Contracts 2

Question 1

In a non-carrier contract, where is the tender of delivery, unless expressly different?

Answer 1

In non-carrier cases, the tender of delivery is at the seller’s place of business unless otherwise agreed.

The seller must give reasonable notice of tender to buyer.

Question 2

In a shipment contract, what tender obligations does the seller have?

Answer 2

In a shipment case, the seller must:
Put goods to a reasonable carrier and make reasonable contract for shipment;
Obtain and tender any documents necessary for buyer to take possession;
Promptly notify buyer of shipment.

Question 3

In a destination contract, what are the seller’s tender obligations?

Answer 3

The seller must put and hold goods at the destination, give seller reasonable notice of tender, and provide title documents.

Question 4

Unless otherwise agreed, when does buyer’s obligation to pay for goods under Article 2 occur?

Answer 4

Buyer is obligated to pay at tender of goods.

This can be concurrent with delivery (non-carrier or destination contracts) or with shipment (shipment contracts).

Question 5

How is a promise distinguished from a condition?

Answer 5

A promise is a commitment to do or refrain from something.

A condition creates or releases the duty to perform the promise. Conditions in effect, shift the risk of performance.

Question 6

Distinguish a condition precedent and a condition subsequent.

Answer 6

A condition precedent is an instance which must occur before an absolute duty arises.
A condition subsequent is an instance that removes the absolute duty to perform.

Failure of a condition is not a breach, but rather discharges liability from obligation.

Question 7

What is a satisfaction clause?

Answer 7

A satisfaction clause is an express condition that forgives one’s duty to perform absent his subjective satisfaction with the product/subject matter.

Generally, manufacturing/commercial satisfaction clauses are held to an objective standard based on the trade.

Question 8

Who can waive a condition?

Answer 8

The person receiving the benefit of the condition can waive a condition. A waiver given prior to time for performance can be retracted, unless the other has relied on the waiver.

Question 9

Does difficulty of performance create an excuse to a condition?

Answer 9

Mere difficulty of performance does not excuse a condition, however if the party to perform a condition is hindered from performing by the intentional effort of the other, this excuses the condition.

Question 10

What major factor determines if a party may terminate performance for a breach?

Answer 10

A party may terminate her performance under a contract for a material breach.

If the breach is not material, then it is considered a partial breach. Damages may be available, but performance must continue.

Question 11

Under common law, how is materiality determined?

Answer 11

The Restatements have 6 considerations in determining if a breach is material:

1) The greater the benefit received…
2) The greater chance of adequate compensation to the injured…
3) The greater performance completed…
4) The greater the hardship to the breaching party…
5) The less willful or negligent the breaching behavior…
6) The greater the likelihood of full performance…
then. .. the less likely a material breach.

Question 12

In order for an innocent party to bring a claim for breach, he must be ___________________ to perform.

Answer 12

In order for an innocent party to bring a claim for breach, he must be willing and able to perform.

Question 13

In order to determine if a term of a contract is divisible, the court will consider what 3-part test?

Answer 13

In order to decide if a part of a contract is divisible, the following 3-part test must be satisfied concurrently:

1) The performance is divided into 2 or more parts;
2) Each party has equal parts due to the other; AND
3) Each performance is a quid pro quo of the other.

Question 14

How is substantial performance viewed under the UCC?

Answer 14

Substantial performance is not considered under the UCC, rather the UCC follows the Perfect Tender Rule.

Question 15

If the goods or delivery of the goods fail to conform to the contract, what options are available to the buyer?

Answer 15

If goods or delivery fail to conform, the buyer may:
Reject all goods,
Accept all goods,
Accept any of the goods and reject remaining.

Question 16

When does the buyer’s right to reject nonconforming goods end?

Answer 16

Under the UCC, the right to reject ends with acceptance.

Acceptance is established when the buyer:
Indicates he will keep the goods;
Fails to reject in a reasonable time;
Fails to seasonably notify the seller of rejection;
Does any other act inconsistent with the seller’s ownership of the goods.

