Contracts

Question 1

What is a unilateral contract?

Answer 1

One promise and a performance

This results from an offer that expressly requires performance as the only possible method of acceptance

Ex. “offer” + “only by”

Once performance begins under a unilateral contract, the offeror cannot cancel the offer. However, mere preparation is not enough for the unilateral K to become irrevocable - performance must have begun.

Doesn’t terminate when offeror dies; as long as you continue performing, you recover.

Question 2

What is a bilateral contract?

Answer 2

This results from all offers that aren’t unilateral

There will be a bilateral contract unless:

(1) Reward/prize/contest
(2) Offer expressly requires performance for acceptance (unilateral)

Question 3

What is quasi contract?

Answer 3

An equitable remedy not governed by contract law. Any time the application of contract rules produces an unfair result, consider quasi contract.

Also known as implied-in-law contract. When there is no contractual relationship between the parties, an implied-in-law contract action will prevent unjust enrichment of one party to the detriment of another.

Question 4

What is the UCC Art. 1

Answer 4

Under Article 1, common law contract applies to sale of goods “unless displaced by particular provisions” of Art. 2

Question 5

What is the UCC Art. 2 and what does it apply to?

Answer 5

Art. 2 applies to contracts that are primarily for sales of goods. Factors in determining applicability:

(1) type of transaction (sale?) and
(2) subject matter of transaction (goods - tangible/personal property)?

Does NOT apply to: real estate transactions, services contracts, employment contracts, agreements to provide specific services.

Question 6

How do you determine whether a mixed deal (with services, sale of goods) applies the UCC?

Answer 6

General rule: all or nothing test, based on what the most important part of the deal is.

Exception: if the contract expressly divides payment, then apply UCC to sale of goods and common law to the rest (ex. $10 for yo yo, $39,990 for lessons)

Question 7

What is the basic definition of a contract?

Answer 7

A contract is an agreement that is legally enforceable. Thus, an agreement must be ENFORCEABLE (valid offer, termination of offer? acceptance)

Question 8

What is the general test for determining whether an initial communication constitutes an offer?

Answer 8

General test: manifestation of commitment. Would a reasonable person in the position of offeree believe that his or her assent creates a K.

Note: a bid can be an offer.

Question 9

What if the price term is missing in an offer to sell?

Answer 9

If common law: price and land description required to constitute an offer to sell.

If UCC: can exclude price in offer, so long as it meets test (“intent of parties”)

Question 10

What if there are vague or ambiguous terms in an offer?

Answer 10

Under UCC/common law alike, vague or ambiguous MATERIAL terms are not an offer (test: appropriate, fair, reasonable)

Ex. sale of car for “fair price” is not an offer under either CL or UCC

Question 11

What is a requirements or output contract?

Answer 11

When buyer agrees to buy all its things from the seller, OR the seller agrees to sell its whole production to the buyer.

Requirements:

• Can’t be vague/ambiguous
• Can state quantity of goods in terms of either requirement or output (ex. all, only, exclusively, solely)
• Under UCC, price/time need not be spelled out - terms supplied by “reasonableness” standard if otherwise consistent with parties’ intent (but that won’t change the express terms of the K)

Under the UCC, a good faith term is implied (such actual requirements as may occur in good faith)

In a valid requirements contract, both parties’ promises create binding obligations - the promisor binds itself to buy from the supplier all that it requires, and the supplier binds itself to sell to the promisor that same amount. Consideration exists because the promisor is suffering a legal detriment; it has parted with the legal right to buy the goods it may need from another source.

Ex. “as many peaches as it chooses” does not sufficiently bind because it is illusory; “as many peaches as it requires” does. An agreement to bind only what is desired is not consideration.

Question 12

Can a buyer increase the requirements in a requirements contract?

Answer 12

Yes, so long as the increase is in line with prior demands, and no unreasonably disproportionate increase is allowed.

Test: compare proportionally with the prior demand

Question 13

Can an advertisement or price quote be an offer?

Answer 13

Generally, ads and price quotes aren’t offers.

Exception:

• Reward is unilateral offer
• Ads can be offer if it specifies quantity and explicitly dictates terms of acceptance (fur coat, first come first serve, $10)

Question 14

What is offer termination?

Answer 14

Removes the power of acceptance from the offeree; the offer itself no longer exists

Question 15

What are the four main ways in which someone can terminate an offer?

Answer 15

1. Lapse of time
2. Death of a party prior to acceptance
3. Words or conduct of offeror (offer revocation)
4. Words or conduct of offeree

Question 16

What is required for an offer to be considered terminated due to lapse of time?

Answer 16

Either time stated, or reasonable time elapses.

Question 17

What is required for an offer to be considered terminated due to death of a party?

Answer 17

General rule: death or incapacity of either party after offer, but before acceptance, terminates.

Exception: irrevocable offer.

Question 18

What is required for an offer to be considered terminated due to words or conduct of offeror (i.e. revocation)?

Answer 18

An offer can be revoked through either:

1. Later unambiguous statement by offeror to offeree of unwillingness or inability to contract, OR
2. Later unambiguous conduct by offeror indicating an unwillingness or inability to contract that the offeree is aware of.

Note
- Multiple offer does not constitute a revocation, b/c not unambiguous

Exception: four irrevocable contracts

Question 19

What are the four irrevocable contracts?

Answer 19

1. Option (offer + paid promise)
2. UCC Firm Offer Rule (offer + written promise + merchant)
3. Reliance (offer + reasonably foreseeable and detrimental reliance)
4. Unilateral contract (unilateral K offer + start of performance)

Question 20

What is an option contract (irrevocable contract, which cannot be terminated by offeror after offer)?

Answer 20

(1) offer
(2) offeror promised not to revoke (or promised to kep offer open) and
(3) promise supported by payment or other consideration (“option”) (common law)

Options are irrevocable both in UCC and common law.
Options may be kept open for however long parties contract to.

Note: mailbox rule does not apply to the exercise of options. Acceptance of an option is effective only when received.

Question 21

What is the UCC’s “firm offer rule” (irrevocable contract, which cannot be terminated by offeror after offer)?

Answer 21

Offer cannot be revoked for up to three months if:

(1) offer to buy/sell goods
(2) signed, written promise to keep offer open (by its own terms)
(3) offeror is a merchant.

Irrevocable during the time stated. Period of irrevocability may not exceed 90 days (if litigated).

Note: if you see an orally agreed-to option contract from a merchant, firm offer rule will NOT apply and it will not be irrevocable.

A merchant is someone in business
If the promise says that the offer won’t be revoked for longer than three months, the courts don’t punish that overreach they just cap it at 3 months.

Question 22

What is the irrevocable offer through reliance?

Answer 22

Offer cannot be revoked if there has been reasonably foreseeable and detrimental reliance.

Question 23

When is an offer in a unilateral contract irrevocable?

Answer 23

Start of performance pursuant to an offer to enter into unilateral contract

Mere preparation will be insufficient (if painting - preparation is everything up to putting the paint on the wall)

Question 24

When will the words/conduct of offeree create an indirect rejection?

Answer 24

Indirect rejection through

(1) Counteroffer
(2) Conditional acceptance
(3) Additional terms aka Mirror Image Rule [common law only]

Question 25

What is a counteroffer?

Answer 25

Generally TERMINATES the offer and creates a new offer.

