Chapter 6: Contracts

Question 1

Define express contract

Answer 1

A contract formed by words - written or oral

Question 2

Define implied contract

Answer 2

an agreement in which the parties’ assentis inferred from their conduct

Question 3

Define quasi-contract

Answer 3

not a contract, but rather a remedy to prevent unjust enrichment

Question 4

Define unilateral contract and bilateral contract.

Answer 4

• unilateral contract - there is *one promise, *which is given in exchange for a performance. A contract is not formed until performance is completed.
  
  • ex: Anne promises to give Ben $10 if Ben will wash Anne’s car
• bilateral contract - there are two promises, a promise exchanged for a promise. A contract is formed as soon as the promises are exchanged.
  
  • ex: Anne promises to give Ben $10 if Ben promises to wash Anne’s car

Question 5

What are the sources of contract law?

Describe what is governed by each type of contract law.

Answer 5

• Common law - contracts involving Real Estate, Insurance, Services, and Employment (RISE).
  
  • Common law is generally derived from courts (i.e. rules that have come about because of cases in court).
• UCC Sales Article - statutory law that has been widely adopted throughout the U.S.
  
  • Its Sales Article (Article 2) governs contracts for the sale of goods (moveable things)
  • statutory law - made by legislature, like revised statutes in the code

Question 6

Name the 3 elements necessary for an enforceable contract

Answer 6

1. an agreement made up of an offer and an acceptance
2. an exchange of consideration (something of legal value)
3. a lack of defenses

Question 7

To be enforceable, must a contract generally be in writing?

Answer 7

Generally, a writing is not required unless the contract is within the Statute of Frauds or not a merchant’s firm offer

Question 8

Define the term “offer” and state its key requirements

Answer 8

An offer is a statement by the offeror that invites the offeree to form a contract.

To be an offer:

1. the offer must be seriously intended
2. the terms must be definite and certain
3. it must be communicated

Question 9

Describe what it means for the terms to be definite and certain.

Answer 9

UCC - only quantity term needs to be included

RISE - all terms, including:

• identity of the offeree and the subject matter
• price to be paid
• time of performance
• quantity involved
• nature of work to be performed

Question 10

What is the general rule regarding the revocability of an offer by the offeror?

Answer 10

The offeror can revoke anytime before acceptance, even if the offeror promises to keep an offer open. There are exceptions for:

• option contract in which consideration is paid to keep the offer open
• Merchant’s firm offer under UCC
• Beginning performance of a unilateral contract

Question 11

When is revocation of an offer effective?

Answer 11

When received by the offeree

Question 12

What are three exceptions on the offeror’s power to revoke?

Answer 12

• option contracts (the promisor promises to keep an offer open in exchange for consideration from the promisee, ex: Anne will keep the offer open if Ben promises not to sue Anne for 60 days)
• a substantial start on a unilateral contract (a promise made in exchange for an act rather than a counterpromise), and
• a merchant’s firm offer under UCC Sales.

Question 13

What is the mirror image rule?

Answer 13

• Common law contracts (RISE) follow this
• requires an acceptance to mirror the offer to be effective
• UCC does not have a mirror image rule

Question 14

What is an option?

Answer 14

A distinct contract in which the offeree gives consideration in exchange for the offeror’s promise to keep the offer open

Question 15

What is the mailbox rule?

Answer 15

An acceptance is effective to create a contract at the time of dispatch if a reasonable means of communication is used.

Question 16

When are offers, rejections, revocations, counteroffers, and acceptances effective?

Answer 16

• offers, rejections, revocations, and counteroffers are effective when received
• acceptances are effective when dispatched (i.e. doesn’t matter if lost or delayed, or never received)
  
  • mailbox rule
  • offeror may opt out by saying “acceptances must be received to be effective”

Question 17

What are the two elements of consideration?

Answer 17

1. A bargained for exchange
2. of something of legal value

Question 18

In common law contracts what is required for modification of an existing contract between two parties?

Answer 18

Under the common law a contract can be modified if both parties agree and give additional or different consideration.

Question 19

Name a circumstance in which a promise will be enforced without consideration.