Question 17

What is required in a notice of rejection?

Answer 17

The buyer must notify the seller of a rejection of goods. He must state a particular defect to justify the rejection if:
The seller could have cured the nonconformity, or
The seller has requested written defects (if btwn merchants).

Question 18

What is the difference in a rejection and a revocation of goods?

Answer 18

A rejection denies acceptance.

A revocation occurs after acceptance and the buyer finds a substantially impaired value &:

1) has a reasonable belief the defect would be cured and it wasn’t, or
2) defect was difficult to discover or the buyer relies on the seller’s assurance.

Question 19

When must a revocation be made?

Answer 19

A buyer can revoke acceptance within a reasonable time after discovered, or should have been discovered.

A buyer must revoke prior to any substantial change is made to the goods.

Question 20

What is a seller’s response to a rejection or revocation?

Answer 20

To avoid a breach, a seller has the right to cure nonconforming goods by giving notice of cure and a new tender within a reasonable time.

Question 21

What is the effect if the subject matter or consideration is or becomes illegal?

Answer 21

Illegality of consideration or subject matter generally renders an agreement void and unenforceable.

A contract can be legal but for an illegal purpose (Cheese additive case, Blossom Farm v Kasson) and if so then unenforceable.

Question 22

What are limitations of an Illegality defense?

Answer 22

If the plaintiff is unaware of illegality, an innocent party may recover.

If plaintiff has unclean hands (in pari delicto) then no recovery

Question 23

Is bribery a defense to contract enforcement?

Answer 23

Bribery can be a public policy defense. There must be a direct connection between the bribe and the obligation to be excused.

Question 24

When is a operating without a proper license a defense to contract enforcement?

Answer 24

When a license is required for public welfare, it can be a defense against the party without a license.

Generally, if the license requirement is strictly for generating revenue, it is not a public policy defense.

Question 25

What is another term for a Restraint of Trade agreement & what are the parameters?

Answer 25

A restraint of trade agreement is known as a Non-Complete agreement. Non-competes must be reasonable in duration and geography and not harmful to the public.

Question 26

What claims may a terminated at-will employee have under Contract law?

Answer 26

Under contract law, at-will employees have no claim for termination. A claim may exist under tort law based on statute or public policy. Attorneys are considered at-will employees.

Question 27

When are prenuptial agreements enforceable?

Answer 27

Prenuptial agreements are subject to the same defenses as other contracts- fraud, duress, incapacity, etc. Under the Geyer standard, a full and fair disclosure is required.

Question 28

Are surrogacy contracts enforceable?

Answer 28

Surrogacy contracts are generally invalid as against public policy if they dismiss parental rights prior to birth. Surrogate contracts can be valid if voluntary and no money.

Question 29

All or part of a contract that is "absent meaningful choice, coupled with unreasonable favorable terms" may be invalid on what grounds?

Answer 29

Unconscionability- An agreement that "no one in senses would make, no fair, honest would accept"

Question 30

Are contracts when one party makes unusually high profit unconscionable?

Answer 30

Not generally. Business-people contracting are arm's length establish valid agreements. The bargaining power and sophistication of the parties will be considered.

Question 31

A "take it or leave it" contract is also known as what?

Answer 31

A contract of adhesion, where one side drafts the entire contract without negotiation or input from the other.

Question 32

Enforcing Adhesion Contracts-

Answer 32

Generally enforceable, if not oppressive and within reasonable expectations. When questioned, interpreted against the drafter. Can't forgive intentional wrongs, and must be conspicuous.

Question 33

Is an unconscionable term more procedural or substantive in nature?

Answer 33

Unconscionability requires some degree of procedural and substantive unconscionability. Procedural is the manner of negotiations, unfair surprise. Substantive is found in the fairness of the terms.

Question 34

Does an unconscionable term void a contract?

Answer 34

Not always, unconscionable terms can be severed by the court.

Question 35

When is good faith required?

Answer 35

Good faith is always required. Common law good faith is implied on every contract, that neither shall destroy or injure a right of the other.

