Contracts

Question 1

What is a contract?

Answer 1

Legally enforceable agreement

Question 2

What is a contract?

Answer 2

Legally enforceable agreement

Question 3

What is the difference from an express contract, implied in fact contract, and quasi contract?

Answer 3

Express - formed by language, oral or written

Implied in fact - formed by manifestation of assent by conduct (i.e. sitting in barber’s chair and getting hair cut; contract formed by party conduct)

Quasi - An equitable remedy to avoid unjust enrichment when there is no contract; not actually a contract

• The plaintiff brings an action for restitution to recover the amount of benefit conferred on defendant

Question 4

What should you look for to ensure you have a contract?

Answer 4

(1) offer, (2) termination of offer, (3) acceptance, and (4) consideration

Also ask: Was there mutual assent? Was there consideration? Are there any defenses?

Question 5

What distinguishes a bilateral contract from a unilateral contract?

Answer 5

Bilateral - Offer that is open as to the method of acceptance

Unilateral - Offer that expressly requires performance as the only possible method of acceptance

Assume bilateral unless (1) reward, prize, contest, or (2) offer expressly requires performance for acceptance

Question 6

How do you measure recovery?

Answer 6

Contract price is not the measure of recovery. Focus on value of benefit conferred. Contract price is the ceiling if P is in default

Question 7

When does Article 2 apply?

Answer 7

Sale of goods

Goods are all things movable; tangible, personal property, not real estate

Look at the subject matter of the transaction (services or real estate vs. sale of goods)

Question 8

When does good faith and fair dealing apply?

Answer 8

Article 2 imposes an obligation of good faith and fair dealing in all sales contracts

Defined as honesty in fact and the observance of reasonable commercial standards

Common law also imposes a duty of good faith and fair dealing

Breach of good faith and fair dealing is a question of fact

Question 9

What is the difference from void and voidable?

Answer 9

Void - contracting to do an illegal action

Voidable - one or both parties may elect to avoid by a defense (i.e. infancy, mental illness, etc.)

An unenforceable contract is valid but not enforceable due to defenses such as statute of limitations or statute of frauds

Question 10

What is an offer?

Answer 10

Manifestation of intent to contract; words or conduct showing commitment

The basic test is whether a reasonable person in the position of the offeree would believe that the offeror’s assent created a reasonable expectation to enter into a contract

If a reasonable person would determine the language was reasonably understood as made in jest, anger, or bragging, then no offer

Question 11

What questions should you ask to determine a valid offer?

Answer 11

Was there an expression of a promise, undertaking, or commitment to enter into a contract?

Was there certainty and definiteness in the terms?

Was there a communication of the above to the offeree?

Question 12

When is an advertisement an offer?

Answer 12

When the advertisement is so certain and definite and the offeree is clearly identified that a reasonable person would construe it as a promise (i.e. first come, first served)

Most advertisements are construed as invitations for offers

Question 13

What contractual terms are generally important?

Answer 13

Identity of the (1) offeree, (2) subject matter, and (3) price

Keyword: definiteness of terms

Ambiguity will result in no contract; courts will not rewrite ambiguous, vague, or uncertain terms. A court will rule the parties manifested an intent that cannot be determined

Question 14

What are the requirements for specific types of contracts?

Answer 14

Real estate - must identify the land and price

Sale of goods - must identify quantity

Employment/services - duration and the nature of the work

Question 15

What are requirements and output contracts?

Answer 15

Requirements - a buyer promises to buy all the goods from seller that the buyer requires

Output - A seller promises to sell all of the goods that the seller produces

These offers are sufficiently definite because the quantity is capable of being made certain

The quantity cannot be unreasonably disproportionate (i.e. a buyer cannot increase from 1,000 to 6,000 widgets in requirements)

Question 16

How do missing terms affect a contract?

Answer 16

If it appears the parties intended to make a contract, and there is a reasonable, certain basis for a remedy, then a court can supply reasonable terms, but the terms must be consistent with the parties’ intent

The more terms the parties leave open, the less likely they intended to enter into a binding contract

• I.e. for missing price, the court may imply the usual price of service or the normal price for service in the area

If a term is a material term, courts can be reluctant to fix the term and may rule the offer is too uncertain

Question 17

What is the Article 2 price gap filler?

