Contracts

Question 1

variation in requirements contracts

Answer 1

some variation is permissible in requirements contracts, supplying double for dairy (perishable) is unreasonable.; able to reject nonconforming tender.

Question 2

accord and satisfaction

Answer 2

a party to a contract agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other party’s existing duty.

Question 3

merchants and memorandum

Answer 3

a memorandum sufficient against one party is sent to the other party, who has reason to know its contents, and the receiving party does not object in writing within 10 days, then the contract is enforceable against the receiving party even though he has not signed it.

Question 4

default for delivery contract

Answer 4

the risk of loss does not pass to the buyer until the goods are tendered to the buyer at the designated place

Question 5

remedy for conversion

Answer 5

fair market value of the goods at the time of the conversion of the collection

Question 6

price is TBD by an expert

Answer 6

When parties enter into an agreement for the sale of goods and the price has not been set, there is no contract if the agreement reflects an intent not to be bound unless the price is subsequently set and the price is never set.

Question 7

“substitute agreement” v. accord

Answer 7

substitute agreement completely replaces the original contract.

Question 8

gratuitous assignment of contract rights

Answer 8

automatically terminates upon the death of the assignor

Question 9

duty is subject to the condition

Answer 9

A party whose duty is subject to the condition can waive the condition, either by words or by conduct.

A party who indicates that a condition will not be enforced may be estopped from using that condition as a defense if the other party reasonably relied on the party’s words or conduct that the condition had been waived. Here, the buyer and the seller agreed to postpone delivery (i.e., the buyer waived the condition that the widgets be delivered by February 20). The seller relied on that waiver, and it would be unjust for the buyer to now claim that the contract was breached.

Question 10

parol evidence

Answer 10

prevents a party to a written contract from presenting PRIOR extrinsic evidence that CONTRADICTS the terms of the contract as written.

If the writing completely expresses all of the terms of the parties’ agreement, then it is a total integration, and the parties cannot introduce any extrinsic evidence (oral or written) of prior or contemporaneous understandings or negotiations.

Question 11

total integration

Answer 11

If the writing completely expresses all of the terms of the parties’ agreement, then it is a total integration, and the parties cannot introduce any extrinsic evidence (oral or written) of prior or contemporaneous understandings or negotiations.

*UCC essentially presumes that a contract is a partial integration

Question 12

partial integration

Answer 12

If, on the other hand, the writing sets forth the parties’ agreement about some terms, but not all terms, then it is a partial integration.

*UCC essentially presumes that a contract is a partial integration

Question 13

effect of partial integration and additional terms

Answer 13

When UCC and a writing is a PARTIAL integration, the parties are permitted to introduce supplementary extrinsic evidence (oral or written) of OTHER terms as long as the evidence is consistent with the writing, but not if the evidence contradicts the terms of the writing.

Question 14

trade usage

Answer 14

Under the UCC, even if the terms of a written contract for the sale of goods appear to be unambiguous, a party may explain or supplement the terms by evidence of trade usage or course of dealings or performance.

Question 15

parole evidence (condition precedent)

Answer 15

under UCC (goods), Parol evidence may be admitted to prove a condition precedent to the existence of the contract.

Question 16

condition precedent

Answer 16

Performance of a duty that is subject to a condition precedent is not required unless the condition occurs or its non-occurrence is excused.

e.g. driver supposed to deliver directly, but did not, therefore, not entitled to collect as breach.

Question 17

common law, a material breach common law, a material breach common law, a material breach

Answer 17

occurs when the nonbreaching party does not receive the SUBSTANTIAL benefit of its bargain.

A breach is considered minor when the breaching party has substantially performed.

Question 18

Anticipatory repudiation

Answer 18

Anticipatory repudiation occurs when there has been an UNEQUIVOCAL refusal of the buyer or seller to perform, or when REASONABLE grounds for insecurity arise with respect to the performance of either party, and the other party fails to provide adequate assurances within a reasonable time (not to exceed 30 days under the UCC). Mere expressions of doubt as to a party’s ability to perform do not constitute an anticipatory repudiation.

