Contracts

Question 1

CONTRACT FORMATION

Answer 1

Offer: invitation to enter contract

Acceptance: manifestation of intent to enter contract

Counter offer: reflection of original offer for a new one

Consideration: bargained for exchange where one party:

• receives legal benefit OR
• experiences legal detriment

Defense to contract formation: no contract formed

Question 2

APPLICABLE LAW

Answer 2

Common Law

UCC: sale of all goods

Question 3

MAILBOX RULE

Answer 3

Everything is effective when received except Acceptance

Acceptance is effective upon dispatch/when placed in the outgoing mailbox

Question 4

REVOCATION

Answer 4

Offers are revocable any time until Acceptance

Exceptions
Option Contract: this is a promise to keep the offer open for a time, in exchange for valuable consideration
Merchant’s firm offer (no consideration required
Detrimental reliance where offeree takes reasonable, foreseeable actions to their detriment in reliance on the offer
Unilateral contract and offerree begins performance

Question 5

MIRROR IMAGE RULE

Answer 5

The Offer and Acceptance must match in every aspect. If there’s a mismatch with the acceptance, it is a Counter offer

UCC does not use this rule

Question 6

MODIFICATION OF CONTRACTS & PRE-EXISTING DUTY RULE

Answer 6

modification occurs when the parties have formed a valid contract and then attempt to change the terms before performance is complete

contract modification will be void because the new “deal” lacks consideration. This is called the “Pre-Existing Duty Rule”

Modification is accepted if:
New or different consideration is given; OR
If it is a contract under the UCC, and the reasonable modification is sought in good faith

Question 7

MISTAKE: BILATERAL MISTAKE

Answer 7

Bilateral mistake/mutual mistake
The contract is void if:
The mistake concerns a basic assumption on which the contract is made,
The mistake has a material adverse effect on the agreed-upon exchange, AND
The adversely affected party didn’t assume the risk of the mistake.

Question 8

MISTAKE: UNILATERAL MISTAKE

Answer 8

Unilateral mistake is not a defense to the formation of a contract UNLESS the other party knew or should have known of the mistake

Question 9

STATUTE OF FRAUDS: MY LEGS Never Hurt

Answer 9

Contracts that should follow Statute of Frauds

Marriage is the consideration (prenups)
Contracts that cannot be performed within one Year

Land and real estate
Executor’s promise to personally pay debts of an estate
Goods of $500 or more
Surety’s promise to pay another person’s debts

Newspaper or magazine subscriptions
Healthcare provider’s guarantee of outcome

Question 10

STATUTE OF FRAUDS: SATISFACTION

Answer 10

Memorialized in writing;
Signed by the party to be charged with the breach; and
Contain the essential terms.

For Property the essential terms are typically PPP: Names of the parties, a description of the property, and the price.
The seller’s signature on a deed must also be subscribed by two witnesses.

Question 11

REMEDIES: TYPES

Answer 11

Legal: use money to compensate non-breaching party. Courts prefer this

Equitable: allow the court to go in and “fix” the problem. That may involve money, or it may involve forcing a party to take an action

Question 12

REMEDIES: SPECIFIC PERFORMANCE

Answer 12

Specific performance is an equitable remedy that compels the breaching party to perform under a contract. It is available when monetary damages are not adequate.

Almost always involves real property, unique goods or specialised equipment

Question 13

REMEDIES: REFORMATION

Answer 13

Reformation is an equitable remedy.

The court will fix the contract to reflect the actual intent of the parties.

Different from a mistake. Here, the parties knew what they wanted, but the contract turned out wrong.

Question 14

REMEDIES FOR FRAUD

Answer 14

Recission: the contract is voided. The parties must then restore any gains on the basis of the fraudulent contract via restitution.

Constructive Trust: the fraudulent party is deemed to hold the property in trust for the benefit of the injured party. He must then “execute” the trust and convey the property back to the rightful owner

Equitable Lien: the court imposes a lien on the property (often real property) for the value of the judgment. The lien can potentially be foreclosed to satisfy the judgment

Question 15

REMEDIES: MONEY DAMAGES

Every Road Rage Incident Causes Liability

Answer 15

Often compensatory damages
No punitive damages for breach of contract

Types
[E]xpectation
[R]estitution
[I]ncidental
[C]onsequential
[L]iquidated

Question 16

REMEDIES: EXPECTATION DAMAGES

Answer 16

Legal Remedy

Expectation damages are the standard measure of contract damages. These are sufficient damages for the non-breaching party to buy a substitute performance.

same economic position as if the contract was performed

Based on how much money the plaintiff lost from the breach

Question 17

HOW TO CALCULATE EXPECTATION DAMAGES

Answer 17

Market price of plaintiff’s loss (market price of item - what plaintiff would have spent anyway)
Cost to replace or repair

Question 18

REMEDIES: RESTITUTION

Answer 18

Restitution is a remedy used to correct unjust enrichment; take back improper gains

Unjust enrichment - a party received a benefit as a result of someone else’s misfortune

Force the defendant to pay the value of the enrichment to the plaintiff

Based on what the defendant gained

Cannot get both expectation damages and restitution, but can get both restitution and reliance

Used in 2 scenarios:

• damages for promise that cannot be enforced as a contract
• alternative to legal damages, where legal damages cannot be ascertained or is insufficient

Question 19

REMEDIES: RELIANCE DAMAGES

Answer 19

Reliance damages are an equitable remedy used to compensate the non-breaching party for reasonable, foreseeable costs that he incurred in reliance upon the promise

Put the plaintiff in a position they would have been if the contract was never formed

Damages must be reasonable

Used in 2 scenarios:

• promises that cannot be enforced as a contract
• alternative to expectation damages/when the legal remedy cannot be ascertained/insufficient

Cannot get both expectation damages and restitution, but can get both restitution and reliance

Question 20

REMEDIES: INCIDENTAL DAMAGES

Answer 20

Legal remedy

Incidental damages are the expenses that the non-breaching party incurs in finding replacement performance

Question 21

REMEDIES: CONSEQUENTIAL (SPECIAL) DAMAGES

Answer 21

Legal remedy

Usually not available. Very high damages

Consequential damages are special damages and reflect losses over and above standard expectation damages. They are recoverable only if, at the time the contract was made, a reasonable person would have foreseen the damage as a probable result of the breach

the person must be put on notice

How to use
Defendant must
- know (or be reasonably able to foresee)
- that breach would cause special harm to the plaintiff
- outside the scope of the party relationship,
- and that harm would not be wholly rectified by ordinary damages.

Example: lost profits

Counter to Consequential Damages

• loss not foreseeable
• amount of damags are too speculative

Question 22

REMEDIES: LIQUIDATED DAMAGES

Answer 22

Legal remedy

The parties to a contract agree to the damages to be paid in the event of a breach. Typically, the amount of liquidated damages is stated in the contract itself

To obtain:

The amount of liquidated damages must be reasonably related to actual damages, AND
The liquidated damages must not be used as a penalty