Answer 17

The reasonable price at the time of delivery

This occurs when nothing is said about price, or the price is left to be agreed upon but never is, or the price is to be fixed by an external factor but was never fixed

The party who is to fix the price (if a price is so fixed later after agreement) is to be fixed in good faith

Question 18

When can vagueness or uncertainty be cured?

Answer 18

Vagueness can be cured by part performance, such as when part performance clarifies the needed clarification of the terms

Uncertainty can be cured by acceptance, i.e. when the offeree is given a choice of alternatives and then the offeree communicates her choice (offered a choice of cars for $10K and the offeree chooses one car)

Question 19

How does termination affect an offer?

Answer 19

An offer cannot be accepted if it has terminated. The offer no longer exists.

Question 20

What are the methods of termination?

Answer 20

(1) lapse of time, (2) revocation by offeror, (3) rejection by offeree, (4) death or incapacity of a party prior to acceptance

Question 21

When is a contract terminated for lapse of time?

Answer 21

Time stated in offer expired or a reasonable time has passed as judged by a reasonable person

Question 22

When do words and conduct of the offeror constitute revocation of the offer?

Answer 22

Unambiguous statement by offeror to offeree of unwillingness or inability to contract, or

Unambiguous conduct by offeror indicating an unwillingness to contract that offeree is aware of

Question 23

When does revocation of an offer become effective?

Answer 23

When notice is received; if sent through mail then not effective until received

Receiving the revocation is effective, it need not be read

Revocation may be by indirect communication if the offeree receives (1) correct information, (2) from a reliable source, (3) of acts from the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer

Question 24

When can an offer not be revoked?

Answer 24

Option Contract - If the offeror has (i) promised to keep the offer open and (ii) promise is supported by consideration

Merchant Firm Offer Rule - cannot be revoked for up to three months if (i) offer to buy or sell goods, (ii) signed, written promise (iii) to keep offer open, and (iv) offeror (usually seller) is a merchant

• The three month rule is that if time is not stated then the offer cannot be revoked for up to three months

Detrimental Reliance - an offer cannot be revoked if there has been detrimental reliance by offeree that was reasonably foreseeable

Unilateral contract - start of performance makes offer irrevocable

• Mere preparation does not constitute start of performance

Question 25

When do words or conduct by the offeree constitute rejection?

Answer 25

Counteroffer - then becomes a new offer

• But bargaining does not terminate the offer (i.e. I accept, but will you take $300 vs. I accept for $300 when price was $400)
• The general test is whether a reasonable person would believe that the original offer had been rejected

Conditional acceptance (if, but provided, so long as, on condition that)

Additional terms in common law (mirror image rule - unequivocal acceptance of each and every term); acceptance that adds new terms is counteroffer

UCC: seasonal expression of acceptance

A rejection is effective when received

A request for clarification does not constitute rejection

Question 26

What must you analyze for seasonal expression of acceptance?

Answer 26

An offer for sale of goods with a response for additional terms raises two questions:

• Is there a contract? A response adding new terms is generally treated as a new contract (this is a seasonal expression of acceptance)
• Are the additional terms part of the contract? If both parties are merchants, the general rule is the additional terms are part of the contract.
• If one or more parties is not a merchant, the additional terms are merely a proposal that is to be separately accepted or rejected.

Question 27

What are the exceptions to new terms in acceptance being part of the contract (seasonal expression of acceptance)?

Answer 27

The new terms materially alter the offer, or

The offer expressly limits acceptance to terms of the offer, or

The offeror objects to the change within a reasonable time

Question 28

When does death or incapacity terminate an offer?

Answer 28

Death or incapacity of either party after offer, but before acceptance

If accepted and contract formed, death or incapacity does not void the contract

Question 29

Who can accept an offer?

Answer 29

(1) A person who knows about the offer, and (2) the person to whom it was made

The offeree must know of the offer to accept

Offers cannot be assigned, but options can unless otherwise stated

Question 30

Who controls the method of acceptance?

Answer 30

The offeror

Question 31

Is notice of performance required to accept?

