Contracts

Question 1

rights of third party beneficiary vest when

Answer 1

the beneficiary (1) manifests assent to the promise in a manner invited or requested by the parties (2) brings suit to enforce the promise; or (3) materially changes his position in justifiable reliance on the promise.

Question 2

common law modification

Answer 2

a modification of a contract requires consideration because the parties are under preexisting duties to perform. The modern view permits modification without consideration if it is fair and equitable in view of unanticipated circumstances.

Question 3

Defense of illegality

Answer 3

if the subject matter of the contract became illegal after the offer but before the acceptance, the supervening illegality is deemed to revoke the offer. if the illegality is present at the time of the offer, there is no valid offer. if the illegality arises after formation of a valid contract, it discharges the contract because performance has become impossible. it will be a defense to enforcement of a contract if either the consideration or the subject matter is illegal.

Question 4

Reformation

Answer 4

Reformation is the remedy whereby the writing setting forth the agreement between the parties is changed so that it conforms to the original intent of the parties, typically in the case of mutual mistake. However, it is also available when the writing is incorrect because of innocent or fraudulent misrepresentation. the writing will be reformed to reflect the expressed intent of the parties.

Question 5

Ratification

Answer 5

a new valid promise to perform a voidable obligation. Such as a minor ratifying a contract at the age of majority

Question 6

election waiver

Answer 6

when a condition is not satisfied or a duty of performance is broken and the beneficiary of the condition or duty nevertheless chooses to continue under the contract, a court will hold this to be an election waiver

Question 7

prospective unwillingness to perform

Answer 7

occurs when one party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. The effect of this prospective failure would be to allow the seller to suspend further performance until she receives adequate assurances that the buyer’s performance will be forthcoming. If buyer doesn’t provide adequate assurances, the seller can treat this as a repudiation.

Question 8

C.O.D

Answer 8

buyer generally must pay for the goods on delivery, without inspecting the goods prior to payment.

Question 9

Laches

Answer 9

equitable defense that arises when a party delays in bringing an equitable action and the delay prejudices the defendant.

Question 10

Unclean hands

Answer 10

defense that arises when the party seeking specific performance is guilty of some wrongdoing in the transaction being sued upon.

Question 11

frustration

Answer 11

the following must be shown: (i) there is some supervening act or event leading to the frustration; (ii) at the time of entering into the contract, the parties did not reasonably foresee the act or event occurring; (iii) the purpose of the contract has been completely or almost completely destroyed by this act or event; and (iv) the purpose of the contract was realized by both parties at the time of making the contract.

Question 12

Mutual mistake

Answer 12

When both parties entering into a contract are mistaken about existing facts relating to the agreement, the contract may be voidable by the adversely affected party if (i) the mistake concerns a basic assumption on which the contract is made; (ii) the mistake has a material effect on the agreed-upon exchange; and (iii) the party seeking avoidance did not assume the risk of the mistake.

Question 13

Offer

Answer 13

A manifestation of a willingness to enter into a bargain, the assent of which will conclude the bargain

Must be communicated to the offeree in order to be valid and the terms must be certain

UCC: Normally an offer to purchase goods is sufficient to show a party is willing to enter into a bargain

Question 14

An offer is valid until

Answer 14

1. Revoked: Power of the offeror
   * Option K is a limit on the offeror’s power to revoke
   * C/L: In order to make an option, it needs to be supported by consideration
   * UCC (Firm Offer Rule): A writing, signed by a merchant, giving assurances that the offer will be held open for the time stated and if no time is stated the for a reasonable time (neither of which can exceed 3 months; if stated time exceeds 3 months, the K firm offer is not void but it is only enforceable for 3 months)
2. Revocation must be communicated to the offeree (expressly or by reliable 3rd party)
3. Rejected: Power of the offeree 🡪 offeree can then make a counteroffer & switch power of acceptance
4. Lapse of time
5. Death of the offeree before acceptance (does not apply to unilateral Ks)

Question 15

Acceptance for a bilateral contract

Answer 15

Bilateral contract = mutual promises
1. cannot accept by silence unless a reasonable person would not have responded/would have undersstood the silence to consitute acceptance under the cirxumstances which expressed an assent ot the bargain.
2. CL: Mirror image rule (acceptance must match offer)
3. UCC:
* an offer to purchase goods for current or prompt shipment requests acceptance either by: promise to ship or shipment of conforming or nonconforming goods (if nonconforming = performance and breach unless accomodation letter)
* Use battle of th eforms for when there is an offer and acceptance with different terms

