CONTRACT FORMATION Flashcards

Question

MBE CONTRACTS - NONDELEGABLE CONTRACTUAL DUTIES

Answer 1

Nondelegable contractual duties Delegation not permitted when: other contracting party has substantial interest in having delegating party perform (eg, in personal-services contract involving taste or special skill) or delegation is prohibited by contract Duties and obligations under a contract can generally be delegated. However, delegation is not permitted when: a contracting party has a substantial interest in having the delegating party perform (e.g., in a personal-services contract involving taste or a special skill) or delegation is prohibited by the contract.

Answer 2

The parol evidence rule generally bars the admission of extrinsic evidence of prior or contemporaneous agreements that modify or contradict the terms of an integrated writing. However, the scope of this bar depends on whether the writing is: totally integrated – sets forth the parties' agreement about all terms, so such evidence is not admissible or partially integrated – sets forth the parties' agreement about some but not all terms, so such evidence is admissible if it is consistent with the written terms—but not if it contradicts them. The UCC, which applies to contracts for the sale of goods (e.g., comic books), presumes that a contract is partially integrated. However, that presumption goes away when the writing contains a merger clause—i.e., a clause that declares the written contract to be the complete and final agreement between the parties. The written contract will instead be deemed completely integrated.

Answer 3

Installment contracts Deliveries Price for each installment generally due at time & place of each delivery Seller's damages for breach amount to missed payments Buyer's damages for breach amount to fair market value minus contract price for missed deliveries Payments Creditor's damages for breach amount to missed payments Special rules apply to installment contracts for the sale of goods (e.g., windows), which are governed by the UCC. 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.

Answer 4

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.

Answer 5

Termination of offer before acceptance Offeror's revocation Offeror communicates revocation directly to offeree Offeree learns information from reliable source that reasonably indicates offer was revoked (eg, house sold to another buyer) Offeree's rejection Offeree communicates rejection directly to offeror Offeree's counteroffer serves as rejection & new offer Lapse Time period specified in offer expires After reasonable time if no time period specified in offer By law Either party dies or is adjudicated insane Subject matter of offer is destroyed or becomes illegal To form a contract, an offer must be accepted before it terminates. If an offer specifies a date on which it will terminate, then the offer will automatically terminate on that date if it has not been accepted. However, the offer can be terminated at an earlier date—unless the offeree gave separate consideration for the independent promise to keep the offer open for a specified time, thereby forming an option contract. Here, the bride offered to sell her wedding dress to the bridesmaid for $5,000 and stated that her offer would remain open for 30 days. But since the bridesmaid gave no consideration for the option, the bride's offer could be terminated before the 30-day deadline (Choice C). An early termination can occur if, for example, the offeree makes a counteroffer, which acts as a rejection of the original offer and creates a new offer.* However, mere indecision and inquiries (e.g., requests for clarification) do not constitute counteroffers. Therefore, the bridesmaid's email inquiring as to whether the price included the bride's custom-made veil did not constitute a counteroffer (Choice B). And since the bridesmaid accepted the $5,000 offer within the 30-day period, a valid contract was formed. *An exception exists for an option holder, who has the right to make counteroffers during the option period without terminating the original offer.

Answer 6

An offer that specifies a date on which it will terminate will automatically terminate on the specified date. But unless consideration was paid to keep this option open, the offer can be terminated at an earlier date—e.g., if the offeree makes a counteroffer.

Answer 7

When nonoccurrence of condition is excused Waiver Party waives condition by words or conduct Wrongful interference Party wrongfully prevents or interferes with condition's occurrence Estoppel Party indicates condition will not be enforced AND Other party reasonably & detrimentally relies on belief that condition has been waived Disproportionate forfeiture Party substantially performed & will be significantly harmed if condition is enforced A condition precedent is an explicit contract term requiring a future event to occur before a party becomes obligated to perform. However, under the doctrine of prevention, a condition's nonoccurrence is excused when the party whose duty to perform is subject to the condition wrongfully prevents or interferes with the occurrence of that condition. Here, pursuant to the March 15 offer, the company's duty to pay the employee a bonus was subject to the employee's completion of two conditions: attaining the requisite sales figures, which was satisfied when the employee met his March sales goal and reporting those figures in a specified manner, which the employee was unable to do because the company disconnected its phone lines.

