Contracts

Question 1

Which Law Governs

Answer 1

Article 2 of the U.C.C. governs contracts for the sales of goods, and the common law governs all other contracts, such as the sale of land or services.

Question 2

Goods

Answer 2

Goods are all things moveable at the time they are identified to the contract.

Question 3

Merchants

Answer 3

Some rules under Article 2 apply only to merchants. A merchant is one who deals in goods of the kind sold or who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.

Question 4

Offer (K Formation)

Answer 4

An offer is (1) an expression of a promise, undertaking, or commitment to enter into a contract, (2) with certain and definite terms, (3) communicated to the offeree.

Question 5

Acceptance (K Formation)

Answer 5

An acceptance is a manifestation of assent to the terms of the offer.

Question 6

Consideration (K Formation)

Answer 6

Consideration is a bargained-for exchange involving legal value. An agreement is not enforceable unless there is consideration on both sides of the agreement.

Question 7

Mailbox Rule

Answer 7

Generally, an acceptance by mail is effective at the moment of dispatch, and a renovation of an offer is effective only when received.

Question 8

Promissory Estoppel

Answer 8

A promise is enforceable without consideration if necessary to prevent injustice if: the promisor should reasonably expect to induce action or forbearance and action or forbearance is actually induced.

Question 9

Statute of Frauds

Answer 9

Under the Statute of Frauds, certain agreements must be evidenced by a writing and signed by the party to be charged.

Question 10

Breach

Answer 10

If a promisor is under an absolute duty to perform that has not been discharged, failure to perform in accordance with the contract terms is a breach of contract. The non-breaching party must show that he is willing and able to perform but for the breaching party’s failure to perform.

Question 11

Material Breach

Answer 11

If the obligee has not received the substantial benefit of his bargain, the breach is considered material. If the breach is material, the non-breaching party may treat the contract as at an end and may sue immediately for remedies for breach.

Question 12

Merchant’s Firm Offer

Answer 12

Under Article 2, if a merchant offers to buy or sell goods in a signed writing and the writing gives assurances that it will be held open, the offer is not revocable for lack of consideration during the time stated. Article 2 limits this period, however, to no more than three months.

Question 13

Option K

Answer 13

Because an offer that by its terms is to remain open for a certain period contains a separate promise to keep the offer open, it is generally not enforceable unless consideration is provided. Thus, such an offer without consideration is usually revocable at will.

If an offeree gives consideration for the promise to hold the offer open, the offer is irrevocable for the period stated. This is an option contract.

Question 14

Condition Precedent to Effectiveness

Answer 14

If a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of that understanding may be offered and received (i.e., it is an exception to the Parol Evidence Rule).

Question 15

Condition Precedent to Performance

Answer 15

A condition precedent to performance is an event that must occur before an absolute duty of immediate performance arises.

Question 16

Parol Evidence Rule

Answer 16

Under the Parol Evidence Rule, if parties intended the writing to be the final expression of their agreement, the writing is an integration. Any other expressions made prior to the writing (or oral expressions made contemporaneously with the writing) are not admissible to vary the terms of the writing.

Question 17

Complete and Partial Integration (PER)

Answer 17

If the parties intended the writing to be the complete and final expression of their agreement, the integration is complete, and the writing may not be contradicted or supplement. If, however, the parties intended the writing to cover only a portion of the agreement, the integration is partial. In that case, it cannot be contradicted but may be supplemented with consistent additional terms. Whether an integration is complete or partial depends on the intent of the parties and will decided by the judge, not the jury. All relevant evidence is admissible for this purpose. One of the factors considered is inclusion of a merger clause in the writing.

Question 18

Merger Clause (PER)

Answer 18

A merger clause states the writing represents the complete agreement of the parties.

Question 19

Evidence Outside the Scope of the PER

Answer 19

Validity issues are not within the scope of the Parol Evidence Rule. Thus, a party may introduce extrinsic evidence to show that the agreement never came into being because of a formation defect or a condition precedent to effectiveness. Other issues outside the rule include, mistake in integration; consideration problems; explaining an ambiguous term; subsequent modification; collateral agreement (not contradicting the main agreement); and explaining additional terms if the written agreement was only a partial integration).

Question 20

Impossibility

Answer 20

Contractual duties will be discharged if they are objectively impossible to perform (i.e., the duties cannot be performed by anyone).

Question 21

Impracticability

Answer 21

Courts will discharge duties if performance has become impracticable, which means that the party has encountered extreme and unreasonable difficulty and/or expense, and its nonoccurrence was a basic assumption of the parties. A mere increase in costs is usually insufficient to discharge a duty for impracticability.

Question 22

Frustation of Purpose

Answer 22

Frustration of purpose occurs when the purpose of the contract becomes valueless because of a supervening event not the fault of the party seeking discharge. At the time they entered into the contract, the parties must not have reasonably foreseen the supervening act

Question 23

Purpose of Contract Damages

Answer 23

The purpose of contract damages is to put the non-breaching party in the economic position he would have been in had the promise been performed (i.e., there had been no breach). That is usually calculated as expectation damages, plus consequential damages, less any loss or cost saved by not performing.

Question 24

Expectation Damages

Answer 24

In most cases, the plaintiff’s standard measure of damages is “benefit of the bargain” damages.

Question 25

Avoidable Damages

Answer 25

A non-breaching party cannot recover damages that could have been (or were) avoided. The non-breaching party should try to cut down losses by procuring substitute performance at a fair price.

Question 26

Consequential Damages

Answer 26

Consequential damages are special damages reflecting losses over and above expectation damages. They are usually lost profits and arise because of the non-breaching party’s particular circumstances. Consequential damages are recoverable only if defendant had knowledge of the special circumstances at the time of the contract.

Question 27

Incidental Damages

Answer 27

Incidental damages are the costs incurred in finding a replacement for performance are are always recoverable.

Question 28

Quasi-Contract

Answer 28

Restitution is a remedy used to prevent unjust enrichment. When a defendant receives a benefit as a result of an unenforceable contract, the defendant may be required to pay her unjust gain.

Question 29

Lapse of Time (offer termination)

Answer 29

An offeree must accept the offer within a specified time period or, if none, within reasonable time.

Question 30

Revocation (offer termination)

Answer 30

Revocation is words or conduct by the offeror that terminates the offer.

Question 31

Rejection (offer termination)

Answer 31

Rejection is words or conduct by the offeree that rejects the offer.

Question 32

Termination by Operation of Law (offer termination)

Answer 32

An offer may be terminated by operation of law in the following circumstances: (1) death or insanity of either party; (2) destruction of the subject matter of the contract; or (3) supervening illegality of the subject matter of the contract.