Contracts

Question 1

What is a requirements contract and how is it satisfied?

Answer 1

A requirements contracts is a contract under which the buyer agrees to purchase as many goods as the buyer requires from the seller.

Under the perfect-tender rule, the goods and the seller’s tender of those goods must fully conform with the terms of the agreement and substantial performance will not suffice. Buyer can reject for imperfect tender where single delivery would be unreasonable.

Question 2

What is an accord agreement and what are its requirements?

Answer 2

A way to discharge contractual obligation. Under an accord agreement, a contracting party agrees to accept performance that differs from what was promised in existing contract in satisfaction of the other party’s existing duty.

3 elements:
(1) tendered a negotiable instrument;
(2) instrument was accompanied by a conspicuous statement indicating that it was tendered as full satisfaction; and
(3) the claimant obtained payment of the instrument.

Question 3

What is the common law preexisting duty rule?

Answer 3

Promise to perform, or performance of, preexisting duty does NOT constitute consideration.

However, modification is permitted when there are unanticipated difficulties and one party agrees to compensate the other so long as the modification is faith and equitable in light of those difficulties.

Question 4

What is the defense of impracticability?

Answer 4

Parties to a contract have an absolute duty to perform unless the duty is discharged due to impracticability:
(1) an unforeseeable even has occurred;
(2) the contract was formed under the basic assumption that the event would not occur; and
(3) the party seeking discharge of performance is not at fault.

However, if a party assumed the risk of an event happening that made performance impracticable, then the party’s performance will not be discharged by impracticability.

Question 5

When does an intended beneficiary have contractual rights?

Answer 5

May enforce rights once they vest. This occurs when:
(1) beneficiary detrimentally relies on the rights created;
(2) manifested assent to the contract at one party’s request; or
(3) files a lawsuit to enforce the contract.

Before rights vest, the contracting parties can modify or rescind the contract w/o the beneficiary’s consent.

Question 6

When does wrongful interference excuse a condition precedent?

Answer 6

A condition precedent delays performance until a specified event occurs, and will be excused if a party whose performance is subject to that condition wrongfully prevents or interferes with is occurrence. When this occurs, the condition no longer needs to occur for the interfering party’s performance to become due.

Question 7

What is the doctrine of anticipatory repudiation and how does it apply?

Answer 7

The doctrine of anticipatory repudiation generally applies when a contracting party clearly and unequivocally indicates an unwillingness to perform a promise before the time for performance is due. Upon repudiation, the nonrepudiation party may:
(1) treat the repudiation as a breach of the contract; or
(2) ignore the repudiation and demand performance.

However, this doctrine does not apply when the date of performance has not passed and the nonrepudiation party has fully performed. Nonrepudiation party must wait until the repudiating party’s performance is due before filing suit.

Question 8

What are compensatory damages?

Answer 8

These damages primarily aim to put the non breaching party in the same position as if the contract had been performed, so that the nonbreaching party receives the “benefit of the bargain.” Known as “expectation measure.”

Included are:
(1) expectation damages - difference b/w what was promised and what was received.
(2) incidental damages - reimbursement for commercially reasonably expenses that the nonbreaching party incurred as a result of the breach.
(3) consequential damages - losses that arose from the nonbreaching party’s special circumstances that were reasonably foreseeable to the breaching party when the contract was made.

However, if such damages cannot be calculated w/ reasonable certainty, then the nonbreaching party may recover for any expenses incurred in reasonable reliance that the contract would be performed - reliance damages, liquidated damages, restitution.

Question 9

How does the firm offer and the mailbox rule relate?

Answer 9

The mailbox rule does not apply to firm offers, options, or other irrevocable contracts. Under the UCC, a merchant’s offer to sell goods is firm if it is made in a signed writing that assures that the offer will remain open. Acceptance of a firm or otherwise irrevocable offer is effective only if it is received by the offeror before the offer expires.

Question 10

What are the 3 irrevocable offers at common law?

Answer 10

(1) Option contract - offeror promises to keep offer open in exchange for consideration where duration is for a reasonable time for full performance.

(2) Partial performance - offeror invites acceptance only by performance & offer begins to perform in exchange for consideration where the duration is for a reasonable time for full performance.

(3) Promissory estoppel - offeror could reasonably foresee reliance on offer and offer reasonably relies to his/her detriment, where the duration is for a reasonable time.

Question 11

How can an offeror revoke an offer?

Answer 11

An offer can be accepted at any time before the offer is revoked. The offeror can revoke the offer by manifesting an intent not to enter into the proposed contract, which can occur in 2 ways:
(1) expressly - when the offeror communicates the revocation directly to the offeree
(2) constructively - when the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer.

Question 12

What are the essential terms for an agreement under the UCC?

