BAR FLASHCARDS - Contracts Overview

Question 1

A contract is a promise that the law will enforce. The law will enforce a promise that was offered to a particular person or class of people who accepted the offer if the promise was supported by consideration and unless a defense is available. Enforcement may be through awarding damages or ordering the party to perform. Rights and duties under a contract may be granted to people beyond the contracting parties (i.e., third-party beneficiaries, delegates, and assignees).

Answer 1

A contract is a promise that the law will enforce. The law will enforce a promise that was offered to a particular person or class of people who accepted the offer if the promise was supported by consideration and unless a defense is available. Enforcement may be through awarding damages or ordering the party to perform. Rights and duties under a contract may be granted to people beyond the contracting parties (i.e., third-party beneficiaries, delegates, and assignees).

Question 2

WHAT LAW APPLIES?

Answer 2

UCC Article 2:
1. The UCC governs all contracts for the sale of goods
2. Special rules govern transactions between merchants
Common Law:
Any contracts not governed by the UCC are governed by the common law

Question 3

1. Is there a valid offer?

Answer 3

a. Manifestation of a present intent to contract demonstrated by a promise, under- taking, or commitment;
b. Communicated to an identified offeree; and
c. Definite and certain terms

Question 4

2. Has the offer been terminated?

Ways in which it can be terminated (4)

Answer 4

a. Lapse of time—must accept within specified time period or, if none, within reasonable time

b. Revocation—words or conduct of the offeror terminating the offer
1) Revocation is effective when received by offeree
2) Irrevocable offer:
a) Merchant’s firm offer under UCC
b) Option contract—offeree gave consideration to hold open offer
c) Detrimental reliance

c. Rejection—words or conduct of the offeree rejecting the offer
1) Rejection effective when received by offeror
2) Counteroffer acts as rejection

d. Termination by operation of law when:
1) Destruction of subject matter of the contract
2) Supervening illegality of subject matter of contract
3) Death or insanity of either party

Question 5

Unequivocal acceptance: Common law vs UCC

Answer 5

a. Common law—acceptance of each and every term of the offer (mirror image rule)
b. UCC—an acceptance that adds terms to the offer is valid
1) Between merchants, the additional terms become part of the contract unless they materially alter the contract, the offeror objects, or the offer is limited to its terms (“battle of the forms”)

Question 6

Methods of acceptance
(UCC, bilateral, unilateral)

Answer 6

a. UCC—reasonable means
b. Unilateral contract—performance
c. Bilateral contract—promise or performance

Question 7

Acceptance effective upon dispatch (mailbox rule). LIMITATIONS on this rule:

Answer 7

a. Limitation—offeror opts out; rejection sent first

Question 8

Acceptance effective upon…

Answer 8

Acceptance effective upon dispatch
a. Limitation—offeror opts out; rejection sent first

Question 9

Consideration

Answer 9

1. Bargained-for exchange (not a gift), and
2. Detriment to promisee or legal benefit to promisor (courts focus on detriment)
   a. Adequacy generally irrelevant
   b. Past consideration generally invalid (preexisting duty rule)
   1) Exceptions:
   a) Written promise to pay time-barred debt
   b) New or different consideration promised
   c) Promise ratifying a voidable obligation (e.g., minor ratifying upon reaching age of majority)
   d) Compromise of honest dispute
   e) Unforeseen circumstances make modification fair and equitable (modern rule) or rise to the level of impracticability (majority view)
   f) Good faith modification under Article 2
3. Substitutes for consideration—promissory estoppel and detrimental reliance

Question 10

Substitutes for consideration—

Answer 10

promissory estoppel and detrimental reliance

Question 11

Defenses to Formation or Enforcement

Answer 11

1. Mistake
2. Fraud and misrepresentation (includes concealment and nondisclosure)
3. Illegality of consideration or subject matter
4. Incapacity—infancy, mental incapacity, intoxication, duress, and undue influence
5. Statute of Frauds—certain contracts must be in writing, signed by the party to be charged (“MY LEGS)
6. Unconscionability—court may refuse to enforce to avoid unfair terms (e.g., contracts of adhesion)

Question 12

Mistake

Answer 12

a. Unilateral mistake—contract is voidable if nonmistaken party knew or should have known of mistake
b. Mutual mistake—contract is voidable by adversely affected party if:
1) Mistake concerns basic assumption on which contract was made;
2) Mistake has material effect; and
3) Party seeking avoidance did not assume risk
c. Ambiguous terms—one party aware of ambiguity = contract; neither party or both parties aware of ambiguity = no contract

Question 13

Fraud and misrepresentation

Answer 13

(includes concealment and nondisclosure)

