Contracts

Question 1

Define

Offer

Answer 1

An offer is an objective manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree.

Question 2

How is a unilateral offer accepted?

Answer 2

Acceptance of an offer for a unilateral contract requires complete performance.
Note: Once performance has begun, the unilateral offer is irrevocable for a reasonable period of time to allow for complete performance unless there is a manifestation of a contrary intent.

Question 3

What types of contracts are governed by the UCC?

Answer 3

Any contract involving the sale of goods

Question 4

Acceptance

Answer 4

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

Question 5

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

Answer 5

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

Question 6

What is the basic concept of legal detriment?

Answer 6

There must be something of substance, either an act or a promise, which is given in exchange for the promise that is to be enforced.

Question 7

How is a bilateral offer accepted?

Answer 7

An offer requiring a promise to accept can be accepted either with a return promise or by starting performance.

Question 8

What are four forms of consideration?

Answer 8

Consideration can take the form of:

1. A return promise to do something
2. A return promise to refrain from doing something legally permitted
3. The actual performance of some act
4. Refraining from doing some act

Question 9

Under the common law, why was something given in the past not considered adequate consideration for a new contract?

Answer 9

Under the common law, past consideration is typically not adequate consideration because it could not have been bargained for, nor could it have been done in reliance upon a promise.

Note: there is a modern trend toward enforcing such promises under the material benefit rule.

swimming to an island, having a boat save you

Question 10

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

Answer 10

(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 11

What types of contracts are governed by the common law?

Answer 11

Contracts for services or real estate

Question 12

Under the UCC, what key term(s) must typically be specified for a contract to be formed?

Answer 12

Quantity

UCC fills the gap if other terms are missing

Question 13

Under the mailbox rule, when is acceptance effective?

Answer 13

An acceptance that is mailed properly (i.e., correct postage and address) within the allotted response time is effective when sent as opposed to on receipt, unless the offer provides otherwise.

Question 14

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

Answer 14

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

Question 15

Who lacks the capacity to make a contract?

Answer 15

i) Minors (under the age of 18);
(ii) People who are mentally ill;
(iii) People who are intoxicated; and
(iv) People whose property is under guardianship by reason of adjudication.

Question 16

Define accord and satisfaction.

Answer 16

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.

A “satisfaction” is the performance of the accord agreement; it will discharge both the original contract and the accord contract.

Question 17

What is a requirements contract?

Answer 17

A requirements contract is a contract under which a buyer agrees to buy all that is required of a product from the other party. There is consideration in these agreements because the promisor suffers a legal detriment.

Question 18

Under the UCC, what three requirements must be met for an offer to buy or sell goods to be an irrevocable firm offer?

Answer 18

(i) The offeror is a merchant;
(ii) There is an assurance that the offer is to remain open; and
(iii) The assurance is contained in a signed writing from the offeror.

Question 19

What is an output contract?

Answer 19

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 20

Define the material benefit rule.

Answer 20

Under the material benefit rule, when a party performs an unrequested service for another party that constitutes a material benefit, the modern trend permits the performing party to enforce a promise of payment made by the other party after the service is rendered, even though, at common law, such a promise would be unenforceable due to lack of consideration.

Question 21

Under the UCC, when both parties are merchants, an additional term in the acceptance is automatically included in the contract, unless: (Name the 3 exceptions)

Answer 21

(i) The term materially alters the original contract;
(ii) The offer expressly limits acceptance to the terms of the offer; or
(iii) The offeror has already objected to the additional terms, or objects within a reasonable time after notice of them was received.

Note: If any one of these three exceptions is met, the term will not become part of the contract, and the offeror’s original terms control.

Question 22

What is the difference between a void and voidable contract?

Answer 22

A void contract results in the entire transaction being regarded as a nullity, as if no contract existed between the parties; the contract is unenforceable.

A voidable contract operates as a valid contract unless and until one of the parties takes steps to avoid it.

Question 23

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

Answer 23

“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 24

Define incidental beneficiary.

Answer 24

One who benefits from a contract even though there is no contractual intent to benefit that person

Note: An incidental beneficiary has no rights to enforce the contract.

Question 25

What three factors does a court use to determine if restitutionary recovery is available in a quasi-contract situation?

Answer 25

A court may allow restitutionary recovery if:

1. The plaintiff has conferred a measurable benefit on the defendant;
2. The plaintiff acted without gratuitous intent; and
3. It would be unfair to let the defendant retain the benefit because either (i) the defendant had the opportunity to decline the benefit but knowingly accepted it, or (ii) the plaintiff had a reasonable excuse for not giving the defendant such opportunity.

Question 26

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

Answer 26

Fraud in the factum (or fraud in the execution) occurs when the fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction.

