Contract and Sales

Question 1

Doctrine of Substantial Performance

Answer 1

a party who substantially performs can recover on the contract even though full performance has not been tendered. However, there is no substantial performance if the incomplete performance was a material breach of contract.

Question 2

Under the common law, a material breach of contract (i.e., when the nonbreaching party fails to receive the substantial benefit of its bargain)…

Answer 2

allows the nonbreaching party to withhold any promised performance and to pursue remedies for the breach, including damages.

Question 3

Substantial performance is less likely to be found when…

Answer 3

a party intentionally furnishes services that are materially different from what he promised. Such a breach is more likely to be treated as a material breach for which contract damages are recoverable.

Question 4

Divisible or Installment Contract

Answer 4

one in which the parties’ obligations are divisible into distinct units of performance. Recovery is limited to the amount promised for the unit of the contract performed.

Question 5

Quasi-Contract

Answer 5

When a plaintiff confers a measurable benefit on a defendant and the plaintiff has a reasonable expectation of compensation, it would be unfair to permit the defendant to receive the benefit without compensating the plaintiff. In this case, the court can permit the plaintiff to recover the value of the benefit to prevent this unjust enrichment.

Although this type of action is often characterized as based on an implied-in-law contract or a quasi-contract, quantum meruit does not depend on the existence of a contract.

Question 6

Parol Evidence Rule

Answer 6

generally bars evidence of prior or contemporaneous agreements that contradict the terms of an integrated writing—i.e., a writing that presents the final expression of the parties’ agreement. A writing may be fully or partially integrated. However, the UCC presumes that a contract for the sale of goods (e.g., jewelry) is only partially integrated.* As a result, evidence that supplements a written contract is admissible—but evidence that contradicts the writing is inadmissible.

Question 7

Impracticability

Answer 7

a defense to contract enforcement—not a ground for recovery. Additionally, in a personal-services contract, this defense is available if the performing party dies or becomes fully incapacitated

Question 8

Assignment

Answer 8

the transfer of contractual rights to a third party. If an assignment is not supported by consideration, then it is a gratuitous assignment and is generally revocable (exceptions listed in the table above). A revocable assignment is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.

Question 9

A gratuitous assignment…

Answer 9

is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.

Question 10

Under the UCC, a contract is formed if…

Answer 10

both parties intend to contract and there is a reasonably certain basis for giving a remedy for a breach. So when an agreement reflects an intent to be bound only if the price is subsequently set, no contract is formed until the price is set.

Question 11

Unconscionability

Answer 11

so unfair to one party that no reasonable person in that party’s position would have agreed to it. Unconscionability can be procedural or substantive, and it is a question of law for the court (not the jury) to decide based on the circumstances. The contract is substantively unconscionable if the terms are unduly unfair.

Question 12

Accord Agreement

Answer 12

when a party agrees to accept different performance in satisfaction of (i.e., in place of) the original promise; after breach, the party can sue under either the original contract or the accord agreement.

Question 13

Substitute Agreement

Answer 13

when the parties form a second agreement that immediately discharges the original contract; after breach, a party can sue under the substitute contract only.

Question 14

Consequential Damages

Answer 14

Consequential damages—i.e., losses arising from the parties’ special circumstances—are recoverable only if they were reasonably foreseeable to the breaching party when the contract was entered.

Question 15

Acceptance of Firm Offer,Option, Etc.

Answer 15

Acceptance of a firm offer, option, or other irrevocable offer is effective only when it is received by the offeror. The mailbox rule does not apply.

Question 16

Nonoccurrence of a Condition

Answer 16

Nonoccurrence of a condition may be excused if the party who would benefit from the condition waives it by words or conduct. And that waiver cannot be retracted if the other party has detrimentally relied on it.

Question 17

After rejection of tender…

Answer 17

the buyer has an obligation to take reasonable care of any goods in its possession until the seller has had a reasonable amount of time to retrieve them.
When the seller does not retrieve the goods or provide further instructions, the buyer may generally choose to store, reship, or sell the goods on the seller’s behalf

Question 18

Battle of the Forms

Answer 18

Under the UCC, when both parties are merchants, a new or additional term in the acceptance become part of the contract unless (1) the offer limits acceptance to the offer’s terms, (2) the new term materially alters the contract, or (3) the offeror objects to the new term within a reasonable time.

Question 19

Quasi-Contract Theory

Answer 19

A plaintiff can recover under a quasi-contract theory—despite having no contractual relationship with the defendant—if the plaintiff conferred a non-gratuitous benefit on the defendant that resulted in unjust enrichment.

Question 20

Subcontractor Bid

Answer 20

A subcontractor’s bid is considered an outstanding offer, so a general contractor is not bound to accept the sub-bid—even if the general contractor is awarded the general contract.