Question 36

How does the UCC define Good Faith?

Answer 36

Good Faith in UCC is "honesty in fact and observance of reasonable commercial standards of fair dealing in trade"

Question 37

Is specific performance a remedy for lack of Good Faith?

Answer 37

Not generally. Relief is ensuring a good faith performance. (SAT didn't review evidence of scores, crt ordered review but not acceptance, Dalton v. ETS)

Question 38

What is a Force Majeure clause?

Answer 38

Force Majeure is an escape clause, excusing performance for unforeseen, unpredictable events.

Question 39

When is a contract excusable for impracticability?

Answer 39

Impracticability is established when the performance can only be done at an unreasonable and excessive cost, effort, or burden. However, high cost alone is not enough to render impracticable.

Question 40

What is a three step test to check impossibility?

Answer 40

1) Did an unexpected contingency (supervening event) occur? 2) Was the risk of the event allocated, by contract or custom? 3) Did the event make performance literally impossible?

Question 41

Impossibility is considered subjectively or objectively?

Answer 41

Impossibility must be from an objective standard. If one party can't perform but another could, not impossible.

Question 42

What is the Ejusdem Generis doctrine?

Answer 42

In force majeure clause, a list of excusable events summarized by "other circumstances"- Other circumstances must be of the same kind as the list.

Question 43

When a material part of a contract or performance is destroyed, what is the effect?

Answer 43

When performance depends on a thing and that thing ceases to exist, at no fault of either, performance excused.

Question 44

What is the result from a casualty of goods of a contract?

Answer 44

If at no fault of either, &- the goods are fully destroyed, the contract is avoided.; the goods are partially destroyed, the buyer's option to void all or part of contract.

Question 45

What case introduced frustration of purpose?

Answer 45

Krell v. Henry, where a room was rented to watch a coronation that was rescheduled.

Question 46

Does impossibility create a frustration of purpose?

Answer 46

No, frustration of purpose doesn't mean impossible. Rather, the value of performance has been destroyed by fortuitous event.

Question 47

What is a mutual mistake that allows for rescission of an agreement?

Answer 47

A mutual mistake exists at the time of formation, but is unknown and falsely assumed by both parties, and has a material effect to the basis of the contract. Rescission is unavailable after full performance by either party.

Question 48

Is any recovery available for a mutual mistake?

Answer 48

Generally, mutual mistakes allow for rescission (voidable). If there have been partial performance, restitution may be found under Quantum Meruit.

Question 49

When is a Unilateral Mistake voidable?

Answer 49

A mistake that exists at formation but is unknown by 1 party is voidable if: 1) Material to contract 2) Other party knew or had reason to know 3) Enforcement would be oppressive to mistaken 4) voiding doesn't create substantial hardship

Question 50

What circumstances can put the risk of a mistake on a party?

Answer 50

A party bears the risk of a mistake when: 1) the risk is allocated by contract or custom 2) A party has limited knowledge but act as sufficient knowledge 3) the court allocates the risk

Question 51

What type of errors have the most favor with the courts?

Answer 51

What the court calls mechanical errors, errors of computation, mathematics, clerical and transcription. Common in erroneous bids.

Question 52

What is anticipatory repudiation?

Answer 52

Anticipatory repudiation is when one party notifies the other of intent to breach. It applies only to bilateral executory contracts, and must be clear and unequivocal repudiation.

Question 53

What is the effect of an anticipatory repudiation?

Answer 53

An anticipatory repudiation satisfies breach immediately. However, given a reasonable time and no reliance, a repudiation may be retracted.

Question 54

How does anticipatory repudiation differ from a prospective nonperformance?

Answer 54

Prospective nonperformance is an objective suspicion of an inability or unwillingness by the other to perform (insecurity).

Question 55

Is past financial trouble, or rumor, grounds for insecurity?

Answer 55

Generally yes.

Question 56

If one party has insecurity about another's performance, what options are available?

