Contracts

Question 1

Governing Law (Contracts)

Answer 1

Article 2: Governs Ks for the sale of goods (all things that are movable at the time of identification of the K)

Common Law: Governs all other Ks (service, land sale, employment)

Question 2

Offer

Answer 2

creates power of acceptance – must create reasonable expectation in offeree that offeror is willing to enter into a K on basis of offered terms [distinguish between preliminary negotiations & mere invitation to offer – terms must be definite and certain] [in real estate, need land and price terms; in goods, need quantity]

Question 3

Termination by Offeror: REVOCATION

Answer 3

retraction of offer by offeror – may be direct or indirect; indirect if offeree receives (1) correct info, (2) from a reliable source, (3) of facts of the offeror that would indicate to a reasonable person that offeror no longer wishes to make offer – effective when received by offeree

Question 4

Limitations on Offeror to Revoke: option Ks

Answer 4

offeree gives consideration for a promise by offeror not to revoke outstanding offer;

Question 5

Merchant’s Firm Offer

Answer 5

(1) if a MERCHANT (2) offers to buy or sell goods in a signed writing and (3) the writing gives assurances that it will be held open – offer is not revocable for lack of consideration during this time stated, or if none stated, for reasonable time (can’t exceed 3 months); detrimental reliance – when offeror could reasonably expect offeree would rely to her detriment on offer and offeree does so rely, offer will be held irrevocable as an option K for reasonable length of time; beginning performance in true unilateral K offer – becomes irrevocable once performance has begun and offeror must give offeree reasonable time to complete performance

Question 6

Termination by Offeree

Answer 6

express rejection or counteroffer; rejection effective when received by offeror; rejection/counteroffer to open does not constitute termination – offeree still can accept original offer within option period unless offeror has detrimentally relied on offeree’s rejection; lapse of time – offeree’s failure to accept within time specified by offeror or if no deadline, within a reasonable time

Question 7

Termination by Operation of Law

Answer 7

death or insanity of either party; destruction of proposed K subject matter; supervening illegality

Question 8

Acceptance

Answer 8

must know of offer to accept;

unilateral K is not accepted until performance is completed but not obligated to complete;

for bilateral K acceptance by either promise to perform or beginning performance;

under UCC an offer to buy goods for current/prompt shipment is construed as inviting acceptance by either promise to shop or current/prompt shipment of conforming/nonconforming goods [shipment of nonconforming goods is an acceptance creating a bilateral K as well as breach of K unless seller seasonably notifies shipment is only offered as an accommodation]

Question 9

Mirror Image Rule

Answer 9

must have absolute and unequivocal acceptance of each and every term of offer – different/additional terms make response rejection and counteroffer

Question 10

Battle of Forms

Answer 10

Effective as acceptance unless acceptance expressly made conditional on assent to additional or different terms; Non-merchant – additional/different terms considered mere proposals to modify K that do not become part of K unless agree; merchants – additional terms included unless (1) materially alter original terms; (2) offer expressly limits acceptance to terms of offer; (3) offeror has already objected to particular terms, or objects within reasonable time after notice of them is received

***Different terms are usually knocked out and replaced by gap-filler

Question 11

Mailbox Rule

Answer 11

Acceptance by mail creates K at moment of dispatch, provided properly addressed and stamped, unless (1) offer stipulates acceptance not effective until received; (2) option K involved; (3) offeree sends rejection and then sends an acceptance, whichever arrives first is effective; (4) offeree sends acceptance and then rejection, acceptance is effective unless rejection arrives first and offeror detrimentally relies on it

Question 12

UCC Acceptance

Answer 12

If a buyer fails to reject goods after a reasonable opportunity to inspect the goods, the buyer is deemed to have accepted the goods. The buyer is obligated to pay for the purchase once acceptance occurs (unless a revocation of acceptance is allowed), but may still sue for breach of contract if the buyer notifies the seller of the breach within a reasonable time.

Question 13

UCC Post-Acceptance

Answer 13

After the acceptance of goods, a buyer may later revoke that acceptance only if: (1) the nonconformity substantially impairs the value of the goods; AND (2) either the defect was difficult to discover (a latent defect) or the buyer accepted the goods on the reasonable assumption the defect would be cured. Revocation of acceptance MUST occur within a reasonable time after the buyer discovers or should have discovered the nonconformity. The revocation is NOT effective until the buyer notifies the seller. In addition, the revocation of acceptance must occur before there is any substantial change in the goods, not caused by their own defects. If a buyer successfully revokes acceptance, he is entitled to return of the purchase price.