Answer 8

To form a contract, an offer must be accepted before it terminates. An offer will terminate if, for example, the offeree rejects it by clearly conveying that he/she does not intend to accept the offer OR by making a counteroffer. Once the offer has terminated, it cannot be accepted. But the **offer can be revived if the offeror conveys that it is still open**. This creates a renewed opportunity for acceptance by the offeree. If the offeree accepts the revived offer, then a binding contract is formed.

Answer 9

**Exceptions to parol evidence rule** Evidence of prior or contemporaneous oral or written agreement is admissible to establish: whether writing is integrated and, if so, completely or partially meaning of ambiguous term **defense to formation or enforcement** (eg, fraud, duress, mistake) ground for granting or denying remedy (eg, rescission, reformation) subsequent contract modifications condition precedent to effectiveness The parol evidence rule generally bars evidence of prior or contemporaneous agreements that supplement or contradict the terms of a written contract that is completely integrated.* The written contract between the owner and the company is completely integrated because it contains a merger clause—i.e., a clause that declares the contract to be the complete and final agreement between the parties. However, the parol evidence rule does not apply to evidence offered to raise a defense to contract formation. **Misrepresentation is one such defense**, which arises when a contracting party made an untrue assertion of fact. *In contrast, evidence of prior or contemporaneous communications is admissible to supplement (i.e., add to), but not to contradict, a partially integrated agreement.

Answer 10

Elements of valuable consideration Bargained-for exchange Each party's willingness to enter agreement must be induced by other party's act/promise Legal detriment Each party must relinquish legal right by either: performing (or promising to perform) act that is not legally required or refraining (or promising to refrain) from performing legally permissible act To be enforceable, a contract must generally be supported by valuable consideration, as evidenced by a bargained-for change in the legal position between the parties (i.e., "mutuality of consideration"). Consideration can take the form of a return promise to do (or not do) something or the actual performance (or nonperformance) of some act. Such performance can be made contingent upon a condition. There are two types of conditions: Condition precedent – where a party's duty to perform arises upon the occurrence or nonoccurrence of an uncertain future event (i.e., the event creates the duty) Condition subsequent – where a party's duty to perform is released upon the occurrence or nonoccurrence of an uncertain future event (i.e., the event extinguishes the duty) However, a promise based upon a condition that is within the control of the promisor may be illusory if it essentially promises nothing because the promisor can choose whether to honor that promise.

Answer 11

Restitutionary damages Definition Damages awarded to restore to claimant the value of whatever benefit was conferred upon recipient Purpose Prevent unjust enrichment Measure Reasonable value of work performed or services rendered (ie, cost of recipient obtaining comparable performance) If applicable, extent to which recipient's property has increased in value or recipient's other interests have been advanced Here, the artist breached the contract when he refused to paint the remaining two rooms and terminated the contract after the owner asked him to use a different color palette. As the breaching party, the artist is entitled to 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. This ensures that the nonbreaching party is not unjustly enriched by the work performed by the breaching party prior to the breach. As a result, the artist is entitled to recover the reasonable value of his services in painting the first three rooms, less any damages the owner may suffer from the artist's failure to paint the last two rooms.

Answer 12

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. Contract formation under the common law requires an offer with definite terms and an acceptance with knowledge of that offer. But these requirements are relaxed by the UCC, which governs contracts for the sale of goods (e.g., a ring). Under the UCC, a contract is formed if the parties intended to contract and there is a reasonably certain basis for giving a remedy. The contract may be made in any manner sufficient to show agreement—even if the moment of its making is undetermined.

