Contracts

Question 1

Does the parole evidence rule bar admission of evidence to show a contractual obligation is, in fact, not an obligation?

Answer 1

No, the parol evidence rule does not bar admission of parol evidence to show that what appears to be a contractual obligation is, in fact, no obligation at all. Evidence is admissible to show that the contract was void or voidable and has been avoided, or was made subject to a valid condition precedent that has not been satisfied.

Question 2

May a partially integrated writing be contradicted and/or supplemented by additional terms?

Answer 2

A partially integrated writing cannot be contradicted, but it may be supplemented by proving up consistent additional terms.

Question 3

When a buyer, pursuant to a sale of goods contract, accepts nonconforming goods, the buyer’s measure of damages is:

Answer 3

The difference between the value of the goods as delivered and the value they would have had if they had been as according to contract, plus incidental and consequential damages

Question 4

If a seller accepts a buyer’s offer to purchase goods without an exact price term included, what is the price?

Answer 4

The price will be a reasonable price at the time of delivery.

Question 5

Four exceptions to the general rule that contractual duties may be delegated:

Answer 5

1. Duties involving personal judgment and skill;
2. Duties in which a special trust has been placed in the delegator;
3. Duties for which delegation will materially change the obligee’s expectancy; and
4. Duties the delegation of which is restricted in the contract.

Question 6

Will courts enforce a valid liquidated damages clause even if no actual money (or pecuniary) damages have been suffered?

Answer 6

Yes

Question 7

When must a contract modification meet SOF requirements?

Answer 7

When the contract itself is also within the Statute’s provisions.

Question 8

In a construction contract, if the property owner breaches the contract after construction has started but before it is completed, the builder is entitled to:

Answer 8

The profits he would have derived from the contract, plus any costs he has incurred

Question 9

Does a price quotation in an ad consitute an offer? Why or why not?

Answer 9

Price quotations may be considered offers if given in response to a specific inquiry.

Courts will look to the surrounding circumstances, and here a court would probably determine that the catalog that the manufacturer sent was an offer because it was sent in response to the store owner’s specific inquiries about prices on a specific computer and it included delivery terms and conditions of sale.

Question 10

What can a builder recover under the contract if, halfway through the build, a tornado destroys the house?

Answer 10

Nothing.

The condition precedent was not discharged by the destruction of the work in progress because construction has not been made impossible, but rather merely more costly—the builder can rebuild. Thus, he is not entitled to any recovery.

Note, however, that a number of courts will excuse timely performance because the destruction was not the builder’s fault.

Question 11

When does unilateral mistake discharge a duty to perform under a contract?

Answer 11

Although the general rule is that a contract will not be avoided by a unilateral mistake, there is an exception where the nonmistaken party either knew or should have known of the mistake.

Question 12

What is the measure of damages for a buyers acceptance of nonconforming goods?

Answer 12

Acceptance of nonconforming goods does NOT waive the buyer’s right to collect damages for a defect in quality.

In such a case, The basic measure of damages is the difference between the value of the goods as delivered and the value they would have had if they had been according to the contract

Question 13

Under the U.C.C., what is required to cure a defective delivery in a single delivery contract?

Answer 13

Under the U.C.C., a seller may “cure” a defective delivery by giving reasonable notice of the intention to cure and making a new tender of conforming goods within the time for performance. If the seller follows this procedure, the buyer must then accept the new tender.

Question 14

When must a K modification be in writing to satisfy SOF and be enforceable?

Answer 14

A K modification must be in writing to be enforceable when the entire contract price as modified is within the Statute of Frauds.

EG - A K orally modified from $400 to $800 is unenforceable.

Question 15

Under what circumstances is the right to receive goods under a requirements contract assignable under the UCC?

Answer 15

Generally, the right to receive goods under a requirements contract is NOT assignable because the obligor’s duties could change significantly. However, the UCC allows the assignment of requirements contracts if the assignee acts in good faith not to alter the terms of the contract.

Question 16

When are the rights of a third party beneficiary vested?

Answer 16

The rights of an intended third-party beneficiary vest when the beneficiary:

(i) manifests assent to the promise in a manner invited or requested by the parties;
(ii) brings suit to enforce the promise; or
(iii) materially changes his position in justifiable reliance on the promise.

