Although Marla thought it unlikely that Larry would be able to sell them for more than $1.25 per widget, she said,"... and, if you get more than $1.25 each, we'll talk about how to split the excess." Larry replied, "Okay," and undertook to market the widgets. r Triggering Fact: "telephone conversation". Very common fact scenario where services can be performed in under a year. In such situations, the statute of frauds will not apply. \ "The statute of frauds does not a ppy I to this case however because it is for a service, Larry's sale of widgets, which can be completed within 1 year." -Answer B. \), MY LEGS. 1. Marriage. 2. Year. 3. Land. Statute 4. Executor. of 5. Frauds Guarantee. 6. Sale of Goods. e're under "YEAR" here. SOF does not apply. And of course, keep your exceptions checklist readily available just in case an exception does rum.!y,. Statute of Frauds Exceptions. Q- Quasi K P- Partial Performance P Promissory Estoppel G- Goods Delivered $ Substantial Reliance 15 the issues you have come across in law school all belong somewhere. They all fit strategically somewhere.

22 Recap Continued This next section to review will focus on Main Heading 2: Contract Formation and Main Heading 3: Defenses to Formation. The example comes from July 2011, Question 3. The full text of Question 3 can be found at Appendix 3. To review: Main Heading 2: Contract Formation. Includes: (1) Offer; (2) Acceptance; and (3) Consideration. Main Heading 3: Defenses to Formation. Includes the mnemonic C ID FILM US. 16

23 CBX. July Question 3 Essay Question to be discussed: Is there a valid Offer? Major Issue: Whether there was intent on the part of the offeror to form a valid offer. Relevant Facts: Betty is a physician. One of her patients was an elderly man named AI. Betty treated AI for Alzheimer's disease, but since she believed he was destitute, she never charged him for her services. One day AI said to Betty, "I want to pay you back for all you have done over the years. If you will care for me for the rest of my life, I will give you my office building. I'm frightened because I have no heirs and you are the only one who cares for me. I need to know now that I can depend on you." Betty doubted that AI owned any office building, but said nothing in response and just completed her examination of AI and gave him some medication. Two years passed. Al's health worsened and Betty continued to treat him. Betty forgot about Al's statement regarding the office building. After determining that the common law is the applicable law, more now to Main Heading 2, Contract Formation. Be methodical by tackling Offer first. "An offer is a manifestation of intent to enter into a contract "... communicated to the offeree." "Here, AI stated that he would give Betty his office building in exchange for her to continue to give him medical care until his death. This shows intent to be bound to the offer on those terms and was stated to Betty.". "On the other hand, the offeree did not think there was an offer because she did not think he owned a building and his statement was phrased in such a way as to suggest that he was merely expressing gratitude for Betty's work, by saying she was the only one who cared for him and that he did not have any other heirs." The Counter Argument surrounds the fact there was doubt on the part of Betty ; Note: Betty's doubts are addressed. "Overall, although couched in language that would not be an offer, there is a clear intent to give Betty his building in exchange for her caring for him for the rest of his life." Other Offer Issues. Termination _.., Bilateral or Unilateral 1. Revocation 2. Lapse of time. 3. Death 17 See next page.

24 Offer Continued. Focus: Other Offer Issues. The following are not Major Issues. However, they address facts in the essay. Discussing all of the facts shows command presence in your writing. That equals points. Other Offer Issues. 1. Revocation. f---+ "Unless stated otherwise, an offer stays open for a reasonable amount of time." -Answer B Termination 2. Lapse of time I Facts: "Two years passed." t "An offer will terminate if it is not accepted after a reasonable period of time, if none is suggested by the contract. There is usually a reasonable time limit on offers." -Answer A l Facts: "AI died in his sleep that night." ~ 3. Death. ~ "Death of the offeree will terminate the offer."-answer A Next page will also discuss other offer issues: unilateral v. bilateral offer. 18

25 Offer Continued. Other Topic to be discussed: Whether a bilateral or unilateral offer is present. I Note: The issue in J IRAC. j "The issue is whether Al's offer was an offer to enter into a unilateral or bilateral contract." lnote: The Rule j in IRAC. "A unilateral contract is one that can only be accepted by performance." j Note: Answer A and Answer B have different conclusions to unilateral issue. Either answer will be given points so long as the answer is analyzed. Facts: "I need to know now that I can depend on you." I "And here the offer could be accepted by Betty's promise to provide medical services."- Answer A. "Here, AI said he would give Betty the office if she cared for him for the rest of his life. He was not seeking her promise to care for him for the rest of her life, but rather that she actually care for him for the rest of his life." Answer B. Note: Keep in mind that this area only covers the offer. The acceptance discussion will follow. Also, keep in mind that a valid formation requires both offer and acceptance. So even if a valid offer is formed, the acceptance must also be valid. Now onto acceptance. J 19

26 CBX, July 2011, Q. 3 Major Issue: Was there a valid acceptance? Note how the flow chart can you help cover all of the issues systematically. Relevant Facts: Betty is a physician. One of her patients was an elderly man named AI. Betty treated AI for Alzheimer's disease, but since she believed he was destitute, she never charged him for her services. One day AI said to Betty, "I want to pay you back for all you have done over the years. If you will care for me for the rest of my life, I will give you my office building. I'm frightened because I have no heirs and you are the only one who cares for me. I need to know now that I can depend on you." Betty doubted that AI owned any office building, but said nothing in response and just completed her examination of AI and gave him some medication. Two years passed. Al's health worsened and Betty continued to treat him. Betty forgot about Al's statement regarding the office building. One day Betty learned that AI was indeed the owner of the office building. Betty immediately wrote a note to AI stating, "I accept your offer and promise to provide you with medical services for the rest of your life." Betty signed the note, put it into a stamped envelope addressed to AI, and placed the envelope outside her front door to be picked up by her mail carrier when he arrived to deliver the next day's mail. AI died in his sleep that night. The mail carrier picked up Betty's letter the following morning and it was delivered to Al's home a day later. The services rendered by Betty to AI over the last two years were worth several thousand dollars; the office building is worth millions of dollars. 1. Communicated to Offeror. 2. Silence. 3. Performance. lf Rule on Past Dealings: 1. Offeree benefits from the offeror's services; or 2. Offeror has communicated that acceptance by silence will be permited. "Courts have sometimes found acceptance by silence, if the parties'. past dealings would create a reasonable expectation that silence equals acceptance." -Answer B. Offeror was trying to form Bilateral contract. Thus, Betty had to promise to perform. "On the other hand, most contracts are construed as bilateral, that is are formed by the promises to perform. And here the offer could be accepted by Betty's promise to provide medical services."- Answer A. "Acceptance is the unequivocal manifestation of assent to the offer by one with power of acceptance." -Answer A know now that I can depend on you." 4. Mail Box Rule. v "Normally 20 an acceptance is effective upon mailing." -Answer A. Note: Although there may have been a valid acceptance via the Mail Box Rule on the part of Betty, other components must also be discussed. Consider: (1) proper Offer and (2) Consideration. Address all of these points before reaching your conclusion. Now on to consideration.