Answer 31

Turns on (1) what offer provides, and (2) whether offeree has reason to believe that offeror will not learn of the acceptance

Question 32

When does start of performance constitute acceptance?

Answer 32

Bilateral contract - beginning of performance

• Generally, acceptance must be communicated (but offeror can waive communication of acceptance)
• Grumbling acceptance is effective as long as it stops short of actual dissent

Unilateral contract - performance must be completed for acceptance

• Beginning of performance need not be communicated

Question 33

Can offers be accepted by a promise to perform?

Answer 33

Generally yes, for bilateral contracts. But method of acceptance is controlled by offeror, so the offer may require start or completion of performance depending on terms

Question 34

What is the mailbox rule?

Answer 34

If an offeree is invited to accept by mail, then acceptance is effective at the moment of dispatch (but mail must be properly addressed and stamped)

• But the offer can stipulate that acceptance is not effective until received

If offeree sends rejection then acceptance, mailbox rule does not apply

If offeree sends acceptance then rejection, then mailbox rule applies b/c contract created the moment of dispatch

If the offeree dispatches acceptance before receiving revocation, then contract is formed

Question 35

What happens if the seller of goods sends the wrong goods (shipment of nonconforming goods)?

Answer 35

It constitutes acceptance then breach

But if there is an accommodation (i.e. B orders blue widgets and S sends red widgets with note “out of blue, can you accept red?”) then it is a counteroffer and no breach

Question 36

What is consideration?

Answer 36

Bargained-for legal detriment

• Bargained-for means asked by the promisor in exchange for the promisee’s promise
• Generally, there should be legal detriment to the promisee and a legal benefit to the promisor

To analyze consideration, look at each promise separately. Identify promisor and ask what did he bargain for. Identify promisee and ask what detriment did she incur

Question 37

What constitutes consideration?

Answer 37

Performance (doing something not legally obligated to do)

Forbearance (not doings something legally entitled to do)

Promise to perform or a promise to forbear

Adequacy of consideration is not relevant; even a peppercorn will suffice

There must be valuable consideration on both sides

Question 38

Is consideration required in Article 2?

Answer 38

[No but fill in details]

Question 39

What is the past consideration rule?

Answer 39

Past consideration is not consideration

But the exception is when a party expressly requested an expectation of payment

Question 40

What is the pre-existing duty rule?

Answer 40

Doing what you are already legally obligated to do is not consideration for a promise to pay you more to merely do the same thing. You need new consideration to modify a contract governed by common law

Question 41

What are the exceptions to the pre-existing duty rule?

Answer 41

An addition or change to performance (new or different consideration promised)

• The exception is a voidable obligation, such as ratification (i.e. a minor’s ratification of a contract when he reaches a majority age)

Unforeseen circumstances

• The modification due to unforeseen circumstances must be fair and equitable in light of the unanticipated new circumstances

Pre-existing duty owed to third party (i.e Sam contracts to perform but then threatens to cancel. A third-party offers to pay additional for Sam’s performance. This is enforceable because the third-party did not have a pre-existing promise to pay).

Question 42

Is there a pre-existing duty rule in Article 2?

Answer 42

No; the rule is “good faith”; the test for changes to an existing sale of goods contract

A contract modification done in good faith is enforceable

Question 43

What is the rule for part payment as consideration for release, such as forgiveness of debt?

Answer 43

Key is whether debt is due and undisputed. If so, then part payment is not consideration for release

A written promise to satisfy an obligation (i.e. a debt) for which there is a legal defense is enforceable without consideration

Question 44

Are conditional promises enforceable?

Answer 44

Generally, yes (i.e. I promise to deliver the goods only if my son comes into business. Then my son comes into business. Valuable consideration)

But also analyze adequate offer and acceptance for a conditional promise

Question 45

What is promissory estoppel and what are the elements?

Answer 45

Promissory estoppel is detrimental reliance, a substitute to consideration

Elements are (1) promise, (2) reliance that is reasonable, detrimental, and foreseeable, and (3) enforcement necessary to avoid injustice

Question 46

What is an illusory contract?

Answer 46

If only one party is bound to perform, then the contract is illusory and unenforceable

Gratuitous suretyship contracts are enforceable

If the contract lacks consideration, then no contract exists. It’s illusory

Question 47

What is meant by mutual mistake?

