Contracts

Question 1

When does the UCC govern?

Answer 1

Any contract involving the sale of goods

Question 2

Mail Box Rule

Answer 2

An acceptance that is mailed within the allotted response time is effective when sent, unless the offer provides otherwise

Rejection following acceptance: acceptance will generally control even if rejection received first

Acceptance following Rejection: mailbox rule does not apply and the first one to be received by the offeror will prevail

Question 3

Material Benefit Rule

Answer 3

Modern Trend: party performs an unrequested service for another party that constitutes a material benefit, permits the performing party to enforce a promise of payment made after performance

Common Law: unenforceable due to lack of consideration

Question 4

Lack the Capacity to Contract

Answer 4

1) Minors
2) Mentally Ill
3) Intoxicated Persons
4) those under adjudication of guardianship

Question 5

Risk of Loss

Answer 5

General Rule: unless in contract or agreement, nonidentified goods that are destroyed no fault of parities is on the seller until they satisfy their contractual delivery obligation

Shipment Contract: seller place of business, deliver goods to carrier, and give buyer notice

Destination Contract: buyer place of business, must deliver to particular place and tend holding at buyer’s disposition and give notice

Question 6

Mirror-Image Rule

Answer 6

Common Law: an acceptance must mirror terms of offer; any changes to the terms acts as rejection of original and a new counteroffer

Question 7

Falls Under the Statute of Frauds

Answer 7

Statute of Frauds requires it to be signed by party against whom enforcement is sought and contain essential elements of the deal
1) marriage
2) Suretyship
3) Real Property
4) One-Year
5) sale-of goods more than $500

Question 7

Incidental Beneficiary

Answer 7

no right to enforce the contract, one who benefits from a contract even though there is no contractual benefit intent to that person

Question 7

Intended Beneficiary

Answer 7

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

Vests when:
1) materially changes position in justifiable reliance
2) manifest assent to contract at one party request OR
3) files a lawsuit to enforce contract

Question 7

Bilateral Agreement

Answer 7

Promise by one party is exchanged for a promise by the other
- accepted either return promise or by starting performance; commencement of performance of bilateral contract operates as a promise to render complete performance

Question 7

Warranty of Fitness for a Particular Purpose

Answer 7

Seller has reason to know:
1) buyer has a particular use for the goods AND
2) buyer relying upon seller’s skills to select goods

Disclaimer of Warranty must be:
1) in writing AND
2) conspicuous

Question 8

Unilateral Contract

Answer 8

One party promises to do something in return for an act of the other party

Acceptance requires complete performance

Question 9

Legal Detriment

Answer 9

something of substance, either act or promise, given in exchange for the promise that is to be enforced

Question 10

Impractibility

Answer 10

1) an unforeseeable event has occurred
2) nonoccurrence of event was a basic assumption on which the contract was made AND
3) party seeking discharge is not at fault

Assumption of risk makes defense unavailable

Question 11

Frustration of Purpose

Answer 11

an unexpected event arises that destroys one parties purpose in entirety in contract- even if not impossible
1) event must not be frustrated parties fault
2) nonoccurrence basic assumption of the contract

Must be so severe not within assumed risks inherent in the contract

Question 12

Recission by Mutual Agreement

Answer 12

act of cancelling a contract and place parties as closs to possible to their original positions before contract was formed

In cases of 3rd party beneficiaries, cannot be rescinded by mutual agreement if rights to 3rd party have already vested

Question 13

Assumption of the Risk

Answer 13

if party assumes risk of event happening

Question 14

When is the Parol Evidence Rule Inapplicable

Answer 14

1) Raising a defense to the formation of a contract
2) Establishing a defense to enforcement of a contract
3) Separate Deal
4) Condition Precedent
5) Ambiguity and Interpretation
6) Subsequent Agreements
7) Trade Usage and Course of Dealing or Performance

Question 15

Parol Evidence Rule

Answer 15

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.

1) Integration: rule only applies to document that is an integration (Total - expresses all terms; partial - some terms but not all - permits introduce supplementary extrinsic evidence as long as evidence consistent with writing)

Question 16

Accord and Satisfaction

Answer 16

Accord Agreement: party agrees to accept a performance from the other party that differs from promised in existing contract, in satisfaction of other party existing duty

Satisfaction: performance of the accord agreement; it will discharge both the original contract and the accord contract

If accord is breached by party who made the accord- other party can sue either under original contract or accord agreement

Question 17

Expectation Damages

Answer 17

intends to put nonbreaching party in same position as if the contract had been performed; must be calculated with reasonable certainty

value of the performance without the breach with the value of performance with the breath = loss in value + other loss - cost avoided - loss avoided

Question 18

Direct Damages

Answer 18

the necessary and usual result of defendant’s wrongful act

Foreseen or contemplated by breaching party which includes the value of performance nonbreaching party should receive and what actual received by nonbreaching party

recoverable as actual damages with consequential damages

Question 19

Consequential Damages

Answer 19

Damages that arise out of special circumstance unique to the parties to the contract, rather than arising necessarily from the transaction itself
1) must be reasonably foreseeable by breaching party (natural and probably consequence or if were in the contemplation of parties at time contract made)
2) must be casual link to breach and damages
3) dollar amount must prove with reasonable certainty

Question 20

Incidental Damages

Answer 20

May be awarded to nonbreaching party as compensation for commercially reasonable expenses incurred as a result of the other party’s breach

Question 21

Reliance Damages

Answer 21

Based on the out-of-pocket expenses incurred by the nonbreaching party. Reliance damages put the party in the same position as if contract was never formed.

