Contracts

Question 1

What law applies to contracts for services?

Priority: Medium

Answer 1

The common law governs contracts for services.

Question 2

At common law when can an agreement to modify a contract be enforced?

Priority: High

Answer 2

At common law, an agreement to modify an existing contract may be enforced if it is supported by consideraiont because there are new obligations on both sides.

Question 3

What is a condition precedent?

Priority: Medium

Answer 3

A condition precedent in a contract makes performance conditional upon the completion of the condition.

Question 4

How can conditions me included in a contract?

Priority: Medium

Answer 4

Conditions can be either expressly provided in the contract or they can be implied in the interest of fairness.

Question 5

What is the duty of good faith and fair dealing?

Priority: High

Answer 5

A duty of good faith and fair dealing is imposed on each party in the performance and enforcement of any contractual obligation.

Question 6

What are expectation damages, and what are they intended to do?

Priority: High

Answer 6

Expectation damages are the normal measure of damages for breach of contract and are intended to put the injuryed party in the same position as if the contract had been performed.

Question 7

What is necessary to prove expectation damages?

Priority: High

Answer 7

The nonbreaching party must be able to prove expectation damages with reasonable certainty, and the damages must be foreseeable.

Question 8

When are damages foreseeable?

Priority: High

Answer 8

Damages are foreseeable if they were contemplated by the parties at the time the contract was made.

Question 9

When are punitive damages available?

Priority: Medium

Answer 9

Punitive damages are rarely available in contract actions and are not typically recoverable unless the conduct constituting the breach is also a tort for which punitive damages are available.

(Some statutes apply punitive damages for the purpose of punishing fraud, violation of fiduciary duty, acts of bad faith, and for deterrence.)

Question 10

What law applies to contracts for the sale of goods?

Priority: High

Answer 10

A contract for the sale of goods is governed by Article 2 of the Uniform Commercial Code (UCC).

The Uniform Commercial Code Article 2 governs transactions involving the sale of goods.

Question 11

When does a UCC contract for goods fall under the Statute of Frauds (SOF)?

Priority: High

Answer 11

Under the UCC, a contract for the sale of goods for $500 or more falls within the Statute of Frauds (SOF) and is generally unenforceable unless evidenced by a writing.

Question 12

What is necessary to satisfy the writing requirement of the statute of frauds?

Priority: High

Answer 12

The writing need not be formal but must be signed by the party to be charged and contain the essential elements of the deal. The writing must identify the parties and the subject matter of the contract.

Question 13

What are the essential terms for a contract for the sale of goods?

Priority: High

Answer 13

The only essential term to a UCC goods contract is the quantity term.

So long as the parties intend to create a contract, the UCC fills the gap if any other terms are missing.

Question 14

When is a writing not required for a UCC goods contract of $500 or more?

Piriority: High

Answer 14

A writing is not required (1) for specially manufactured goods, (2) to the extent that payment has been made and accepted for goods, (3) to the extent that goods are received and accepted, (4) when a merchant fails to object to a memorandum from another merchant within 10 days of receipt of the memorandum, or (5) when the party to be charged admits that there was a contract during a judicial proceeding.

Question 15

When does anticipatory repudiation apply, and what is necessary?

Priority: High

Answer 15

The doctrine of anticipatory repudiation applies when a prommisor repudiates a promise before the time for performance is due.

The repudiation must be clear and unequivocal, and state that the party is unable or unwilling to perform.

Question 16

What may a non-breaching party do after receiving repudiation?

Priority: High

Answer 16

The non-breaching party can either treat the repudiation as a breach or ignore it and demand performance.

Question 17

When may a repudiating party retract the repudiation?

Priority: High

Answer 17

A repudiating party may retract its repudiation unless the other party (1) acts in reliance on the repudiation, (2) signifies acceptance of the repudiation, or (3) commences an action for breach of contract.

Question 18

What are the seller’s remedies for breach under the UCC when they resell the goods?