Answer 13

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. A contract must be supported b y consideration—i.e., a benefit bargained for and received by the promisor from a promisee. Since a promise to make a gift does not involve a bargained-for exchange, it is generally unenforceable. But under the doctrine of promissory estoppel, a gift promise is enforceable if three requirements are met: the promisor should reasonably expect the promisee to rely on the promise the promisee detrimentally relies on the promise and injustice can be avoided only by enforcement of the promise.

Answer 14

Under the UCC, a court should presume that a written contract for the sale of goods is only partially integrated. As a result, evidence of additional consistent terms is admissible unless the court concludes that the parties certainly would have included those terms in the writing. Integration Type Definition Effect Complete integration Writing that sets forth parties' final agreement about all terms Excludes parol evidence within scope of agreement Parol evidence inadmissible to supplement (ie, add to) or contradict contract Partial integration Writing that sets forth parties' final agreement about some terms Excludes parol evidence inconsistent with agreement Parol evidence admissible to supplement (not contradict) contract The parol evidence rule generally prevents a party to a written contract from presenting extrinsic evidence of a prior or contemporaneous agreement that contradicts the terms of the final written agreement. In determining whether contracting parties intended for their written contract to be a final agreement, the court must first determine whether the writing is integrated. The writing can either be: totally integrated – the writing completely expresses all of the terms of the parties' agreement or partially integrated – the writing sets forth the parties' agreement about some, but not all, terms. Under the UCC, which governs contracts for the sale of goods (e.g., furniture), it is presumed that a written contract is only partially integrated (Choice C). Since the contract here involves the sale of furniture, this is the rule of interpretation that the court should apply. For a partially integrated agreement, parol evidence of additional consistent (not contradictory) terms is admissible unless the court concludes that the parties "certainly" would have included those terms in the writing. Here, the supplier's prior statement that the furniture was of "solid-wood construction" does not contradict the final agreement calling for "cherry tables and desks." Therefore, the court will likely admit this parol evidence.

Answer 15

A requirements contract is an exclusive agreement between a buyer and a seller for the sale of as many goods as the buyer requires during a specified period. The buyer's purchase of the goods from another seller violates the implied duty of good faith and fair dealing and constitutes a breach of contract. Buyer's duty of good faith & fair dealing under requirements contract Buyer must purchase goods in question from seller only Requirements must approximate reasonably foreseeable figure Reasonable elasticity in requirements permitted (so long as any variations are in good faith) Article 2 of the Uniform Commercial Code (UCC) governs contracts for the sale of goods. Under the UCC, a requirements contract is a contract for the sale of as many goods as the buyer requires during a specified period. This creates an exclusive agreement between the buyer and the seller. As a result, the duty of good faith and fair dealing implied in every contract requires the buyer to purchase goods from the seller only. A failure to do so violates that duty and is a breach of contract.

Answer 16

A unilateral contract arises when an offeror promises something in return for an offeree's complete performance of a specified act. Therefore, a unilateral contract is not formed until the offeree's performance is fully completed. Bilateral v. Unilateral contracts Offer Effect of beginning performance Unilateral Invites acceptance by performance of act Creates option contract that prevents offeror from revoking offer Offeree is not bound to complete performance Bilateral Invites acceptance by return promise Serves as acceptance of offer Offeree is bound to complete performance A unilateral contract arises when an offeror promises something in return for an offeree's complete performance of a specified act. This means that an offeree's mere promise to perform does not form a unilateral contract with the offeror. Instead, a unilateral contract is formed only when the offeree's performance is fully completed.

Answer 17

Contract formation requires a manifestation of mutual assent, which occurs upon acceptance of a valid offer to contract. The validity of an offer and an acceptance is assessed under the objective theory of contracts. This means that a party's intent to contract is judged by outward objective facts as interpreted by a reasonable person—not a party's subjective intent or belief (Choice D). If there is no objective "meeting of the minds," then no contract is formed.