27 MAIN HEADING 2. CONTRACT FORMATION. Focus: Consideration. We now move to Consideration. v. "Here, Al'' eooo;demt;oo. Cooo;demt;oo.. seems to be present. Al's offer to give the building was to induce Betty to give him medical care." -Answer A. "Consideration is the bargained-for exchange of legal detriments. Each party must suffer a detriment, and the detriments must induce each other." -Answer B.. Betty's does not seem to provide consideration.l,/ "However, Betty did not think he had the building and continued to give him medical care anyhow for two years before 'accepting' the offer. This suggests that she was not induced to give medical care for the rest of his life by the promise of the building." -Answer A. Consideration Not Sufficient. Focus: 1. Moral Consideration and 2. Past Consideration. When a promise is made to compensate another party for a benefit already received due to a sense of moral obligation. No bargain is present. I 1. Consideration not sufficient. Moral Consideration. See templates above, Page 9, to get the rules on past consideration. Exception: Moral consideration is enforceable. where the promisor receives a material benefit. This is the Material Benefit Rule from Webb v. McGowin. This is both a modern rule and applied to a minority of jurisdictions. Note that the examiners give credit where past consideration and moral consideration are used interchangeably. \_ ~:.~ideration.f\ "Courts will enforce offers to pay for past moral obligations. Typically, this is the situation where a debtor offers to pay his unenforceable debts." Answer B "Here, AI does not owe Betty any debt. While she offered him free medical care, that did not create a moral obligation to pay. Indeed, many doctors are motivated by a dedication to their patients, as evidenced by their socratic oath. Therefore, Betty's motives were likely altruistic, and thus were gifts. Al's promise to pay her back for all she has done cannot be construed as an offer to pay for past debt."- Answer B. 21 Now we'll move to the area of Promissory Estoppel. We're still under consideration.

28 MAIN HEADING 2. CONTRACT FORMATION. Focus: Consideration Continued. Area of Focus: Promise as Consideration. Betty will want to make this argument. I Promissory Estoppel. _... "There, a person must have relied upon a promise, to their detriment, and done so justifiably." - Answer A. "Betty will argue that in providing free medical care to AI for two years she was relying on his promise. However, she had forgotten about the statement regarding the building and thus her actions were not a result of reliance on the promise, but rather her own good work."- Answer A. It appears as though there is no consideration on the part of Betty. Nonetheless, move to Main Heading 3: Defenses to Formation. That section now follows. 22

29 CBX, July 2011, Question 3. MAIN HEADING 3: DEFENSES TO FORMATION. If (1) Offer, (2) Acceptance, and (3) Consideration are met, a valid contract exists unless any of the following defenses apply. And even if (1) Offer, (2) Acceptance, and (3) Consideration are not met (like in this example), discuss defenses to contract formations nonetheless. This is because when the major issue is whether a valid contract has been formed, defenses to formation is a relevant topic. Defenses To Formation. Capacity - "A contract is voidable at the option of a person who does not have the capacity to contract."- Answer A Remember: C ID FILM US \ 1. Capacity egal 3. Duress 4. Fraud 5. Impossible 6. Latent Ambiguity 7. Mistake 8. Unconscionable 9. Statute of Frauds Duress- "Here, they can point to Al's statement that he has no heirs or anyone who cares for him. He needs someone to help him, and he appears to be in a state of loneliness and fear. "-Answer B. "However, this argument would most likely be rejected, since AI was the one who made the offer, -- and Betty gave no sign that she would withhold medical care if AI did not give her an office building." -Answer A. Note that the Rule is blended into the analysis. This is a departure from IRAC and acceptable when running short on time. Statute of Fraud ("SOF") is discussed on the next page. Unconscionable - "Similarly, Al's estate could argue that the deal was unconscionable, in that Betty took advantage of her superior position to extract a payment out of AI. Al's dependence on her created an element of unfair bargaining power, which Betty used to her advantage. It was improper for a doctor to make such a contract with a dying patient."- Answer B. "However, this argument will be rejected. The facts show no evidence that Betty in any way exerted pressure on AI. Indeed, Al's statement appears to be spontaneous." Answer B. 23

30 CBX, July 2011, Question 3. Recall that Statute of Frauds is usually discussed under "Main Heading 3: Defense to Formation". Major issue here was the discussion of statute of frauds and land. Pay close attention to the word "land" if it appears in the fact pattern. "Land" may trigger the statute of frauds. Statute ~Land.. of Frauds - Statute of Frauds Exceptions. "A contract for the sale or transfer of land cannot be enforced without a writing, signed by the party to be enforced against, evidencing the existence of a contract, i.e. showing the material terms."- Answer B. Next, discuss I Remember: Q PPIGS ' Q- Quasi K P- Partial Performance 1..., P- ~ Promissory Estoppel G- Goods Delivered $ Substantial Reliance "The only signed writing appears to be Betty's letter. While it shows the material terms, and is signed by Betty, it was not signed by AI. Therefore, even if Betty formed a contract with AI, it cannot be enforced against him." - Answer B. Exceptions to the Statute of ~ Frauds ' ' Partial Performance is suitable to discuss. ~ "Further, the statute is not satisfied by the performance because in the sale of land this is satisfied by two of three things: possession, improvement or payment." - Answer A. "Here, Betty's 'payment' of medical services would satisfy one, but she did not take possession and did not make any improvements to the land thus it would not be removed from the statute of frauds." - Answer A. Promissory Estoppel referred to as "Detrimental Reliance". Answer A. "Finally, there is no detrimental '----""'"'-.., reliance on the contract... "- Answer A. "... since she forgot about while giving care for the two years until... she found out he actually owned the building. She was not relying on the contract."- Answer A. Now, after offer, acceptance, consideration, and defences to formation have been discussed, we move to the 24 conclusion.

31 Sample Conclusion to CBX, July 2011, Question 3. Recall that there is no right or wrong conclusion. Just as long as you provide a proper analysis to your conclusion. Conclusion: "Betty probably does not have an enforceable contract for the transfer of the building because it is not supported by consideration or a consideration substitute and it is barred by the statute of frauds."- Answer A Now we move on to Main Heading 4: Terms. 25

32 MAIN HEADING 4: TERMS. Area of Focus: (1) Parole Evidence Rule; and (2) Modifications. Did you notice how the word "Terms" does not appear on either of these two headings? Think of "terms" as the terms that govern the contract after contract formation. Also, think of "terms" as issues that attempt to alter the terms that govern the contract. Two Ways to Think of The Word "Terms". First way- When you are thinking of buying a car, a house, or you yourself are lending money to someone, you consider the terms of the agreement. For example, you may reply to your friend who asks to borrow $50: "I'll lend you $50 if you let me hold on to your Call of Duty video game." Thereby, your terms are to make the loan and to hold on the video game until the debtor (your buddy) returns the $50. The same is also true for a car loan. You may ask, "What is the interest rate of the loan?" The interest rate would be a term. This way of looking at terms would be more suitable at the "Offer/Counter-offer" analysis stage. This is because those terms are discussed before the contract has been formed Te~ Second way- Think of "terms" as phrase that attempts to disrupt the four-corners of the contract that has already been agreed upon. Think of the Parole Evidence Rule ("PER") and of modifications. It is this second way of thinking of "terms" that we'll focus on under Main Heading 4: Terms. 1. Pi!rol~ Evid~n~~ Ryl~ {"PER"}. Complete Integration of writing - Extrinsic evidence is not this means a full and final -- admissible here. expression of agreement. [ MnemQnic: FOAM LID j -Fraud Rule prevents introduction of evidence of p -Oral Condition prior or contemporaneous agreements fa. - Ambiguity that contradict, modify, or vary the terms of ~-Mistake a written contract when the written contract _... Parole ~-Lack of is intended to be a final expression of the parties' agreement. ~ Evidence Rule ~onsideration Exception - Illegal p- Duress ' MBE Trap. Watch for a fact pattern where the introduction of evidence occurs after the contract has been formed. PER will not apply because it ~ applies to evidence introduced prior or at the time of contract formation. 2. Modification. C.L. ~ :.fv1faodification should be supported by consideration. j ucc ~ ~~etween merchants, a modification need not be supported by consideration. 26 That's it for Terms. Now we'll move on to Main Heading 5: Performance.