Prioority: High

Answer 18

If the resale is made in good faith and in a commercially reasonable manner, the seller can recover the difference between the contract price and the resale price plus incidental and consequential damages.

Question 19

What are incidental damages in the sale of goods?

Priority: High

Answer 19

In the sale of goods, incidental damages are any commercially reasonable costs, and may include the cost of transporting goods

Question 20

What are consequential damages?

Priority: High

Answer 20

Consequential damages arise indirectly from the breach and are awarded because of the injured pary’s special circumstances.

Consequential damages are a direct result of the breach but need not be the usual result of the breaching party’s conduct.

Question 21

What is necessary to recover consequential damages?

Priority: High

Answer 21

The damages must (1) be REASONABLY FORESEEABLE at the time of contract formation, (2) arise from the plaintiff’s special circumstances that the DEFENDANT KNEW OR HAD REASON TO KNOW OF, and (3) be REASONABLY CERTAIN.

The breaching party must have reasonably foreseen the consequential damages for them to be recoverable.

Question 22

What is consideration?

Priority: High

Answer 22

Consideration is a bargained for exchange where each party offers something to the other. Generally, past or moral consideration is not sufficient to support a contract.

Question 23

What is the material benefit rule?

Priority: High

Answer 23

Under the modern trend, a PROMISE MADE IN RECOGNITION OF A BENEFIT PREVIOUSLY RECEIVED by the promisor is binding, even without consideration, to the extent necessary TO PREVENT INJUSTICE.

Question 24

When does the material benefit rule not apply?

Priority: High

Answer 24

The material benefit rule will not apply if the promisee conferred the benefit as a GIFT, or the value of the promise is DISPROPORTIONAL to the benefit conferred.

Question 25

When may a contract be enforced through promissory estoppel?

Priority: High

Answer 25

Courts will invoke the doctrine of promissory estoppel to treat a promise as binding if (1) the promisor should reasonably expect it to induce action or forbearance on the party of the promisee or a third person, (2) the promise does induce such action or forbearance, and (3) injustice can be avoided only by enforcement of the promise.

Question 26

What is substantial performance?

Priority: High

Answer 26

The doctrine of substantial performance provides that a party who substantially performs can recover on the contract even though full performance has not been tendered.

Question 27

When is substantial performance unavailable?

Priority: High

Answer 27

There is no substantial performance if the incomplete performance was a material breach of contract.

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

Question 28

What is a material breach of contract?

Priority: High

Answer 28

A material breach of contract occurs when the nonbreaching party fails to receive the substantial benefit of the bargain.

Question 29

What may the nonbreaching party do upon material breach?

Priority: High

Answer 29

Under the common law, a material breach of contract allows the nonbreaching party to withhold any promised performance and to pursue remedies for the breach, including damages.

Question 30

What is a divisible contract?

Priority: Medium

Answer 30

A divisible or installment contract is one in which the parties’ obligations are divisible into distinct units of performance.

Question 31

What can a party recover for a divisible contract?

Priority: Medium

Answer 31

Recovery is limited to the amount promised for the unit of the contract performed.

Question 32

What is the effect of a condition precedent?

Priority: Medium

Answer 32

When parties expressly agree to a condition precedent, or concurrent condition, they are generally held strictly to that condition, and a party must fully comply with with that condition before the other party’s performance is due.

Question 33

What is unjust enrichment?

Priority: High

Answer 33

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.

Recovery will be available even if there is no enforceable contract.

In this case, the court can permit the plaintiff to recover the value of the benefit to prevent this unjust enrichment.

Question 34

What law is applied in mixed contracts?

Priority: High

Answer 34

If a transaction includes both goods and services, the predominant purpose test is applied to resolve whether the common law or the UCC applies to the entire transaction.

Question 35

Under common law, what must the nonbreaching party do if the breach is minor?

Priority: High

Answer 35

Under common law, if the breach is minor, then the nonbreaching party must still perform under the contract.

This allows a party who substantially performs to recover on the contract even though that party has not rendered full performance.