Answer 56

An insecure party can request Adequate Assurances. Adequate assurances are based on commercial standards and practices, and failure to give can be treated as a repudiation.

Question 57

When is specific performance available?

Answer 57

Specific performance is an equitable relief. Courts generally prefer monetary damages unless inadequate. Specific performance is typically granted in breaches on the purchase/sell of land. Also for rare or unique items.

Question 58

What are equitable defenses to specific performance?

Answer 58

Latches- when a party delays a claim that puts defendant in prejudiced spot (increase of cost or difficulty) Unclean hands- when party brings claim but also guilty of a related wrongdoing Bona Fide Purchase- If subject has been sold to another in good faith.

Question 59

When is specific performance available as relief to a breach of a service contract?

Answer 59

Specific performance is not available on services contracts. (problems with enforcement and involuntary servitude)

Question 60

If a seller discovers an insolvent buyer, what remedies are available under UCC 2-702?

Answer 60

If seller discovers insolvent buyer: 1) Stop delivery, or 2) Refuse delivery unless cash payment, or 3) if delivered, demand immediate cash, or 4) Reclaim within 10 days (if misrep about solvency in last 30 days, no time limit to reclaim)

Question 61

The preferred method of recovery in contract law is what?

Answer 61

Monetary damages is the preferred method of recovery in contract law.

Question 62

What is the purpose of damages in contract law?

Answer 62

The purpose of contract damages is to put the innocent party in the position he would have been if full performance.

Question 63

What is the most common measure of compensatory damages in contract law?

Answer 63

Expectation damages is the most common measure. This is based on damages sufficient to get substitute performance (benefit of the bargain).

Question 64

Where expectation damages are too difficult to measure, what method is used?

Answer 64

When expectation damages is immeasurable, Reliance damages are considered. This gives the plaintiff the cost of her performance to this point, to put in position as if never in contract.

Question 65

What are consequential damages in contract law?

Answer 65

Consequential damages arise from an innocent buyer's special circumstances. They must have been reasonable foreseeable as a result of a breach at the time of contract. Can be based on lost profits.

Question 66

What are incidental damages in contract law?

Answer 66

Incidental damages are those expenses reasonably related to the breached transaction. Can be cost of inspection, care and custody of rightfully rejected goods, shipping, reselling.

Question 67

What is the certainty rule, and how does it effect contract damages?

Answer 67

The certainty rule states that damages must be certain in nature, and not speculative. Also, damages must be a proximate result of the breach. Future profits can be allowed, if show to reasonable certainty.

Question 68

Are damages required to be foreseeable?

Answer 68

Yes. Damages must have been foreseeable to the breaching party. They must have been reasonably contemplated at formation, reasonably considered as naturally arising from the breach, and to the purpose of the contract.

Question 69

When are punitive damages allowed under contract law theories?

Answer 69

Punitive damages are not provided under contract law. Punitives can be applied if there is a related tort, under tort theories.

Question 70

What are liquidated damages?

Answer 70

Liquidated damages are expressly stipulated damages for a specific breach, often late performance.

Question 71

What factors make liquidated damage clauses valid?

Answer 71

Liquidated damages may be valid if: 1) Actual damages impossible to measure 2) Amount attempts to fix fair compensation 3) Amount is not disproportionate to contract, is reasonable to harm caused

Question 72

Who has the burden to show a liquidated clause is actually a penalty?

Answer 72

Liquidated clauses are presumed valid. The defense has the burden to show a penalty (ex. if not fixed and not a pre-estimate of likely harm)

Question 73

If an express damage clause is more valuable than actual damages, what is the court position?

Answer 73

Express damages more valuable than actual damages are considered penalty (punitive) and not valid. Court may award actual damages for breach.

Question 74

Damages available to buyer if revoke/reject on seller breach?

Answer 74

Buyer is entitled to difference in contract price and market price, or cost of cover plus incidental/consequential less savings.

Question 75

When are a buyer's damages calculated in an anticipatory repudiation by the seller?