Exception:
- If there is an option (offer + promise + consideration), counteroffer will not kill offer.

Distinguish from bargaining, which doesn’t terminate offer (question mark)

Question 26

What is a conditional acceptance, and when will it constitute an indirect rejection?

Answer 26

A conditional acceptance always terminates the offer. At CL, it becomes a counteroffer that can be accepted through conduct. In UCC, it’s just a rejection!

Look for response to an offer with the words “accept” followed by “if”/”only if”/”provided”/”so long as”/”but”/”on condition that.

The difference between CL and UCC means that there will be a difference as to which terms are accepted (UCC - conduct will be based solely on conduct, new provision doesn’t enter)

Question 27

What is the Mirror Image Rule?

Answer 27

UCC expressly rejects, only under common law.

A response to an offer that adds new terms is treated like a counteroffer rather than an acceptance. That means that there is no enforceable contract between the parties, because the additional term constitutes a rejection of the offer and counteroffer.

Question 28

What happens if there are additional or different terms added to an offer (under UCC Art. 2-207)?

Answer 28

Battle of the forms.

Ask:

1. Is there a contract?
   - If you add new terms but don’t make them a condition of acceptance, generally treated as “seasonable expression of acceptance”
2. Is the additional term a part of the K?
   - If both parties aren’t merchants, not a part.
   - If both parties are merchants, will not be a part if the additional term
   (a) is material
   (b) the offer expressly limits acceptance to its terms, OR
   (c) offeror has already rejected the terms or rejects the terms in reasonable time period

–

Rules

1. If the offeree (seller, usually) accepts the offer and at the same time makes a material alteration or adds an additional term to the offer, we have a contract and the terms of the offer control.
2. If there is an acceptance with a non-material change, then the change is incorporated into the contract, UNLESS the offeror objects to those changes within a reasonable period of time. If the offeror objects, the changes are out.
3. What is a material alteration? A change that substantially affects the economic risks/benefits, or changes the usual remedy for breach of K (liability, $, damages) i.e. arbitration clause.

Question 29

Who can control the method of acceptance of an offer?

Answer 29

Offeror can control the method. However, usually on bar exam questions the K will be silent as to these details and we will have some complication.

Question 30

What happens if there is a verbal offer, no response, but start of performance?

Answer 30

Generally: start of performance will be treated as acceptance. Starting to perform treated as an implied promise to perform.

Exception: start of performance is not acceptance of unilateral K offer, only completion of performance is.

Question 31

What is the mailbox rule, and the rules governing when a communication will constitute acceptance?

Answer 31

This will come up when the offeror and offeree are at different places and there are delays in the receipt of communications. Four rules:

1. All communications other than acceptance are effective only when received
2. Acceptance is generally effective when mailed (i.e. “mailbox rule”) (exception: accepting an option K)
3. If rejection mailed before acceptance mailed, then neither is effective until received.
4. You cannot use the mailbox rule to meet an option deadline (ex. mailed at 4:59 Friday when the option gave you until 5 pm to accept)

Note: the mailbox rule does not apply when the offeree sends a rejection, followed by an acceptance. Whichever is received first controls.

Question 32

What happens when a seller of goods sends the “wrong” goods?

Answer 32

General rule: acceptance and breach.

Exception: accommodation
- Counteroffer and no breach (“out of red, hope you can ues the blue” (this isn’t a contract)

Question 33

Who can accept an offer, and who cannot?

Answer 33

Only by:

1. Person who knows about the offer at the time she accepts, AND
2. Who is the person to whom it was made.

Question 34

Can an option be assigned? Can an offer?

Answer 34

Offers cannot be assigned, and options can be assigned (unless the option otherwise provides)

Question 35

What are some reasons why an agreement may not be legally enforceable?

Answer 35

1. Lack of consideration or consideration substitute for promise
2. Lack of capacity of person who made promise
3. Statute of Frauds
4. Existing law that prohibits performance of agreement
5. Public policy
6. Misrepresentations
7. Nondisclosure
8. Duress
9. Unconscionability
10. Ambiguity in the words of the agreement
11. Mistakes at time of agreement re: material facts affecting agreement

Question 36

What is consideration?

Answer 36

A bargained-for legal detriment. Peppercorn.

Three step issue:

1. Identify promise breaker
2. Did that person ask for something in return for promise (bargain for something)?
3. What legal detriment did the person trying to enforce the agreement suffer?

Legal detriment: doesn’t need to actually be detrimental, needs only deprive you of something you have a legal right to do.

Question 37

Can one promise ever be consideration for another promise?

Answer 37

Yes (I promise to buy your house, you promise to buy my house).

Exception: “illusory promise exception”

• if you can terminate the K at any time without notice
• Then, the promise cannot create any kind of obligation or detriment. Won’t be illusory if you have the legal right to do soething.
• But the slightest obligation can save you (“I reserve right to terminate at any time upon 10 days notice”)

Question 38

When can past consideration constitute consideration?

Answer 38

Generally, past consideration (moral obligation) is not consideration. You can’t bargain for something that has already happened. NOR is it a valid consideration substitute.

Exception: expressly requested by promisor AND expectation of payment by promisee
Ex. H sees L in danger, asks A to save her, knowing A will expect to be paid. After A saves L, H promises to pay.

Question 39

What is the pre-existing contractual or statutory duty rule?

Answer 39

At common law: the general rule is that doing what you are already legally obligated to do is not new consideration for a new promise.

• Exception under modern law: unforeseen difficulty so severe as to excuse performance (creates new detriment)
• Exception: third party promise to pay (if another person gets involved)

Under UCC: no pre-existing legal duty. New consideration is not required to modify a sale of goods.
Test: was the modification in good faith?

Question 40

When can past payment (i.e. promise to forgive debt balance) constitute consideration?

Answer 40

General rule: key is whether debt is due and disputed. If due and undisputed, no consideration (b/c no new detriment).

Question 41

What are some consideration substitutes?

Answer 41

1. Written promise to satisfy an obligation (for which there is a legal defense i.e. past SOL but you agree to pay anyways)
2. Promissory estoppel (detrimental, foreseeable, reasonable reliance)
3. A seal, if the state recognizes it as a consideration substitute.

Question 42

Who lacks capacity to contract?

Answer 42

Who lacks:

1. Infant (under 18 - no matter how old the other party thinks you are)
2. Mental incompetent (can’t understand agreement) or
3. Intoxicated person if the other party has reason to know they are intoxicated

Question 43

What are the consequences of incapacity?

Answer 43

1. Right to disaffirm by person without capacity
2. Implied affirmation (ratification) by retaining benefits after gaining capacity (once you regain capacity you impliedly affirm if you retain the benefits after)
3. Quasi-contract liability for necessities by incompetent person (food, clothing, medical care, shelter)

Question 44

What proof is required to satisfy SoF?

Answer 44

Performance or a writing signed by defendant

Signed could be on letterhead.

Question 45

What is suretyship, and when does SoF apply?

Answer 45

Surety contract is a promise to answer for the debt for another if they do not pay. SoF applies to suretyship.
Ex. parents co-signing a loan for you (must be in writing).

Main Purpose Exception: if the main purpose of the guarantor in making the surety promise was to benefit herself, then the promise need not be in writing. SOF does not apply.