Question 21

Revoking an Offer

Answer 21

An offer can be revoked by the offeror (1) expressly, when the offeror communicates the revocation directly to the offeree or (2) constructively, when the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer.

Question 22

PER Condition Precedent

Answer 22

Evidence used to establish a condition precedent that must occur before a contract becomes effective is admissible under an exception to the parol evidence rule.

Question 23

PER Course of Performance

Answer 23

Under the UCC parol evidence rule, course of performance can be used to supplement or explain the terms of a final written agreement.

Question 24

Waiving Condition

Answer 24

A party to a contract whose duty to perform is subject to a condition can waive the condition by words or conduct.

Question 25

Fill the Gaps - Quantity

Answer 25

The UCC “fills the gap” for missing contract terms other than the parties, subject matter, and quantity. The quantity term must specify an amount that is certain or capable of being made certain by reference to objective facts.

Question 26

Sale of Assorted Goods

Answer 26

When a contract for the sale of assorted goods does not specify who will choose the assortment, the UCC imposes a duty on the buyer to make that selection. If the buyer fails to specify the assortment of goods, then the seller can treat that failure as a breach—but only if the buyer’s failure to specify the assortment materially impacts the seller’s performance.

Question 27

Operation of Law

Answer 27

An offer can be terminated by operation of law—e.g., when the subject matter of the offer is destroyed.

Question 28

Installment Contract Payment

Answer 28

Under the UCC, an installment contract is defined as a contract in which the goods are to be delivered in multiple shipments, and each shipment is to be separately accepted by the buyer. Payment by the buyer is due upon each delivery unless the price cannot be apportioned.

Question 29

Restitutionary Damages

Answer 29

A party who breaches a contract can recover restitutionary damages for the reasonable value of the work performed before the breach, less any damages suffered by the nonbreaching party due to the breach.

Question 30

Formation under UCC

Answer 30

Under the UCC, a contract is formed if the parties intended to contract and there is a reasonably certain basis for giving a remedy—even if the moment of formation is uncertain.

Question 31

Promissory Estoppel

Answer 31

Under the doctrine of promissory estoppel, a party’s promise to make a gift is enforceable if (1) the promisor should reasonably expect the promisee to rely on the promise, (2) the promisee detrimentally relies on the promise, and (3) injustice can be avoided only by enforcement of the promise.

Question 32

Reserve and No Reserve Auction

Answer 32

During a reserve auction, the auctioneer may withdraw goods from auction prior to completion of the sale (e.g., before the auctioneer’s hammer falls). At a no-reserve auction, goods generally cannot be withdrawn after the auctioneer calls for bids.

Question 33

Disputing Debt

Answer 33

If a debt is disputed in good faith, then the debtor can offer to satisfy the debt by giving the creditor a check with a conspicuous “payment in full” notation. But if the debt is certain and undisputed, then it cannot be satisfied by a check for a lesser amount—even if the creditor cashes the check.

Question 34

New promise, no consideration, after SOL

Answer 34

A new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration.

Question 35

Acceptance of New Terms for at least 1 Non-Merchant under UCC

Answer 35

Under the UCC, an acceptance that contains new or revised terms is still an acceptance so long as assent to the new or revised terms is not required. And if at least one of the contracting parties is a nonmerchant, then the new or revised terms are merely treated as proposed additions to the contract

Question 36

Material Breach

Answer 36

A material breach of contract occurs when the non-breaching party does not receive the substantial benefit of the bargain.
The material breach allows the non-breaching party to withhold any promised performance and to pursue remedies for the breach, including damages.
The breaching party who failed to substantially perform generally cannot recover contract damages, but may be able to recover through restitution. However, most courts hold that recovery in restitution is only available if the breach was not willful.
Consequently, a party who intentionally furnishes services that are materially different from what was promised cannot recover anything in restitution unless the non-breaching party has accepted or agreed to accept the substitute performance.

Question 37

When a preexisting duty is at issue, what two options does a promisor have to create valid consideration?

Answer 37

The promisor can:

1. Give something in addition to what is already owed
2. Vary the preexisting duty in some way

Question 38

State the common-law mirror-image rule.

Answer 38

The common-law mirror-image rule states that the acceptance must mirror the terms of the offer. Any change to the terms of the offer, or the addition of another term not found in the offer, acts as a rejection of the original offer and as a new counteroffer.

Question 39

Define fraud in the inducement, and state its effect on a contract.

Answer 39

“Fraud in the inducement occurs when a fraudulent misrepresentation is used to induce another to enter into a contract.

Effect: Contract is VOIDABLE by the adversely affected party if she justifiably relied on the misrepresentation in entering into the agreement.”

Question 40

Define consideration.

Answer 40

Consideration is evidenced by a bargained-for change in legal position between the parties. Most courts conclude that consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.

Question 41

Define acceptance.

Answer 41

An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer.