Answer 75

Damages are measured from the time of repudiation plus a commercially reasonable time (to allow for retraction/cover investigation).

Question 76

When a buyer mistakenly accept non-conforming goods and revokes, damages are-

Answer 76

Warranty damages, plus incidental and consequential. The buyer must give notice in a reasonable time after discovery or should have discovered.

Question 77

What are a seller's damages if a buyer repudiates or refuses goods?

Answer 77

The seller is entitled to the difference between the contract price and the market or resell price, plus incidental. Good faith resell required.

Question 78

What is a lost volume seller?

Answer 78

A lost volume seller is able to resell as many products as she can produce, and loses a volume of business.

Question 79

What recovery is available to a lost volume seller?

Answer 79

A lost volume seller can recover the difference between contract price and market price (preferred if makes whole) or contract price minus costs (lost profit).

Question 80

If the owner breaches on a construction contract, what are the builder's remedies?

Answer 80

If breach prior to start, the builder is entitled to lost profit. If the breach is during construction, the builder gets lost profit plus costs to date (contract price less cost of completion). If the breach is after completion, the builder gets contract price plus interest.

Question 81

If a builder breaches during construction, the owner is due-?

Answer 81

The owner is due the cost of completion, unless this results in an undue economic waste. If undue economic waste, then owners gets diminished value (difference in as done and full performance value) This is the same theory applied when "completed" but not to contract specification.

Question 82

What is an acceleration clause?

Answer 82

In an installment payment contract, an acceleration clause can make the full amount due upon missing an installment payment. Without acceleration, a missed installment is only a partial breach.

Question 83

How does the theory of mitigation impact contract law?

Answer 83

In contract law, an innocent party can not recover damages that she could have reasonably avoided (mitigation of damages).

Question 84

Are expenses an innocent party spends to mitigate damages recoverable?

Answer 84

Yes. Reasonable expenses to mitigate the harm of an innocent party are recoverable from the breaching party.

Question 85

In manufacturing contracts, is a manufacturer responsible to cease production upon a repudiation?

Answer 85

Not always. A manufacturer can continue to produce after a repudiation in the exercise of reasonable commercial judgement to avoid a loss. (UCC 2-704(2))

Question 86

What is a builder's mitigation responsibility following an owner's breach or repudiation?

Answer 86

The builder in a construction contract has a duty to mitigate damages by stopping work upon owner's breach.

Question 87

If a seller breaches in the sale of goods, what are the buyer's options for recovery?

Answer 87

An innocent buyer can "cover" his loss by purchasing needed goods elsewhere. Recovery is the difference between market price (cost of cover) and the contract price.

Question 88

If a buyer breaches in a sale of goods, what are the seller's recovery options?

Answer 88

An innocent seller can resell the goods. Recovery is the difference between the contract price and the resell price.

Question 89

Under UCC 2-713, failure to cover results in what damages?

Answer 89

Damages are the market price vs. the contract price. | If a repudiation, market price is determined by the time and place of tender in the contract.

Question 90

What is the recovery theory to prevent unjust enrichment?

Answer 90

Restitution is to prevent unjust enrichment. Quantum meruit is the value of the benefit that has been conferred.

Question 91

What is rescission?

Answer 91

Rescission is complete removal of the contract, as if never made. Generally applied anytime a contract is voidable (duress, mistake, capacity, etc)

Question 92

Under the UCC, the statute of limitations for a breach on the sale of goods is 4 years. May the parties modify this?

Answer 92

Yes. Parties in the sale of goods can mutually agree to reduce the statute of limitations to less than 4 years, so long as not less than 1 year.

Question 93

When does an intended beneficiary's rights vest?

Answer 93

A 3rd party's rights vest when the beneficiary assents to either the promisee or promisor, or when the 3rd party has detrimentally relied on the benefit.

Question 94

If a contract has an intended beneficiary, who must agree to modify the original terms?

Answer 94

Both the promisee and the promisor must agree to modify. If a 3rd party has a vested interest, that 3rd party must also agree.