Question 17

When is a liquidated damages clause enforeceable?

Answer 17

A liquidated damages clause is enforceable if: (i) damages are difficult to ascertain at the time of the making of the contract, and (ii) the damages are a reasonable forecast of compensatory damages.

Question 18

In a K between merchants, is an additional term (such as adding shipping charges to an acceptance) a part of the K?

Answer 18

Yes.

If both the buyer and seller are merchants, an additional term in an acceptance is included in the contract unless it materially alters the original offer terms, the offer expressly limited the acceptance to its terms, or the offeror objects within a reasonable time.

Question 19

In a K for sale of goods under UCC, does a change in market demand render a K unenforceable due to impracticability?

Answer 19

In contracts for the sale of goods under the UCC, a party’s duty to perform may be discharged where performance would be impracticable. Impracticability exists where a party encounters extreme and unreasonable difficulty and/or expense, and such difficulty was not anticipated. Duties will not be discharged where performance is merely more difficult or expensive than anticipated. The facts giving rise to impracticability must be such that their nonoccurrence was a basic assumption on which the contract was made.

Where parties enter into a contract for the sale of goods, both parties must anticipate the possibility that there will be a change in market conditions, resulting in either an increased or decreased demand for the product. Although changing demand may results in increased expenses, such difficulties arising from changing demand are to be anticipated, and do NOT discharge contract obligations due to impracticability. Thus, because the K remains enforceable, the parties must continue to perform.

Question 20

When may a plaintiff recover for expectation damages AND reliance damages/costs?

Answer 20

Generally, a plaintiff’s standard measure of damages will be based solely on an “expectation” measure, i.e., sufficient damages for him to buy a substitute performance. However, in certain situations, an award of compensatory damages will contain both an expectation and a reliance component.

For example, in a construction contract, if the owner breaches the contract after the builder has already begun his performance, the builder will be entitled to any profit he would have derived from the contract PLUS any costs he has incurred to date. This formula contains an expectation component (the profit the builder would have made) and a reliance component (the cost incurred prior to the breach).

Question 21

Under the UCC, what is the buyers basic remedy when a seller repudiates by refusing to deliver goods?

Answer 21

The difference between the contract price and either:

• the market price, or
• the cost of buying replacement goods (“cover”).

If the buyer intends to fix damages based on the latter measure, the buyer must make a reasonable contract for substitute goods in good faith and without unreasonable delay.

Question 22

When may a buyer cancel an installment K under UCC Article 2?

Answer 22

Under Article 2, a buyer may declare a total breach of an installment contract only if the defect substantially impairs the value of the entire contract.

Question 23

What may a buyer recover if accepted goods turn out to be defective?

Answer 23

When a buyer accepts goods that turn out to be defective, he may recover as damages any “loss resulting in the normal course of events from the breach,” which includes the difference between the value of the goods accepted and the value they would have had if they had been as warranted, plus incidental and consequential damages.

Question 24

What is included as consequential damages resulting from a seller’s breach by delivery of defective goods?

Answer 24

Consequential damages resulting from the seller’s breach include any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise, and injury to person or property proximately resulting from any breach of warranty.

EG - Plaintiff may recover medical expenses and cost of jacket that burned up when a defective camera explodes, causing serious burns and destroying the jacket.

Question 25

In a sale of goods between a merchant and a non merchant, is the merchant’s verbal assent to a written firm offer sufficient to hold the offer open?

Answer 25

No, it must be in writing.

Under the UCC, an offer by a merchant to buy or sell goods in a signed writing that, by its terms, gives assurances that it will be held open is NOT revocable for lack of consideration during the time stated (not to exceed three months). If the term assuring that the offer will be held open is on a form supplied by the offeree, it must be separately signed by the offeror.

Question 26

Does a response to an offer such as: “We would much prefer a straight cash deal. Would you consider an immediate purchase for $180,000 cash?” terminate the original offer?

Answer 26

No, because this is merely an inquiry.