33 MAIN HEADING 5: PERFORMANCE. Definition: Performance is the carrying out of the terms of the contracts whereby the parties are discharged from their duties. Focus: 1. Conditions. 2. Satisfaction & Accord. 3. Assignments. 4. Third Party Beneficiaries. GENERAL OVERVIEW. We'll get more in depth in a bit. (1) Conditions. Performance is conditioned upon the happening of some event by the other party. 4. Performance (2) Satisfaction and Accord. One promises to render substitute performance and the other promises to accept the substitute performance in discharge of existing duty. (3) Third Party Beneficiary. The person that steps into the shoes of the original party that is to receive a benefit. Overview: We'll get into conditions in these next pages. We won't say more about Satisfaction/Accord and 3rd Party Beneficiaries. Then, some examples from past bar exams will discuss assignments. (4) Assignments. The transfer of rights from one party to another. We'll begin with Conditions. Alert. While discussing Conditions, we'll throw in these terms so that the terms won't catch you by surprise: (1) Substantial Performance; (2) Material Breach; (3) Perfect Tender Rule; (4) Installment Contracts; and (5) The Act of Accepting Some Parts and Rejecting Other Parts. Wait! You might ask, "What do all the terms mentioned above have to do with conditions? I thought we were keeping this to general terms?" Here is the answer: Each party's performance is a constructive condition of the other party's duty to perform. This means that duties arise for each party and those duties may depend on the quality of performance from the other party. To put it in different words: payment of one party may be dependant on the quality of performance from the other party. You'll see how this works throughout this section of Performance. 27

34 MAIN HEADING 5: PERFORMANCE Continued: - FQCY~ - Substantial Performance and Material Breach We'll put away the term Conditions away for now because we'll just use that term to categorize the content that is presented here. We will also now discuss Substantial Performance. Then we'll discuss the Perfect Tender Rule. You'll see how these legal principles are related in the sections below. Substantial Performance f r-- Common Law principle and used'- mostly in construction agreements (versus Goods). Contrast material breach Rule: Breaching party may still get paid even if he has not fully performed. However, substantial performance is not met if material breach is present. ~ Ths rule doeso't <eat~""'"" like a <ule. But hang in there. You'll see how it plays out. ~ Here we go. Notice that material breach is the focus here. The definition of material breach is right below. I I l verify A material breach is a breach that goes to the heart of the contract's subject matter and impairs the outcome of the agreement. Also, the with minor - non-breaching party may be excused from further performance. breach. Furthermore, it may give the non-breaching party the right to sue for damages. Distinguish: For minor breach, the harmed party (the non-breaching party) may not be excused from further performance. This will be a key distinction from material breach. l Note: In the Perfect Tender rule, all breach is material. This will be discussed later. ' l Example. When a party has not substantially performed, is the non-breaching party excused from performing {here, performing usually means paying money to the breaching party for services}? ~Contract requires that house be painted blue to celebrate a college reunion. Blue is the official color of the college. Breaching party paints it red. Red is the color of the opposing college. Although the house has been painted, the heart of the agreement was to paint it blue. Thus, the breaching party is in material breach. Since there is a material breach present, substantial performance has not occurred. w Question to Reader From the Example: May the harmed party be excused from further performance? Also, may the harmed party ' sue for damages? Hint: Try to answer this question with the amount of knowledge you currently have on this matter. Do not be concerned at this point if you are not certain. Answer is listed below. l Here, the word "discharged" may be used interchangeably with the word "excused".~ Answer: If substantial performance is not present, there is a material breach. See definition of material breach above. It states that the harmed party may be discharged (excused) from further performance (i.e., paying the amount owed to the breaching party for services) and may sue for damages. 28

35 MAIN HEAPING 5. PERFORMANCE contjnued. FOCUS: Mjnor Breach Focus: Since material breach was discussed earlier, we'll also mention minor breach here. Minor Breach (a.k.a. partial breach): a breach that is less severe than a material breach. It gives the non-breaching party the right to sue for damages. However, it does not excuse him from further performance (paying money to the breaching party for services). If it seems likely that the breach can be cured and the Time to breaching party is able to cure, a material breach may Cure -- be avoided. Now back to the discussion substantial performance and material breach. See the next page please. 29

36 Main Heading 5: Performance - Focus: Substantial Performance and Material Breach Continued. Now back to Substantial Performance and Material Breach. The relationship between Substantial Performance and Material Breach can be stated in different ways. Substantial performance not met if material breach by either party is present. Substantial Performance Either the party substantially performs, or he will be liable for ~ material breach. ~ If either party is not in material breach, then substantial performance is met. If there is a minor breach (a non~material breach), the non-breaching party will not be discharged (excused) from performing (paying the breaching party for services). I Now to discuss Minor Breach. Keep in mind that for minor breach, the non-breaching party will not be excused from further performance (paying the amount owed for services). See case law example that follows. " 30

37 MAIN HEADING 5: PEFORMANCE Continued - Focus: Substantial Performance and Material Breach. 1 Example 1 Plante v. Jacobs, Supreme Court of Wisconsin, Wis. 2d 567, 103 N.W.2d 296, 1960 Wise. Facts: Plaintiff/builder Eugene Plante ("Builder") contracted with Defendants/home owners Frank and Carol Jacobs ("Home Owners") to construct a house for the sum of $26,765. Before completing construction, homeowners paid the builder $20,000. Thereafter, disputes between the parties arose. Builder did not complete construction and was not paid the full sum of $26,765. Builder established a lien on the property to recover the balance owed to him. Homeowners defended by alleging that the workmanship was faulty and that the construction was not complete. As such, they argued that there was no substantial performance on the part of the builder. Issue: Whether there has been substantial performance (and thus avoid a material breach) on the part of the builder. Held. Yes, builder has substantially performed. Ruling in tavor of the builder. Rationale: There can be no recovery in favor of the builder unless there is substantial performance. This quote is from the Plate Court opinion: "Substantial performance as applied to construction of a house does not mean that every detail must be in strict compliance with the specifications and the plans." Unless all details are made part of the contract, something less than perfection is the test of substantial performance. Here, there were no specific details included in the contract. Rather, the plan was a stock floor plan. There were no blueprints. Even though the Defendants were not satisfied with the house, the contract vvas substantially performed. Damages equal the contract price less the damages caused to the Defendants by incomplete performance. Quote: "The test of what amounts to substantial performance seems to be whether the performance meets the essential purpose of the contract." -Plante Court Opinion. Nice! Do you now see why material breach was emphasized earlier? Here, the Plante Court states the definition of material breach. Quote: "Substantial performance as applied to construction of a house does not mean that every detail must be in strict compliance with the specifications and the plans. Something less than perfection is the test of specific [substantial?] performance unless all details are made the essence of the contract. This was not done here" -Plante Court Opinion. ("[substantial?]" is included in original text.)- Plante Notice that the wording "essence of the contract" is still the definition of the material breach: i.e., it goes towards the heart of the purpose for contracting. Take away from section: A party must substantially perform to avoid being in material breach. If he substantially performs, he may be entitled to economic recovery even though a breach has occured. Now on to the legal principle with the cool name: The Perfect Tender Rule! 31