Question 19

Consequential damages

Answer 19

Consequential damages are recoverable in a breach of contract actions only if they were reasonably foreseeable at the time that the contract was entered into.

Question 20

obligation of receiving nonconforming goods

Answer 20

Upon tender of nonconforming goods, a buyer must retain possession of the rejected goods for a reasonable period of time to allow the seller to reclaim them. However, a buyer’s attempts in good faith to dispose of defective goods when the seller fails to give instructions within a reasonable time are not to be regarded as an acceptance.

Question 21

primary test of offer

Answer 21

The primary test of whether a communication is an offer is based on the OBJECTIVE theory of contracts; i.e., whether an individual receiving the communication would believe that he could enter into an enforceable deal by manifesting agreement to it. Here, the woman’s email at the very most reflected a potential interest in buying the teacups at a future, unknown date. It does not reflect a present intent to be legally bound to buy the teacups.

Question 22

simultaneous, identical offers

Answer 22

Under the UCC, a contract is formed if parties intend to contract, and there is a reasonably certain basis for giving a remedy. A sale-of-goods contract may be made in any manner sufficient to show agreement, even though the moment of its making is undetermined.

e.g. both sent email offers at exactly the same time with identical terms is an accepted contract.

Question 23

manner of acceptance

Answer 23

The offeror can dictate the manner and means by which an offer may be accepted. Unless the offeror specifically requires the offeree to accept in a particular manner or by using a particular means, the offeree can accept in any reasonable manner and by any reasonable means.

Question 24

noting lesser amount on check when no dispute to amount owed.

Answer 24

If there is no dispute over how much the buyer owed the seller., the original debt CANNOT be discharged by this payment.

When a party agrees to accept a lesser amount in full satisfaction of its monetary claim, there must be consideration or a consideration substitute for the party’s promise to accept the lesser amount. For example, consideration can exist if the other party honestly disputes the claim or agrees to forego an asserted defense, or if the payment is of a different type than called for under the original contract .

Question 25

doctrine of promissory estoppel

Answer 25

a party’s promise to make a gift is enforceable if:

(1) the donor should reasonably expect the promise to induce detrimental reliance by the donee,
(2) the promise actually induces such reliance, and
(3) the failure to enforce the promise will cause injustice.

Question 26

warranty of merchantability

Answer 26

is an implied warranty that the goods sold are fit for their ordinary purpose.

warranty is only implied when the seller is a merchant with respect to the goods sold.

Question 27

The “certainly included” rule

Answer 27

Under the UCC, a court, in determining whether a contract constitutes a total integration of the parties’ agreement, should generally treat a written agreement as only a partial integration of the parties’ agreement unless the court can conclude that the parties’ “certainly would” have included the term in the written agreement.

e.g. “cherry tables,” “batman comic”

Question 28

four-corners rule

Answer 28

Under the COMMON-LAW four-corners rule, a court is required to look only to the wording of the document itself (i.e., within its “four corners”) in determining whether the parties intended the document to be a total integration of their agreement.

Question 29

duty to select the assortment

Answer 29

When a contract fails to specify the assortment of goods, the duty to select the assortment falls on the buyer. If the buyer fails to specify the assortment of goods, then the seller can treat the failure as a breach by failure to accept the contracted-for goods only if the buyer’s failure materially impacts the seller’s performance. Since there is no indication that the store’s failure to select the assortment of party kits by October 15 would affect the company’s ability to satisfy the store’s order, the company could not treat that failure as a breach.

Question 30

payment for installment K

Answer 30

Under the UCC, an installment contract is defined as one in which the goods are to be delivered in multiple shipments, and each shipment is to be separately accepted by the buyer. Payment by the buyer is due upon each delivery, unless the price cannot be apportioned. Therefore, the construction company is only obligated to pay the manufacturer an apportioned price for each conforming delivery (i.e., one-fourth of the full contract price).

Question 31

Reformation of a writing

Answer 31

When a writing fails to express the agreement because of a mistake of both parties, the court may, at the request of a party, reform the writing to express the agreement.