Answer 18

Although courts prefer to interpret contracts as divisible, **they will not do so in contradiction of the contract's express terms—e.g., when the contract expressly states that it is indivisible.** Order of performances* Simultaneous performance possible Condition concurrent implied (ie, performance due simultaneously) One performance requires time Condition precedent implied (ie, durational performance due before respective duty triggered) *These rules apply unless express contractual language or circumstances indicate otherwise. When a party performs one part of a divisible or installment contract, that party is generally entitled to the agreed equivalent for that part—even if the party fails to perform the other parts of the contract. In other words, that party's performance of the entire contract is generally not a condition precedent to the other party's duty to perform. A contract is divisible if: the parties' duties can be broken down into at least two corresponding pairs of performances and those pairs of performances can fairly be regarded as agreed (i.e., bargained-for) equivalents. Courts prefer to interpret contracts as divisible for reasons having to do with fairness. However, courts will not do so if the contract expressly states that it is indivisible or payment is due upon completion of the entire contract.

Answer 19

Purpose of compensatory damages Primary (expectation measure) Place nonbreaching party in same position as if contract had been performed Expectation measure includes: Expectation damages Incidental damages Consequential damages Fallback (reliance measure) When expectation measure too speculative, place nonbreaching party in same position as if no contract had been formed Reliance measure includes: Reliance damages Liquidated damages Restitution Nonbreaching parties to a contract may choose between several types of damages, including: expectation damages – damages that arise naturally and obviously from the breach reliance damages – foreseeable expenses that the nonbreaching party incurred in reasonable reliance on the promise that the other party would perform Although the nonbreaching party can pursue reliance damages in lieu of expectation damages, the nonbreaching party cannot recover both for the same breach.

Answer 20

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.

Answer 21

An offeror can dictate the manner and means by which the offer may be accepted. But if the offeror does not do so, then the offeree can accept the offer in any reasonable manner and by any reasonable means—e.g., delivering the acceptance by mail, which is effective upon dispatch.

Answer 22

Intended beneficiaries receive a direct benefit from a contract because the contracting parties so intended, while incidental beneficiaries receive an indirect benefit from a contract even though there was no contractual intent to benefit them. Only intended (not incidental) beneficiaries can sue to enforce the contract.

Answer 23

An accord requires consideration to be valid. That consideration can be worth less than what was agreed to in the original contract only if (1) there is a good-faith dispute as to the amount owed or (2) the new consideration is of a different type than what was owed under the original contract.

Answer 24

A contract must generally be supported by consideration to be enforceable. However, there are circumstances in which a promise is enforceable without consideration. For example, a new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration. When the new promise is an express promise, most jurisdictions require that the new promise be in writing and signed by the debtor to be enforceable.

Answer 25

Expectation damages are computed as loss in value + other loss − costs avoided − loss avoided. For late delivery in real estate contracts, loss in value is measured by the fair market rental value of the property for the time that the buyer was denied possession.

Answer 26

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.

Answer 27

A counteroffer is a return offer made by the offeree to the offeror that relates to the same matter as the original offer but materially changes its terms. A counteroffer operates as both a rejection of the original offer and a new offer.

Answer 28

Impracticability defense Unanticipated or extraordinary event* made performance impracticable Contract was formed under basic assumption event would not occur Nonperforming party was not at fault in causing event to occur *Nonperforming party must not have assumed risk that event would occur (eg, by contractual language). Parties to a contract have an absolute duty to perform unless that duty is discharged. Performance can be discharged due to impracticability if: 1)an unforeseeable event has occurred 2) the contract was formed under the basic assumption that the event would not occur and 3) the party seeking discharge of performance is not at fault. But if a party assumed the risk of an event happening that made performance impracticable, then the party's performance will not be discharged by impracticability.