Question 46

When will service contracts be subject to the Statute of Frauds?

Answer 46

SoF will apply if the service contract is not capable of being performed within a year from the time of the contract (i.e. more than a year).

“Capable” means theoretically possible with truly unlimited resources

Ex. 3-year employment contract, termination possible with 30 days notice (SoF applies
Ex. Specific time period, more than a year from date of contract
Ex. task that says nothing about time - SOF doesn’t apply
Ex. task “for the rest of X’s life” - SoF doesn’t apply, because could possibly be completed within a year.

Question 47

When will a transfer of interest in real estate be subject to the Statute of Frauds?

Answer 47

Transfers of interest in real estate are generally subject to SoF.

Note: must be transfer but doesn’t need to be title (can be lesser interest, like easement).

Exception: leases 1 year or less in duration

Question 48

When will the sale of goods be subject to the Statute of Frauds?

Answer 48

When the sale of goods is for $500 or more.

Written confirmation, 10-day rule exception to SOF. If both parties merchants and enter into oral agreement, a subsequent written confirmation of the oral agreement is enforceable immediately against the sender. The recipient is bound, if they don’t object to the confirmation within 10 days of receipt.

Note: An oral K for goods is enforceable to the extent of goods received and accepted by buyer.

Question 49

When will performance satisfy the Statute of Frauds requirement within real estate?

Answer 49

Part performance satisfies SoF in transfers of real estate. Part performance requires two of the three:

1. Improvements to land
2. Payment
3. Possession

Question 50

When will performance satisfy the Statute of Frauds requirement within a services contract?

Answer 50

Full performance by either party satisfies the Statute of Frauds requirements.

Part performance of a services contract will not satisfy the Statute of Frauds.

Note: using marriage as consideration requires WRITTEN K.

Question 51

When will performance satisfy the Statute of Frauds requirement within a sale of goods contract?

Answer 51

Seller’s part performance of a K for the sale of goods satisfies SoF, but only to the extent of the part performance

For ordinary goods: need something to be delivered that person is suing over.

For custom/specially manufactured goods, SoF is satisfied as soon as seller makes a “substantial beginning” (done enough work that it’s clear that what she is working on is specially manufactured)

Question 52

When will a writing satisfy the Statute of Frauds (in all aspects aside from Article 2 sale of goods)?

Answer 52

1. all material terms test [who - both parties - and what]??

2. signed by defendant?

Question 53

When will a writing satisfy the Statute of Frauds in Article 2 UCC?

Answer 53

1. Indicate that there is K for sale of goods
2. Contain quantity term (how many)
3. Generally must be signed by defendant (limited exception for transactions between two merchants with delay in responding)

Question 54

What effect does a judicial admission re: existence of an agreement have on the Statute of Frauds requirement?

Answer 54

If the defendant asserting an SoF defense admits in pleading or other testimony that he entered into an agreement with P (“we agreed but never put it in writing”), then the purpose of SoF (protection against fraudulent claims of agreement) are fulfilled and SoF is satisfied.

Question 55

What happens if the plaintiff relied upon the defendant’s oral promise in writing, but then D asserts Statute of Frauds issue?

Answer 55

Some cases hold that estoppel will keep defendant from raising an SoF defense.

Question 56

When does proof of authorization for a third party to enter into contract on someone else’s behalf need to be in writing (to satisfy Statute of Frauds)?

Answer 56

Rule of law is that the authorization must be in writing only if the contract to be signed falls within the Statute of Frauds (authorization must only be of “equal dignity” with K)

Question 57

When is written proof of a contract modification required?

Answer 57

If the deal with the alleged change would be within SoF, then the alleged modification must be in writing.

Ex. T leases building for 3 years. T claims they agreed to reduce from 3 years to 1. K law does not require written evidence of the alleged mod.

However, a modification need not be in writing. Sometimes, a written contract may be modified orally.

Question 58

What is the effect of a contract provision requiring that all modifications be in writing?

Answer 58

Common law: ineffective, ignore this provision

UCC: effective unless waived

Question 59

What effect will illegality have on enforcement of a contract?

Answer 59

If the subject matter is illegal, agreement is not enforceable.
If the subject matter is legal, the agreement is enforceable if the P did not have reason to know of D’s illegal purpose.

Question 60

What effect will public policy considerations have on a court’s willingness to void an agreement?

Answer 60

Courts can refuse to enforce an agreement due to bad public policy. Look for:

1. Exculpatory agreement (seeks to limit liability) that exempts intentional/reckless conduct from liability, OR
2. Covenant not to compete without a reasonable need/time/place limits.

Question 61

What effect does misrepresentation have on a court’s willingness to enforce an agreement?

Answer 61

Remedy: rescind.

1. Statement of “fact” before the contract
2. By one of the contracting parties or agent
3. That is false
4. Fraudulent or material
5. Induces the contract

No wrongdoing required for material misrepresentations, must be relied upon or induced.

Question 62

What effect does duress or undue influence have on a court’s willingness to enforce a contract?

Answer 62

1. Physical duress
2. Economic duress (bad guy who usually imposed an improper threat, and vulnerable guy with no reasonable alternative).

If undue influence, look for (1) special relationship between parties, and (2) improper persuasion of weaker by stronger

Question 63

What effect does unconscionability have on a court’s willingness to enforce a K?

Answer 63

Never goes to the jury, is a question of law. Two basic tests:

1. Unfair surprise (procedural)
2. Oppressive terms (substantive)

The terms have to be so one-sided it shocks the conscience, unequal bargaining terms. Must be held over a barrel.

Tested as of the time the agreement was made by the court.

Question 64

What effect does ambiguity of a contract term have on a court’s willingness enforce a K?

Answer 64

No K if (1) parties use a material term that is open to at least 2 reasonable interpretations, (2) parties attach different meanings to those terms, (3) neither party knows or has reason to know the term is open to at least 2 reasonable interpretations.

Question 65

What effect does mistake of fact have on a court’s willingness to enforce a K?

Answer 65

1. Mutual, material mistake of existing fact (at time of contract) - both parties are mistaken (not just uncertain) about an existing fact, and person seeking relief does not bear the risk of mistake. Mutual mistake can result in rescission.
2. Unilateral mistake of fact (only one party mistake). - generally will not prevent contract formation. generally, courts more reluctant to allow party to avoid a contract for mistake made only by one party. There will be relief, however, for situations in which other party knew or had REASON to know of mistake (palpable mistake). They aren’t permitted to snap up the benefit of the bargain.
   - Ex. Bids ranging 5k-6k, lowest bid 3k - homeowner should have known or asked questions. Can’t enforce.
   - Bidder USUALLY assumes the risk, outside of this exception.

Note: Mistake is only a defense to formation of a contract, and is said to render a contract voidable by the adversely affected party. Thus, mistake is NOT a ground on which relief can be granted.

Question 66

What is integration, for purposes of the parol evidence rule?

Answer 66

The written agreement that the court finds to be the final agreement (which then triggers the parol evidence rule).

When the parties to a contract express their agreement in writing, with the intent that the writing embody the final expression of their bargain, no other expression made prior to or during the the writing is admissible to vary the terms of the writing.

Question 67

What is partial integration?

Answer 67

A written, final document that isn’t complete (like a really short agreement, that is meant to be final as to what it covers)

Its opposite: complete integration

Question 68

What is a merger clause?