Reformation of a writing for mistake is available if there was a prior agreement (either oral or written) between the parties, there was an agreement by the parties to put that prior agreement into writing, and as a result of a mistake, there is a difference between the prior agreement and the writing.

Question 32

enforcing fraudulent raffle

Answer 32

Although the friend is not entitled to enforce the illegal agreement between him and the organizer, the friend is entitled to restitution with regard to the $1,000 paid to the organizer since he withdrew from the transaction before the raffle was held and did not engage in serious misconduct.

Question 33

impracticability

Answer 33

parties executed a valid contract, but performance on both sides became impracticable because of the occurrence of an unforeseeable event (the falling beam injuring the bodybuilder), the nonoccurrence of which was a basic assumption of the contract. At that point, BOTH parties’ contractual duties ceased

Question 34

incidental beneficiary

Answer 34

has no rights to enforce a contract.

Question 35

gratuitous assignment

Answer 35

If no consideration supports an assignment of contractual rights (a gratuitous assignment), the assignment is generally revocable, unless the obligor has already performed or promissory estoppel applies.

Question 36

K subject to condition

Answer 36

general rule is that a party whose duty is subject to a condition can waive the condition, either by words or conduct. (if they ignore, that conduct shows a waiver and K is enforceable).

Question 37

consequential damages

Answer 37

foreseeable damages. However, UNAVAILABLE if seller is unaware of the buyer’s intended use of the property.

Question 38

anticipatory repudiation

Answer 38

applicable when a promisor repudiates a promise before the time for performance is due. The repudiation must be clear and unequivocal, as opposed to merely creating insecurity.

may sue immediately BECAUSE ANTICIPATION IS CERTAIN or wait to sue when K is due

Question 39

strictly construed

Answer 39

applies to disputes involving the interpretation of contract language

Question 40

strictly construed

Answer 40

applies to disputes involving the interpretation of contract language

Question 41

nonconforming installment K

Answer 41

If the seller makes a nonconforming tender or tenders nonconforming goods under one segment of an installment contract, the buyer can reject ONLY if the nonconformity substantially impairs the value of that shipment to the buyer AND cannot be cured

Question 42

foreseeable damages

Answer 42

nonbreaching party is entitled to recover damages that the party in breach “had reason to foresee as a probable result of the breach” when the parties entered into the contract. The rancher’s experience and the frequency of hailstorms in the fall combined to make the loss resulting from the rancher’s breach foreseeable.

Question 43

damages

Answer 43

Damages are recoverable if they were the natural and probable consequences of breach, or if they were in the contemplation of the parties at the time the contract was made, or if they were otherwise foreseeable.

Question 44

Damages for failing to perform real estate K

Answer 44

Damages for failing to perform a real estate sales contract are measured by the difference between the contract price and the market value on the date of the breach. (not the new sale price - not at like conversion for real property)

Question 45

defense of impracticability (impossibility)

Answer 45

e.g. fixed interior of car, car destroyed before delivered through no fault of either.

defense of impracticability (impossibility) is available if the specific subject matter of the contract is destroyed. In this case, the exotic convertible was destroyed through no fault of either party. As a result, the parties were no longer required to perform under the contract. The car restorer can still recover in quasi-contract for any benefit that was conferred prior to impracticability, but the court would only award restitutionary recovery in order to prevent the unjust enrichment.

Question 46

right to cure

Answer 46

Although the perfect tender rule generally applies to a sale of goods, the seller has a right to cure a defective tender—EVEN AFTER the time for performance under the contract has elapsed—IF SELLER HAD REASONABLE GROUNDS to believe that the buyer would accept the goods despite the nonconformity.

Question 47

mailbox rule

Answer 47

mailbox rule states that a TIMELY SENT ACCEPTANCE IS EFFECTIVE WHEN SENT, NOT UPON RECEIPT.

However, if a communication is sent rejecting the offer, and a later communication is sent accepting the contract, the MAILBOX RULE DOES NOT APPLY, and the first one to be received by the offeror prevails. Here, the salon owner rejected the offer, then sent an acceptance. Since the acceptance was received by the offeror first, the acceptance prevails.