38 MAIN HEADING 5. PERFORMANCE. Focus: PERFECT TENPER RULE. Perfect Tender Rule Principle: Under the UCC. any breach is deemed a materjal breach. Notice that under the UCC, there is no distinction between material and minor breach. The breach under the ucc will usually fall under the the Perfect Tender Rule (taking into consideration exceptions, of course). "There is no room in commercial contracts for the doctrine of substantial performance" -Learned Hand. Single Transactions (Versus Installment ) Contracts are discussed below. Installment discussed later. RULE: Perfect Tender Rule under ucc states: "... if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest." (Full text of is stated below.) Key: If Seller violates Perfect Tender Rule, Buyer can take 3 actions: (1) Reject all; (2) Accept goods; or (3) Accept part and reject ' part. We'll call these the 3 Options ("3 Options"). 30PTIONS: IMPORTANT: Single-Transactions (versus. installments}, discussed in this section. Reject The Whole, or Accept the Whole, or Discussed further below. Accept part of goods and reject the other part. Option 1: Reject the Whole. Option 2: Accept Whole On Next Page. Once more, any breach, whether minor or material, is deemed a MATERIAL BREACH. UCC does not distinguish between minor or material breach (unlike the common law). Thus, the buyer may reject the goods in whole (a) Harmed party may discharge performance and sue for damages. I Exceptions {two ot them and they are broad). v Performance. ~ The Famous 3: (1) Trade Usage; (2) Course of Dealing; and (3) Course of Buyer did not follow proper UCC procedures regarding rejection. For example, seller may have a right to cure the defect. 32 Optjon 2: Accept Whole On Next Page.

39 MAIN HEAPING 5. PERFORMANCE. Focus: PERFECT TENPER RULE Continued. Option 1 discussed on previous page. Option 2 and Option 3 are presented on this page. OPTION 2: ACCEPT THE GOOPS... ) Option 3: Reject Part and Accept Part discussed below. Buyer may accept the whole. under 2-601(b) Communicating to the seller that goods are. conforming; Buy can accept by: 2. Failing to properly reject the goods; 3. Altering the goods. OPTION 3: ACCEPT PART AND REJECT PART OF THE GOOQS. Buyer receiving non-conforming goods may accept part of the goods and reject the other part under 2-601(c). Option 3 is self-explanatory. This past section covered single transactions. The next section will cover installment agreements. And yes, we are still under the UCC. 33

40 INSTALLMENT AGREEMENT SECTION Nersus Single Transaction). '-----> ::>IIII unaer Mam Heaa ng ;,: Performance & Perfect Tender Rule. Still under 2 601, the Pertect Tender Rule Also, it's still the Seller (or Supplier) tending non-conforming goods to the buyer. Installment Contract (versus single-transactions) Step 1 Definition: One which requires delivery of goods from a seller in separate lots to be accepted separately by the buyer. Step 2 Any installment that substantially impairs the value of the entire contract (versus single installment), and Material Breach if these two elements are met: The seller does not cure the defect. Other Scenarjo Involving Installment. Again. from the Seller going to the Buyer. Impairment of single installment versus entire contract If any installment substantially impairs the value of the installment (versus entire contract), then the buyer can reject the installment. j and sue fpr breach. 1 Also, Buyer cannot discharge performance If non-conforming installment does not substantially impair the installment (versus the entire contract) Buyer must give seller time to cure within reasonable time If seller does not cure, Buyer can reject that installment (but cannot cancel the entire contract). On Rejection of Goods - Duties of the Buyer. If Buyer decides to reject a non-conforming installment Does not seasonably notify of rejection, the buyer is deemed to have accepted the installment. However, Buyer must have had a reasonable opportunity to inspect the goods. 34 Okay. Let's move on. The next section will cover the shipment of non-conforming goods.

41 MAIN HEAPING 5. PERFORMANCE Contjnyed. Area - The Perfect Tender Rule, Conforming Goods and Non-Conforming Goods are Continued. Area of Focus: 1. Perfect Tender Rule (it is emphasized that this applies only under the UCC); 2. Conforming Goods; 3. Material Breach (Minor Breach will say bye-bye here). Again, before discussing Perfect Tender Rule, the Substantial Performance doctrine was mentioned (Material Breach and Minor Breach were the results there). In this section, we'll continue to discuss the Perfect Tender Rule in relation to Conforming Goods and Non-Conforming Goods. A variation of the flow chart below has been discussed under "Acceptance". It is also relevant here. Study the flow chart carefully to ensure understanding of these legal principles. 1. Conforming Acceptance or Under the UCC here (versus the common law). 2. Non-conforming Acceptance 1. Conforming. (1) Seller can accept by promise conforming to terms. Or (2), Seller can accept by prompt shipment of goods conforming to terms. ' Again, no major issues will usually be found here. The juicy!+-- issues will be under non-conforming goods being sent by the seller to the buyer. 2. Non-Conforming. Seller can accept by shipping non-conforming goods. A valid contract will be formed. Three (3) Scenarios are discussed here. Scenarjo 1: Seller believes non-conforming will be acceptable. If buyer gives notification of rejection, buyer must give reasonable time to cure. Then, conforming goods must be delivered within the original time to perform. Scenario 2: Exceotion. Counter-offer (versus acceptance) created when the seller notifies that shipment is an "accommodation". Buyer can then accept or reject. Seller avoids liability here. Scenario 2 was also mentioned earlier under Acceptance. Seller does not avoid breach here. Note: The breach will be under the perfect tender rule. Scenario 3: If no notice of an accommodation, then the Seller accepts. A valid contract is formed. Furthermore, if no accommodation is made, the seller is also liable for breach. Note: In this specific area, both an acceptance and a breach is formed by the seller. 35 That concludes this area. We'll end with a definition of the Perfect Tender Rule.