Question 36

What can a substantially performing party recover.

Priority: High

Answer 36

Generally, the substantially performing party can recover the contract price minus the cost to the other party of obtaining the promised full performance.

Question 37

What can a breaching party recover?

Priority: High

Answer 37

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 nonbreaching party has accepted or agreed to accept the substitute performance.

Question 38

How are damages measured in construction contracts?

Priority: High

Answer 38

In construction contracts, the general measure of damages for a contractor’s failure is the difference between the contract price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for delay in completion of the construction.

Question 39

How are damages awarded when an award for breach of construction contract would be wasteful

Priority: High

Answer 39

When a breach results in a defective or unfinished construction, if the award of damages based on the cost to fix or complete the construction would result in economic waste, then a court may instead award damages equal to the diminution in the market price caused by the breach.

Question 40

What is economic waste?

Priority: High

Answer 40

Economic waste occurs when the cost to fix or complete the construction is clearly disproportional to any economic benefit or utility gained as a result.

Question 41

What is the purpose of compensatory damages?

Priority: High

Answer 41

Compensatory damages are meant to compensate the nonbreaching party for actual economic loss.

Question 42

How do expectation damages need to be calculated?

Priority: High

Answer 42

Expectation damages must be calculated with reasonable certainity.

Question 43

What are actual damages?

Priority: Medium

Answer 43

Actual damages can be either direct or consequential.

Question 44

When are damages foreseeable?

Priority: High

Answer 44

Damages are foreseeable if they were a natural and probable consequence of breach, if they were “in the contemplation of the parties at the time the contract was amde,” or if they were otherwise foreseeable.

Question 45

What is the requirement of causation for consequential damages?

Priority: Medium

Answer 45

Consequential damages do not concern the value of the lost performance due to breach, but there must be a causal link between the breach and the consequential damages for them to be recoverable.

Question 46

What is the requirement of certainty for consequential damages?

Priority: Medium

Answer 46

The plaintiff must prove the dollar amount of consequential damages with reasonable certainty not speculatively.

Question 47

What is the duty to mitigate?

Priority: High

Answer 47

A party to a contract must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience.

Question 48

What standard is a non-breaching party held to for mitigation?

Priority: High

Answer 48

A nonbreaching party is held to a standard of reasonable conduct in preventing loss.

Question 49

What happens if a nonbreaching party ails to mitigate damages?

Priority: High

Answer 49

The nonbreaching party’s failure to mitigate does not give the breaching party a right to sue the nonbreaching party for such failure; it only reduces the nonbreaching party’s recoverable damages.

Question 50

What is the parol evidence rule?

Priority: High

Answer 50

The common law Parol Evidence Rule prevents the introduction of prior extrinsic evidencce that contradicts the terms of the written contract.

Question 51

When can the parol evidence rule apply?

Priority: High

Answer 51

For the PER to apply, there must be a determination as to whether the parties’ writing is “integrated” because the parties intended it to be their final agreement.

Question 52

When is a writing fully integrated, and what effect does that have?

Priority: High

Answer 52

If the writing completely expresses all of the terms of the parties’ agreement, then it is a total integration, and the parties cannot introduce any extrinsic evidence (oral or written) of prior or contemporaneous understandings or negotiations.

Question 53

When is a writing partially integrated?

Priority: High

Answer 53

If the writing sets forth the parties’ agreement about some terms, but not all terms, then it is a partial integration.

Question 54

If a writing is partially integrated, when can a party introduce evidence to supplement the contract?

Priority: High

Answer 54

For a partially integrated contract the parties are permitted to introduce supplementary extrinsic evidence of other terms as long as the evidence is consistent with the writing.

Question 55

What is the four corners rule?

Priority: Medium

Answer 55

Under the common law, a court was permittted to look only to the writing itself for evidence of the parties’ intent. If the written contract appeared to be detailed, then a court would likely conclude that it was totally integrated

Question 56

How does a merger clause factor into the consideration of integration?

