Contracts

Question 1

What is a contract?

Answer 1

A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty.

Question 2

Article 2 (U.C.C.) Sale of Goods

Answer 2

Contracts involving the sale of goods are governed by Article 2 of the U.C.C. Does not apply to the sale of real estate, services, intangibles, or construction contracts. When there is a conflict between common law and Article 2, Article 2 prevails.

Question 3

Article 2: Goods

Answer 3

Goods are all things movable at the time they are identified as the good to be sold under the contract. Article 2 does not apply to the sale of real estate, services, intangibles, or construction contracts.

Question 4

Article 2: Merchants

Answer 4

One who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved. Article 2 provisions dealing with general business contracts usually considers anyone in a business to be a merchant. Some provisions require a more narrow interpretation of merchant with respect to goods of the kind involved in the subject transaction.

Question 5

Article 2: Good Faith

Answer 5

Every contract within the U.C.C. imposes an obligation of good faith in its performance and enforcement. “Good Faith” is honesty in fact and the observance of reasonable commercial standards.

Question 6

Good Faith

Answer 6

“Good Faith” is honesty in fact and the observance of reasonable commercial standards. Common law imposes a duty of good faith and fair dealing.

Question 7

Breach of Good Faith

Answer 7

A breach of this duty usually involves exercising discretion in a way that deprives the other party of the fruits of that contract.

Question 8

Express Contract

Answer 8

Contracts formed by language, oral or written.

Question 9

Implied in Fact Contract

Answer 9

Contracts formed by manifestations of assent other than oral or written language, i.e. by conduct.

Question 10

Quasi-Contract or Implied in Law Contract

Answer 10

Not Contracts. They are formed/constructed by courts to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant.

Question 11

Bilateral Contracts - Exchange of Mutual Promises

Answer 11

The traditional bilateral contract is one consisting of the exchange of mutual promises, i.e. a promise for a promise, in which each party is both a promisor and promisee. (Consideration)

Question 12

Unilateral Contracts - Acceptance by Performance

Answer 12

The traditional unilateral contract is one which the offeror requests performance rather than a promise. Here, the offeror-promisor promises to pay upon the completion of the requested act by the promisee. Once the act is completed, a contract is formed. In such contracts, there is one promisor and one promisee.

Article 2 Second Restatement: a unilateral contract only exists when (1) the offeror clearly and unambiguously indicates that completion of performance is the only manner of acceptance, and (2) where there is an offer to the public, such as collecting a reward.

Question 13

Void Contract

Answer 13

A contract without any legal effect from the beginning. It is retroactive and cannot be enforced by either party.

Question 14

Voidable Contract

Answer 14

A contract that one or both parties may elect to avoid. (a defense may allow for a party to void a contract, such as misrepresentation or or force majeure.

Question 15

Elements of a Contract

Answer 15

Offer
Acceptance
(Mutual Assent)
Consideration
Legality (Mutual Assent)

Question 16

Mutual Assent

Answer 16

One party must accept another party’s offer. Its elements are an Offer and an Acceptance of that offer. Mutual Assent is determined by an objective standard.

Question 17

The Offer

Answer 17

An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.

Question 18

Elements of an Offer

Answer 18

Promise, undertaking or commitment;
Definite and Certain Terms; and
Communication to the Offeree.

Question 19

Element of an Offer: Promise, Undertaking, or Commitment

Answer 19

There must be intent to enter into a contract, not simply an invitation to begin preliminary negotiations.

Question 20

Element of an Offer: Definite and Certain Terms

Answer 20

An offer must be definite and certain in terms. Elements: The offeree must be clearly identified; The subject matter must be definite; The offeree must have knowledge of the offer.

Question 21

Elements of an Offer

Answer 21

Promise, undertaking or commitment;
Definite and Certain Terms; and
Communication to the Offeree.

Question 22

Revocation

Answer 22

Retraction of an offer by the offeror. The revocation must be communicated. The offer may also be revoked indirectly if the offeree receives: correct information, from a reliable source, of acts the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer.

Effective when received by the offeree, or when published.

Question 23

Express Rejection

Answer 23

Termination by the Offeree. A statement by the offeree that she does not intend to accept the offer. Such rejection will terminate the offer.

Question 24

Counteroffer as a Rejection

Answer 24

Termination by the Offeree. A counteroffer is made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms.

An inquiry will not terminate the offer.

Rejection of an offer through option does not terminate that offer unless the offeror detrimentally relied on the offerees

Question 25

Option

Answer 25

A contract to keep an offer open. An offer cannot be revoke if an option has been agreed upon.

Question 26

Lapse of Time

Answer 26

An offer may be terminated by the offeree’s failure to accept within a specified time period by the offer or, if no deadline was specified, within a reasonable period.

Question 27

Termination by Operation of the Law

Answer 27

Death or Insanity (need not be communicated);
Destruction of subject matter; or
supervening illegality.

Question 28

Acceptance

Answer 28

A manifestation of assent to the terms of an offer.