42 MAIN HEADING 5. PERFORMANCE. Focus: PERFECT TENDER RULE Continued. l Full text. This completes the section conditions, substantial performance, and the perfect tender rule. l Buyer's Rights on Improper Delivery. Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest. Now on to third party beneficiaries and assignments. Keep in mind that we are still under Main Heading 5: Performance. 36

43 MAIN HEADING 5: PERFORMANCE. Focus: Third Party Beneficiaries & Assignments. 1. Third Party Beneficiaries; and 2. Assignments Third Party Beneficiary ~ Defined: The person that steps into the shoes of the original party that is to receive a benefit. ~ 1. He gets notice of the contract and assents; When the rights vest When justifiable reliance on the promise occurs; or 3. Brings suit to enforce the promise. 1st Ste ~ Defined. r----- The transfer of rights from one party to another. Assignments. ~ Exceptions. r----- Assignment not valid if: (1) It would materially change the obligation, materially burden, increase risk, or diminish value of the original contract; (2) Public policy forbids; or (3) The contract precludes assignment. Common question: Can a contract be assigned even if there is a prohibition clause in the writing? ' A clause in the agreement that prohibits assigning the contract bars only the delegation to the assignee of the assignor's performance. See Exception (1) above. ' That concludes the Main Heading of Performance. Now we move along to Main Heading 6, Excuses. 37

44 MAIN HEADING 6: EXCUSES Note: "Excuse" differs from "Defenses to Formation" in the following manner: When approaching excuses, there are no defenses to the formation of contract. Thus, a contract is already formed by the time you arrive to the Excuses section. Furthermore, a party may be excused without being in breach even if all requirements for a valid contract have been met. When an excuse is valid, that party may be discharged from his duty to perform and will not be liable for breach of contract. Note the use of the word "discharge". Think of it as legally satisfying his obligation. You can also think of Excuses as falling under the category of "Contract Enforcement". 0 v~rvi~w. Impracticable. _., Where unforeseen difficulties has made performance extremely burdensome. Both parties will be excused from performing. Objectively impossible.. performance and due to 6. Excuse. Impossibility. circumstances beyond control of parties. Both parties will be excused from I performing. ' MD!i!WQDi~;: "IIF'' Frustration of Purpose. Where one party's purpose is completely frustrated by a supervening event, the -- performance will be discharged. Note: If all of the above areas have been considered and no excuse is in effect, and a party does not perform, there may be a breach. Also, before proceeding to breach, this is a summary of the Main Headings that we have covered: (1) Applicable Law; (2) Valid Contract Formation; (3) Defenses to Formation; (4) Performance; (5) Terms; and (6) Excuse. We now move to the 7th Main Heading: Breach. 38

45 MAIN HEADING 7: BREACH (1) Anticipatory Repudiation. (2) Minor & Major Breach. Anticipatorv Repudiation. Prior to when performance is due, a party unequivocably states that he will not perform. Optional for Non-Breaching party. Demand for Adequate Assurance. The insecure party may make demand for adequate assurance of performance if there are reasonable grounds to believe that the party will not perform. Here, the non-breaching party is not sure that a repudiation will occur. C.L. Response to demand for assurance shall be made within a reasonable time. UCC requires that the demand for assurance be in writing. Also, the response to the demand be made within 30 days. I Here, the non-breaching party is sure that a repudiation has occurred. j Options For Non-Breaching Party once the other party has repudiated: 1. Treat contract as repudiated and sue immediately; --.{ 2. Ignore repudiation and urge performance; ~ 3. Suspend his own performance and wait until performance is due; or J l J I 4. Treat the repudiation as an offer to discharge the contract. J MinQr 1nd Mimriil Br~~h. Minor AKA: partial breach. Breach that is Breach. / \. less severe than a material breach v 1. Minor and it gives the harmed party the Breach. Breach right to sue for damages but does 2. Material not excuse him from further Breach performance. Material Breach... ~ Occurs where the breach defeats This area has already been the entire purpose of the contract. discussed under Performance. If a breach is present, then the next discussion will be in the area of Contract Damages. For purposes of organization and to summarize, the script above was made to answer this question: Is there a valid contract present and if so, is there a breach? 39

46 MAIN HEADING 8: REMEDIES & CONCLUSION. Contract remedies deserves its own space. That will be the upcoming text so be on the look out. Expected to be released in Meanwhile, here is a list where contracts and/or remedies have been tested on past California Bar Exams. You can get some valuable practice here: 1. February 2010, Question February 2010, Question February 2012, Question July 2013, Question February 2014, Question July 2014, Question February 2015, Question February 2015, Question 4. These exams can be accessed for free at JuraxBar.com. Look under the "Slog" tab and search for "Past Exams". Thank you for reading this material. We hope you have enjoyed the content. Don't forget to follow us on Facebook, lnstagram and on YouTube. These links are available at JuraxBar.com. We'd also love to get your feedback. Or simply send us a greeting. We are at info@juraxbar.com. Until soon friends! -Eddie Reyes Jurax Bar Prep, LLC. 40

47 Appendix 1 41

48 Jurax Bar Prep Presents: THE LAW OF ACCEPTANCE UNDER THE COMMON LAW AND THE UNIFORM COMMERCIAL CODE To Be Used For Bar Exam and Law School Exam Preparation September 2015 Visit Us at JuraxBar.com Copyright 2015 by Jurax Bar Preparation, LLC. All rights reserved. == TABLE OF CONTENTS Introduction... 1 Case Law... 2 Flow Chart... 4 Text of DCC Introduction Before discussing Uniform Commercial Code ("2-207"), it is vital that the reader understand the mirror image rule under the common law. There, the terms of both the offeror and the offoree must match to form a valid contract. This gave rise to the term "battle of the forms" because the terms of the last form controlled the agreement (thus the reference to the last shot rule). Also, the battle of the forms can be referenced to both common law and DCC scenarios. The discussion here vvill mostly surround The question involving arises mostly to determine whether the buyer's or the seller's terms control the contract. A complete text of is included here on page 9. It is recommended that the reader refer to that text to ensure a thorough understanding. 1

49 In the following cases 1 the buyer/ offeror will make an initial offer to the seller/ offeree will then be used to determine whether the offeree's response was an acceptance or a counter offer (the words conditional assent will be used instead of counter offer in UCC situations). Case Law In the first case, Roto-Lith v. Wyse, 2-207(1) will prevail to the favor of the offeree. Pav dose attention to reasons the court uses to hold that 2-207(1) controls. In es;ence, the seller takes some type of strong action in order for 2-207(1) to be in operation. Moreover, the terms will usually be litigated in court after the contract is formed and both parties have performed. In the second and third cases after Rota-Lith (Dorton v. Collins and Step-Saver Data Systems v. v\lyse Technology), 2-207(1) will not control. Notice that when 2-207(1) is not in operation, then 2-207(2) will determine the rights of the parties. Cas~~Iitl~": Roto-Lith, Ltd. V. F. P. Bartlett & Co., 297 F.2d 497 (lstcir 1962). F<:lct.s: Plaintiff Roto-Lith, Ltd. ("Roto-Lith"), a manufacture of cellophane bags for packaging vegetables, is the buyer/offeror. Roto-Lith sent Defendant V. F. P. Bartlett ("Bartlett"), the seller/offeree, a written order for adhesive emulsion which the defendant produced. Bartlett then sent the plaintiff an acknmvledgment form. It included provisions excluding all warranties and it required Roto-Lith to notify Bartlett immediately if those terms were not acceptable. Bartlett's acknowledgment contained the following statement conspicuously on its face: "All goods sold vvithout warranties, express or implied, and subject to the terms on reverse side." Furthermore, on the back of the acknowledgment, there was a disclaimer of "any and all warranties, guarantees, or representations whatsoever", as t-vell as the following statement: "This acknowledgment contains all of the terms of this purchase and sale... If these terms are not acceptable, Buyer must so notify Seller at once." Issue: \Vhether 2-207(1) controls the contract to justify the seller's term that warranties are disclaimed. Holc:fi.ng: The district court directed a verdict for the defendant and concluded that 2-207(1) was in effect. &1t1onale: On appeal, plaintiff argued that under section 2-207, a binding contract was formed on the terms of its order. As such, defendant's disclaimer 2