Answer 47

If both parties entering a contract are mistaken about existing facts, the contract may be voidable by the adversely affected party

• The mistake must concern a basic assumption to which the contract was made (i.e. think they are contracting for a sale of a diamond but the stone is actually a cubic zirconia)
• It must have a material effect on the agreed-upon exchange, and
• The party seeking avoidance did not assume the risk of the mistake

Mutual mistake is not a defense if the party asserting mistake bore the risk that the assumption was made

Question 48

What are the rules for ambiguities in a contract?

Answer 48

Neither party aware - no contract unless both parties intended the same meaning

Both parties aware - no contract unless both parties intended the same meaning

One party aware - binding contract based on what the ignorant party reasonably believed to be the meaning of the ambiguous word

Ambiguity means there are at least two possible meanings; differs from vague or uncertain terms, which means one cannot decipher the meaning

Subjective intent will be taken into account for ambiguities

Question 49

What occurs when fraudulent misrepresentation exists?

Answer 49

If a party induces another to enter into a contract by fraudulently misrepresenting information, the contract is voidable by the induced party if she justifiably relied on the misrepresentation

Fraudulent misrepresentation is synonymous with fraud in the inducement

Question 50

When is a misrepresentation material?

Answer 50

(1) It would induce a reasonable person to agree, or (2) the maker knows that it is likely to induce the particular person to agree, even if a reasonable person would not agree.

Whether or not a misrepresentation is fraudulent, the contract is voidable if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material

Question 51

When do minors have a legal incapacity to enter into a contract?

Answer 51

When they are under the age of 18

An infant may choose to disaffirm the contract but the counterparty remains bound to the contract

An infant may affirm the contract upon reaching the age of majority

Question 52

What is the rule for duress and undue influence?

Answer 52

Contracts induced by duress or undue influence are voidable and may be rescinded as long as not affirmed

Duress - assent is procured by an improper threat

Undue influence - (1) if the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances, and (2) there are no adequate means available to prevent the threatened loss.

• Must also show (1) undue susceptibility to pressure by one party, and (2) excessive pressure by the other party

Question 53

What is the general rule for the statute of frauds?

Answer 53

A enforceable contract must be evidenced by a writing signed by the party sought to be charged​

Question 54

What is the meaning of MY LEGS?

Answer 54

Marriage

Year (within one year)

Land

Executor (or Administrator)

Goods (for $500 or more)

Surety

Question 55

When must a promise creating an interest in land be evidenced by a writing?

Answer 55

Sale of real property

Leases for more than one year

Easements of more than a year

Mortgages and other security interests

Fixtures, and

Minerals

Question 56

When can a land interest contract be enforceable despite not satisfying the statute of frauds?

Answer 56

Full performance by the seller will take the contract out of the statute of frauds

• I.e. if the seller conveys to the buyer, seller can demand payment from the buyer

Part performance by the buyer may also remove the contract from the statute of frauds

Question 57

When does a sale of goods take the contract out of the statute of frauds?

Answer 57

When (1) the goods have been specifically manufactured, or (2) the goods have been either paid for or accepted

If a sales contract is only partially paid for or accepted, the contract is enforceable only to the extent of the partial payment or acceptance

Question 58

What is the confirmatory memo rule?

Answer 58

In contracts between merchants, if one party, within a reasonable time after an oral contract has been made, sends the other party a written confirmation of the understanding, it will bind the recipient if:

• (1) the recipient has reason to know of the confirmation’s contents, and
• (2) he does not object in writing within 10 days of receipt

Question 59

What is the meaning of unconscionability?

Answer 59

Unconscionability allows a court to refuse to enforce a provision or an entire contract (or to modify the contract) to avoid unfair terms, usually due to some unfairness in the bargaining process (procedural unconscionability)

• Look for great differences in bargaining power

Contracts that are inconspicuous or incomprehensible to the average person are often found unconscionable

Unconscionability is determined by circumstances as they existed at the time the contract was formed

Question 60

What are some general rules of contract construction?