Priority: High

Answer 56

A merger clause is strong evidence the parties intended the writing to be the final, complete integration.

Question 57

How may a contract be modified at common law?

Priority: High

Answer 57

At common law, modification of an existing contract must be supported by consideration. An agreement to modify a contract may still be enforced if there are new obligations on both sides.

Question 58

How is a contract formed under the UCC, and what are the essential terms?

Priority: Medium

Answer 58

Under the UCC, a contract is formed if both parties intend to enter into a contract and there is a reasonably certain basis for giving a remedy.

Other than the identity of the parties and subject matter of the agreement, the quantity is the only term essential to forming the contract.

As long as the parties intend to create a contract, the UCC “fills the gap” if other terms are missing–e.g., time or place for delivery.

Question 59

Is an oral agreement for the sale of goods enforceable?

Priority: High

Answer 59

An oral contract for the sale of goods is valid and enforceable unless the contract is for the sale of goods for $500 or more. In that case, the contract must be in writing and signed by the party to be charged.

Question 60

When is a contract outside the SoF when goods have been received?

Priority: Medium

Answer 60

A contract for the sale of goods is outside the UCC Statute of Frauds to the extent that goods are received and accepted, and to the extent that payment has been made and accepted.

Question 61

What are the SoF requirements for sale of goods of $500 or more?

Priority: Medium

Answer 61

The UCC requires a memorandum for a sale of goods for $500 or more to (1) indicate that a contract has been made, (2) identify the parties, (3) contain a quantity term, and (4) be signed by the party to be charged.

Question 62

What counts as a signature for the SoF?

Priority: Medium

Answer 62

A signature is any authentication that identifies the party to be charged such as company letterhead.

Question 63

Will a mistake in a SoF memorandum effect the validity of the contract?

Priority: High

Answer 63

A mistake in the memorandum or the omission of other terms does not destroy the memorandum’s validity. However, enforcement of the agreement is limited to the quantity term actually stated in the memorandum.

Question 64

What is a merchant?

Priority: High

Answer 64

A merchant is a person who regularly deals in the type of goods involved in the transaction or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.

Question 65

What is a merchant’s confirmatory memorandum?

Priority: High

Answer 65

In contracts between merchants for the sale of goods for $500 or more, if a memorandum sufficient against one party is sent to the other party who has reason to know its contents, and the receiving party does not object in writing within 10 days, then the contract is enforceable against the receiving party even though he has not signed it.

Question 66

When can an offer be revoked?

Priority: High

Answer 66

In general, an offer can be revoked by the offeror at any time prior to acceptance.

Question 67

What is the UCC firm offer rule?

Priority: High

Answer 67

Under the UCC firm offer rule, an offer to buy or sell goods is irrevocable if: (1) the offeror is a merchant, (2) there is an assurance that the offer is to remain open, and (3) the assurance is contained in a signed writing from the offeror.

Question 68

Can an offeree prepare a firm offer, and if so what makes it valid?

Priority: Medium

Answer 68

A firm offer in a form prepared by the offeree must be separately authenticated by the offeror to protect against inadvertent signing.

Question 69

Can an offer become irrevocable through reliance?

Priority: High

Answer 69

It is possible for an offer to be irrevocable if the offeree reasonably and detrimentally relies on the offeror’s promise prior to acceptance.

It must have been reasonably foreseeable that such detrimental reliance would occur in order to imply the existence of an option contract.

Question 70

When is an offer revoked?

Priority: High

Answer 70

An offer is revoked when the offeror makes a manifestation of an intention not to enter into the proposed contract before the offeree accepts.

Question 71

How can a revocation be made?

Priority: High

Answer 71

A revocation may be made in any reasonable manner and by any reasonable means, and it is not effective until communicated.

Question 72

When does a person receive notice of revocation under the UCC?

Priority: Medium

Answer 72

Under the UCC, a person receives notice of revocation when (1) it comes to that person’s attention, or (2) it is duly delivered in a reasonable form at the offeree’s place of business.