Question 16

acceptance for unilateral contract

Answer 16

*acceptance by full performance
*unilateral K becomes irrevocable when performance begins

Question 17

Consideration

Answer 17

Bargained-for exchange of promises where one party is doing something that the party is legally entitled not to do and the other party is refraining from doing something they are legally entitled to do

1. Forbearance is consideration
2. Past consideration is not consideration
3. Modification of a CL K requires new consideration because of the pre existing legal duty rule, unless modification was fair and equitable in view of circumstances not anticipated when K was made
4. Modification of a UCC K does not require new consideration, only requires good faith
5. The court does NOT weigh the adequacy of consideration

Question 18

Is the K enforceable?

Answer 18

1. Once a valid K has been created, there needs to be grounds for rescission (i.e. mutual mistake) – unilateral attempts to rescind the K are unenforceable
2. Unconscionability 🡪 Unfair surprise (i.e. new material terms) or oppressive terms, which are often hidden (i.e. exculpatory clauses for intentional acts)
3. Fraud
4. Misrepresentation - Includes false assertions, concealment, or misstatements about a material fact before K formation
5. Duress/Coercion 🡪 Includes both economic & physical duress
6. Unilateral mistake is not a defense unless the other party knew/should’ve known of the mistake
7. Mutual mistake is a defense if both parties are mistaken, mistake concerns a basic assumption of fact,
8. Illusory Promise - One of the parties doesn’t actually bind himself to act
9. Statute of Frauds (MY LEGS) - Marriage Ks, service Ks incapable of being performed within one Year, Land related Ks, Executor promises, sale of Goods of $500 or more, Sureties (unless the main purpose for making the surety was to secure benefit or advantage for yourself)
10. Lack of Capacity - Infants and mentally incompetent persons lack the capacity to contract; Intoxicated persons may lack capacity if the other party has reason to know of the intoxication
11. Illegal - Look for an illegal subject mater (which is not enforceable) or an illegal purpose for the K (which is enforceable by the innocent party)

Question 19

What were the terms of the k?

Parol evidence
UCC default terms

Answer 19

1. Parol Evidence Rule - A fully integrated K may not be altered or varied by the introduction of prior or contemporaneous statements (oral or written) that contradict the terms of the writing, unless an exception applies:
   * Parol evidence can be used for defenses to K formation
   * Parol evidence can be used to establish oral conditions
   * Parol evidence can be used to explain, interpret, or supplement
2. UCC - Any course of performance, trade usage, course of dealing can be used to explain or supplement a K
3. UCC Default Terms: Delivery and ROL
   * Shipment K OR FOB Seller’s place of business = Buyer has ROL (seller must get goods to carrier)
   * Destination K OR FOB Buyer’s Address = Seller has ROL (seller must get goods to buyer)
4. Under the UCC, a Time is of the Essence Clause is implied in a K for the Sale of Goods

Question 20

Did parties perfrom under the terms of the K

Nonperformance

Answer 20

Nonperformance of the K is a breach unless the duties are discharged or excused

Discharged
1. impossibility
2. impracticability
3. frustration of purpose

Excused
1. conditions/non-occurrence of conditions

2. perspective inability to perform (insecurity) - Request adequate assurances (need reasonable grounds) and treat as breach if party doesn’t give assurances in a reasonable time
3. anticipatory breach - clear, unequivocal statement that a 3rd party intends not to perform.
   * general options:
4. treat statement as present breach and sue
5. wait for time performance is due and then sue
6. request further assurances
7. do nothing
8. personal services Ks can be excused by illness

Question 21

Did the parties perform under the terms of the K?

CL substantial performance

Answer 21

If one party has substantially performed, the other party is obligated to perform and complete performance

Less than perfect performance by one party does not excuse the other party from his obligation

“Substantial” is usually considered at least halfway complete

If performance is delayed in a personal services K, the K cannot be canceled unless there is a material breach

Material vs. Minor Breach:
Will the aggrieved party receive the substantial benefit of her bargain?
Yes = Minor Breach
No = Material Breach

Question 22

DId the parites perform under the terms of the K?