Answer 29

****The UCC statute of frauds applies to contracts for the sale of goods valued at $500 or more. Here, the total price of the shoes exceeds the $500 threshold ($100 × 50 pairs of shoes = $5,000), so the contract must comply with this statute, or meet an exception (Choice D). To be enforceable, these agreements must be evidenced by a writing that: 1. provides a reasonable basis to believe a contract was formed (the written acknowledgment) 2. identifies the parties (the manufacturer as seller and the owner as buyer) 3. lists the quantity of goods sold (50 pairs of shoes) and is signed by the party against whom enforcement is sought (the owner). However, the UCC relaxes the signature requirement in agreements between merchants—i.e., regular dealers of the goods involved in the transaction. Under the merchant exception, a written confirmation need only be signed by one merchant and sent to the other merchant. If the recipient has reason to know the confirmation's contents and does not object within 10 days, then it is enforceable against both merchants.

Answer 30

A party who substantially performs contractual obligations (i.e., commits a minor breach) can recover on the contract even though that party has not rendered full performance. The substantially performing party can generally recover the contract price minus any cost that the nonbreaching party incurred to receive full performance. In contrast, a party who commits a material breach by failing to substantially perform cannot recover under the contract. The breaching party can only recover in restitution for any benefit conferred on the nonbreaching party minus damages for the breach.

Answer 31

****Revocable unless: obligor already performed document symbolizing assigned right (eg, stock certificate) delivered written & signed assignment delivered promissory estoppel applies None For value Irrevocable when: Assignor warrants that he/she: has right to assign is not subject to limitations/defenses unknown to assignee will not defeat/impair assigned rights An assignment is 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.**

Answer 32

A breach of contract occurs when a party fails to perform a contractual duty that has become due. Performance may be predicated upon a condition precedent, under which a contracting party's obligation to** perform arises only upon the occurrence of an uncertain future event**. If the parties expressly agree to a condition precedent, then the condition precedent will be strictly enforced. **This means that a contracting party must fully comply with the condition before the other party's performance is due.**

Answer 33

Under the UCC, which applies to contracts for the sale of goods, the entrustment of goods by the owner to someone who sells goods of that kind (i.e., a merchant) gives the merchant the power to convey good title. Good title can be conveyed to a buyer in the ordinary course of business—i.e., someone who buys goods: in good faith; without knowledge that the sale violates the owner's rights to the goods and from a merchant in the business of selling goods of that kind. Entrustment includes any delivery and acquiescence to the possession of goods, regardless of conditions expressed between the parties.

Answer 34

Mistake as grounds for rescission **Mutual mistake** Adversely affected party can rescind contract if: **mistake relates to basic assumption of contract** mistake materially affects agreed-upon exchange of performances AND adversely affected party did not assume risk of mistake **Unilateral mistake** In addition to above elements for mutual mistake, either: mistake makes enforcement of contract unconscionable OR nonmistaken party caused, or knew or should have known of, mistake When both parties are mistaken as to an essential element of a contract (i.e., mutual mistake) at the time the contract is formed, the contract is voidable by the adversely affected party if: the mistake relates to a basic assumption of the contract the mistake materially affects the agreed-upon exchange of performances and the adversely affected party did not assume the risk of mistake. A party assumes the risk of mistake if, at the time the contract is formed, the party is aware that he/she has limited knowledge of the facts and accepts this knowledge as sufficient.

Answer 35

**Consequential damages** Damages for losses stemming from nonbreaching party's special circumstances if breaching party: **knew of those special circumstances** OR **could have reasonably foreseen harm caused by breach** The primary goal of contract damages is to put the nonbreaching party in the same position as if the contract had been performed. This is typically done by compensating the nonbreaching party for actual economic losses. Such losses include consequential damages, which arise from special circumstances unique to the contracting parties rather than directly from the transaction itself. To be recoverable, consequential damages must have been reasonably foreseeable to the breaching party when the contract was entered.