Answer 60

Contracts are construed as a whole within the four corners of the contract; specific clauses will be subordinated to the contract’s general intent

Courts will construe words according to their ordinary meaning unless it is clearly shown that they were meant to be used in a technical sense

Written or typed provisions will prevail over printed provisions

Ambiguities are construed against the party drafting the contract

Question 61

What are the meanings of course of performance, course of dealing, and usage of trade?

Answer 61

Course of performance - a contract that involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance

Course of dealing - the sequence of conduct concerning previous transactions between the parties to a particular transaction that has established a common basis of their understanding

Usage of trade - a practice or method of dealing regularly observed in a particular industry

Question 62

What is the hierarchy of contract construction?

Answer 62

Express terms are given greater weight than course of performance, course of dealing, or usage of trade

Course of performance is given greater weight than course of dealing or usage of trade

Course of dealing is given greater weight than usage of trade

Question 63

What is the parol evidence rule?

Answer 63

When parties express their agreement in writing with an intent that it embody the final expression of their bargain, the writing is an integration. Any other expressions, written or oral, made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing

Question 64

What is the difference from a complete integration and partial integration?

Answer 64

If an integration is complete, the writing cannot be contradicted or supplemented

If the integration is partial, the writing may not be contradicted but may be supplemented by proving consistent additional terms

The UCC presumes all writings are partial integrations

Question 65

When is extrinsic evidence admissible?

Answer 65

To show formation defects (fraud, duress, mistake, illegality)

To show consideration was never paid

To show subsequent modifications of a written contract

If a party asserts that there was an oral agreement that the written agreement would not become effective until a condition occurred, all evidence of the understanding may be offered and received

Question 66

What are the rules for uncertainty and ambiguity?

Answer 66

If there is uncertainty or ambiguity in the written agreement’s terms or a dispute as to the meaning of those terms, parol evidence is admissible to aid the fact finder in reaching a correct interpretation of the agreement

If the meaning of the agreement can be determined by its plain meaning, then parol evidence is inadmissible

Question 67

What are the rules for additional terms under Article 2?

Answer 67

A party cannot contradict a written contract but may add consistent additional terms unless:

• (1) there is a merger clause, or (2) the writing was intended as a complete and exclusive statement of the terms of the agreement

Terms may be explained or supplemented by evidence of course of performance, course of dealing, or usage of trade, regardless whether the writing appears to be ambiguous

Question 68

What are the Article 2 gap fillers?

Answer 68

The key to forming a contract for the sale of goods is the quantity terms

Article 2 gap-filler provisions cover:

• Price
• Place of delivery
• Time for shipment or delivery
• Time for payment
• Assortment

Question 69

What is the gap-filler rule for price?

Answer 69

The price is left open to be agreed upon by the parties and they fail to agree, or the price is to be fixed in terms of some standard set by a third person and is not set, then it is a reasonable price at the time for delivery

Question 70

What is the gap-filler rule for place of delivery?

Answer 70

The seller’s place of business or the seller’s home

Question 71

What is the gap-filler for time for shipment or delivery?

Answer 71

Shipment or delivery is due in a reasonable time

Question 72

What is the gap-filler for time for payment?

Answer 72

Payment is due at the time and place at which the buyer is to receive the goods

Question 73

What is the gap-filler for assortments (e.g. blouses in various colors and sizes)?

Answer 73

The assortment is at the buyer’s option

Question 74

What is the substantial performance doctrine?

Answer 74

If the obligor substantially performs her duty under the contract, then no material breach

If the obligee does not receive the substantial benefit of her bargain, the breach is material

The nonbreaching party (1) may treat the contract as at an end, i.e. any duty of counterperformance is discharged, and (2) will have an immediate right to all remedies for breach, including total damages

Question 75

When is a breach considered minor?

Answer 75

When the obligee gains the substantial benefit of her bargain despite the obligor’s defective performance

A minor breach does not relieve the aggrieved party of her duty to perform; it merely gives her a right to damages (setoff) for the minor breach

Question 76

What is the perfect tender rule?

Answer 76

Under Article 2, if goods or their delivery fail to conform to the contract in any way, the buyer may either (1) reject all, (2) accept all, or (3) accept any commercial units and reject the rest

Question 77

What is specific performance?