Answer 68

Contract clause such as “this is the complete and final agreement” - persuasive but not conclusive

Question 69

What is parol evidence that may be admissible?

Answer 69

Rule: Limited to the words of the party (or parties) before integration (before the agreement is put in written form), oral or written. Any oral expressions made contemporaneously with the agreement will be deemed inadmissible. Does not apply for modifications (won’t bar evidence).

Admissible: supplementing consistent terms (see below); facts that don’t actually go to a material term of the contract

Question 70

What the rule re: parol evidence if there are changing or contradictory terms within a written deal?

Answer 70

Evidence of earlier agreements cannot be considered for the purpose of contradicting the terms in the written contract

Question 71

When is parol evidence admissible if there is a mistake in integration, i.e. clerical mistake?

Answer 71

You can consider parol evidence of these terms for the limited purpose of determining whether there was a mistake in integration (i.e. mistake in reducing agreement to writing).

Question 72

When is parol evidence admissible for the limited purpose of determining whether there is a defense to enforcement (e.g. misrepresentation, fraud, duress)

Answer 72

Parol evidence rule does not prevent the court from considering this evidence.

Question 73

Does the parol evidence rule allow courts to consider evidence of earlier agreements to resolve ambiguities within a written contract?

Answer 73

Yes, can look to parol evidence for purposes of explaining terms in written deal/ambiguity

Question 74

When can courts use parol evidence to consider earlier agreements to add to the written deal?

Answer 74

Parol evidence rule prevents court from considering evidence of earlier agreements as a source of consistent, additional terms unless the court finds: (1) the written element was only a partial integration, or (2) additional terms would ordinarily be in a separate agreement.

Question 75

Can conduct be a source of contract terms? (exception to parol evidence)

Answer 75

Yes - gaps left by missing words. Forms of conduct (considered in descending order by court):

1. Performance (same people, same contract
2. Course of dealing/trade usage/industry practice (same people, different but similar contract)
3. Custom and usage (different but similar people, different but similar contract)

Question 76

What are the default terms in sales of goods contracts?

Answer 76

1. Delivery obligations of sellers of goods if delivery by common carrier
2. Risk of loss
3. Warranties of quality

Question 77

Under the UCC, what are the two default options for delivery obligations of sellers of goods if delivery is by a common carrier?

Answer 77

If there is agreement as to place of delivery, then the question is what the sellers must do to complete obligation. There are two possible options under the UCC.

1. Shipment contracts
2. Destination contracts

Question 78

What is a shipment contract?

Answer 78

Seller completes delivery obligation when

(1) gets the goods to a common carrier,
(2) makes reasonable arrangements for delivery, and
(3) notifies the buyer.

In this type of contract, seller completes delivery obligation before delivery is completed.

Question 79

What is a destination contract?

Answer 79

Seller does not complete delivery obligation until the goods arrive at the destination

Question 80

How can you determine whether a contract is a shipment contract or a destination contract?

Answer 80

Most Ks are shipment contracts. FOB means free on board, is the source of determining. FOB means that this is the last place the seller is responsible for getting the goods to

FOB [city where seller is or where goods are] shipment contract
FOB [my store] = no delivery costs required

FOB [any other city] = destination contract

Ex. I am in Texas with goods, you are in Chicago
FOB Texas = shipment contract
FOB Chicago/Little Rock = destination contract

Ex. If seller says “FOB my shop,” they do not need to pay for shipping or freight charges.

Question 81

When will a risk of loss issue (within UCC sale of goods K’s) arise?

Answer 81

(1) After K has been formed, but before buyer receives goods
(2) goods are damaged or destroyed
(3) neither party is to blame.

Possible consequences:

• If risk of loss is on buyer, buyer must pay full contract price for the goods.
• If risk of loss is on the seller, no obligation on buyer and possible liability on seller for nondelivery

Question 82

What are the rules governing risk of loss?

Answer 82

Sequentially (meaning, will consider 1 and if inapplicable 2, and if inapplicable 3, etc.)

1. Agreement of parties controls
2. Breaching party is liable for any uninsured loss even though the breach is unrelated to the problem
3. Common carrier delivery - risk of loss shifts from seller to buyer at the time seller completes its delivery obligation (either shipment K or destination K)
4. Catch-all (no agreement, no breach, no delivery by common carrier): determining factor is whether SELLER is merchant.
   (a) Risk of loss shifts from merchant-seller to buyer on buyer’s receipt of goods (physical possession)
   (b) Risk of loss shifts from nonmerchant-seller to buyer when tenders the goods (makes them available)

Question 83

What is an express warranty of quality?

Answer 83

Words that promise, state facts, describe, offer sample (distinguish: sales talk, general opinion)

Ex. “all steep,” “guaranteed to operate without repair for 2 years,” shows buyer sample
NOT “top quality”

Question 84

What is the implied warranty of merchantability?

Answer 84

Automatically added to purchase of goods from merchant, by operation of law. Merchant means deals in goods of that kind.

Warranty: goods are fit for the ordinary purpose for which such goods are used.

Can only be disclaimed if as part of the offer/acceptance; if you disclaim it post-purchase, then the disclaimer is ineffective.

Question 85

What is the implied warranty of fitness for a particular purpose

Answer 85

Triggering facts:

(1) buyer has particular purpose,
(2) buyer is relying on seller to select suitable goods
(3) seller has reason to know of the purpose and reliance

Warranty: goods fit for a particular purpose

Question 86

What are the limitations on warranty liability?

Answer 86

1. Statute of limitations (4-years, beginning upon tender of delivery)
2. Privity (if P did not buy from D, possible privity issue)
3. Buyer’s examination of goods (no implied warranties as to defects that would be obvious on examination)
4. Disclaimer of implied warranties of merchantability and fitness (either through conspicuous language of disclaimer mentioning merchantability OR “as is”/”with all faults”) (NB express warranties cannot be disclaimed)
5. Limitation of warranties (possible to limit remedies, even for express warranties. Test: unconscionability. Will be prima facie unconscionable if breach of warranty on consumer causes personal injury)

Question 87

When does perfect tender apply, and what does it mean?

Answer 87

Perfect tender rules only apply to sale of goods (Article 2).

Under Perfect Tender Rule, seller must deliver perfect tender to a buyer. If a seller delivers non-perfect tender, that delivery is considered both an acceptance and a breach of contract. If there has been a perfect tender violation, buyer has three options:

1. Accept the goods and pay the contract price
2. Timely reject goods and sue for damages, so long as buyer acts in good faith.
3. Accept any commercial units and reject the rest (accept in part).

The only thing that can save a seller is when the delivery is accompanied by a NOTICE of ACCOMMODATION. This is treated as a counter-offer, which the buyer can either accept/reject, but cannot sue on.

Question 88

When can buyer reject goods for less-than-perfect tender?

Answer 88

Buyer must act in good faith.

(1) Take reasonable care
(2) Cannot continue to use them
(3) Limited by cure, installment contracts, acceptance

Question 89

What is the option to “cure”?

Answer 89

In some instances, seller who fails to make perfect tender will be given second chance opportunity to cure. Buyer cannot compel seller to cure.

Available if:

(1) Time for performance has not yet expired OR
(2) Seller has reasonable grounds to believe tender would be acceptable, perhaps with money allowance (ex. through prior deals and expectations)

Question 90

What is an installment contract?