Answer 19

Detrimental reliance/Promissory estoppel situation

• ex: donation to charity
• a promise made by one party and detrimentally relied upon by another can be enforced without consideration.
• the promise must be reasonably relied upon and detrimental
• i.e. the party relying on the promise must have done something substantial

Question 20

Name some of the defenses available in determining whether a promise will be binding as a contract

Answer 20

• lack of consideration
• lack of agreement
• fraud (MAIDS)
• innocent misrepresentation
• duress
• undue influence
• mutual mistake
• unilateral mistake
  
  • generally, not a defense, except when a unilateral mistake as to a material fact if the other party knew or should have known of the mistake
• illegality
• minority
• intoxication
• insanity
• unconscionability
• statute of limitations
• statute of frauds
• impossibility
• impracticability
• frustration of purpose
• accord and satisfaction
• substituted contract
• novation
• failure of conditions

Question 21

What are the elements of fraud?

Answer 21

To establish the defense of fraud, the victim must prove 5 elements:

1. the defrauder made a misrepresenation of a material fact
2. scienter - the misrepresentation was made with an intent to deceive (scienter) or with a reckless disregard of the truth (constructive fraud)
3. the defrauded made the misrepresenation with intent to induce reliance
4. the victim justifiably relied on the misrepresenation
5. the victim suffered damages

Question 22

Under the statute of frauds, what types of promises must be evidenced by a writing?

Answer 22

MYLEGS

1. a promise made in which marriage is the consideration
2. a promise which by its terms cannot be performed within one year
3. contracts involving the sale or long term lease of real estate (land)
   
   • exception: leases for less than a year
   • exception: full or partial performance
4. an executor’s promise to pay an estate debt out of personal funds
5. contracts involving the sale of goods of $500 or more
   
   • exception: SWAP (specially manufactured goods, written confirmation, admitted in court, have been performed)
6. a promise to pay the debt of another (suretyship)

Question 23

Does a contract for the sale of land for $200 need to be evidenced by writing?

Answer 23

Yes. ALL contracts for the sale of land (regardless of dollar value) must be evidenced by a writing signed by the party to be charged

Question 24

What is the Parol Evidence Rule?

Answer 24

If the parties have entered into a fully integrated written contract, prior or contemporaneous oral statements and prior written statements cannot be admitted into evidence to vary the written terms of the contract.

Question 25

Under common law, if a party to a contract commits an act that constitutes an anticipatory repudiation, what are the options of the nonrepudiating party?

Answer 25

• treat the repudiation as an immediate breach and sue for damages immediately
• ignore the repudiation, await the time specified for performance, and sue if the repudiating party does not perform
• cancel the contract

Question 26

In general, what is the goal of contract remedies?

Answer 26

Contract remedies are intended to put the nonbreaching party in as good a position as he or she would have been had the other party performed as promised

Question 27

What types of damages are available?

Answer 27

1. compensatory
   
   • personal service contracts
2. specific performance
   
   • for land and unique items
   • not available for personal service contracts
3. liquidated
   
   • damages agreed to in the contract
   • must be reasonable and not a penalty
4. punitive
   
   • usually not available for contracts, unless fraud
5. rescission or cancellation
   
   • cancel the contract & return parties to orignal positions
   • but cannot rescind or cancel if a contract has been substantially performed (unlike UCC Sales perfect tender rule)
6. Quasi Contract (restitutional) damages

Question 28

What are liquidated damages and are they enforceable?

Answer 28

A liquidated damage clause is a clause in a contract that specifies what damages will be if there is a breach (e.g. forfeiture of a down payment for breach).

A liquidated damage clause is enforceable if:

• the amount is reasonable in relation to the actual harm done
• and not a penalty

Question 29

Distinguish between a creditor beneficiary and a donee beneficiary.

Answer 29

A creditor beneficiary is one to whom the promisee owes a debt.

A donee beneficiary is one to whom the promisee wishes to give a gift or create a right.

Question 30

What rights may NOT be assigned?

Answer 30

You cannot assign when the assignment will change the obligor’s risk or when the delegated duty involves a specialized personal service.

Offers also cannot be assigned with the exception of option contracts.