A counteroffer serves as a rejection of the original offer as well as a new offer. However, a mere inquiry about additional terms or matters is not a counteroffer. The test of whether the reply is a counteroffer or inquiry is whether a reasonable person would believe that the offer was being rejected.

Question 27

What is the main purpose rule exception to the Surety provision of SOF?

Answer 27

One type of agreement that is covered by the Statute of Frauds is a promise to answer for the debt or default of another where the promise is collateral rather than primary. However, where the main purpose or leading object of the promisor is to secure an advantage or pecuniary benefit for himself, the contract is not within the Statute of Frauds, even if the effect is still to pay the debt of another.

Question 28

Can a medical clinic enforce a contract for medical care against a minor?

Answer 28

Yes. Despite the general rule that minors lack the legal capacity to contract and will not be bound by contracts they make, they will be held liable in restitution for the benefits they receive under contracts they make for necessities, such as medical care. Thus, a medical clinic could hold a minor liable for the reasonable value of the medical treatment provided.

Question 29

What is the confirmatory memo exception to the SOF?

Answer 29

Generally, SOF requires that a contract for the sale of goods priced at $500 or more be evidenced by a writing signed by the party to be charged. However, between merchants, if one party sends the other party a written confirmation of their oral agreement that is sufficient to bind the sender, it also will bind the recipient if he has reason to know of its contents and does not object within 10 days of receipt.

Question 30

Can a party enforce the terms of an original contract where it has been replaced by an accord?

Answer 30

No, because those rights have been suspended.

A valid accord, taken alone, does not discharge the prior contract. It merely suspends the right to enforce it in accordance with the terms of the accord contract. The performance of the accord agreement, which is called satisfaction, discharges not only the accord agreement but the original contract as well.

Question 31

What is the difference between a third party intended beneficiary and assignment of a right to payment to that third party?

Answer 31

If a contract between two parties contemplates performance to a third party, that third party may have rights to enforce the contract. To do so, the third party must be an intended beneficiary AT THE TIME the contract was made (e.g., designated in the contract).

An assignment, on the other hand, is a contract that does not contemplate performance to a third party when the contract is made. Rather, LATER one of the parties transfers his rights to another.

Question 32

In a sale of goods, is verbal assent to a promise to hold an offer open sufficient?

Answer 32

No, a writing must be signed by the other party.

Under the UCC, an offer by a merchant to buy or sell goods in a signed writing that, by its terms, gives assurances that it will be held open is not revocable for lack of consideration during the time stated (not to exceed three months). If the term assuring that the offer will be held open is on a form supplied by the offeree, it must be separately signed by the offeror.

Question 33

When does the risk of loss pass in a contract that does not specify destination or shipment?

Answer 33

The UCC presumes a contract is a shipment contract in the absence of a contrary agreement. In a shipment contract, the seller must ship the goods by carrier but is not required to tender them at a particular destination. In a shipment contract, the risk of loss generally passes to the buyer when the goods are delivered to the carrier.

There is an exception, however, if the buyer has a right to reject the goods. In that case, the risk of loss does not pass to the buyer until the defects are cured or the buyer accepts the goods because the UCC requires perfect tender.

Question 34

What result when, in a good faith dispute, a check with “payment in full” on it is offered in lieu of the orginally contracted performance?

Answer 34

The accord is satisfied. Most courts would hold that there is a good faith dispute, and the check thus proposed an accord; the act of cashing it is a satisfaction.

A contract may be discharged by an accord and satisfaction. An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that he is supposed to receive from the other party, some other, different performance. Satisfaction is the performance of the accord agreement. An accord and satisfaction generally may be accomplished by tender and acceptance of a check marked “payment in full” where there is a bona fide dispute as to the amount owed.

Question 35

Is evidence of an oral agreement describing an additional term to the K admissible under PER?

Answer 35

When the parties to a contract express their agreement in a writing with the intent that it embody the full and final expression of their bargain, the writing is an “integration,” and under the parol evidence rule, admissibility of evidence seeking to vary its terms is limited. If the writing is only a partial integration, and not a complete embodiment of the parties’ intentions, under the parol evidence rule, it cannot be contradicted, but it may be supplemented by proving up consistent additional terms.