Answer 36

**Nondelegable contractual duties** Delegation **not permitted when: ** **other contracting party has substantial interest in having delegating party perform** (eg, in personal-services contract involving taste or special skill) or delegation is prohibited by contract An assignment of a contract that is not limited to contractual rights is typically treated as both an assignment of rights and a delegation of duties. Contractual duties can generally be delegated to another (the delegatee), and the other party to the contract must accept performance by the delegatee or be in breach. However, delegation is not permitted when: delegation is prohibited by the contract (e.g., contract says "this contract may not be assigned") or the other contracting party has a substantial interest in having the delegating party perform (e.g., in a personal-services contract involving taste or a special skill)

Answer 37

When nonoccurrence of condition is excused **Waiver** **Party waives condition by words or conduct** Wrongful interference Party wrongfully prevents or interferes with condition's occurrence Estoppel Party indicates condition will not be enforced AND Other party reasonably & detrimentally relies on belief that condition has been waived Disproportionate forfeiture Party substantially performed & will be significantly harmed if condition is enforced A contracting party may generally avoid performance if a condition precedent—i.e., an uncertain future event that must occur before performance becomes due—has not occurred. The nonoccurrence of a condition may be excused, however, if the party who would benefit from the condition waives it by words or conduct. **And the waiving party cannot retract the waiver once the other party has detrimentally relied on it.**

Answer 38

Termination of offer before acceptance Offeror's revocation Offeror communicates revocation directly to offeree Offeree learns information from reliable source that reasonably indicates offer was revoked (eg, house sold to another buyer) Offeree's rejection Offeree communicates rejection directly to offeror Offeree's counteroffer serves as rejection & new offer* Lapse Time period specified in offer expires After reasonable time if no time period specified in offer By law Either party dies or is adjudicated insane Subject matter of offer is destroyed or becomes illegal *Counteroffer does not terminate offer if offeree manifests intent to take offer under advisement. To form a contract, an offer must be accepted before it terminates. If an offer specifies a date on which it will terminate, then the offer will automatically terminate on that date if it has not been accepted. However, the offer can be terminated at an earlier date—unless the offeree gave separate consideration for the independent promise to keep the offer open for a specified time, thereby forming an option contract. Here, the bride offered to sell her wedding dress to the bridesmaid for $5,000 and stated that her offer would remain open for 30 days. But since the bridesmaid gave no consideration for the option, the bride's offer could be terminated before the 30-day deadline (Choice C). An early termination can occur if, for example, the offeree makes a counteroffer, which acts as a rejection of the original offer and creates a new offer.* However, mere indecision and inquiries (e.g., requests for clarification) do not constitute counteroffers. Therefore, the bridesmaid's email inquiring as to whether the price included the bride's custom-made veil did not constitute a counteroffer (Choice B). And since the bridesmaid accepted the $5,000 offer within the 30-day period, a valid contract was formed. *An exception exists for an option holder, who has the right to make counteroffers during the option period without terminating the original offer.

Answer 39

A contracting party's duty to perform can be discharged by impracticability. This defense is available when: 1. an unexpected or extraordinary event makes it impracticable for the party to perform 2. the contract was formed under a basic assumption that the event would not occur and 3. the party seeking discharge was not at fault in causing the event to occur. 4. In a personal-services contract (e.g., contract to paint a portrait), impracticability can arise when the party who is to perform the contract—or a person whose existence is required for that performance—dies or becomes incapacitated.*

Answer 40

Article 2 of the UCC governs contracts for the sale of goods (e.g., designer jeans). Unlike the common law, the UCC requires no consideration to modify a contract. All that is required is good faith. Good faith requires honesty in fact and fair dealing between the parties according to reasonable commercial standards. Consequently, if a party extorts or otherwise forces the other party to agree to a modification, then the modification is unenforceable. The **doctrine of promissory estoppel** lets a party enforce a promise on which it reasonably and detrimentally relied when no valid contract was formed. But here, the parties properly modified a valid contract, so the manufacturer can enforce the promise without showing reliance.