Question 29

Elements of Acceptance

Answer 29

One must have power to accept or be a member of the class to which the offer has been directed;
The offeree must know the offer in order to accept it.

Question 30

Elements of Acceptance

Answer 30

Offeree must have power of acceptance or belong to a class of which the offer was directed;
Offeree must know the offer;

For Unilateral Contracts:
Completion of performance without notice;
Notice must be given within a reasonable time;

For Bilateral Contracts:
Acceptance must be communicated unless the offer provides that acceptance need not be communicated;
Unless otherwise provided, the offer is construed as inviting acceptance in any reasonable manner and by any medium reasonable under the circumstances;
Acceptance must be absolute and unequivocal to every term in the offer.

Question 31

Mirror-Image Rule

Answer 31

Acceptance must be absolute and unequivocal to every term in the offer. At common law, any different or additional terms in the acceptance make the response a rejection and counteroffer.

Question 32

Auction Contracts

Answer 32

U.C.C.: A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in another customary manner. An auction is a sale with reserve unless the goods are explicitly put up without reserve.

Question 33

Mailbox Rule

Answer 33

Acceptance by mail or similar means creates a contract at the moment of dispatch, provided that the mail is properly addressed

Question 34

Exceptions to Mailbox Rule

Answer 34

The offer stipulates that acceptance is not effective until received;
An option contract is involved;
if the offeree sends a rejection and then sends an acceptance, whichever arrives first is effective;
If the offeree sends an acceptance and then a rejection, the acceptance is effective unless the rejection arrives first and the offeror detrimentally relies on it.

Question 35

Consideration

Answer 35

Something (such as an act, a forbearance, or return promise) bargained for and received by a promisor from a promisee; that which motivates a person to do something, esp. engage in a legal act.

Consideration, or a substitute such as a promissory Estoppel, is necessary for an agreement to be enforceable.

Question 36

Elements of Consideration

Answer 36

Bargained For Exchange; and
Legal Value Element.

Question 37

Bargained-For Exchange

Answer 37

A benefit or detriment that the parties to a contract agree to as the price of performance. No Consideration when one party give a gift to another.

Question 38

Legal Value Element

Answer 38

For there to be consideration, there must be an exchange of a legal detriment for a legal benefit.

Question 39

Legal Detriment

Answer 39

Results if the promisee does something he is not legally obliged to do or refrains from doing something he has a legal right to do.

Question 40

Legal Benefit

Answer 40

Forbearance or performance of an act that the promisor was not legally entitled to demand or expect.

Question 41

Illusory Promise

Answer 41

An illusory promise is a promise that is unenforceable due to indefiniteness or lack of mutuality, where only one side is bound to perform.

Question 42

Estoppel

Answer 42

A bar that prevents one from asserting a claim or right that contradicts what one has said or done before or what has been legally established as true.

Question 43

Promissory Estoppel

Answer 43

The Principle that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to his or her detriment.

Question 44

Mutual Mistake

Answer 44

Both parties entering into a contract are equally mistaken as to the facts relating to the agreement.

The contract is voidable by the adversely affected party if: (1) The mistake concerns a basic assumption; (2) The mistake has a material effect on the agreed-upon exchange; and (3), The party seeking avoidance did not assume the risk of the mistake.

Question 45

Unilateral Mistake

Answer 45

A contract is not avoidable if one party was mistaken about the facts related to the agreement, unless the non-mistaken party knew or had reason to know of the mistake made by the other party (i.e., they made a mistake in the calculation of value and there was no correction).

Question 46

Mistake in Transmission

Answer 46

A mistake made in the transmission of an offer/acceptance through an intermediary. The contract is valid as transmitted by the intermediary unless the other party knew or should have known of the mistake.

Question 47

Ambiguous Contract (Misunderstanding)

Answer 47

If a contract contains a term with at least two possible meanings, and neither or both parties were aware of the term, then there is no contract. There is a contract if in the mistake both parties intended the same meaning for the term, or if one party was aware, wherein the reasonable belief of the ignorant party defines the term.

Question 48

Fraudulent Misrepresentation

Answer 48

A false statement that is known to be false or is made recklessly - without knowledge or caring whether it is true or false - and that is intended to induce a party to detrimentally rely on it. The contract is void.

Question 49

Non-Fraudulent Misrepresentation

Answer 49

A contract is voidable if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material.

Question 50

Illegality of Subject Matter

Answer 50

If the subject matter or the consideration is illegal, the contract is void.

Question 51

In Pari Delicto

Answer 51

“in equal fault.” This is doctrine states that there is a bar to a plaintiff’s recovery of damages for a wrong the plaintiff participated in and serves as an equitable defense.

Question 52

Duress

Answer 52

A party’s assent is procured by an improper threat. Withholding something from someone who needs it is economic duress. A contract made under duress is void.

Question 53

Undue Influence

Answer 53

When one party with undue susceptibility comes under the pressure of another party to enter into an agreement. A contract made with undue influence of one party is void.