CONTRACTS

Question 1

What does the Uniform Commercial Code (UCC) apply to?

Answer 1

Transactions in goods

Common law applies to everything else (services) on the MBE.

Question 2

What is required for the creation of an offer?

Answer 2

Intent to enter into a contract plus specific terms

Specific terms include price, quantity, and identity of the parties.

Question 3

What are the four ways to terminate an offer?

Answer 3

• Lapse of time: an offer lapses after a reasonable time.
• Rejection (including counteroffer, which is a rejection and a new offer)
• Revocation
• Death or incapacity of offeror

Question 4

What are the categories on which an offer cannot be revoked before acceptance?

Answer 4

FOUR
(A) Firm offer by a merchant in a signed writing under the UCC. This offer can be held open for a maximum of three months.
(B) Option contract: a promise to hold open the offer plus consideration for that promise.
(C) Unilateral contract: if the offeree begins performance on a unilateral contract, the offer is held open for a reasonable time.
(D) Reasonably foreseeable substantial reliance on the offer.

Question 5

What are the two types of contract and how are each accepted?

Answer 5

• Bilateral contracts are accepted by a promise to perform or beginning performance.
• Unilateral contracts (rewards, prizes, or offers that specify they are unilateral) can only be accepted by full performance.

Tip: most contracts are bilateral.

Question 6

How is an offer for sale of goods accepted?

Answer 6

Article 2: An offer for the sale of goods is accepted by promising to ship or shipping the goods.

Question 7

What can happen if the seller ships defective goods?

Answer 7

If the seller ships defective goods with an accommodation letter, that constitutes a counteroffer. If there is no letter, it is an acceptance and a breach.

Question 8

What is the mailbox rule?

Answer 8

Acceptance is effective when sent.

Question 9

What are the exceptions to the mailbox rule?

Answer 9

An option contract (acceptance effective upon receipt) or if a rejection and then an acceptance is mailed (the one received first controls).

Question 10

What is a firm offer under the UCC?

Answer 10

An offer by a merchant in a signed writing that can be held open for a maximum of three months.

Question 11

How can an option contract be defined?

Answer 11

A promise to hold open the offer plus consideration for that promise.

Question 12

How is acceptance effective according to the mailbox rule?

Answer 12

Acceptance is effective when sent.

Question 13

What is the ‘mirror image’ rule in common law?

Answer 13

The acceptance must be the “mirror image” of the offer.

Question 14

Under the UCC, what is unique about acceptance?

Answer 14

An acceptance does not need to mirror the offer and may have additional or different terms. Between merchants, an additional term will be a part of the contract unless it materially alters it, the offeror objects within a reasonable time, or the offer limits acceptance to the terms of the offer. Under the majority rule, a different term is knocked out and replaced with gap fillers.

Question 15

What constitutes consideration in a contract?

Answer 15

A bargained-for exchange

The following are not consideration: a promise to make a gift, a moral obligation, past consideration, or an illusory promise.

Question 16

What is reliance?

Answer 16

A substitute for consideration.

Question 17

What happens if there is a promise and foreseeable and justifiable reliance?

Answer 17

Enforcement will be granted as necessary to avoid injustice.

Question 18

What is required to modify a contract under common law?

Answer 18

Consideration is needed to modify a contract.

Question 19

The performance of a preexisting legal duty is not consideration unless it falls into an exception. What are some of those exceptions?

Answer 19

Unforeseen difficulty, a good faith settlement of a lawsuit, a good faith payment in full of a due and disputed debt, a written promise to pay a time-barred debt, or if the duty was owed to a third person.

Question 20

What is required to modify a contract under the UCC?

Answer 20

Only good faith is needed to modify a contract.

Question 21

What is needed under common law for the other party’s duty to arise?

Answer 21

One has to substantially perform one’s duties in order for the other party’s duty to arise

Question 22

What is the exception to the substantually performance of the common law?

The exception to the previous answer

Answer 22

Express condition (e.g., “I will buy it if I like it” or “I will buy it if I can get a 10% interest rate”). These must be complied with exactly.

Tip: courts find that most conditions are “constructive” and substantial performance is enough.

Question 23

What is ‘perfect tender’ in the context of the UCC?

Answer 23

The seller has to deliver goods that meet the terms of a contract. The seller must provide perfect tender of the goods (or the buyer can reject the goods).

Question 24

What can do the seller if he did not provide perfect tender and the buyer rejects the goods?

Answer 24

The seller only has an automatic right to cure if (1) there is time left to perform under the contract, or (2) the seller reasonably believed that the buyer would accept the nonconforming goods with or without a money allowance such as a discount (e.g., the seller sent better goods than contracted for).