Answer 41

A contract to perform an illegal act (e.g., fraud) is void and unenforceable. However, restitution damages may be recoverable if the claimant conferred a benefit on the other party and: was justifiably ignorant of the facts that made the contract illegal* was less culpable than the other party (i.e., was not in pari delicto) or withdrew before the contract's illegal purpose was achieved and did not engage in serious misconduct (e.g., shockingly immoral, unethical, or unjust behavior).

Answer 42

A third-party beneficiary is a nonparty to a contract who receives some advantage or benefit from the performance of that contract. There are two types of third-party beneficiaries: intended – those who receive a direct benefit from the contract because the contracting parties so intended and therefore can enforce the contract incidental – those who receive some indirect benefit from the contract even though there was no contractual intent to benefit them and therefore cannot enforce the contract

Answer 43

The UCC, which governs contracts for the sale of goods, provides special rules for auction sales. One such rule limits the seller's ability to bid at an auction sale. It allows a winning bidder to avoid the sale or pay the price of the last good-faith bid if the auctioneer (1) knowingly accepted a bid by the seller or on the seller's behalf or (2) procured the seller's bid to drive up the price of the goods. However, the winning bidder may not do so if: the seller bid at a forced sale* (e.g., a foreclosure sale initiated by a secured creditor) or the seller gave notice reserving the right to bid.

Answer 44

Compensatory damages (expectation measure) Expectation damages Value of performance without breach (what was promised) minus value of performance with breach (what was received) Consequential damages Compensation for losses that do not flow directly & immediately from other party's breach, including lost profits, so long as losses are not too speculative Incidential damages Compensation for commercially reasonable expenses incurred due to other party's breach In a real-estate contract that requires delivery of possession, late delivery is a breach that entitles the nonbreaching party to compensatory damages for actual economic losses. Compensatory damages consist of the following: expectation damages – the difference between the value of performance without the breach (i.e., what was promised) and with the breach (i.e., what was received) consequential damages – damages that do not flow directly and immediately from the other party's breach but are the foreseeable consequence of the breach (i.e., not too speculative) and incidental damages – commercially reasonable expenses incurred due to the other party's breach.

Answer 45

The UCC parol evidence rule prohibits the admission of evidence of prior or contemporaneous agreements that would contradict the express terms of a written contract for the sale of goods (e.g., produce). However, the UCC permits express terms to be explained or supplemented by the following extrinsic evidence (listed in order of priority): Course of performance – ( look for more than one transaction. The merchants should have a history.) **equence of conduct** relevant to understanding the current transaction between the parties if (1) the agreement involves repeated occasions for performance by a party and (2) the other party accepts performance without objection Course of dealing – sequence of conduct concerning previous transactions between the parties that establishes a common basis of understanding for interpreting their conduct Trade usage – any practice or method of dealing in the parties' business or industry that is practiced with enough regularity to justify an expectation that it will be practiced in the instant case

Answer 46

**A party's duty to perform under a contract can be discharged for impracticability due to an unforeseeable event that occurred after the formation of the contract. But here, the destruction of the tomatoes occurred before contract formation.** Under the UCC firm-offer rule, an offer to buy or sell goods (e.g., tomatoes) will remain open and cannot be modified if: the offeror is a merchant* (here, the supplier regularly deals in produce) there is an assurance that the offer is to remain open (here, the supplier's letter states that the prices will remain firm until August) and the assurance is contained in a signed writing from the offeror (here, the supplier's letter was signed). A firm offer is irrevocable for the time stated in the offer or, if no time is stated, for a reasonable time. However, the period of irrevocability cannot exceed three months—even if a longer time period is stated or implied—unless the offeree gives consideration to validate it beyond the three-month period.