Question 14

Illegality

Answer 14

Illegality of consideration or subject matter

Question 15

Incapacity—

Answer 15

infancy, mental incapacity, intoxication, duress, and undue influence

Question 16

Statute of Frauds—

Answer 16

Certain contracts must be in writing, signed by the party to be charged (“MY LEGS” ):
a. Marriage—when marriage is consideration for promise (e.g., “If you marry my son, I will buy you a car”)
b. Year—promises that cannot be performed within one year from date of contract
c. Land—promises creating interests in land (e.g., leases, easements, fixtures,
mineral rights, mortgages)
d. Executors and administrators—promises to pay estate debts from own funds
e. Goods—contracts for sale of goods for a price of $500 or more
1) Exceptions—specially manufactured goods, goods accepted or paid for
f. Suretyship—promise to answer for debt of another

Question 17

Unconscionability—

Answer 17

court may refuse to enforce to avoid unfair terms (e.g., contracts of adhesion)

Question 18

Rules of Contract Construction

Answer 18

General rules:
contracts are construed as a whole,
words are generally given their ordinary meaning,
written or typed terms prevail over printed,
custom and usage in business and locale is considered,
court will try to find contract valid,
and ambiguities are construed against the contract’s preparer

Question 19

Parol Evidence Rule

Answer 19

When parties intend that a writing is the final expression of their bargain, no prior (oral or written) or contemporaneous (oral) expressions are admissible to vary the terms of the writing
1. Integration—final and complete expression
2. Evidence outside scope of the rule may be admitted:

Question 20

Parol Evidence Rule: 1. Integration—final and complete expression

Answer 20

Integration—final and complete expression
a. If incomplete (partial integration), evidence admitted to supplement
b. Merger clause (states agreement is complete on its face) is evidence of full integration

Question 21

Parol Evidence Rule: 2. Evidence outside scope of the rule may be admitted:

Answer 21

Evidence outside scope of the rule may be admitted:
a. Evidence concerning validity (e.g., formation defects, conditions precedent)
b. Evidence used to interpret (words used are uncertain or ambiguous)
c. Evidence showing true consideration paid
d. Evidence in action for reformation

Question 22

Terms of the K: Article 2 Provisions

Answer 22

1. “Gap-fillers”
2. Delivery Terms and Risk of Loss
3. Warranties in sales of goods

Question 23

Article 2: “Gap-fillers”

Answer 23

If missing, Article 2 provides: price (reasonable at time of delivery), place of delivery (seller’s business), time of shipment (reasonable), time for payment (receipt of goods), and assortment (buyer’s option)

Question 24

Article 2: Delivery Terms and Risk of Loss

Answer 24

a. Noncarrier cases
1) Merchant seller—risk passes to buyer upon taking physical possession
2) Nonmerchant seller—risk passes upon tender of delivery
b. Carrier cases
1) Shipment—risk passes on delivery to carrier
2) Destination—risk passes on tender at destination
3) F.O.B.—risk passes on delivery to F.O.B. location

Question 25

Article 2: Warranties in sales of goods - TYPES

Answer 25

a. Types—title, against infringement, merchantability, fitness, express
1) Implied warranty of merchantability (goods are fit for ordinary purpose) implied in every contract by merchant of goods of kind sold
2) Implied warranty of fitness for particular purpose implied whenever any seller has reason to know particular purpose for which goods to be used and that buyer is relying on seller’s skill and judgment to select goods, and buyer does in fact rely

Question 26

Article 2: Warranties in sales of goods - DISCLAIMERS

Answer 26

b. Disclaimers
1) Title—specific language or circumstances putting buyer on notice that seller is not claiming title
2) Merchantability
a) Specific disclaimer must mention “merchantability” and, if in writing, must be conspicuous
b) Also can be disclaimed by “as is,” refusal to examine, or course of dealing
3) Fitness for a particular purpose—only by conspicuous writing or general disclaimer (“as is,” refusal to examine, course of dealing)
4) Express—disclaimer usually not given effect

Question 27

Article 2: Warranties in sales of goods - DAMAGES

Answer 27

c. Damages—difference between goods tendered and as warranted

Question 28

Modification of Terms: Common law

Answer 28

1. Common law
   a. Under general contract law, additional consideration needed
   b. Modern view permits modification without consideration if due to circumstances that were unanticipated by the parties when the contract was made and it is fair and equitable
   c. Written contract can be modified orally even if contrary provision

Question 29

Modification of Terms: UCC Article 2

Answer 29

2. UCC Article 2
   a. No consideration needed so long as in good faith
   b. Must be in writing if, as modified, contract is for $500 or more
   c. Gives effect to provisions prohibiting oral modification

Question 30

HAS PERFORMANCE BEEN EXCUSED OR DISCHARGED?