Answer 77

If the legal remedy is inadequate, the nonbreaching party may seek an order from the court for the breaching party to perform or face contempt

Question 78

What are a buyer’s nonmonetary remedies under Article 2?

Answer 78

Cancellation - if a buyer rightfully rejects goods because they do not conform to the contract, one option is to cancel the contract

Buyer’s right to replevy identified goods

• If a buyer has made at least part payment (usually prepayment) of the purchase price and the seller has not delivered, the buyer may replevy the goods if (1) the seller becomes insolvent within 10 days after receiving the buyer’s first payment, or (2) the goods were purchased for personal, family, or household purposes
• The buyer still must tender any unpaid price to the seller
• If after reasonable effort the buyer is unable to secure adequate substitute goods, the buyer may replevy identified, undelivered goods

Specific performance - if the goods are unique, the court may order specific performance even if the goods have not yet been identified

Question 79

What are a seller’s nonmonetary remedies under Article 2?

Answer 79

Right to withhold goods - upon buyer’s failure to make a payment on or before delivery, or if the goods are on credit and the seller discovers the buyer is insolvent

Right to recover goods - if the buyer has received delivery of goods on credit and the seller learns the buyer is insolvent

• Must make a demand within 10 days of delivery of goods to buyer

Right to demand assurances - if there are reasonable ground for insecurity, a party may demand in writing that assurances be made

• Performance may be suspended until the requesting party receives adequate assurances

Question 80

What are the equitable defenses?

Answer 80

Laches - a claim that a plaintiff has delayed bringing the action and that the delay has prejudiced the defendant

Unclean hands - the party seeking specific performance/equitable relief is guilty of wrongdoing in the transaction being sued upon

Sale to a bona fide purchaser - the subject matter has been sold to a person who purchased for value and in good faith

Question 81

What are the general rules for a covenant not to compete?

Answer 81

Most courts will grant an order of specific performance to enforce a contract not to compete if (1) the services to be performed are unique (thus rendering money damages inadequate) and (2) the covenant is reasonable

• To be reasonable, the covenant must be reasonably necessary to protect a legitimate interest of the employer and must be reasonable in its geographic scope and duration

Question 82

What are the types of monetary damages?

Answer 82

Compensatory damages - to put the nonbreaching party in the position she would have been in had the promise been performed

Liquidated damages - damages stipulated in contract to be paid in event of breach. They must be reasonable in view of the actual or anticipated harm caused by the breach

Question 83

What are the types of compensatory damages?

Answer 83

Expectation damages - “standard measure” of damages based on damages to buy substitute performance

Reliance damages - damages suffered based on reasonable reliance on the contract

• Used to put the plaintiff in the position she would have been in had the contract never been performed
• Usually applied when expectation damages are too speculative to measure

Consequential damages - May be recovered only if, at the time the contract was made, a reasonable person would have foreseen as a probable result of breach

• The breaching party must know or have reason to know of the special circumstances giving rise to the damages
• In a contract for the sale of goods, only the buyer can recover consequential damages

Incidental damages - expenses reasonably incurred by a buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected

• Usually only available for sale of goods

Question 84

What is the certainty rule?

Answer 84

The plaintiff must prove that the losses suffered were certain in their nature and not speculative

Question 85

What are the requirements for enforcement of liquidated damages?

Answer 85

Damages for contractual breach must have been difficult to estimate or ascertain at the time the contract was formed, and

The amount agreed upon must have been a reasonable forecast of the compensatory damages in the case of breach

Question 86

What is the standard measure of damages for sale of goods when the seller does not deliver or the buyer rejects goods or revokes acceptance?

Answer 86

The difference between the contract price and either 1) the market price, or (2) the cost of buying replacement goods (cover) plus incidental and consequential damages

Question 87

What are the damages if the seller delivers nonconforming goods that the buyer accepts?

Answer 87

The difference between the value of goods as delivered and the value they would have brought if they had been according to contract, plus incidental and consequential damages

• Also known as “warranty” damages

The buyer must within a reasonable time after discovering the defect, notify the seller

Question 88

What are the damages if the seller anticipatorily breaches the contract?