Answer 47

A mutual mistake occurs when both parties are mistaken as to an essential element of the contract. In such a situation, the contract may be voidable by the adversely affected party upon proof of the following: (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

Answer 48

In general, an offer can be revoked by the offeror at any time prior to acceptance. If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked (i.e., a constructive revocation occurs)

Answer 49

A mere objective impossibility is not enough to provide a defense against a breach of contract action. For the defense of impracticability to be available, an unforeseeable event must occur, nonoccurrence of the event must be a basic assumption of the contract, and the party seeking discharge of a breached duty must not be at fault. Here, the failure of the manufacturer to perfect the new glass-cooling method was foreseeable, and the manufacturer therefore **assumed the risk that it may fail to develop the promised glass.**

Answer 50

The UCC requires “perfect tender,” and substantial performance will not suffice except for installment contracts or when the parties agree that it applies. Here, the masonry company failed to make a perfect tender of the bricks, supplying only 12,000 out of the 20,000 bricks called for under the contract on the March 15 delivery date. When a seller makes a nonconforming tender of the goods, a buyer may accept or reject all or part of the goods. A buyer in a contract for the sale of goods is required to pay the contract price for goods that he has accepted, unless he has properly revoked his acceptance of those goods.** **Under the UCC, a buyer accepts goods by (i) expressly stating acceptance, (ii) using the goods, or (iii) failing to reject the goods.** Here, the bricklayer accepted the delivery of 12,000 bricks with the company’s assurance that it would deliver the remaining bricks within a week. **A buyer may revoke an acceptance of goods if the nonconformity substantially impairs their value to the buyer and the buyer accepted the goods on the reasonable belief that the seller would cure the nonconformity, but the seller has failed to do so.**

Answer 51

If the seller makes a nonconforming tender or tenders nonconforming goods under one segment of an installment contract, the buyer can reject **only if the nonconformity substantially impairs the value of that shipment to the buyer and cannot be cured.** If the seller makes adequate assurances that he can cure the nonconformity, then the buyer must accept the shipment.

Answer 52

A contract that cannot be performed within one year from its making because of the constraints of the terms of the agreement falls within the Statute of Frauds and is unenforceable unless made in writing.

Answer 53

Under an accord agreement, a party to a contract agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other party’s existing duty. When a party agrees to accept a lesser amount in full satisfaction of its monetary claim, there must be consideration or a consideration substitute for the party’s promise to accept the lesser amount. Consideration can exist if the other party honestly disputes the claim or agrees to forego an asserted defense.

Answer 54

Although the Uniform Commercial Code (UCC) lists specific performance as a remedy for the buyer of goods, the UCC does not list specific performance as a corresponding remedy for the seller of goods

Answer 55

In order for a contractual obligation to be discharged by frustration of purpose, there must be an unexpected event that occurs, even though the nonoccurrence of the event was a basic assumption of the contract, without the fault of the frustrated party and the event destroys that party’s purpose in entering into the contract.

Answer 56

A party whose duty is subject to a condition can waive the condition, either by words or conduct. In general, a waiver operates to preclude a subsequent assertion of the right waived or any claim based on such right, and will be irrevocable once made, even in the absence of consideration, or of any change in position of the party in whose favor the waiver operates.

Answer 57

Since the contract cannot be performed within one year from the time of the contract’s making, it is subject to the Statute of Frauds. The writings are not sufficient under the Statute of Frauds because, **although together they state the essential terms of the bargain and each is signed by the promisor, neither writing references the other. In order to satisfy the Statute of Frauds, at least one of the writings must reference the other.** Because the farmer’s letter does not indicate the subject matter of the contract (i.e., why the farmer is paying the nurse $10,000 a month), the nurse will be unable to enforce the agreement against the farmer.

Answer 58

Under the Uniform Commercial Code (UCC), which governs a contract for the sale of goods (e.g., the sale of air filters), a contract may be modified even though there is no consideration for the modification. However, the UCC does require that the modification be requested in good faith. Here, the air-filter company’s request for a price increase was not made in good faith.