Question 48

merchants and a memorandum

Answer 48

If both parties are merchants and a memorandum sufficient against one party is sent to the other party, who has reason to know its contents, and the receiving party does not object in writing within 10 days, then the contract is enforceable against the receiving party even though he has not signed it.

Question 49

estopped from enforcing

Answer 49

If the offeree sends an acceptance and later sends a communication rejecting the offer, then the acceptance will generally control even if the offeror receives the rejection first. If, however, the offeror receives the rejection first and detrimentally relies on the rejection, then the offeree will be estopped from enforcing the contract.

e.g.
A sales company was in the process of coordinating events for its annual conference. Seeking to motivate his employees, the president of the sales company contacted a well-known former professional athlete about being the keynote speaker for the conference. The president offered the athlete $25,000 to speak at the conference and participate in an hour-long “meet and greet” afterwards. The athlete told the president that he would give the president his answer by the end of the week by mail. Three days later, the athlete mailed his acceptance of the offer to the president by regular mail. A couple of hours after mailing his acceptance, the athlete changed his mind after speaking to his agent, who informed him that the fee was too low. The athlete immediately sent a rejection to the president by overnight mail. The next day, the president received the rejection. Because the conference was only a few weeks away, the president quickly contacted and booked a motivational speaker for $30,000. Two days later, the president received the athlete’s acceptance. The athlete subsequently changed his mind and decided the fee was acceptable. Can the athlete enforce the contract?

Question 50

merchants adding a new term

Answer 50

does not void the contract. contract is valid, the new term is knocked out.

e.g.
A retail furniture store ordered ten sofas from a manufacturer at $1,000 each, plus shipping, to be delivered and paid for in five equal monthly installments. With the first shipment of two sofas, the manufacturer sent an invoice to the retailer, billing the retailer $2,000 plus shipping. The invoice also noted that the manufacturer retained a security interest in all sofas shipped until the purchase price for all sofas ordered was paid in full. Not happy with the security interest term, the retailer immediately notified the manufacturer that this term was unacceptable. After sending payment for the first two sofas, the retailer told the manufacturer not to send any more sofas. The manufacturer sued the retailer for breach of contract. In the breach of contract action by the manufacturer against the retailer, what will be the result?

Correct Answer: The manufacturer will prevail, but can only enforce the terms of the original offer.

Question 51

adding additional UNEXPECTED term while working on the contract, is it allowable to charge more?

Answer 51

if unexpected, yes.

e.g.
A homeowner hired a contractor to finish her basement. They agreed on a price of $20,000 for the job. During the final stages of the remodeling, the contractor discovered that there was mold in the basement, the existence of which had been unknown to either party. The contractor refused to complete the job unless the homeowner paid an additional $2,000 to the contractor for removal of the mold. The homeowner reluctantly agreed, and the contractor finished the basement in accord with the modified contract. The homeowner paid the contractor $20,000. In a breach of contract action to recover the $2,000, will the contractor prevail?

Correct Answer: Yes, because the homeowner agreed to the price increase.

Under the common law, which applies to a construction contract, a contract generally cannot be modified without consideration. Here, the contractor proposed modifying the contract to increase the contractor’s compensation in exchange for the removal of the mold from the basement. Since the homeowner agreed to the modification and the contractor finished the basement in accord with the modified contract, the homeowner is liable to the contractor for the additional $2,000. A

Question 52

buyer relies on merchant for purchase, but there is a conspicuous written disclaimer.

Answer 52

A warranty that the goods are fit for a particular purpose may be disclaimed by a conspicuous writing. Such a writing need not refer to this warranty by name.

e.g.
An artist who had designed a sculpture to be made out of steel went to the website of a merchant that sold specialized tools. Using the chat feature, the artist explained to an employee of the merchant that the artist wanted to purchase a tool that could cut through steel. The employee suggested that the artist purchase a particular saw. The employee, pointing out that the website’s description of the saw indicated that it could cut through most metals, added that the saw “should cut through steel with no problem.” The artist purchased the saw from the merchant’s website for a total cost of $450. Conspicuously appearing on the page where the artist had to indicate his consent in order to purchase the saw was the following: “There are no implied warranties provided with this product other than the general warranty of merchantability.” The tool failed to cut through the steel that the artist intended to use for his sculpture. The artist sued the merchant for damages attributable to breach of the implied warranty of fitness for a particular purpose. Which party is likely to prevail?