Answer 88

The difference between the market price at the time the buyer learned of the breach and the contract price

Question 89

What are the seller’s damages where buyer repudiates or refuses to accept conforming goods?

Answer 89

Recover the difference between the market price and the contract price, or

Resell the goods and recover the difference between the contract price and the resale price, or

If the other two are inadequate, recover under a “lost profit” measure to the seller

Question 90

What are the seller’s damages when the buyer has not paid, or the goods were lost of damage after risk of loss shifted to the buyer?

Answer 90

Recover the full contract price

Question 91

What is the standard measure of damages for contracts of the sale of land?

Answer 91

The difference between the contract price and the fair market value of the land

Question 92

What is the standard for mitigation of damages?

Answer 92

The nonbreaching party cannot recover that could have been avoided with reasonable effort

The nonbreaching party may recover the expenses of mitigation

Question 93

What is restitution?

Answer 93

A concept based on unjust enrichment when one has conferred a benefit on another without gratuitous intent

It is an action in quasi-contract or an action for quantum meruit

Generally the measure of damages is the value of benefit conferred

Question 94

What is the quasi-contract remedy when no contract is involved?

Answer 94

The plaintiff conferred a benefit on the defendant with reasonable expectation of being compensated, and the defendant knew or had reason to know of the expectation

This standard shows that the defendant would be unjustly enriched if allowed to retain the benefit without compensating the plaintiff

Question 95

What are the grounds for rescission of a contract?

Answer 95

The grounds must have occurred either before or at the time the contract was entered into

Mutual mistake of a material fact

Unilateral mistake if the other party knew or should have known of the mistake

Unilateral mistake if the hardship by the mistaken party is so extreme it outweighs the other party’s expectation under the contract

Misrepresentation of fact or law

Duress, undue influence, illegality, lack of capacity, and failure of consideration

Question 96

What are the grounds for reformation of the contract?

Answer 96

Mistake - (1) an agreement between the parties, (2) an agreement to put the agreement in writing, and (3) a variance between the original agreement and the writing

Misrepresentation - if a writing is inaccurate because of a misrepresentation, the plaintiff can choose between reformation and avoidance

Question 97

What is the statute of limitations for sale of goods?

Answer 97

Four years, but can be shortened by agreement to be no less than one year

Cannot lengthen the period by agreement

Question 98

When does a third-party beneficiary situation arise?

Answer 98

When A (the promisee) contracts with B (the promisor) that B will render some performance to C (the third-party beneficiary).

Question 99

What is the difference between an intended and incidental beneficiary?

Answer 99

Only intended beneficiaries have contractual rights, not incidental beneficiaries

To determine whether a beneficiary is intended, consider whether the beneficiary: (1) is identified in the contract, (2) receives performance directly from the promisor, or (3) has some relationship with the promisee to indicate intent to benefit

Question 100

What are the two types of intended beneficiaries?

Answer 100

Creditor beneficiary - one to whom a debt is owed by the promisee

Donee beneficiary - a person to whom the promisee intends to benefit gratuitously

Question 101

When do the rights of a beneficiary vest?

Answer 101

The beneficiary knows of his rights, and

• (1) manifests assent to a promise,
• (2) brings a suit to enforce the promise, or
• (3) materially changes his position in justifiable reliance on the promise

Prior to vesting, the promisee and promisor are free to modify or rescind the beneficiary’s rights under the contract

Question 102

What is an assignment?

Answer 102

X (the obligor) contracts with Y (the assignor), and Y assigns his rights to X’s performance to Z (the assignee)

Question 103

When is an assignment effective?

Answer 103

The assignor must manifest an intent to immediately and completely transfer her rights

• A writing is usually not required
• A gratuitous assignment is effective; consideration is not required

The effect of an assignment is to establish privity of contract between the obligor and the assignee while extinguishing privity between the obligor and the assignor

• Once an assignment is revoked, the privity between the assignor and the obligor is restored

Question 104

When is an assignment irrevocable or revocable?

Answer 104

Assignments for value are irrevocable; a gratuitous assignment (i.e. not for value) is revocable

An assignment is for value if it is (1) done for consideration, or (2) taken as security for or payment of a preexisting debt

Question 105

What are the exceptions to revocability?