50 was an additional term that materially altered the agreement. Therefore, it was not part of the contract and it was to be treated as a proposal. Moreover, the plaintiff did not assent to this addition and the proposal was not part of the contract. The First Circuit agreed that the disclaimer or warranties materially altered the contract. However, it also concluded that defendant's acceptance was expressly conditioned on the plaintiff's assent to the terms introduced in the defendant's acknowledgment form. The circuit court affirmed the lower court's ruling. Tr?tn latiqn: The seller I offeree prevailed because it took some type of strong action. That action is described under factors in this manner: the terms were conspicuous, the tem1s were dear, and the defendant made it dear that it would accept entering into a contract if the buyer I offeror agreed to those terms. Using these factors, the court agreed that 2-207(1) would be in effect. The buyer I offeror attempted to argue that a disclaimer of warranty would materially alter the agreement under 2-207(2). However, 2-207(2) was not applicable because the court determined that the agreement fell under 2-207(1). Other Case Law In the following cases, 2-207(1) will not be in effect although the seller I offeree vigorously argued that 2-207(1) should control. Focus on the reasons the court used to determine that 2-207(2) determined the rights of the parties. Cast;Jitle: Dorton v. Collins & Aikman Corp., United States Court of Appeals, Sixth Circuit, F.2d Fact?: An arbitration agreement appeared on the reverse side of the defendant I seller I offeree's acknowledgement. The seller's form contained an arbitration dause. A valid arbitration clause would prevent the case from being litigated in court. Moreover, the acknmvledgement stated it was "subject to" the terms. Issue: Does the arbitration clause fall under 2-207(1) and is therefore part of the agreement that favors the defendant? t:lqlcling: 2-207(1) does not apply (2) applied and the buyer would not be bound to the arbitration clause unless the buyer expressly agreed to be bound by that particular provision. TranslilJ!on: The seher I offeree's terms stated that is was "subject to" the terms in its acknowledgement form. However, the seller did not expressly state that the offeror must assent to those terms: "That the acceptance is predicated on the offeror's assent must be 'directly and distinctly stated or expressed rather than implied or left to inference."' 3

51 Tbirq ~4!~~! CaseTiUE!~ Step-Saver Data Systems, Inc. v. vvyse Technology, United States Court of Appeals, Third Circuit, F.2d 91. Ea~t?: Defendant/ seller I offeree delivered a copy of the software to the Plaintiff /buyer I offeror. The form contained a disclaimer of warranty and the defendant's agreement was printed on the package of each copy of the program. Clause 5 read: The box-top license states: "Opening this package indicates your acceptance of these terms and conditions. If you do not agree with them, you should promptly return the package unopened... within fifteen days from the date of purchase... " Is.~_gg~ Does the disclaimer of warranty fall under 2-207(1) and is thus part of the contract? HQlging: The court concluded that defendant did not dearly express its unwillingness to proceed unless its additional terms were incorporated in the agreement. In other words, the defendant did not make it conditional on assent within the meaning of 2-207(1). Thus, the warranty disclaimer would be discussed under 2-207(2). Under subsection b, the disclaimer of warranty would materially alter the agreement and would thus be excluded.. Cot:g~~e o(q~~hng The actions of the defendant in repeatedly sending the terms did not result in a course of conduct that was adopted by the parties for the following reasons: (1) There was evidence that the defendant tried to obtain express consent for the vvarranty disclaimer from the plaintiff. The plaintiff refused to the proposal. (2) The defendant attempted to solve the buyer's problem when it was first notified of the complications with the program. As such, this was interpreted to mean that defendant did not exclude all warranties. Thus, course of dealings did not aid the defendant to establish that the disclaimer of warranty fell under 2-207(1). FlowChart Use this flow chart as a guide. Notice that can fall under either an offer or an acceptance. Under 2-207, the issue will mostly likely resemble this factual scenario: as between merchants, do the seller's terms control or do the buyer's terms control? 4

52 overview of Acceptance Under the Common Law & the ucc 1. Offer. (l)common Law. 2. =., -...,.Acceptance.!\ \~ 1. Common Law or 2.UCC. {2) 1. ucc 2.Acceptby Shipment of Goods UCC-2-207(1), UCC-207(2) Accept by ---. Shipment: 1. Conforming goods. 2. Non-conforming goods. 3. Consideratioll 5

53 .Emi.u.a: Acceptance Under the Common Law (versus Acceptance under the UCC). 1. Offer. 2, Acceptance Under the Common Law. Acceptance must be a mirror image of the offer. I Mirror., Image "*' Rule. J.cceptance When Acceptance becomes Effective. If acceptance differs or adds terms, it is a rejection and a counter-offer can follow. This is a major difference from in ucc. ' Communicated to Offeror. Note: Important to remember that If it is NOTa mirror image of the offer, then NO CONTRACT IS FORMED. 1. Offeree benefits from the offeror's services; or 2. Offeror has communicated that acceptance by silence will be permited. \ Common law is distinguish from: Acceptance under the UCC. 3. Performance. 4. Mail Box Rule. Acceptance effective upon completion of performance whether or not offeree informs offeror. Acceptance effective upon dispatch. 3. ConsideratiOn. MailbOx rule does not apply to revocations, counter-offer, rejections. 6

54 .BuowlL Acceptance under the UCC. Specific Area: "UCC 2 207(1}". (Versus Acceptance under the Common Law). The relation between 2-207{1) and 2 207(2) is as follows: 207(1) is based on "conditional acceptance", which is a legal principal that is similar to a counter-otter in common law. It is critical to understand that NO CONTRACT is formed if it is a counter-offer. same treatment here even though it is under ucc. In contrast, 207(2) is used when a CONTRACT IS FORMED. 207(2) is based on acceptance with additional terms. Also, there are exceptions when adding additional terms. 1. Offer. 1. Common Law or 2.UCC. 3. Consideration. (1) Common Law. (2) ucc. 1. "2-207". 2. Accept by Shipment of Goods "Battle of the -- Forms" ~ UCC-2-207(1), UCC-207(2) I.e.: Allows for a valid acceptance even though Offeree's terms are different from the terms proposed by the Offeror (di$11nguished from the c.l.'s mirror image rule) I ' 2-207{1): Acceptance or written confirmation sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered, 2-207(2) The additional terms are to be construed as additional terms between merchants. i.e.: Exception: Think of this as a counter-offer. No contract shall be formed jf the offeree presents addltlonat terms and requires acceptance from the offeror. {Note: Again, this is slmilar to c.l.'s counteroffer rule.} I Unless acceptance is expressly made conditional on assent to the additional or different terms (2) is continued on the following page. Note: Still \.I _,... under the IC' ucc. Accept by Shipment 1. Conforming. 2. Non-conforminl', 7