Question 42

Output Contract

Answer 42

An output contract is a contract under which a seller agrees to sell all that she manufactures of a product to the buyer. There is consideration in these agreements because the promisor suffers a legal detriment.

Question 43

What is the difference between a gift and valid consideration?

Answer 43

The test to distinguish a gift from valid consideration is whether the offeree could have reasonably believed that the intent of the offeror was to induce the action. If yes, there is consideration and the promise is enforceable.

Question 44

What is the main difference between contract modification under the common law and contract modification under the UCC?

Answer 44

At common law, modifications require consideration; under the UCC, they require only good faith.

Question 45

What is an illusory promise?

Answer 45

An illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. Such a promise is not legally binding (i.e., void).

Question 46

Under the common law, what terms must be covered in order for a contract to be formed?

Answer 46

All essential terms (i.e., the parties, subject matter, price, and quantity)

Question 47

Define the common-law four-corners rule.

Answer 47

Under the common law, a court was permitted to look only to the writing itself (within the “four corners” of the document) for evidence of intent (regarding whether there is total, partial, or no integration).

Question 48

What are the three requirements for a promise to be binding under promissory estoppel?

Answer 48

(i) The promisor should reasonably expect it to induce action or forbearance on the part of the promisee or a third person;

(ii) The promise does induce such action or forbearance; and

(iii) Injustice can be avoided only by enforcement of the promise.

Question 49

Define condition subsequent.

Answer 49

A condition that excuses the duty to perform after a particular event occurs

Question 50

What requirements must be met to allow an adversely affected party to void a contract based on mutual mistake?

Answer 50

(i) Mistake of fact existing at the time the contract was formed;

(ii) The mistake relates to a basic assumption of the contract;

(iii) The mistake has a material impact on the transaction; and

(iv) The adversely affected party did not assume the risk of the mistake.

Question 51

What is an implied-in-fact contract?

Answer 51

An implied-in-fact contract is a contract that results when a person’s assent to an offer is inferred solely from the person’s conduct. To be contractually bound, the person must not only intend the conduct but also know or have reason to know that the conduct may cause the offeror to believe the offer was accepted.

Question 52

When is the implied warranty of merchantability implied, and how is it disclaimed?

Answer 52

The implied warranty of merchantability is implied whenever the seller is a merchant.
The disclaimer can be oral, but must use the term “merchantability” and must be conspicuous if in writing. Language that indicates there is no implied warranty is sufficient (e.g., “as-is” or “with all faults”).

Question 53

What are the rights of the assignee?

Answer 53

An assignee takes all of the rights of the assignor as the contract stands at the time of the assignment, but she takes subject to any defenses that could be raised against the assignor.

Question 54

What are the three events that would cause the rights of an intended beneficiary to vest?

Answer 54

The rights of an intended beneficiary vest when the beneficiary:

i) Materially changes position in justifiable reliance on the rights created;
ii) Manifests assent to the contract at one party’s request; or
iii) Files a lawsuit to enforce the contract.

Question 55

What three conditions must be met for the defense of impracticability to be available?

Answer 55

(i) An unforeseeable event has occurred;
(ii) Nonoccurrence of the event was a basic assumption on which the contract was made; and
(iii) The party seeking discharge is not at fault.

Question 56

When may a nonbreaching party pursue specific performance as a remedy?

Answer 56

When damages are an inadequate remedy, the nonbreaching party can pursue specific performance.

Note: Legal remedies are often inadequate in contracts for land or other unique goods.

Question 57

Define constructive condition of exchange.

Answer 57

When a party’s performance can be rendered at the same time as the other party’s performance, each party’s performance is conditioned on the other party’s performance; both parties’ performances are due simultaneously, unless the language or circumstances indicate otherwise.

Question 58

Define intended beneficiary.

Question 59

Under the UCC, even if the terms of a written contract for the sale of goods appear to be unambiguous, what evidence can be presented to explain or supplement the contract?

Answer 59

Course of performance, course of dealing, and trade usage.

Note: If the express contract terms are inconsistent with the course of performance, or trade usage, priority is given to the express terms, followed by course of performance, course of dealing and trade usage.

Question 60

Under the UCC, what is required by the “perfect tender rule”?

Answer 60

The perfect tender rule requires perfect goods and perfect delivery. “Perfect” means in accordance with the contract provisions or in accordance with the UCC if the contract is silent on tender.

Question 61

When is the doctrine of anticipatory repudiation applicable, and in what manner must the repudiation be made?

Answer 61

The doctrine of anticipatory repudiation is applicable when a promisor repudiates a promise BEFORE the time for performance is due. The repudiation must be clear and unequivocal, may be by conduct or words, and, if a statement, must be made to the promisee or a third-party beneficiary or assignee of the promise.

Question 62

What is the formula for expectation damages?

Answer 62

Expectation Damages = loss in value + other loss - cost avoided - loss avoided