Answer 105

A gratuitous assignment is irrevocable if (1) the obligor has already performed, (2) a token chose (i.e. a tangible claim, such as a stock certificate) is delivered, (3) an assignment of a simple chose (i.e. an intangible claim, such as a contract right) is put in writing, or (4) the assignee can show detrimental reliance on the gratuitous assignment (i.e. estoppel)

Question 106

What are the methods of revocation of a gratuitous assignment?

Answer 106

Death or bankruptcy of the assignor

Notice of revocation by the assignor to the assignee or the obligor

The assignor taking performance directly from the obligor

Subsequent assignment of the same right by the assignor to another

Question 107

What are the rights between the assignee vs. obligor?

Answer 107

The assignee can sue the obligor because the assignee is entitled to performance under the contract

The obligor has a defense against the assignee of any defense inherent in the contract (i.e. failure of consideration and other defenses that came into existence before the obligor had knowledge of the assignment)

The obligor cannot raise any defenses the assignor might have against the assignee

Question 108

What are the rights between the assignee vs. assignor?

Answer 108

In every assignment for value, the assignor warrants (1) he has not made a prior assignment of the same right, (2) the right exists and is not subject to any undisclosed defenses, and (3) he will do nothing to interfere with the assigned right

• The assignee may sue the assignor for breach of any of these warranties

The assignor will not be liable to the assignee if the obligor is incapable of performing

Question 109

What problems exist if there have been successive assignments of the same rights?

Answer 109

If the first assignment is revocable, a subsequent assignment revokes the first assignment

If irrevocable, the first assignment will usually prevail

• However, if the second assignment paid value and took without notice, then the subsequent assignee gets:
  
  • (1) the first judgment against the obligor,
  • (2) the first payment of a claim from the obligor,
  • (3) delivery of a token chose,
  • (4) is the party to a novation releasing the assignor, or
  • (5) can proceed against the first assignee on an estoppel theory (estoppel could also operate against the second assignee by the first assignee)

Question 110

What is a delegation?

Answer 110

Y (the obligor/delegator) promises to perform for X (the obligee). Y delegates her duty to Z (the delegate)

Question 111

What duties may not be delegated?

Answer 111

Duties involving personal judgment or skill

Delegations that would change the obligee’s expectancy (e.g. requirements and output contracts)

A special trust has arisen between the original parties to the contract (e.g. attorney/client relationship)

A contractual restriction on delegation

Question 112

What is required to make a delegation?

Answer 112

The delegator must manifest a present intention to make a delegation

No special formalities are required, no consideration required

It may be written or oral

Question 113

What are the rights and duties of the parties to a delegation?

Answer 113

The obligee must accept performance from the delegate of all duties that may be delegated

The delegator remains liable on the contract

• The obligee may sue the delegator for nonperformance of the delegate

The obligee may require the delegate to perform only if there has been an assumption (i.e. the delegate expressly or impliedly promises he will perform the duty delegated and this promise is supported by consideration)

The promise creates a contract between the delegator and the delegate in which the obligee is a third-party beneficiary

Question 114

What is a novation?

Answer 114

It substitutes a new party for an original party to the contract

A novation discharges any rights and duties under the old contract

Question 115

What are the elements for novation?

Answer 115

(1) A previous valid contract
(2) An agreement among all the parties, including the new party (or parties) to the new contract
(3) The immediate extinguishment of contractual duties as between the original contracting parties, and
(4) A valid and enforceable new contract

Question 116

What does entrusting do?

Answer 116

Entrusting goods to a merchant who deals in goods of that kind gives the merchant the power (but not the right) to transfer all rights of the entruster to a buyer in the ordinary course of business

• Buying in the ordinary course of business buying in good faith and without knowledge that the sale is in violation of the owner’s rights

Question 117

What is the voidable title concept?

Answer 117

If a sale is induced by fraud, the seller can rescind the sale and recover the goods from the fraudulent buyer

However, a defrauded seller may not recover from a good faith purchaser for value who bought from the fraudulent buyer

The rights of a defrauded seller are cut off both by a buyer and by a person who takes a security interest in the goods

A thief is unable to pass title; title is void.