55 Discuss 2-207(2) only after determining that 2-207(1) does not apply (1) See page above. These are to be treated as proposals once a contract is formed. Other: Knock-Out Rule - Where parties exchange forms that differ as to a term, they knoclc each other out of the contract. UCC gap-filler is then used. If none, then Common Law provision controls. ness (a) the offer expressly limits acceptance to the terms of the offer; Subsection (a) and (c) are similar concepts in that the offeror expressly states that those terms are not part of the contract. Dorton v. CoHins & Aikman 2. Acceptance. ucc. (1) 2 207{1) and 2 207(2); (2) Accept by Shipment of GOOds 2-207(2) The additional terms are to be construed as additional terms between merchants. (b) they materially alter it; or (c) notification of objection to them has been given or is given within a reasonable time. Both parties must be~,-- ::: merchants. A merchant is a person who deals with goods or holds himself out as having knowledge or skill of the goods involved. UCC Point of emphasis: If (a), (b), or (c) are met, a contract is still formed. Except that the proposed additional terms are not part of the contract. e.g., One party contain an arbitration clause. It will be excluded. e.g., One party Will include a disclaimer of warranty. it Will be excluded. ACcept by Shipment l. Conforming. 2. Non-conforming Step-saver Data Systems, Inc. v. Wyse Technology. 8

56 Text of When approaching questions, first consider if 2-207(1) applies. If it does not apply, then move on to 2-207(2). _Begi!L4-:4QZI ext: 2-207(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the vvritings of the parties do not otherwise establish a contract. In such case the terins of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. The relevant text of is now explained. UCC 2-207(1) can be broken down into two areas of discourse. The first part deals vvith a departure of common law's mirror image rule. The second part deals with the version of the common latv's counter offer option, which is embodied in the phrase "conditional assent". To facilitate discussion of 2-207(1), it is discussed in tvvo parts. Under the common law, acceptance mus: be a mirror image of the offeror's terms. Conversely, the UCC departs from the mirror image rule. Therefore, the offeree's terms that are additional or different from the offeror's can form a valid acceptance and a contract can be formed. 9

57 Even though additional or different terms are stated in the acceptance, an offeree is still entitled to a version of the counter offer. It is important to note that under a counter offer, no contract exists. Just as in the common law, a counter offer is both a rejection of the offeror's offer, and it is also the offeree's counter-offer. Since a counter offer does not create a contract, the offeree must use clear language to indicate that it will not accept the offeror's terms. That is where the "expressly conditional" language of 2-207(1) comes in. Many times, the issue will focus on whether conditional language is present in the offeree's writing. Focus on the language of (1) to appreciate this legal principle: "... unless acceptance is expressly made conditional on assent to the additional or different terms". (Emphasis added.) Look for key language and other factors when reading the facts in the case. It is emphasized here that factors are used in the analysis of 2-207(1). For example, is the language unambiguously stated? Moreover, are the terms conspicuously stated on the face of the form? Notice that the burden to prove that the language falls under 2-207(1) is not low. As such, implicit or indirect language by the offeree to meet the requirements for conditional assent will not be upheld. Take note of this language where courts have held that 2-207(1) is effective: "Seller's acceptance is expressly conditional on Buyer's assent to the different terms as set in this form. If the Buyer does not accept these different terms, the Buyer should immediately contact the Seller." A court \Vill probably consider such language to fall under 2-207(1). Thereafter, if the offeror does not object and performs, then the terms of the offeree will control under 2-207(1). UCC 2-207(2) states the exceptions. In this part, the offeror can object to the proposals. Treat subsection (a) and (c) in the same manner: under those subsections, the offeror can object to the offeree's proposals. As for subsection (b), proposals that materially alter the contract will be excluded. The disclaimer of warranty and the arbitration clause are two provisions that fall under the category of materially altering the agreement. As for 2-207(3), this clause states that the subsequent conduct of the parties can form a contract. An example occurs when both parties fully perform despite the basis of the writings alone. View the YouTube video to fully appreciate the legal principles of Thank you for visiting. 10

58 Appendix 2 52

59 Question 5, February 2006, California Bar Exam Marla is a manufacturer of widgets. Larry is a lawyer who regularly represents Marla in legal matters relating to her manufacturing business. Larry is also the sole owner and operator of a business called Supply Source ("SS"), in which he acts as an independent broker of surplus goods. SS is operated independently from Larry's law practice and from a separate office. At a time when the market for widgets was suffering from over-supply, Marla called Larry at his SS office. During their telephone conversation, Marla told Larry that, if he could find a buyer for her excess inventory of 100,000 widgets, Larry could keep anything he obtained over $1.00 per widget. Although Marla thought it unlikely that Larry would be able to sell them for more than $1.25 per widget, she said,"... and, if you get more than $1.25 each, we'll talk about how to split the excess." Larry replied, "Okay," and undertook to market the widgets. During a brief period when market demand for widgets increased, Larry found a buyer, Ben. In a written agreement with Larry, Ben agreed to purchase all100,000 widgets for $2.50 each. Ben paid Larry $250,000. Larry then sent Marla a check for $100,000 with a cover letter stating, "I have sold all of the 100,000 widgets to Ben. Here is your $100,000 as we agreed." When Marla learned that Ben had paid $2.50 per widget, she called Larry and said, "You lied to me about what you got for the widgets. I don't think the deal we made over the telephone is enforceable. I want you to send me the other $150,000 you received from Ben, and then we'll talk about a reasonable commission for you. But right now, we don't have a deal." Larry refused to remit any part of the $150,000 to Marla. 1. To what extent, if any, is the agreement between Larry and Marla enforceable? Discuss. 2. In his conduct toward Marla, what ethical violations, if any, has Larry committed? Discuss. 53

60 Answer A to Question 5 The Agreement Between Larry and Marla is enforceable because it was a unilateral contract fully performed by Larry and it was not subject to the Statute of Frauds[.] Offer, Acceptance and Consideration: The agreement between Larry and Marla is a unilateral contract. In order for there to be a unilateral contract there must be mutual assent (and offer and acceptance) and bargained for exchange (consideration). An offer is a communication between two persons or entities, and it is made where reasonable people would believe that acceptance of the offer would lead the participants to be bound by its terms. The terms of the offer must also be sufficiently definite. In our case, an offer was made by Marla to Larry to find a buyer for her widgets. As a finder, Larry would be entitled to the portion of the proceeds between $1.00 per widget and $1.25, and then a portion of the proceeds above $1.25. In this case the terms of the contract were sufficiently definite even though the portion of proceeds above [$]1.25 had not been definitively determined. Given their preexisting, ongoing relationship, and that both are merchants it is fair to assume that they could finalize the contract terms at a later date, after the sale of the widgets. A reasonable person would believe that Marla was inviting acceptance and wanted to be bound by the terms of her offer. In this case, Larry accepted Marla's contract by performing. Marla's offer was for a unilateral contract. A unilateral contract is a contract that can be accepted only by full performance. It is clear from its terms that Larry could only accept Marla's offer by actual performance because her offer was conditional. He would only get a percentage of the proceeds "IF" he found a buyer. In this case, Larry accepted the contract when Ben agreed to purchase all 100,000 widgets for $2.50 each and the widgets were actually sold. Consideration is present in a contract where the promissee incurs a detriment. That is, he does something that he does not have to do, or refrains from doing something that he does not have to do, or refrains from doing something that he is entitled to do. In this case, there is consideration because Larry, the promissee[,] incurs a detriment when he enters the market to look for a buyer. He is not required to look for a buyer in this case, but does so anyway. He incurs a detriment because it takes time away f[ro]m his other business pursuits (including his law practice). Because there has been a definite offer made by Marla, Larry fully accepted through his performance, and consideration is present, a contract has been formed so long as no defenses can be raised. Defenses The agreement between Larry and Marla is enforceable because no defenses to formation can be raised. The Statute [of] Frauds is a requirement that certain contracts be in writing. The writing must include the material terms of the contract and be signed. Contracts that are subject to the statute of frauds are contracts in consideration of marriage, surety contracts, contracts that cannot be formed in one year, and land sale contracts. None of these are relevant here. In addition, contracts for goods in amount greater than $500 are also subject to the statute of frauds. If a contract for goods in an amount greater than $500 is not in a signed writing, it generally is not enforceable. In this case, the contract between Larry and Marla was not subject to the "goods prong" of the statute 54