Question 25

What happens with the exception of the installment contract? | Regarding perfect tender

Answer 25

The buyer may reject an installment if there is a “substantial impairment” and the seller cannot cure the installment.

Question 26

How revocation and rejection differ?

Answer 26

If the buyer accepts goods, he may not reject them. However, he may later revoke his acceptance. Revocation is a higher standard than rejection as it requires showing that the defect substantially impairs the value of the goods to him, among other things.

Question 27

How delivery obligations work on **carrier cases**?

Answer 27

Most contracts are shipment contracts (e.g., the contract is silent or has shipping terms such as “FOB Seller’s Place of Business,” “CIF,” “C&F,” or “FAS”). The seller only has to get the goods to the shipper and the risk of loss (ROL) passes to the buyer at that point. For destination contracts (e.g., contracts that state, “FOB Buyer’s Place of Business” or “Ex-Ship”), the seller has to get the goods to the destination.

Question 28

How delivery obligations work on **non-carrier cases**?

Answer 28

If the seller is a merchant, the seller must actually deliver the goods to the buyer for the ROL to pass. If the seller is not a merchant, the seller must tender delivery (make the goods available) for the ROL to pass.

Question 29

What happens if the seller is on **breach**? | Regarding delivery obligations

Answer 29

If the seller is in breach, the ROL is on the seller until the defective goods are cured by the seller or accepted by the buyer.

Question 30

True or false: A party is excused from performing if the other party breaches.

Answer 30

True

Question 31

What is **anticipatory repudiation**?

Answer 31

Occurs when a party unequivocally breaches. If this occurs, the other party can sue immediately, suspend performance and wait to sue, treat the contract as discharged, or urge the other party to perform.

Question 32

What is a **prospective inability to perform**?

Answer 32

Is when a party has reasonable grounds for insecurity that the other will not perform. The insecure party can demand adequate assurances that performance will take place. Note that conditions can also be **waived**.

Question 33

What are the reasons for **discharging duties**?

Answer 33

* Occurrence of a condition subsequent * Agreement: * Frustration of purpose * Impossibility

Question 34

What is a **condition subsequent** regarding **discharging of duties**?

Answer 34

This is a condition that cuts off a duty. (E.g., “I will paint the house until it starts to rain.” The rain is a condition subsequent that cuts off the duty to paint the house.)

Question 35

What are some examples of **agreement** regarding **discharging of duties**?

Answer 35

Examples include **novation** (a new party steps into the shoes of an existing party), **modification, release, accord and satisfaction** (the parties agree to new or different consideration), and **rescission** (the contract is undone).

Question 36

What is an **impossibility** regarding **discharging of duties**?

Answer 36

An event that renders performance **impossible** occurs **after the contract was made**, it was not reasonably foreseeable at the time of the contract, the nonoccurrence was a **basic assumption** of the parties, neither party **is at fault**, and neither party **bears the risk**.

Question 37

What is the definition of ***frustration of purpose***?

Answer 37

The **primary purpose** of the contract known by **both parties at the time of contracting is substantially frustrated** by an **unforeseeable even**t that occurred **after** the contract was entered into.

Question 38

What are **express warranties**?

Answer 38

Affirmations of fact about the goods or a sample of the goods. These cannot be disclaimed. Mere “puffery” does not create an express warranty.

Question 39

What is the **implied warranty of merchantability**?

Answer 39

Is made by a merchant and warrants that goods are fit for their ordinary purpose. This warranty can be disclaimed (e.g., by express language such as a conspicuous “as is” clause or through conduct).

Question 40

How an **implied warranty of fitness** works?

Answer 40

The ***implied warranty of fitness*** for a particular purpose can be made by any seller who knows of the buyer’s specific purpose and the buyer relies on the seller. It can be disclaimed. ## Footnote Tip: the seller does not have to be a merchant.

Question 41

What is a **limitation of remedies** clause?

Answer 41

A **limitation of remedies** clause is a contractual provision that limits or controls the remedies.

Question 42

What is required for a limitation of remedies clause to be enforceable?

Answer 42

It is enforceable unless it is unconscionable or it “fails of its essential purpose.” The clause is unconscionable if it attempts to limit or avoid paying consequential damages for a personal injury due to a consumer product.

Question 43

What is the **general rule** regarding contract interpretation?

Answer 43

Express terms control. Then courts look to course of performance, course of dealing, and trade usage

Question 44

What are **gap fillers**?