Question 14

Consideration

Answer 14

(1) must be bargained-for exchange between parties and (2) that which is bargained for must be considered of legal value or must constitute benefit to promisor or detriment to promisee [past/moral consideration is not consideration

Question 15

Pre-Existing Duty

Answer 15

Performing/promising to perform existing legal duty insufficient – exceptions – (1) new or different consideration promised; (2) promise is to ratify voidable obligation; (3) duty owed to third person other than promisor; (4) honest dispute as to duty; (5) unforeseen circumstances sufficient to discharge party

***UCC – no new consideration needed

Question 16

Illusory Promises

Answer 16

consideration must exist on both sides of K; if only one party is bound to perform, promise will not be enforced

Question 17

Promissory Estoppel

Answer 17

promise necessary to prevent injustice if (1) promisor should reasonably expect to induce action or forbearance, and (2) such action or forbearance is in fact induced

Question 18

Statute of Frauds

Answer 18

Requires writings that (1) reasonably identify subject matter of K; (2) indicate that K has been made between parties; (3) state with reasonable certainty essential terms

Only party to be charged [person to be sued] must sign (1) Executor/Administrator promises personally to pay estate debts; (2) Promises to pay debts of another (suretyship promises) [if main purpose of promisor is to serve pecuniary interest of his own, K not within statute]; (3) Promises in contemplation of marriage; (4) Interests in land [also leases & easements for more than 1 year; mortgages and security liens; fixtures; minerals]; (5) Performance not within one year; (6) Goods priced $500 or more [writing not required for (1) specially manufactured goods; (2) admissions in pleadings or court; (3) payment or delivery of goods]

Question 19

Confirmatory Memo Rule

Answer 19

If K between merchants, if one party, with reasonable time after oral agreement has been made, sends to other written confirmation of understanding that is sufficient under statute to bind seller; will bind recipient if (1) he has reason to know of confirmation’s consents (2) does not object within 10 days

Question 20

K is removed from statute

Answer 20

PERFORMANCE – (1) land sale Ks – if seller conveys to buyer can enforce buyer’s oral promise to pay – jurisdictions require payment (in whole or part), possession, and/or valuable improvements; (2) sale of goods – goods have been specially manufactured or have been paid for and accepted; (3) services – full performance needed | PROMISSORY ESTOPPEL – may be applied if would be inequitable | JUDICIAL ADMISSION – if party admits in pleadings/testimony that there is agreement

Remedies: if K violates statute, party can sue for reasonable value of services/part performance rendered or restitution of any conferred benefit

Question 21

Unconscionability

Answer 21

refuse to enforce K or terms to avoid unfair terms, due to unfairness in bargaining process

Question 22

Mutual Mistake

Answer 22

if both parties are mistaken about existing facts relating to agreement, K may be voidable by adversely affected party if (1) mistake concerns basic assumption of K; (2) material effect on agreed-upon exchange; and (3) party seeking avoidance does not assume risk

Question 23

Unilateral Mistake

Answer 23

if only one party mistaken, mistake will not prevent formation; if nonmistaken party knew or had reason to know of mistake, K is voidable by mistaken party

Question 24

Misrepresentation

Answer 24

fraudulent – k voidable by innocent party if justifiably relied on misrep;

Nonfraudulent – k voidable if material

Question 25

Illegality

Answer 25

K is void if subject matter is illegal

Question 26

Minor

Answer 26

Under 18 lacks capacity to K; items necessary for substance, health, or education – liable for benefits received

Question 27

Mental Capacity

Answer 27

so deficient that incapable of understanding nature and significance of K – voidable

Question 28

Intoxication

Answer 28

does not understand nature and significance may be held to made voidable promise if other party had reason to know

Question 29

Duress

Answer 29

party’s assent gained by improper threat

Question 30

Undue Influence

Answer 30

(1) undue susceptibility to pressure by one party and (2) excessive pressure by other party

Question 31

Parol Evidence

Answer 31

when parties to K express agreement in writing with intent that it embody final expression of their bargain, writing is an integration – any other expressions made prior to writing and contemporaneous with writing are inadmissible to vary terms of writing [ex: formation defects & conditions precedent to effectiveness, subsequent modification, reformation] – Ks terms may be explained/supplemented by evidence of course of performance, course of dealing, and usage of trade