61 of frauds because Larry did not purchase the goods directly from Marla. Larry's role was that of a finder or marketer whose responsibility it was to find a buyer for Marla's widgets. He was incented [sic] to find a high price because he was entitled to keep anything over $1.00 per widget, and then a portion of the proceeds above $1.25 per widget. The arrangement would also benefit Marla because a high price for the widgets would benefit her as well, and she could rely on Larry's expertise as a broker. Marla would also not have to worry about the hassle of setting [sic] the goods and could concentrate on the core aspect of her business, manufacturing. One could argue that Larry purchased the goods from Mary because he received the purchase price from Ben directly and his business was as a broker of surplus goods. In this case he did not act as a broker, because he did not buy the goods from Marla directly. There is no indication that the goods were ever in his possession. Further, in a typical sales contract, a manufactu[r]er is not entitled to a percentage of the middleman's purchase price. Thus, the contract is more akin to that of finder who never "owned" the goods. Ethical Violations Operating a Business: Larry did not commit an ethical violation when he formed and operated a business called Supply Source. A lawyer may own and operate a business that is separate and apart from the practice of law. For example, a lawyer may own a restaurant or a gas station. Lawyers may also operate a law firm that offers services related and incidental to the practice of law, but that are no[t] actually the practice of law. For example, a law firm may offer services relating to money management and accounting. In this case, we know that Larry was the sole owner and operator of a business called Supply Source, and that it operated independently from Larry's law practice and from a separate office. Because the business was run separately and apart from his legal practice, and it did not involve anything remotely related to the practice of law, it is permissible for Larry to own and operate the business. However, a lawyer who runs a business must be careful not to engage in business that would pose conflicts of interests with its clients. We will see below that Larry did not operate his business in a way to minimize conflicts. Entering into a Business Relationship: Larry committed an ethical violation when he did not follow proper procedures when he entered into a business arrangement. When a lawyer enters into a business arrangement with a non-lawyer (and especially a client!), the lawyer must abide by a set of procedures. First, the lawyer should advise the other party to consult another lawyer and give him or her time to do so. Second, the lawyer must disclose and explain all the relevant terms of the contract in a way that the other party can understand. Last, the terms of the contract must be fair and not one-sided to the lawyer's benefit. In this case the terms of the contract seem to be fair. We can presume that they are fair because Marla set the terms of the contract and the contract was not negotiated by Larry. Second[,] there was no need for Larry to explain the relevant terms of the contract because they were self-explanatory and a lay person could understand them. However, Larry did not give Marla an opportunity to consult with a lawyer before entering into the contract. While Marla could have waived the right to consult a lawyer, Larry must still advice [sic] her that it may be beneficial. In this case, a lawyer may have been helpful. He may have advised Marla not to enter into a contract with Larry where all the terms have not been finalized. The fact that the terms have not been finalized is what caused the problem in the first place. 55

62 Duty to be an honest, upright member of the community Larry should have been honest in his dealings with Marla. A lawyer had a duty to act in upright, honest manner in all aspects of his or her life. In this case, Larry should have disclosed to Marla the amount of money he received from Ben and made a good faith attempt to resolve the open issue in their contract. By ignoring that aspect of the contract and no[t] disclosing the amount he received, he seems to be acting in a deceitful manner. Not only (should] a lawyer abide by ethical considerations in the course of his practice, he must also abide by them in other aspects of his or (her] life. 56

63 Answer B to Question 5 (1) Enforceability of the contract between Larry and Marla Applicable Law: If this case involves the sale of goods (tangible personal property), widgets, Article 2 of the Uniform Commercial Code applies to the transaction. However, while the case does involve the sale of widgets, the contract is really for Larry's service in selling the widgets, therefore common law would likely apply. Indeed, the payment to Larry was for the sale of the widgets. He never purchased the widgets himself, but merely acted as a broker to Ben. The issue is whether the agreement between Larry and Marla is legally enforceable, and therefore a contract exists. In order to form a contract there must have been an offer by Marla, acceptance by Larry, and some form of consideration for the agreement. Offer: The first issue is whether Marla ever made an offer to Larry. An offer is made when a party manifests an intent to enter into contract and communicates such intent to an offeree. Here, Marla did call Larry at his Supply Source ("SS") office and stated that she wanted Larry to sell her excess inventory. Under common law, an offer must state a price term and the material terms of the contract. The material terms, the sale of widgets up to 100,000, were certainly state[d]. The issue is thus whether there was a price term. Marla did agree to give Larry all profits over $1.00, up to $1.25. However, there was no certain price term since Marla stated that any excess over $1.25 would have to be negotiated as to the amount Larry would receive. Therefore, the lack of a certain price term negates the enforceability of the contract. The parties did not have a meeting of the minds as to what Larry would be paid for the profits he received on the widgets over $1.25. Thus, the facts probably indicate that Marla intended to contract and not to continue to negotiate. Under the UCC, however, the court only looks at the intention of the parties to determine if there has been an offer. The UCC does not require a price term and will imply a reasonable price term if one is not stated. However, if the parties are negotiating the price term there is no intention to contract under the UCC. There was likely an intend [sic] by Marla to enter into contract since she believed it unlikely that Larry could sell the widgets for more than $1.25 per widget. Although the price term is not certain, the court could infer a "reasonable" price term for any sale over $1.25. If there is not offer[ sic], the agreement would not be enforceable under contract law. However, if there was an offer, all the other elements for a valid contract (as discussed below) were satisfied and therefore there was an enforceable agreement. Acceptance: Marla's offer to Larry was probably a unilateral contract, that is, one that states a specific (and only) form of acceptance. Here, Larry could only accept Marla's offer by selling the widgets for at least $1.00 per widget and giving Marla $1.00 for each widget sold. His acceptance was only upon completion of his performance. If the contract was a bilateral contract, Larry would have promised Marla he would sell the widgets. Failure to sell the widgets would have meant Larry could have incurred liability for breach of contract for failure to perform. There is no such liability under a unilateral contract, since there is only acceptance upon completed performance. Consideration: Consideration is a bargained for legal detriment. The only issue as to consideration in this case is whether Larry's promise was illusory. However, this was not a bilateral contract, but a 57