Answer 44

The UCC has default rules for terms that govern contracts for the sale of goods if no term is stated in the contract (e.g., if nothing is said as to price, the price is a reasonable price at the time of delivery).

Question 45

How does the the **parol evidence rule (PER)** work?

Answer 45

The PER applies when a party wants to **add** a term from **preliminary negotiations** to a **final written agreement**. * If there is a *complete integration*, **no terms** will be admitted into evidence. Tip: look for a merger or integration clause in the contract; e.g., one that states, “this is the full and final agreement.” * If there is a *partial integration*, **consistent** additional terms are admitted. * The PER does not apply to **(FICCL)** **formation** defenses, **interpretation** of a term, failure of a **condition precedent**, a **clerical error**, or a **later modification**.

Question 46

Fill in the blank: A unilateral contract can only be accepted by _______.

Answer 46

full performance.

Question 47

True or False: A requirements contract will fail for lack of quantity.

Answer 47

False.

Question 48

What rights do Intended Third-Party Beneficiaries (TPBs) have under a contract?

Answer 48

They have rights once their rights vest.

Question 49

When rights of Intended Third-Party Beneficiaries vest?

Answer 49

Rights vest when there is assent, reliance, or when the third party brings a lawsuit.

Question 50

True or false: Incidental TPBs do have rights under a contract.

Answer 50

False

Question 51

What **factors** determine if a TPB is intended?

Answer 51

(1) Is the TPB **expressly designated** in the contract? (2) Is performance **directly** to the TPB? (3) Does the TPB have any **rights**? (4) What is the **relationship** between the TPB and the promisee?

Question 52

What is the key difference between delegation and assignment?

Answer 52

Generally, one delegates duties and assigns rights (usually the right to be paid).

Question 53

Under what conditions may a party delegate duties under a contract?

Answer 53

Generally, one may delegate duties under a contract unless the contract prohibits it or if the contract involves special skill, judgment, or trust.

Question 54

What is NOT required for a delegation to occur?

Answer 54

Neither **consent, nor consideration**, nor a **writing** is needed to delegate a duty.

Question 55

Under what conditions are the parts liable in a delegation?

Answer 55

The **delegator** remains liable on the contract after delegation. The **delegatee** is liable if he receives consideration from the delegator.

Question 56

What are the rules concerning assignment and revocation of rights?

Answer 56

Generally, rights can be assigned unless the assignment **substantially changes** the obligor’s duties or the **contract prohibits** it. An assignment may not be revoked if there was consideration given or if it is payment for a preexisting debt. An assignment is revoked if the assignor takes performance directly or makes a subsequent assignment to a different party.

Question 57

What is the Statute of Frauds (SOF)?

Answer 57

It requires a writing signed by the party to be charged that evidences a contract. ## Footnote The “party to be charged” generally means the defendant.

Question 58

Which contracts fall under the Statute of Frauds?

Answer 58

**(MYLEGS)** contracts made in consideration of **marriage**, contracts that cannot be performed within a **year**, contracts for the sale of **land**, promises made by an **executor** to pay a debt from his own estate, contracts for the sale of **goods** for $500 or more, and **surety** contracts.

Question 59

What exceptions exist for the Statute of Frauds regarding land?

Answer 59

Part performance (when one’s actions evidence a contract; e.g., the buyer does two of the following three things: takes possession of the property, improves the land significantly, or pays a substantial amount of the purchase price).

Question 60

What are the exceptions to the Statute of Frauds for the sale of goods?

Answer 60

(1) **Merchants confirmatory memo** exception (2) when the seller has made a substantial beginning in manufacture or commitments for **specially manufactured goods** not suitable for sale to others in the seller’s ordinary course of business, (3) **judicial admissions** (one admits in his pleadings, testimony, or in court that there is a contract—it is enforceable up to the quantity admitted), and (4) **part performance** (one pays for or accepts a part of a contract).

Question 61

What is required for a surety promise to fall within the SOF?

Answer 61

A promise to pay the debt of another if the other does not pay falls within the SOF unless the main purpose of the surety promise is to serve a pecuniary interest of the person making the promise.

Question 62

What exception exists (to the SOF) when the contract cannot be perfomed within a year?

Answer 62

Full performance on one side will serve as a substitute for a signed writing.

Question 63

Which are the capacity defenses?

Answer 63

Incapacity, duress and undue influence.

Question 64

What constitutes **incapacity** under contract law?

Answer 64

Minors, mentally incompetent, or intoxicated persons. ## Footnote However, they may be liable for “necessities.”

Question 65

What is **duress** in contract law?