Correct Answer: The merchant, because the merchant disclaimed the warranty of fitness for a particular purpose.

Question 53

A buyer who was not a merchant entered into a written contract to purchase a new car from a dealer at a cost of $35,000. Since the buyer desired a particular combination of features on the car and the dealer did not have a car with such features in its inventory, the dealer ordered the car from the manufacturer. When the car arrived, the dealer discovered that the manufacturer had increased the dealer’s price for the car by five percent. Acting in good faith, the dealer sought to increase the buyer’s price of the new car by a similar percentage. Reluctantly, the buyer orally agreed to the price increase, then had a change of heart and refused to complete the purchase. The car dealer eventually sold the car to another customer for $35,000. The dealer sued the buyer to recover damages for breach of contract. Will the dealer be entitled to damages?

Answer 53

Correct Answer: No, because the price increase was not in writing.

The UCC Statute of Frauds generally requires that a modified contract be in writing where the value of the goods is $500 or more. There is an exception for specially manufactured goods, but for this exception to apply, the goods cannot be suitable for sale to others in the ordinary course of the seller’s business. Because the dealer sold the car to another customer, this exception would not apply. Since the written evidence of the parties’ agreement fixed the price of the car at $35,000 and the dealer received this amount from another customer, the dealer would not be entitled to damages.

Question 54

An auto collector hired a restorer to refurbish a classic car she had purchased at an auction. The written restoration agreement was signed by the collector and the restorer, and contained only an identification of the vehicle, an enumerated list of the work that was to be done, and the price for the job. The agreement specified, among other things, that the car’s engine was to be replaced. When the collector was shown the restored car, she was upset that the engine that was in the car when it was purchased had not been rebuilt, since the complete replacement of the car’s engine lowered the value of the car as a classic. The collector refused to pay the agreed-upon price for the restoration, and instead filed suit against the restorer for breach of contract. At trial, the collector seeks to introduce a note in her handwriting that she had shown to the restorer prior to the execution of the agreement that contained the phrase “rebuild engine.” Is this note admissible?

Answer 54

Correct Answer: No, because of the parol evidence rule.

parol evidence rule prevents a party to a written contract from presenting other evidence that CONTRADICTS the terms and because the note contradicts the agreement with regard to the restoration work to be performed on the engine.

Question 55

doctrine of frustration of purpose

Answer 55

doctrine of frustration of purpose applies when an UNEXPECTED event arises that DESTROYS one party’s PURPOSE in entering into the contract, even if performance of the contract is not rendered impossible.

The frustrated party is entitled to rescind the contract without paying damages. The event that arises must not be the fault of the frustrated party, and its nonoccurrence must have been a BASIC ASSUMPTION of the contract.

e. g. rented room to watch marathon and made known the purpose for the rental, but earthquake happens.
e. g. printing jerseys with city logo, but earthquake and concert moved to another city.

Question 56

Impracticability

Answer 56

i) Performance becomes illegal after the contract is made;
ii) The specific subject matter of the contract (e.g., the goods) is destroyed;
iii) In a personal services contract, the performing party to the contract dies or becomes incapacitated; or
iv) Performance becomes impracticable.

Question 57

selling a stolen good

Answer 57

A buyer who does not obtain good title can nevertheless transfer good title to a subsequent purchaser who buys the goods in good faith and for value.

e.g.
The owner of a ring advertised its sale over the internet. A buyer purchased the ring from the owner, paying by check. The check was dishonored by the bank upon its presentment by the owner. The buyer sold the ring to a third party who purchased the ring in good faith for cash. The owner, unable to recover damages from the buyer due to the buyer’s insolvency, learned of the third party’s possession of the ring and sought its return from the third party. When the third party refused, the owner filed an action to recover the ring from the third party. None of the parties was a merchant. Will the owner prevail?