Answer 90

Requires or authorizes

(1) delivery of goods in separate lots
(2) to be separately accepted

Buyer only has right to reject if substantial impairment in installment that cannot be cured

Question 91

What constitutes the acceptance of goods, such that they cannot then reject them for less-than-perfect tender?

Answer 91

1. Failing to reject after buyer has had reasonable time to reject
2. Retention will constitute implied acceptance

Note: payment without opportunity for inspection is NOT acceptance (ex. ordering something online)

Question 92

What is revocation of acceptance of goods, and when can it be accomplished?

Answer 92

Requirements:

1. Nonconformity substantially impairs value of goods,
2. Excusable ignorance of grounds for revocation or reasonable reliance on seller’s assurance of satisfaction, AND
3. Revocation within reasonable time after discovery of nonconformity

Rejection vs. revocation

1. Timing (rejection is before acceptance)
2. Standard (rejection is perfect standard, revocation is substantial impairment)

Under both, buyer must:

1. Reasonably notify seller
2. Hold goods for seller
3. Follow reasonable seller instructions

Question 93

What is a third-party beneficiary?

Answer 93

Not party to contract, able to enforce others made for her benefit

Usually, a creditor or donee.

Question 94

Who is the promisor in a third-party contract?

Answer 94

The person making the promise to benefit the third party

Question 95

Who is the promisee in a third-party contract?

Answer 95

Person who obtains the promise that benefits the third party

Question 96

What is the difference between an intended beneficiary and an incidental beneficiary?

Answer 96

Only intended beneficiaries can have contract rights. Intent of two parties to contract determines whether it’s intended or incidental.

Intended beneficiary - always named in K
Incidental - maybe benefit, but wasn’t intended to.

Question 97

When do you need the third party beneficiary’s consent in order to cancel or modify a third-party contract?

Answer 97

Generally, a third-party beneficiary has rights under contract as soon as she does something to vest her rights:

1. Third party learns of contract AND assent to contract
2. Third party learns of contract AND relies on it (like letting another option K lapse), or
3. Third party learns of contract AND brings immediate lawsuit to enforce it.

If the third party knows of and has relied on/assented as requested, then her rights have vested and the K can’t be canceled without consent (unless contract provides otherwise).

Question 98

Who can and cannot sue whom in a third-party contract?

Answer 98

1. Beneficiary can recover from promisor
2. Promisee can recover from promisor.
3. Beneficiary generally cannot recover from promisee, unless creditor beneficiary on pre-existing debt.

If third party beneficiary sues promisor, the promisor can assert any defense he would have had if he had been sued by promisee.

However, if the promisor made an absolute promise to pay the third party beneficiary (and not simply a promise to pay whatever the promisee owed him), the promisor cannot assert the promisee’s defenses.

Question 99

What is an assignment of rights? What does it require?

Answer 99

A transfer of rights under contract (person trying to enforce a K she did not make)

Two steps:

1. Contract between only two parties
2. One of the parties later transfers rights under that contract
3. Not limited by either prohibition or invalidation

Assignments and delegations can be oral, don’t need to be in writing. No need for consideration. Note: an assignment is not technically a contract modification.

Assignor - party to contract who later transfers right under K to another
Assignee - not a party to K, able to enforce due to assignment
Obligor - one who the assignee is trying to enforce contract against, other party to a K.

Note: if the underlying assignment does not need to comport with Statute of Frauds on its face, then an assignment need not be in writing.

Question 100

When will there be a prohibition of assignment of rights?

Answer 100

Assignment and delegation are both prohibited when they would substantially alter the obligor’s risks (ex. where the obligor extends any degree of trust/confidence to the particular obligee, like an exoneration clause).

Language of prohibition takes away the right to assign, but not the power to assign. The assignee is liable for breach of contract, but the assignee who doesn’t know about the prohibition can still enforce the assignment.

If there’s any doubt between prohibition and invalidation, choose prohibition.

Ex. “rights hereunder are not assignable”

Question 101

When will there be an invalidation of assignment of rights?

Answer 101

Language of invalidation takes away both the right to assign and the power to assign, so that there is both a breach by the assignor and no rights in the assignee.

Ex. “all assignments of rights under this contract are void”

Question 102

What is the common law rule re: assignment if there is nothing in the fact pattern about contract language on assignability?

Answer 102

CL bars assignment that “substantially changes the duty of obligor”

Right of payment isn’t substantial. Right to performance is more likely substantial.

Question 103

What are the requirements for revoking an assigned contract?

Answer 103

Rule: consideration isn’t required, but a gratuitous assignment (and only gratuitous assignment) can be revoked.

Absent evidence of reliance, gratuitous assignment is generally revocable.

Revocation can occur if the assignor ACCEPTS the gift, and doesn’t pass it on to the assignee. If you keep the money for yourself, the assignee can’t recover.

Question 104

Who can sue whom, in an assignment contract?

Answer 104

1. Assignee can recover from obligor (person who K was transferred to)
2. Assignor for consideration cannot recover from obligor.

Obligor has same defenses against assignee that she would have against assignor

Question 105

What are the requirements on obligor payment to assignee in an assigned K?

Answer 105

Payment by obligor to assignor is effective until obligor knows of the assignment.

Modification agreements between obligor-assignor are effective if obligor did not know of the assignment.

Question 106

What are the implied warranties of an assignor in an assignment for consideration?

Answer 106

Assignor warrants:

(1) Right assigned actually exists,
(2) Right assigned is not subject to any then-existing defenses by obligor, and
(3) Assignor will do nothing after assignment to impair the assignment’s value.

Question 107

What are the rules governing multiple gratuitous assignments?

Answer 107

General rule: last assignee generally wins.

Question 108

What are the rules governing multiple assignments for consideration?

Answer 108

General rule: first assignee for consideration wins.

Limited exception: subsequent assignee takes propriety over earlier assignee for value only if he both:

(1) does not know of earlier assignment, and
(2) is first to obtain either (1) payment, (2) judgment, (3) novation, or (4) indicia of ownership

Question 109

What is a delegation of duties?

Answer 109

Party to contract is transferring work under that K to a third party. Delegation is a duty or burden to a third party who was not an original party, whereas an assignment is a right or benefit.

Both an assignment and a delegation can occur within the same contract

Question 110

Which duties are delegable?

Answer 110

Generally, contract duties are delegable. Limitations on delegation are very few.

Delegations permitted unless either

(1) contract prohibits delegations or assignments, or
(2) “personal services contract” that calls for very special skills

A contract will be deemed to prohibit delegations/assignments if a very skilled performer delegates the job to a novice.

Question 111

What are the rules governing nonperformance by delegatee?

Answer 111

Delegating party always remains liable. Delegatee is liable only if they received consideration from the delegating party (or if the delegating party received consideration).

Question 112

What are options for remedies for an unexcused nonperformance?

Answer 112

1. Non-monetary remedies (in rem)
   (a) Specific performance/injunction
   (b) Reclamation (get goods back)
2. Money damages (expectation damages)
   - PLUS Incidental damages
   - PLUS Consequential damages
   - MINUS avoidable damages
   - MINUS damages that can’t be proven with reasonable certainty
   - potentially based on liquidated damages provisions

Question 113

When can an equitable remedy be given?