Answer 30

A. Has the Condition (Precedent, Concurrent, or Subsequent) Been Excused?
B. Has the Absolute Duty Been Discharged?

Question 31

Has the Condition (Precedent, Concurrent, or Subsequent) Been Excused?

Answer 31

1. Hindrance or failure to cooperate
2. Breach of contract
3. Anticipatory repudiation—party unequivocally indicates he will not perform before time of performance
4. Prospective inability or unwillingness to perform—doubts as to party’s performance
5. Substantial performance
6. Divisibility of contract
7. Waiver or estoppel

Question 32

Has the Absolute Duty Been Discharged?

Answer 32

1. Performance or tender of performance
2. Occurrence of condition subsequent
3. Illegality of subject matter after contract was made
4. Impossibility, impracticability, or frustration of purpose
5. Rescission of contract
6. Modification of contract
7. Novation (replacing parties) or substituted contract (replacing contract)
8. Accord and satisfaction

Question 33

HAVE THE TERMS OF THE CONTRACT BEEN BREACHED?

Answer 33

A. Material or Minor Breach (Common Law)
1. Minor breach—obligee gains the substantial benefit of bargain so aggrieved party must perform, but right to damages
2. Material breach—obligee does not gain substantial benefit of bargain so no duty to perform, immediate right to damages and other remedies
B. Perfect Tender Rule (UCC Article 2): If goods or delivery fail to conform to contract in any way, buyer generally may reject all, accept all, or accept any commercial units and reject rest

Question 34

WHAT REMEDIES ARE AVAILABLE IF THE CONTRACT HAS BEEN BREACHED?

Answer 34

A. Specific Performance: If legal remedy (damages) is inadequate, court may order breaching party to perform (land and rare or unique goods)
B. Damages: Damages can be recovered only to the extent they can be proved with reasonable certainty and could not be avoided with reasonable effort…

Question 35

Damages

Answer 35

.

Question 36

Damages: Compensatory

Answer 36

1. Compensatory
   a. Expectation damages (“benefit of the bargain”)
   b. Consequential damages available only if reasonably foreseeable

Question 37

Damages: Liquidated damages

Answer 37

2. Liquidated damages if:
   a. Actual damages difficult to calculate at the time of contracting
   b. Amount is a reasonable forecast of the likely damages (not punitive)

Question 38

Damages: Sale of goods contracts (Article 2)

Answer 38

a. Buyer’s damages
1) Cover (difference between contract price and cost of replacement goods)
2) Difference between contract price and market price
3) Warranty damages (if accepted nonconforming goods)
4) Consequential damages (if seller knew of buyer’s needs)
b. Seller’s damages
1) Difference between contract price and resale price
2) Difference between contract price and market price
3) Lost profits (lost volume seller)

Question 39

Damages: Land sale contracts

Answer 39

Land sale contracts—difference between the contract price and fair market value

Question 40

Damages: Employment contracts

Answer 40

a. Employer breach—full contract price
b. Employee breach—cost to replace employee

Question 41

Damages: Construction contracts

Answer 41

a. Breach by owner
1) Before construction—builder’s prospective profits
2) During construction—contract price minus the cost of completion
3) After completion—full contract price plus interest
b. Breach by builder
1) Before or during construction—cost of completion plus compensation for delay
2) Late completion—value of lost use

Question 42

Damages: Avoidable damages

Answer 42

Avoidable damages—nonbreaching party has duty to mitigate

Question 43

Restitution

Answer 43

Prevents unjust enrichment; measure is value of benefit conferred

Question 44

Rescission and Reformation

Answer 44

1. Rescission—contract voidable/rescinded if mutual mistake of material fact, unilateral mistake that other party knew or should have known or extreme hardship, misrepre- sentation of material factor, or duress, undue influence, illegality, incapacity, or failure of consideration
2. Reformation—writing changed to conform to parties’ original intent if mutual mistake, unilateral mistake and party knows of it and does not disclose, or misrepresentation

Question 45

Third-Party Beneficiaries

Answer 45

1. Only intended beneficiaries have rights under contract
2. Vesting of third party’s rights (no modification without third party’s consent after vesting)—third party’s rights are vested if he:
   a. Manifested assent;
   b. Brought suit to enforce the promise; or
   c. Materially changed position in justifiable reliance
3. Promisor can raise against the third party any defenses he could raise against promisee
4. Third-party beneficiary v. promisee (if promisor fails to perform):
   a. Donee beneficiary—may not sue promisee unless detrimental reliance
   b. Creditor beneficiary—may sue promisee on underlying obligation
5. Third-party beneficiary may sue both the promisor and promisee but may obtain only one satisfaction