Measured by either:
1) reasonable value of defendant obtaining the benefit from another source OR
2) increase in defendant’s wealth from having received that benefit

Question 22

Void Contract

Answer 22

results in the entire transaction being regarded as nullified, as of no contract existed between the parties

Question 23

Voidable Contracts

Answer 23

Operates as a valid contract unless, and until, one of the parties takes steps to avoid it

Question 24

Restitution Recovery Available

Answer 24

1) Plaintiff has conferred a measurable benefit on defendant
2) P acted without gratuitous intent AND
3) unfair to let D retain the benefit because either
a) d had opportunity to decline the benefit but knowingly accepted it OR
b) P had a reasonable excuse for not giving the D such opportunity

Question 25

Requirements Contract

Answer 25

Buyer agrees to buy all that is requires of a product from the other party. Consideration in agreement is promisor suffers a legal detriment

Question 26

Output Contract

Answer 26

Contract under which a seller agrees to sell all that the seller manufactures of a product to the buyer

Question 27

Anticipatory Repudiation

Answer 27

Applicable when:
1) a promisor repudiates a promise before the time for performance is due
2) must be clear and unequivocal, conduct or wards, and if statements, must be made to the promisee or a third yparty beneficiart or assignee of the promise

Question 28

UCC Firm Offer Rule

Answer 28

Requirements:
1) offeror is a merchant
2) there is an assurance that the offer is to remain open AND 3) assurance is contained in a signed writing from the offeror

Question 29

Material Breach Remedies

Answer 29

Able to withhold any promised performance and purse remedies for breach, including damaged

Question 30

Preexisting Duty Rule

Answer 30

Common Law - promise to perform a preexisting duty does not constitute consideration

Exception: consideration exists if preexisting duty to a third party

Question 31

Modification of Contract

Answer 31

Common Law: modification requires additional consideration

Can still be enforced when:
1) recission of existing contract by tearing up or other outward act and the enter into new contract, where one party must perform more than under original
2) unanticipated difficulties and one party agrees to compensate other when and if modification for and equitable to difficulties
3) new obligations for both sides

UCC - no new consideration required, but needs good faith

Question 32

Good Faith

Answer 32

requires honesty inf act anf fair dealing in accordance with reasonable commercial standards
- required for UCC modification

Question 33

Three Ways out of a Contract

Answer 33

1) Defense to Formation
2) Defense to Enforcement
3) discharged

Question 34

Fraud in the Inducement

Answer 34

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 35

Consideration

Answer 35

evidence by a bargained-for change in legal position between the parties;
1) a detriment to the promisee irrespective of the benefit to the promisor

Can be personal property, give up a legal right

Question 36

Gift v. valid consideration

Answer 36

Test: to distinguish is whether the offeree could have reasonably believed that the intent of the offeror was to induce the action.

Yes - there is consideration and promise is enforceable

Question 37

Illusory Promise

Answer 37

one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it; not legally binding

Question 38

Essential Terms

Answer 38

Common Law:
1) parties
2) subject matter
3) price
4) quantity

Question 39

Four Corners Rule

Answer 39

Common Law: a court was permitted to look only to the writing itself for evidence of intent

Question 40

Promissory Estoppel

Answer 40

1) promisor should reasonably expect it to induce action or forbearance on the part of the promisee or a third person
2) the promise does induce such action or forbearance AND
3) injustice can be avoided only be enforcement of the promise

Question 41

Condition Subsequent

Answer 41

condition that excuses the duty to perform after a particular event occurs

Question 42

Mutual Mistake

Answer 42

1) Mistake of fact existing at the time the contract was formed
2) mistake relates to a basic assumption of the contract
3) mistake has a material impact on the transaction AND
4) adversely affected party did not assume the risk of the mistake

Question 43

Implied-in-fact Contract

Answer 43

a contract that results when a person’s assent to an offer is inferred solely from the person’s conduct.

Contractually 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 44

Rights of the Assignee

Answer 44

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 45

Specific Performance

Answer 45

Available when damages are an inadequate remedy - the nonbreaching party can pursue specific performance

typically in contracts for land or other unique goods

Question 46

Constructive Condition of Exchange

Answer 46

When a party’s performance can be rendered at the same time as the other party’s performance, each party’s performance is conditioned on the other party’s performance;

both parties performances are due simultaneously, unless the language or circumstances indicate otherwise

Question 47

Perfect Tender Rule

Answer 47

requires perfect goods and perfect delivery

“Perfect” - in accordance with the contract provisions or in accordance with the UCC if the contract is silent on tender

Question 48

Demand for Assurance

Answer 48

When a party to a contract has a reasonable grounds for insecurity about the other party’s ability or willingness to perform, the insecure party can demand assurances within a reasonable time

Rumors are sufficient even when false

Under UCC, a demand for assurances must be in writing and a reasonable time must be given to give adequate assurance limited to 30 days

Question 49

Quasi-Contract

Answer 49

If a part has no agreement regarding the equipment (only an option to purchase the building), a court may impose a quasi-contract when:
1) P conferred a measurable benefit on the D
2) P acted without gratuitous intent AND
3) it would be unfair to let the D retain the benefit because 1) D had an opportunity to decline the benefit but knowingly accepted it OR 2) P had a reasonable excuse for not giving the D such opportunity

Question 50

Assignment v. Delegation

Answer 50

Assignment: transfer of contractual rights to another
- Disallowed when - assignment materially increases duty of risk of obligor or materially reduces obligor’s chance of obtaining performance or when assignment void under contract

Delegation: transfer of contractual duties and obligation to another

Disallowed: contracting party has substantial interest in having delegating party perform or delegation prohibited by contract