Answer 113

Look for adequacy of remedy at law or unclean hands. If money damages are inadequate, THEN look to specific performance. Specific performance is granted when:

1. There is a valid contract
2. The legal remedy is inadequate
3. Enforcement is feasible AND
4. Mutuality of remedy is present
5. K for sale of real estate - can be given only if money damages inadequate, and there is no other equal claim in equity (two BFP?)
6. K for sale of goods - buyer may obtain specific performance where the seller refuses to deliver goods, if the goods are unique goods (antique, art, custom-made, longest lasting) or circumstances are otherwise proper, so long as the P doesn’t also have unclean hands. Unclean hands means some moral, ethical, legal wrongdoing (not just harming reputation).
7. K for services - no specific performance, but possible injunctive relief (e.g. a noncompete, but can’t force someone to perform)

Question 114

When is reclamation an appropriate remedy?

Answer 114

Right of an unpaid seller to get its goods back. (UCC)

(1) Buyer must have been insolvent at the moment it received goods,
(2) Seller demands return of goods within 10 days of buyer receipt (10-day rule becomes “reasonable time rule” if before delivery there was an express representation of solvency by buyer), AND
(3) Buyer still has goods at time of demand

Question 115

What are the rules governing reclamation/recovery in an entrustment situation?

Answer 115

The later bona fide purchaser prevails under the UCC.

Question 116

What is an expectation interest?

Answer 116

The purpose of the various money damages rules are designed to compensate the plaintiff. This is done by protecting the expectation interest of the plaintiff. Expectation is what would happen if no breach, put the P in same dollar position as if no breach.

Question 117

What is the general approach for measure of monetary damages?

Answer 117

(1) Dollar value of performance without breach
(2) Dollar value of performance with breach
(3) Compare the two to determine expectation damages.

Question 118

Under the UCC, how are damages calculated when seller breaches, and the buyer keeps the goods?

Answer 118

Fair market value if perfect MINUS fair market value as delivered or cost of repair

(the difference in expectation)

Note - this is if the buyer doesn’t reject. If the buyer rejects but the seller won’t take them back, then the buyer can sell the goods and apply that profit to what the seller owes

Question 119

Under the UCC, how are damages calculated when seller breaches, and seller has the goods?

Answer 119

Difference between contract price and either the market price or the cost of buying replacement goods (cover damages), whichever is higher.

If a seller breaches but buyer keeps the goods, the buyer still has the right to recover on the nonconformity.

Cover damages - the difference between the contract price and the price of substitute goods. These will be upheld only when they are commercially reasonable.

Question 120

Under the UCC, how are damages calculated when the buyer breaches, but keeps the goods?

Answer 120

Contract price

Question 121

Under the UCC, how are damages calculated when the buyer breaches, but the seller has the goods?

Answer 121

Contract price (resale unless seller cannot resell, in which case seller can recover both the contract price and in some situations provable lost profits)

If you have a volume seller, they can seek lost profits against breaching buyer.
“Provable lost profit” is for volume seller (regular inventory, limitless number) - even if it’s the same pair of leather shoes, even if they get sold the next day, you could have sold 2 and not 1. Provable lost profit = loss of the extra sale.

Question 122

What are incidental damages?

Answer 122

Costs incurred in dealing with a breach, such as the cost of storing rejected goods in a sale of goods, or finding a replacement services contract.

Always recoverable, added to expectation damages.

Question 123

What are special (foreseeable consequential) damages?

Answer 123

Consequential damages are limited to those damages arising out of P’s (1) special circumstances, (2) when D had a reason to know of these special circumstances at time of contract.

If they meet this, add to expectation damages.

Question 124

What are avoidable damages?

Answer 124

Damages that are subtracted from total damages awarded.

No recovery for damages that could have been avoided without undue burden on the plaintiff. The burdens of pleading and proof are on the defendant, to show that the damages were avoidable.

Ex. continuing to perform after other party’s breach, turning down other comparable opportunities

Question 125

What are damages that cannot be established with reasonable certainty?

Answer 125

Subtracted from total damages award.

Look for fact pattern involving services contract and P involved in a new business. We aren’t sure whether they would have been successful, so we don’t attribute lost profits to the D.

If you can’t prove it, can still collect reasonable reliance damages

Question 126

What are liquidated damages?

Answer 126

Contract provisions regarding damages. They will either fix the amount or some formula.

Test:

(1) damages were difficult to forecast at time contract was made, AND
(2) provision is a reasonable contract (reasonable forecast?)

Note: anytime you encounter a money damages provision that simply states a set number rather than a rate or formula, highly suspect that it will be invalid.

Question 127

When will there be excuse of performance due to nonperformance?

Answer 127

Well, if someone didn’t perform you don’t have to pay them.

Question 128

When will there be excuse of performance due to anticipatory repudiation?

Answer 128

Anticipatory repudiation is an unambiguous and clear statement or conduct that

(1) repudiating party will not perform,
(2) made prior to the time that performance was due.

Effect: anticipatory repudiation by one party excuses the other party’s duty to perform. Buyer may either treat as a total breach and pursue breach of K remedies, OR suspend performance and await seller’s performance for a reasonable period of time.

Expressions of doubt (“I may not be able to begin until late”) as to ability to perform will not support a theory of anticipatory repudiation. Needs not be in writing.

Anticipatory repudiation generally gives rise to an IMMEDIATE claim for damages, unless the claimant has already finished performance (even if the contract date for payment has not yet come due).

Question 129

When can there be retraction of anticipatory repudiation?

Answer 129

Can withdraw anticipatory repudiation so long as there hasn’t been a material change in position by the other party. If repudiation is timely retracted, duty to perform is reimposed but the performance can be delayed until adequate assurance is provided.

Question 130

When can there be excuse due to insecurity?

Answer 130

Words or conduct of a party merely make performance uncertain

If words or conduct give one party reasonable grounds for insecurity, then the other party can, (1) in writing, demand adequate assurance and
(2) if it is “commercially reasonable” can suspend performance until it receives that adequate assurance

Question 131

When can there be excuse due to improper performance?

Answer 131

(Art. 2: in sale of goods, seller makes imperfect tender, excuses buyer from having to pay for goods, buyer can reject. You don’t need this excuse!)

Common law: material breach rule:

1. Damages can be recovered for any breach
2. Only a material breach by one party excuses the other from performing a contract governed by CL
3. Whether a breach is material is a question of fact (less than half performance OR major screw up)
4. If there is substantial performance, breach is not material. If breach is material, performance is not substantial

Note: divisible contract corollary - if the contract is divisible, there can be contract law recovery for substantial performance of a divisible party, even though there was material breach of the whole K.

Time of essence clause ALWAYS means material breach.

Question 132

When will there be excuse due to nonoccurrence of an express condition?

Answer 132

Express condition is language that limits obligations created by other contract language (if/only if/provided that/so long as/subject to/in the event that/unless/when/until/on condition that)

Results in excuse, not breach.

Note: if there is a written contract and prior to that K, parties orally agree that performance was conditional, courts will generally consider evidence of such an oral agreement, n/w/s parol evidence rules

Note: subject to good faith requirements!

Question 133

What is the standard for determining whether an express condition has occurred (been satisfied), for purposes of excuse due to nonoccurrence of express condition?