Answer 12

(1) Goods to be sold - must be reasonably identified
(2) Quantity - must be certain or able to be made certain by reference to objective facts.

If price is not included, gap-filler will find price that is reasonable at time of delivery. If time of delivery is not included, gap-filler will find reasonable time.

Question 13

What is the difference between an accord agreement and a substitute contract?

Answer 13

Accord agreement - when a party agrees to accept different performance in satisfaction of the original promise. After breach, the party can sue under either the original contract or the accord agreement.

Substitute contract - when the parties form a second agreement that immediately discharges the original contract. After breach, a party can sue under the substitute contract only.

Note: the more formal the agreement, the more likely the fact-finder will determine that the parties intended to create a substitute contract.

Question 14

What are the elements required to make promissory estoppel effective?

Answer 14

Under the doctrine of promissory estoppel (detrimental reliance), an offer is binding as an option contract and therefore irrevocable for a reasonable time period if:
(1) the offeror should have reasonably expected to induce reliance on the offer before acceptance;
(2) the offeree reasonably relied on the offer through action or forbearance;
(3) the offeree suffered substantial detriment as a result of such reliance; and
(4) injustice can be avoided only by enforcing the offer.

When such an offer is revoked before a reasonable period of time has passed, the remedy generally results in the award of reliance damages.

Question 15

What happens when both parties are mistaken as to an essential element of a contract?

Answer 15

Known as mutual mistake, the contract is voidable by the adversely affected parted if:
(1) the mistake relates to a basic assumption of the contract;
(2) the mistake materially affects the agreed-upon exchange of performance; and
(3) the adversely affected party did not assume the risk of mistake.

Note: a party assumes the risk of mistake if, at the time the contract is formed, the party is aware that he/she has limited knowledge of the facts and accepts this knowledge as sufficient.

Question 16

What is the difference between a gratuitous and for-value assignment of contractual rights?

Answer 16

An assignment is the transfer of contractual rights to a third party.

If an assignment is not supported by consideration, then it is a gratuitous assignment and is generally revocable unless (1) obligor already performed;
(2) document symbolizing assigned right;
(3) written & signed assignment delivered;
(4) promissory estoppel.
There are no warranties.

On the other hand, for-value assignments are irrevocable and the assignor warrants that he/she:
(1) has the right to assign;
(2) is not subject to limitations/defenses unknown to assignee;
(3) will not defeat/impair assigned rights.

Question 17

When does waiver excuse a condition precedent?

Answer 17

A contracting party may generally avoid performance if a condition precedent has not occurred. The nonoccurence of a condition may be excused, however, if the party who would benefit from the condition waives it by words or conduct. And the waiving party cannot retract the waiver once the other party has detrimentally relied on it.

Question 18

What is the parol evidence rule, and how does it relate to condition precedents?

Answer 18

The parol evidence rule 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.

However, evidence may be admitted to prove a condition precedent to the existence of the contract. A condition precedent is a condition that must occur to trigger a party’s obligation to perform.

Question 19

When performance is predicated upon a condition precedent, when does performance become due?

Answer 19

A breach of contract occurs when a party fails to perform a contractual duty that has become due. Performance may be predicated upon a condition precedent, under which a contracting party’s obligation to perform arises only upon the occurrence of an uncertain future event. If the parties expressly agree to a condition precedent, then the condition precedent must be strictly enforced. This means that a contracting party must fully comply with the condition before the other party’s performance is due.

Question 20

What is a material breach?

Answer 20

Under common law, which governs contracts for services, a material breach allows the non breaching party to withhold its own performance. A breach is material when the non breaching party does not receive the substantial benefit of its bargain. As a result, substantial performance does not typically constitute a material breach.

However, substantial performance will not suffice for express conditions in a contract. Such conditions must be performed in full. Indicators: “on the condition that” or “provided that”

Question 21

How does waiver excuse a condition precedent?

Answer 21

A party’s obligation to perform may be conditioned on an uncertain future event that must occur before performance becomes due (ex. a condition precedent). However, a party whose subject to the condition can waive the condition by words or conduct.

Question 22

What are the damages for substantial performance v. material breach?

Answer 22

The substantially performing party can recover on the contract even though that party has not rendered full performance. The substantially performing party can generally recover the contract price minus any cost that the non breaching party incurred to receive full performance.

A party who commits a material breach by failing to substantially perform cannot recover under the contract. The breaching party can only recover in restitution for any benefit conferred on the non breaching party minus damage for the breach.

Question 23

Can a non repudiating party recover damages under the contract?

Answer 23

The non repudiating party may generally ignore the repudiation and demand performance pursuant to the contract or treat the repudiation as a breach.

However, the non repudiating party cannot recover damages under the contract if that party is in material breach. That is because the material breach discharges the other party’s duty to perform.