Answer 65

When a party threatens to commit a wrongful act that would threaten the other party’s finances, property, well-being, or life.

Question 66

What is **undue influence**?

Answer 66

Unfair persuasion by a person in a position of trust or dominance.

Question 67

Which are some of the **lack of contract formation defenses**?

Answer 67

* Mutual mistake * Mutual misunderstanding * Illegal subject matter * Unconscionability

Question 68

What is **mutual mistake** in contract law?

Answer 68

If both parties are mistaken about a basic assumption of fact that materially affects the agreed upon exchange and neither bears the risk, the contract is voidable.

Question 69

What is **unilateral mistake**?

Answer 69

If a party knew or had reason to know of the other party’s mistake, the contract is voidable.

Question 70

What happens in case of **mutual misunderstanding**?

Answer 70

There is no contract if both parties have a different understanding of a material term that is open to at least two reasonable interpretations and neither party has any reason to know of the meaning attached by the other.

Question 71

How an **illegal subject matter** in a contract works?

Answer 71

The contract is void. If it is for an illegal purpose (e.g., leasing a car to transport drugs), it is voidable by the party who didn’t have the illegal purpose (e.g., the car owner) if he didn’t know the purpose or he knew of the purpose but didn’t facilitate it and it doesn’t involve “serious moral turpitude.”

Question 72

What are the two elements of **unconscionability**?

Answer 72

Procedural unconscionability (an unfair bargaining process—e.g., hidden or incomprehensible terms) and substantive unconscionability (grossly unfair terms). This is voidable.

Question 73

What are some other defenses? | Regarding lack of contract formation

Answer 73

Fraud, misrepresentation, nondisclosure, and public policy.

Question 74

What does expectation damages refer to?

Answer 74

This is the **loss of value** of the breaching party’s performance plus **incidental** damages plus **consequential** damages minus any **expenses** saved as a result of the breach. **Mitigation** of damages is required.

Question 75

What are incidental damages?

Answer 75

Are those related to avoiding the loss from the breach e.g., storing goods after a breach).

Question 76

What are **consequential damages**?

Answer 76

Are those that are foreseen at the time the contract is entered into.

Question 77

What does a seller receive if they breach and the buyer has goods?

Answer 77

Buyer gets the **value of the goods as contracted** for minus the **value of the goods as delivered** plus **incidental** and **consequential** damages.

Question 78

What does a seller receive if they breach and the seller has goods?

Answer 78

Buyer gets the **difference between the market price** (or replacement price) and **contract price** plus **incidental** and **consequential** damages minus **expenses** saved.

Question 79

What does a seller receive if the buyer breaches and the buyer has goods?

Answer 79

Seller gets the **contract price**.

Question 80

What does a seller receive if the buyer breaches and the seller has goods?

Answer 80

Seller gets the **difference between the contract price and market price** (or resale price) plus **incidental** damages minus **expenses** saved.

Question 81

What happens with the lost volume seller? | UUC formula

Answer 81

The seller gets **lost profits** plus **incidentals**. ## Footnote Tip: A seller is a lost volume seller when there is an unlimited amount of the product available. The MBE fact pattern will make this very clear

Question 82

Which are the equitable remedies?

Answer 82

Specific performance, injuction, rescission and reformation.

Question 83

When the remedy of **specific performance** can be used?

Answer 83

Not usually available unless the goods are unique or if it is a land contract.

Question 84

What is an **injunction**?

Answer 84

Is an equitable remedy that tells a party to do or not do something. An injunction for a noncompete clause will be granted so long as the covenant is reasonable in time, scope, and geography.

Question 85

What is **rescission** in contract law?

Answer 85

Is undoing the contract when the contract is void or voidable or because it is impossible to perform.

Question 86

When is the remedy of **reformation** used?

Answer 86

Is a remedy either party may seek when the contract does not reflect the terms that the parties agreed to.

Question 87

What is **restitution**?

Answer 87

**Restitution** means the plaintiff recovers the ***value of the benefit conferred***. This remedy may be sought when the contract is **breached**, when it is **unenforceable**, or when there is **no contract**. Restitution is granted in contracts that are **implied in law** (i.e., quasi-contracts), which arises when the plaintiff has conferred a benefit on the defendant, the plaintiff reasonably expected to be paid, and the defendant would be unjustly enriched otherwise.

Question 88

What are **liquidated damages** clauses?

Answer 88

Liquidated damages clauses are enforced if the damages are difficult to estimate at the time the contract was made and a reasonable forecast of damages.

Question 89

What are the penalties in contract law?

Answer 89

Not permitted under contract law.