Question 95

What is required to make a 3rd party an intended beneficiary?

Answer 95

An intended beneficiary must be expressed in the contract, or be the intent of both parties. If not expressed, it is presumed to be an incidental beneficiary.

Question 96

Can public contracts have intended 3rd party beneficiaries?

Answer 96

Theoretically yes, but generally public contracts are for the good of all the public and all the public is considered an incidental beneficiary.

Question 97

What type of duties are typically not assignable (delegable)?

Answer 97

Generally personal service contracts are not assignable. If the obligee has "substantial interest in have a particular person perform or control..."

Question 98

Does delegation of a duty release the original party's obligation?

Answer 98

No. Delegation of a duty does not absolve the original duty. In order to absolve a duty, there must be a novation (substitution of parties).

Question 99

If a contractor is unable to complete a contract for impossibility, and her expenses are more than the contract price, how are damages calculated?

Answer 99

Damages will never exceed the contract price (plus incidentals and consequentials) The price is the maximum judgement.

Question 100

When does the UCC discharge duties for sever shortage of materials or supplies?

Answer 100

UCC discharges seller's duties for severe shortage of materials or supplies if: 1) War or Embargo, or 2) Local Crop Failure, or 3) Labor Strike, 4) AND shortage caused marked increase in cost or prevented from securing supplies.

Question 101

What is required to absolve the original obligor when duties are passed to another party?

Answer 101

To absolve a promisor/obligor, the promisee must assent to a substitute (delegatee) obligor. This is called a novation.

Question 102

If a delegatee fails to perform, what redress does the delelgator have?

Answer 102

If a delegatee fails to perform a duty, the delegator can performed and recover any losses from delegatee.

Question 103

What rights are assignable?

Answer 103

Generally, all rights are assignable. Exceptions are: 1) when barred by contract term, 2) when assignment materially changes the duty, 3) when barred by statute.

Question 104

What is required in a non-assignment clause to make assignment ineffective?

Answer 104

Express and explicit language to void and invalidate on any assignment. Absent express intent, the assignment is valid and subject to breach damages.

Question 105

How must an assignment of rights be manifested?

Answer 105

Manifestation of an assignment of rights must be written or oral expression of intent to transfer rights. Contract or statute may require writing, security agreements with respect to collateral must be written

Question 106

How are assignees effected by a contract modification?

Answer 106

Modification of a contract is effective against an assignee if made in good faith.

Question 107

How does a waiver of defenses impact assignments?

Answer 107

A (original) contract term can waive defenses against assignee if assigned, and the buyer's recourse is with the assignor.

Question 108

What makes a Holder-In-Due-Course?

Answer 108

A holder in due course is an assignee who takes assignment: | 1) for value, 2) in good faith, and 3) without knowledge of any claims or defenses.

Question 109

When multiple assignees claim a right to the same contract, who has the right?

Answer 109

``` This varies. The majority position is that the one first assigned is the right-holder. The minority (& Restatement) position is that the second may be rightful if: 1) obtained payment from obligor, or 2) recovered judgement on the debt, or 3) made a new K with obligor, or 4) received tangible token that must be surrendered. ```

Question 110

Compare 'fraud in the factum' to 'fraud in the inducement'

Answer 110

Fraud in the factum is a misrepresentation to the nature of the contract (the duties, obligations, risks), and the contract is absolutely void. Fraud in the inducement is a misrepresentation to induce the other to enter into contract. ("The car works", when it knowingly doesn't)

Question 111

What are the elements of misrepresentation (Restatements 2d S.164)?

Answer 111

1) Misrepresentation of existing fact 2) either fraudulent or material 3) Reasonable reliance

Question 112

When does silence make actionable misrepresentation?

Answer 112

1) affirmative action to conceal a fact 2) gaining subsequent info necessary to disclose to prevent a previous assertion from misrepresenting 3) knowing disclosure necessary to correct a wrong basic assumption of K 4) knowing disclosure necessary to correct other mistake to effect of writing 5) relation of trust or confidence