Answer 133

General rule: strict compliance required for “satisfaction” of a condition.

Exception: forfeiture (some courts refuse to require strict compliance if enforcement would cause excessive harm to B)

Exception: personal satisfaction of one of the parties condition (need honest and good faith dissatisfaction - reasonable person would be satisfied?)

Question 134

How can an express condition be eliminated so that its nonoccurrence does not affect performance obligations?

Answer 134

The person protected by the condition can waive that condition.

Question 135

What is rescission, and when can it constitute excuse by reason of a later contract?

Answer 135

Rescission discharges the contractual duties, and places each party in the same position as though the contract had never happened.

Key is whether the performance is still remaining from each of the contract parties. If some is still remaining on both, rescission can be valid.

The typical rescission case is of a bilateral contract in which neither party has performed yet (and promises are still executory).

Question 136

What is accord and satisfaction, and when can it constitute excuse by reason of a later contract?

Answer 136

An accord is a new agreement between parties who are already under contract to each other. Usually arises when there is a dispute w/r/t the original agreement. agreement by parties to an already existing obligation to accept a different performance in satisfaction of the existing obligation. There is a different obligation than originally had.

Effect: It does NOT dissolve the original contract. It suspends performance on the original contract until the new performance is either satisfied or unsatisfied. If new agreement (accord) is performed (satisfied), then performance of original obligation is excused. If new agreement is NOT performed, original party can sue you either under the terms of the original agreement OR under the terms of the accord.

You can’t sue under the original agreement, until the time of performance under the new accord has passed.

Ex. good faith price battle about a services K, and you cash a check for a lesser amount than originally agreed-upon, if it is marked “payment in full”

Question 137

What is substituted agreement/modification, and when can it constitute excuse by reason of a later contract?

Answer 137

It’s an agreement to replace a different agreement in satisfaction of an existing obligation.

Question 138

What is novation?

Answer 138

A novation occurs where a new contract substitutes a new PARTY to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. A novation DISCHARGES the old contract.

A novation will be found when there is

(i) a previous valid contract;
(ii) an agreement among the parties, including the new party to the new contract;
(iii) the immediate extinguishment of contractual duties as between the original contracting parties; and
(iv) a valid and enforceable new contract

Two parties mutually agree one party will be swapped out.

Note: as vs delegation, novation requires the agreement of BOTH PARTIES of the original contract. Novation also excuses the REPLACED person from ANY liability.

Question 139

What is excuse of performance by reason of a later, unanticipated event (impossibility, commercial impracticability)?

Answer 139

1. Damage or destruction of subject matter of contract
   (a) At common law, depends on whether the event affected the ability to perform.
   (b) Under UCC, if risk of loss is on buyer, buyer pays. If risk of loss is on seller, buyer doesn’t have to pay.
2. Subsequent law or regulation (makes performance of contract illegal, or makes the mutually understood purpose frustrated b/c it is illegal - but both parties need to know purpose) (cross-cite frustration)
3. Death after contract (generally does not make obligations disappear. Exception: death of party to contract who is “special person”)

Question 140

What can cure vague terms in a contract?

Answer 140

Part performance

Question 141

What can cure missing terms in a contract?

Answer 141

Gap fillers and the presumption that a parties’ intent was to include reasonable added terms

Question 142

What is a constructive condition?

Answer 142

A condition that is not express but that will be implied by court

Question 143

What is the difference between anticipatory repudiation and a prospective failure to perform?

Answer 143

Prospective inability or unwillingness to perform differs from anticipatory repudiation because repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform. Repudiation must be unequivocal. However, a prospective failure to perform is not based on the subjective beliefs of the other party, but rather is judged on a reasonable person standard. Both repudiation and prospective failure to perform may be retracted, provided the other party has not yet changed position in reliance on the repudiation or prospective failure. The effect of a prospective failure is to allow the innocent party to suspend performance until she receives adequate assurances. She may treat this situation as a breach only if the assurances are not given. If a defaulting party regains his ability or willingness to perform, he must communicate that to the other party.

Question 144

What is excuse by frustration (cross-cite above flash card)

Answer 144

The elements necessary to establish frustration are: (i) some supervening act or event leading to the frustration;

(ii) at the time of entering into the contract, the parties did not reasonably foresee the act or event occurring;
(iii) the purpose of the contract has been completely or almost completely destroyed by this act or event; and
(iv) the purpose of the contract was realized by both parties at the time of making the contract.

Question 145

When are punitive damages awarded in contracts?

Answer 145

Punitive damages are not generally awarded for breach of contract. The defendant’s conduct would have to be tortious.

Question 146

What are the requirements for a contract modification under common law?

Answer 146

It is the same as an agreement. It requires an offer, acceptance, and NEW consideration because of the preexisting duty rule.

If no consideration - may be able to argue in equity that contract should be modified without additional consideration. Some courts allow if it is “fair and equitable” in view of circumstances not anticipated when the contract was made. E.g. impracticability.

May need to be in writing if SOF would apply.

Question 147

What are the requirements for a contract modification under UCC?

Answer 147

Contract modifications sought in GOOD FAITH are binding without consideration.

However, must comply if the modification itself would fall under Statute of Frauds

Question 148

What does good faith mean?

Answer 148

1. Honesty in fact
2. Observance of reasonable commercial standards of fair dealing

Note: the UCC does not provide for punitive damages for breach.

Ex. failure to deliver under a contract simply b/c a better price can be obtained.

Question 149

What are the requirements for rescission of an option contract?

Answer 149

Must be supported by either:

(1) Offer of new consideration
(2) Elements of promissory estoppel (detrimental reliance, e.g.)
(3) Offeree’s manifestation of intent to make a gift of the obligation owed her

Question 150

What is unilateral rescission?

Answer 150

When one party wants to rescind, but the other doesn’t. In order for a court to enforce, the party seeking rescission needs adequate legal grounds to enforce it (e.g. mutual mistake)

Question 151

Talk about merchants and their failure to respond to a written confirmation from another merchant?

Answer 151

YOu have 10 days to respond to a writing confirming the deal otherwise it goes into effect.

This is an exception to Statute of Frauds. Both sides must be merchants.

Question 152

What are your options as seller if buyer becomes insolvent?

Answer 152

You can refuse delivery, unless delivery is accompanied by cash payment (including all debts payable to that point)

Question 153

What is an implied-in-fact contract?

Answer 153

Formed by manifestations of assent other than oral or written language, i.e. by conduct. When a person knowingly accepts offered benefits, such conduct, viewed objectively, may be said to manifest an agreement to the conferral of such benefits, resulting in a contract implied in fact.

Manifestations of mutual assent are analyzed objectively; even if there is no meeting of the minds, the parties will be bound if their conduct objectively appears to manifest a contractual intent. (But need conduct of both parties; one party can’t be unconscious)

Courts will often find acceptance if the beneficiary simply silently accepts the benefits.

Question 154

What is the First Restatement’s definition of promissory estoppel?

Answer 154

A promise is enforceable to the extent necessary to prevent injustice if the promisor would reasonably expect to induce action or forbearance of a definite and substantial character and such action or forbearance is in fact induced.

THE INTEREST OF JUSTICE REQUIRE IT

Question 155

What are the requirements for acceptance of a bilateral contract through performance?

Answer 155

Offeree must give offeror notice of acceptance within reasonable time frame, or the offer may be discharged.