Effect: No contract is formed, and the apparent contract is VOID.

Question 27

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

Answer 27

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 28

When is the warranty of fitness for a particular purpose implied, and how is it disclaimed?

Answer 28

The warranty of fitness for a particular purpose is implied whenever the seller has reason to know that (i) the buyer has a particular use for the goods, and (ii) the buyer is relying upon the seller’s skill to select the goods.
A disclaimer must be in writing and be conspicuous.

Question 29

What doctrine comes into play when an unexpected event arises that destroys one party’s purpose in entering into the contract, but performance of the contract is not rendered impossible?

Answer 29

The doctrine of frustration of purpose.

The frustrated party is entitled to rescind the contract without paying damages.

Note: The event that arises must not be the fault of the frustrated party, and its nonoccurrence must have been a basic assumption of the contract.

Question 30

What is an implied-in-fact contract?

Answer 30

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 contractual 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 31

Define intended beneficiary.

Answer 31

One to whom the promisor will pay directly to relieve the promisee from a debt or whom the promisee intends to give the benefit of the promised performance

Question 32

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

Answer 32

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 33

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 33

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 34

What are the rights of the assignee?

Answer 34

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 35

When is a plaintiff entitled to restitutionary recovery, and how is it measured?

Answer 35

When a defendant is unjustly enriched by the plaintiff, restitution generally allows the plaintiff to recover on the benefit conferred by the plaintiff upon the defendant. Generally, the benefit is measured by either (i) the reasonable value of the defendant obtaining that benefit from another source, or (ii) the increase in the defendant’s wealth from having received that benefit.

Question 36

When is a plaintiff entitled to restitutionary recovery, and how is it measured?

Answer 36

When a defendant is unjustly enriched by the plaintiff, restitution generally allows the plaintiff to recover on the benefit conferred by the plaintiff upon the defendant. Generally, the benefit is measured by either (i) the reasonable value of the defendant obtaining that benefit from another source, or (ii) the increase in the defendant’s wealth from having received that benefit.

Question 37

What are the requirements of a writing for contracts that fall under the Statute of Frauds?

Answer 37

The writing must:

(i) Be signed by the party against whom enforcement is sought; and

(ii) Contain the essential elements of the deal.

Question 38

If a party has substantially complied or performed with a constructive condition, what can the party recover?

Answer 38

In general, the party can recover the contract price minus any amount that it will cost the other party to obtain the promised full performance.

Note: A party who has not substantially performed generally cannot recover damages based on the contract, but she may be able to recover through restitution.

Question 39

Under the UCC, in what two circumstances does the seller have a right to cure a defective tender?

Answer 39

(i) The time for performance under the contract has not yet elapsed; or
(ii) The seller had reasonable grounds to believe that the buyer would accept despite the nonconformity.

Note: The seller must give notice of the intent to cure and make a new tender of conforming goods.

Question 40

If a destination contract authorizes the seller to ship the goods by carrier, when does the risk of loss shift from the seller to the buyer?

Answer 40

Once the goods are delivered to a particular place (specified in the contract)

Question 41

At what point can repudiation no longer be retracted?

Answer 41

Repudiation may be retracted until such time as the promisee (i) acts in reliance on the repudiation, (ii) signifies acceptance of the repudiation, or (iii) commences an action for breach of contract.

Question 42

Define the parol evidence rule.

Answer 42

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 contract as written.

Question 43

Define the common-law four-corners rule.

Answer 43

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 44

Under the Second Restatement, can an extrinsic term that would “naturally be omitted” from a writing be introduced?

Answer 44

Yes, so long as it does not contradict the writing.

Question 45

What is the difference between an assignment and a delegation?

Answer 45

An assignment is the transfer of rights under a contract, and a delegation is the transfer of duties and obligations under the contract.

Question 46

Define condition precedent.

Answer 46

A condition that precedes the obligation to perform

Question 47

When are objective and subjective standards each used to determine whether a condition is satisfied?

Answer 47

The preferred method is an objective standard based upon whether a reasonable person would be satisfied. However, when the aesthetic taste of a party determines whether the other party’s performance is satisfactory, satisfaction is determined under a subjective standard.

Question 48

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

Answer 48

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 49

Under the common law, if the breach is material, what remedies can be sought by the nonbreaching party?

Answer 49

The nonbreaching party is able to withhold any promised performance and pursue remedies for breach, including damages.

Note: If the breach is minor, the nonbreaching party may be able to recover damages, but that party also still must perform under the contract.

Question 50

What is the formula for expectation damages?

Answer 50

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

Question 51

If a shipment contract authorizes the seller to ship the goods by carrier, when does the risk of loss shift from the seller to the buyer?

Answer 51

Once the goods are delivered to the carrier