Question 24

How does the prospective inability to perform differ from anticipatory repudiation?

Answer 24

Anticipatory repudiation occurs when one party to a contract clearly and unequivocally communicates (through words or conduct) to the other party that it will not perform. The other party can treat the repudiation as breach and sue immediately.

In contrast, mere insecurity about the party’s prospective ability to perform is not a repudiation, but it does give the other party the right to demand assurance of performance. Under the UCC, which governs the sale of goods, the demand for assurances must be made in writing. Failure to provide adequate assurance within a reasonable time, not to exceed 30 days, constitutes a breach.

Question 25

What are consequential damages?

Answer 25

Damages for losses stemming from non breaching party’s special circumstances if breaching party:
(1) knew of those special circumstances; or
(2) could have reasonably foreseen harm caused by breach.

Question 26

What happens if the offeror does not specify how to accept an offer?

Answer 26

The offeror can dictate the manner and means by which the offer may be accepted. But if the offeror does not do so, then the offeree can accept the offer in any reasonable manner and by any reasonable means

Question 27

What is the difference between a bilateral and a unilateral offer?

Answer 27

An offer is a communication that gives the recipient the power to conclude a contract by accepting the offer. The manner of proper acceptance depends on the type of offer:

(1) Bilateral Offer - can be accepted (i) with a return promise; or (ii) by starting performance, which operates as an implied promise to complete performance. When there is doubt as to whether an offer may be accepted by a return promise or by performance, the offeree may accept the offer in either manner. That is bc an offer is presumed to be bilateral.

(2) Unilateral Offer - can be accepted only by completing performance.

Question 28

How are contracts formed under the common law v. the UCC.

Answer 28

Contract formation under the common law requires an offer with definite terms and acceptance with knowledge of that offer.

Under the UCC, a contract is formed if the parties intended to contract and there is a reasonably certain basis for giving a remedy. The contract may be made in any manner sufficient to show agreement.

Question 29

What is a revived offer?

Answer 29

Once the offer has terminated, it cannot be accepted. But, the offer can be revived if the offeror conveys that it is still open. This creates renewed opportunity for acceptance by the offeree. If the offeree accepts the revived offer, then a binding contract is performed.

Question 30

Can a debt be satisfied with a check?

Answer 30

Under accord and satisfaction, a party can fulfill its contractual obligation by rendering different performance than the one initially promised. This can be done through a negotiable instrument if 3 conditions are met:
(1) the obligation is unliquidated (i.e. uncertain in amount) or otherwise in dispute;
(2) the obligor, in good faith, tenders the negotiable instrument with a conspicuous statement that the instrument is tendered as full satisfaction of the obligation; and
(3) the obligee obtains payment of the instrument (ex. by cashing the check).

Question 31

Why is novation important in delegation agreements?

Answer 31

Obligations and duties under a contract can generally be delegated to another. Acceptance of the delegation by the delegatee constitutes a promise to perform those duties. That promise is enforceable against the delegatee if:
(1) the delegatee has received consideration; or
(2) there is a consideration substitute that makes the promise enforceable.

However, the delegator is not released from liability unless the other party to the contract expressly or impliedly agrees to a novation which serves to release the delegator from his/her promises under the original contract and substitute a new party.

Question 32

What are the exceptions to the parol evidence rule?

Answer 32

Evidence of prior or contemporaneous oral or written agreement, even in a completely integrated contract, is admissible to establish:
(1) whether writing is integrated, and if so, completely or partially;
(2) meaning of ambiguous term;
(3) defense to formation or enforcement (ex. fraud, duress, mistake);
(4) ground for granting or denying remedy (ex. recession, reformation);
(5) subsequent contract modifications; and
(6) condition precedent to effectiveness.

Question 33

What are installment contracts?

Answer 33

Under the UCC, an installment contract is defined as a contract in which the goods are to be delivered in multiple shipments, and each shipment is to be separately accepted by the buyer. Payment by the buyer is due upon each delivery unless the price cannot be apportioned. Seller’s damages for breach amount to missed payments. Buyer’s damages for breach amount to fair market value minus contract price for missed deliveries.

Question 34

What are the effects of an acceptance that includes new or revised terms?

Answer 34

Under the common law, an acceptance that includes new or revised terms is treated as a rejection of the original offer and a counteroffer. But, under the UCC, an acceptance that includes new or revised terms is deemed effective so long as it is not conditioned upon the offeror’s agreement to such terms.

Question 35

What is mutual assent?

Answer 35

Contract formation requires a manifestation of mutual assent. The validity of an offer and acceptance is determined by the objective theory of contract, under which a party’s intent is determined by outward objective facts - not a party’s subjective intent. A person’s intent is determined by what a reasonable person in the other party’s position would believe considering the circumstances.