You can assume that if the offeror is uncle and you sell something to his niece, she will probably notify uncle.

Question 156

What is laches?

Answer 156

An equitable defense that can be brought if the plaintiff has unreasonably delayed in bringing an action and delay is prejudicial to the defendant

Question 157

What contracts must be in writing in order to be valid, under Statute of Frauds?

Answer 157

MY LEGS

M - Marriage 
Y - Term of years
L - Land sale
E - Executory
G - Goods $500 or more
S - Surety contracts

Question 158

What is parol evidence?

Answer 158

Parol evidence rule bars the introduction of prior or contemporaneous oral agreements that vary or contradict the terms of a complete or integrated agreement.

Note: the contradiction must actually go to a material term of the contract

Four Corners rule - the contract speaks the loudest.

Many exceptions.

Question 159

What is the latent ambiguity exception to parol evidence?

Answer 159

When both parties have reasonable and unavoidable uncertainty w/r/t what contract term definition is

Question 160

What is the buyer’s standard remedy under the UCC?

Answer 160

Difference between the cover price (amount necessary to replace lost items) and the contract price.

Question 161

Does SOF apply to delegation and assignment?

Answer 161

No, they can be oral.

Question 162

What do you ask if there has been a failure to perform? (common law)

Answer 162

Is the failure to perform material or minor? If material breach of contract, non-breaching party can immediately cancel the contract and sue for damages. Breach is minor if party gets the substantial benefit of their bargain.

If minor breach, they can’t cancel the contract but they can sue for damages.

Substantial performance applies to commercial contracts (even though it does not apply to UCC sale of goods)

Unless there is a “time is of the essence clause,” 2 weeks late will generally not be material enough. Could probably only get damages for the inconvenience. A time of essence clause is strict.

Question 163

In unique personal service contract, when excused?

Answer 163

If you are too sick or too injured to do the job, you are excused for that period of time and will not be liable for damages unless contract provides otherwise.

Doctrine of impossibility kicks in, and you are excused.

Question 164

What is a condition precedent?

Answer 164

An act or event (other than lapse of time) that must occur first before a party is under a duty to perform.

Ex. Contractor starts 2 weeks late. Has not breached, it’s just the failure of a condition, but because of delay, doesn’t get paid until begins construction.

Question 165

What is the seller’s standard remedy under UCC?

Answer 165

Contract price MINUS resale price = remedies

Theory: seller must now resell the goods, and does so for a lesser price.

But if it’s lost profits alone, volume seller, just do lost profits.

Question 166

What factors will courts look at in determining whether there was substantial performance under a common law contract, such that there may/may not be material breach?

Answer 166

In contracts not involving the sale of goods, the condition of complete performance may be exused if the party has rendered substantial performance.

Factors in determining substantial performance:

• Amount of benefit received
• Adequacy of damages
• Extent of performance
• Hardship to breaching party
• Whether breach was negligent or willful

If time is of the essence, a breach will ALWAYS be considered material.

Question 167

What are the requirements for a divisible contract?

Answer 167

If a contract is divisible, a party who has performed one or more parts is entitled to collect the contract price for those parts even if it breaches the other parts. It is not a condition precedent to the other party’s liability that the whole contract be performed. However, the nonbreaching party has a cause of action for each of the unperformed units and may withhold counterperformance for those units.

For a contract to be divisible,

1. The performance of each party must be divided into two or more parts under the contract,
2. the number of parts due from each party must be the same, AND
3. The performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party.

Generally turns on fairness.

Question 168

What is restitution?

Answer 168

In quantum meruit. An equity relief that prevents unjust enrichment.

What performed minus damages.

When a party’s duty of performance is discharged, the other party is entitled to restitution of any benefits that he has transferred to the discharged party in an attempt to perform on his side.

Question 169

How does one determine whether time is of the essence?

Answer 169

Instrument and surrounding circumstances

Question 170

Is parol evidence admissible for the purposes of determining whether an agreement was subject to a condition precedent?

Answer 170

Yes. This is a major exception to the parol evidence rule.

If one party asserts that the contract was made subject to a condition precedent, may allow parol evidence regarding the CP agreement (the agreement never came into being b/c it was subject to CP)

Note: this wouldn’t apply to a condition subsequent, because that would be discharging an already existing absolute duty of performance (and the parol evidence rule would not apply anyways).

Question 171

What is the doctrine of reformation?

Answer 171

Either of the parties to the contract may ask a court in equity to modify the terms of the contract where the writing, through mistake or misrepresentation, does not incorporate the terms orally agreed upon.

Question 172

What is an illusory promise?

Answer 172

This creates an unenforceable contract, due to lack of consideration. For a contract to be enforceable, consideration must exist on both sides (each party’s promise must create a binding obligation).

Ex. agreement in which the buyer does not promise to order any products from the seller.

Question 173

Are requirements contracts assignable?

Answer 173

Common law: Generally not assignable, because of risk that obligor’s duties would change substantially.

UCC: permits so long as the assignor acts in good faith not to alter the K terms (i.e. quantity isn’t very disproportionate)

Question 174

What is the requirement for excuse by impracticability, under the UCC?

Answer 174

Under UCC, a party’s duty to perform may be discharged where performance would be impracticable. Impracticability exists where a party encounters extreme and unreasonable difficulty and/or expense, and such difficulty was not anticipated. Duties will not be discharged where performance is merely more difficult or expensive than expected.

The facts giving rise to impracticability must be such that heir nonoccurrence was a basic assumption on which the contract was made.

Where parties enter into a contract for the sale of goods to be supplied to the public through a retail outlet, both parties must anticipate the possibility that there will be a change in market conditions, resulting in either an increased or decreased demand for the product. (If the market completely disappears, can be grounds for impracticability).

Question 175

How are damages calculated in services contract, when the performing party (builder) breaches?

Answer 175

Ex. where a builder in a construction contract breaches during the construction

Nonbreaching party is entitled to the cost of completion PLUS compensation for any damages caused by delay.

Builder, though, can offset.

• If substitute performance is readily available: unpaid contract price MINUS cost of completion (up to value of benefit received by D)
• If substitute performance is not readily available: claimant’s detriment (what the builder already paid)

Question 176

When can parol evidence be used to supplement/explain a contract with additional consistent terms?

Answer 176

Although the parol evidence rule prohibits contradicting the writing, the terms of the writing may be explained or supplemented by consistent additional terms, unless the court finds from all the circumstances that the writing was intended as a complete and exclusive statement of the parties’ agreement.

To determine whether the parties intended the writing to be the complete and exclusive statement of their agreement, it must be determined whether parties situated as the parties were to this contract would naturally and normally include the extrinsic matter in the writing.

Under the UCC, a writing is presumed NOT to be the complete and exclusive integration of all the terms of the agreement. Presumption may become if parties actually intended a total integration, or it is certain that similarly situated parties would have included that term.

Question 177

What are reliance damages? How are they different from expectation damages?

Answer 177

Reliance damages award the plaintiff the cost of performance (ex. expenditures in performing duties under contract).

In certain situations, may award both expectation and reliance damages.

Question 178

How are damages calculated in services contract, where owner breaches and builder has sunk money?

Answer 178

Expectation PLUS reliance (what expected to profit from under the contract, plus any costs incurred to date).