UCC perfect Tender Rule

Answer 22

Seller must send conforming goods (i.e. goods that conform to the specifications of the K)

If perfect tender rule is violated, then the buyer can accept or reject in whole or in part (buyer must notify seller that goods are nonconforming)

The buyer must give the seller time to cure up and until the date performance is due if seller notifies buyer of his intent to cure

Question 23

Was there a valid change in the parties to the K or the K obligations?

novation vs. delegation

Answer 23

With a novation the parties agree to substitute a new party to perform and the original party is excused from performance, whereas delegation does not require both parties’ agreement and does not excuse the delegator’s liability on the K

Question 24

Was there a valid change in the parties to the K or the K obligations?

Accord & Satisfaction

Answer 24

Accord - Exists where one party to an existing K agrees to accept a different performance in lieu of the original promise or performance

Satisfaction - Performance of the accord agreement

Question 25

Are there any tird party issues?

Assignments

Answer 25

All contracts are assignable, unless the assignment substantially changes the parties duties, materially increases the burden of risk, materially impairs the chance of performance, or materially reduces the value of the K

1. Personal services Ks are not assignable
2. Requirements Ks are generally not assignable unless good faith belief that requirement/need won’t change
3. Gift assignments are unenforceable
4. Oral assignments are enforceable

Question 26

Are there any tird party issues?

Third party beneficiaries

Answer 26

Rights vest when (i) TP assents to the promise in a manner requested by the parties to the K, (ii) TP brings suit to enforce the promise, or (iii) TP materially changes position in justifiable reliance on the promise

3rd party bene can’t sue promisee can only sue promisor.

Question 27

Specific performance

Answer 27

Only available for Ks involving real estate or unique goods (service Ks can’t get SP but might be able to get an injunction)

Question 28

Reclamation

Answer 28

Unpaid seller’s in UCC K’s may reclaim goods from an insolvent buyer if buyer is insolvent at time of delivery and seller demands return of the goods w/in 10 days (must let buyer keep the goods if buyer tenders cash)

Question 29

monetary damages

Construction Ks
Expectation
Reliance
Consequential
Incidental
Liquidated
Quasi-K

Answer 29

1. Construction K Damages generally = cost of completion
2. Expectation damages will put the non-breaching party in the position he would have been in had the K been performed (i.e. benefit of the bargain)
3. Reliance damages are an alternative measure of damages used when expectation damages are too speculative and are designed to compensate the non-breaching party based on value of her performance
4. Consequential damages must be a foreseeable result of the breach. To be awarded, the parties to the K would have had to know that the damages would arise if the K was breached. The damages must be reasonably foreseeable or within the contemplation of the parties at the time the K was made. These damages may include lost profits if not too speculative.
5. Incidental damages are commercially reasonable expenses incurred by the non-breaching party
6. Liquidated damages provisions are enforceable if they are reasonable (i.e. damages difficult to ascertain at time K is made and the amount is a reasonable forecast of the projected losses) (>10% = unreasonable)
7. Quasi-K - Remedy in restitution for the reasonable value of the benefit conferred

Question 30

Remedy

breach by seller & buyer keeps goods

Answer 30

fmv of perfectly delivered goods minus fmv of the goods actually delivered

Question 31

remedy

breach by seller & seller keeps/Buyer returns

Answer 31

whichever of the following is higher
* FMV of goods at the time of breach minus K price, or
* Buyer’s cost of covering minus K price

Question 32

Remedy

Breach by Buyer & Buyer has Goods

Answer 32

Damages = K price

Question 33

Remedy

Breach by Buyer & Seller has Goods

Answer 33

Damages = either:
* K price minus market price at the time of delivery, or
* K price minus resale price plus incidental damages (and maybe plus lost profits if lost volume seller)

Lost volume seller is entitles to the lost profit she would have made if she made the original sale and the new sale, but supply must exceed demand.

Question 34

advertisements as offers

Answer 34

Generally, advertisements are considered invitations for offers, rather than offers themselves. However, where an advertisement invites acceptance by performance rather than a promise for performance (as in the case of reward offers), the advertisement is considered an offer for a unilateral contract, which will be binding on the offeror upon the offeree’s acceptance. When, the terms outlined in the advertisement are certain and definite, and the offerees were clearly identified the advertisement is specific enough to constitute an offer for a unilateral contract which an offeree could accept by performance.