Question 58

• A retail store that specialized in glass objects entered into a written contract to purchase 100 hand-blown glass ornaments from an artisan. Because of the artisan’s popularity, the store paid in full for the ornaments at the time that the contract was executed. The contract specified that the store would pick up the ornaments after notification that they were ready. The contract contained no other terms related to delivery of the ornaments and did not allocate the risk of loss. When the ornaments were ready, the artisan notified the store. The parties arranged for the store to pick up the packaged ornaments no later than 2:00 pm the next day. The employee assigned by the store to make the pickup did not arrive until 6:00 pm. In the late afternoon just before the store employee arrived, a short but intense storm caused a large, healthy tree on the artisan’s property to fall over and destroy all the ornaments. Neither party had insured the ornaments against such a loss. Who bears the risk of the loss with respect to the ornaments?

Answer 58

Correct Answer: The store, because the artisan’s insurance did not cover the loss.

The UCC provides that a merchant seller generally retains the risk of loss in the absence of a contract term to the contrary until the buyer receives the goods. However, if the buyer is in breach of the contract, the risk of loss passes to the buyer to the extent of any deficiency in the seller’s insurance coverage.
********

Here, the store, as buyer, was in breach of the contract by failing to pick up the ornaments by 2:00 pm. Although the UCC only requires that the delivery time be “reasonable” in the absence of a specific contract term, the parties here modified the contract in that regard by agreeing that the seller should pick up the ornaments by 2:00 pm.

Question 59

non-fraudulent misrepresentation

Answer 59

Even though the misrepresentation was not fraudulent, it nevertheless renders the contract voidable. Here, the buyer justifiably relied on a certified inspection, and it was a material misrepresentation because the presence of termites was a major factor in the buyer’s decision.

e.g.
A homebuyer was discussing the purchase of a house with the seller. Of particular concern to the buyer was whether the house had a termite problem. The seller, aware of the buyer’s concern, ordered an inspection from a licensed inspection company. The company issued a report stating that the house was free of termites. In fact, the company’s inspector was negligent, and the house’s foundation had a modest termite problem. Relying on the report, the seller told the buyer that the house was free of termites. The buyer is seeking to avoid the contract. Will he prevail?

Correct Answer: Yes, because the buyer reasonably relied on the misrepresentation.

Question 60

when third party rights vest (as beneficiary to contract)

Answer 60

An intended beneficiary may sue a promisor to enforce the contract once her rights have vested. The rights of an intended beneficiary vest when the beneficiary (i) detrimentally or materially relies on the rights created; (ii) manifests assent to the contract at one of the party’s request; or (iii) files a lawsuit to enforce the contract.

Question 61

A hospital placed an order to purchase scalpel blades from a medical supply company. The hospital specified that the blades were to be shipped immediately. Upon receipt of the order, the supply company discovered that it did not have the type of blade ordered by the hospital, and shipped instead a different type of blade, along with a note that these blades were not the type ordered by the hospital but were sent as an accommodation. The hospital rejected and returned the shipped blades, then sued the supply company for breach of contract. Will the hospital be successful in its suit?

Answer 61

Correct Answer: No, because the medical supply company did not accept the hospital’s offer.

Answer choice D is correct. Normally a shipment of goods by a seller made in response to an order placed by the buyer constitutes acceptance of the buyer’s offer. Such a shipment does not constitute acceptance, however, if the seller indicates that the shipped goods are made as accommodation. Since the supply company so designated the blades that it sent, the shipment did not constitute acceptance. Consequently, no contract was formed, so there can be no breach.

Question 62

UCC time to cure

Answer 62

A seller has the right to cure a defective tender if (i) the time for performance under the contract has not yet lapsed, OR

** (ii) the seller had REASONABLE GROUNDS TO BELIEVE the buyer would accept the goods despite the nonconformity.