Question 46

Assignment of Rights—Transfer of Rights Under Contract

Answer 46

1. All contract rights are assignable unless assignment materially alters the obligor’s duty or risk or it is prohibited by law
   a. Contract provision prohibiting assignment bars only delegation of duties
2. Revocability—assignments for value are irrevocable (includes preexisting debt)
3. Assignor’s warranty liability to assignee—assignor impliedly warrants:
   a. He has made no prior assignment of the right
   b. The right is not subject to limitations or defenses other than those disclosed or apparent
   c. He will do nothing to defeat or impair the right
4. Successive assignments of same right
   a. Revocable assignments—subsequent assignee prevails
   b. Irrevocable assignment—first assignee has priority

Question 47

Delegation of Duties—Transfer of Contractual Duties

Answer 47

1. Duties that cannot be delegated:
   a. Those involving personal judgment or skill
   b. Those involving special trust in delegator (e.g., doctor, lawyer)
   c. Those restricted by contract
   d. Those the performance of which by a delegate materially changes the obligee’s expectancy
2. Liability of parties:
   a. Delegator remains liable
   b. Delegate liable if he assumes the duty
   c. Assignment of “contract” or “rights under the contract” construed to include delegation and assumption of duties

Question 48

Under Article 2, when an offeree proposes additional or different terms as part of an otherwise valid acceptance, the acceptance _________

Answer 48

Is effective, unless the acceptance is expressly made conditional on assent to the additional or different terms

Question 49

Under Article 2, when an offeree proposes additional or different terms during acceptance, the court will apply __________ to determine whether the additional or different terms become part of the contract.

Answer 49

the battle of the forms provision

Question 50

Article 2- offeree proposes additional or different terms

Answer 50

The Article 2 battle of the forms provision provides that the proposal of additional or different terms by the offeree in a definite and timely acceptance is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms. Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants.

Question 51

Under the Article 2 battle of the forms provision, whether additional or different terms proposed by the offeree during acceptance ultimately become part of a contract depends on whether or not __________.

Answer 51

Both parties are merchants. Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants.

If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract. They do not become part of the contract unless the offeror expressly agrees.

If both parties are merchants, additional terms in the acceptance become part of the contract unless they materially alter the terms of the offer, the offer expressly limits acceptance to the terms of the offer, or the offeror has already objected to the terms (or objects within a reasonable time after notice of them is received).

Between merchants, some courts treat different terms in an acceptance the same as additional terms; other courts apply the knockout rule (i.e., conflicting terms are knocked out and replaced by gap-filling terms under the UCC).

Question 52

Which of the following best states the result when, in a contract between merchants for the sale of goods, the acceptance does not match the terms of the offer?

Answer 52

Additional terms that do not materially alter the original terms of the offer will be included in the contract. In a contract between merchants for the sale of goods, additional terms in the acceptance will be included in the contract unless they materially alter the original terms, the offer expressly limits acceptance to the terms of the offer, or the offeror has already objected to the particular terms or objects within a reasonable time.

Question 53

Under the UCC, if both parties to a contract are merchants, additional terms in an acceptance will be included in the contract unless: (3)

Answer 53

Under the UCC, if both parties to a contract are merchants, additional terms in an acceptance will be included in the contract unless (i) they materially alter the original contract; (ii) the offer expressly limits acceptance to the terms of the offer; or (iii) the offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received.

Question 54

Under the UCC, an acceptance with additional terms is a…

Answer 54

Under the UCC, an acceptance with additional terms does not constitute a rejection and counteroffer, but rather is an effective acceptance unless made expressly conditional on the assent to the additional terms.

Question 55

RULE:

Answer 55

Under the UCC, an acceptance with additional terms does not constitute a rejection and counteroffer, but rather is an effective acceptance unless made expressly conditional on the assent to the additional terms. Here, the neighbor accepted the offer and added the additional term of a delivery date. Thus, there was a contract. Whether additional terms become part of the agreement depends on whether both parties are merchants. If both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless they materially alter the terms of the offer, the offer expressly limited the acceptance to its terms, or they are objected to within a reasonable time. Here, both parties are breeders in the cattle business and, thus, are merchants. The change in the delivery date does not materially change the offer (i.e., it does not change a party’s risk or remedies), the offer did not limit the acceptance to its terms, and the retiring breeder did not object.

Question 56

In contracts for the sale of goods, a ___ operates as an acceptance even if it states additional terms.

Answer 56

In contracts for the sale of goods, a definite expression of acceptance operates as an acceptance even if it states additional terms.