Question 32

UCC Risk of Loss

Answer 32

Noncarrier case – sale in which it appears that parties did not intend goods would be moved by a common carrier – if seller is merchant, risk of loss passes to buyer only when she takes physical possession of goods – if not merchant, risk passes to buyer upon tender of delivery |

Carrier case – sale parties intended goods to be moved by carrier; shipment K – does not require to deliver to destination, risk of loss passes to buyer when goods delivered to carrier; destination K – deliver goods to a destination, risk passes to buyer when goods tendered to buyer at destination;

F.O.B. – passes to buyer at named location;

F.A.S. – dock

Question 33

Defective goods

Answer 33

Buyer has right to reject goods risk of loss does not pass until defects are cured or accepts goods with defects; Sale or return: risk remains with buyer while goods in transit; Sale on approval: does not pass to buyer until she accepts *If goods that were identified when K was made are destroyed without fault of either party and before risk of loss passes to buyer, K is avoided; if not identified have to prove impracticability

Question 34

Warranties (Contracts)

Answer 34

(1) title – any seller of goods warrants that title transferred is good, transfer is rightful, and no liens/encumbrances; (2) against infringement – merchant seller automatically warrants goods are delivered free of patent, trademark, copyright; (3) merchantability – implied in every K sold by merchant who deals in goods of kind sold – fit for ordinary purpose for which such goods were used [disclaim: mention merchantability & conspicuous if in writing]; (4) fitness for particular purpose – any seller has reason to know of particular purpose for which goods are to be used and that buyer is relying on seller’s skill/judgment to select suitable goods and buyer in fact relies on skill/judgment [disclaim: only by conspicuous writing]; (5) express – affirmation of fact or promise made by seller to buyer, any description of goods, and any sample or model if basis of bargain

Question 35

Damages for Breach of Warranty

Answer 35

difference between value of goods accepted and value of goods as warranted

Question 36

Modification

Answer 36

K cannot be modified unless supported by new consideration [if parties try to orally modify K that requires written modification its ineffective but can operate as waiver – found wherever other party changed position in reliance on oral modification]; no consideration needed under UCC

Question 37

Warranty of Title

Answer 37

Under UCC, warranty of title is implied in all sales of goods K and includes (1) the title conveyed shall be good and its transfer rightful; and (2) the goods shall be delivered free from any security interest or other lien or encumbrance, unless buyer has notice

Question 38

Performance

Answer 38

Performance under common law requires substantial performance; UCC requires perfect tender – delivery and condition of goods must be as promised Right to Inspect: in Noncarrier cases, sale is for cash and price is due concurrently with tender of delivery; when carrier, price is due only at time and place at which buyer receives goods

Question 39

Conditions

Answer 39

(1) event must occur/fail to occur before party has duty to perform, or (2) event, occurrence/nonoccurrence releases party from duty [condition precedent, concurrent, and subsequent]

Question 40

Anticipatory Repudiation

Answer 40

promisor, prior to time set for performance of his promise, indicates he will not perform when time occurs – applies only if there is a bilateral K with unperformed duties on both sides [nonrepudiating party has 4 alternatives – (1) treat as total repudiation and sue immediately; (2) suspend own performance and wait to sue until performance date; (3) treat repudiation as offer to rescind and treat K as discharged; or (4) ignore repudiation and urge promisor to perform]; repudiating party may withdraw repudiation unless other party has cancelled, materially changed her position in reliance on repudiation, or indicated repudiation is final

Question 41

Prospective Inability (Anticipatory Repudiation)

Answer 41

party has reasonable grounds to believe other party will be unable/unwilling to perform when performance is due – innocent party can suspend further performance until receives adequate assurances; may then treat failure of giving assurances as repudiation

Question 42

Substantial Performance

Answer 42

condition of complete performance excused if party has rendered substantial performance; other party’s duty of counter- performance becomes absolute

Question 43

Impossibility

Answer 43

occurrence of unanticipated or extraordinary event; where nonoccurrence of event was basic assumption of parties in making the K and neither party has expressly or impliedly assumed the risk of event occurring

Question 44

Impracticability

Answer 44

party to perform has encountered (1) extreme and unreasonable difficulty and/or expense; and (2) nonoccurrence was a basic assumption of parties [shortage of raw materials, war, strike, embargo, or unforeseen shutdown of major supplier – mere increase in cost insufficient]

Question 45

Frustration

Answer 45

1) some supervening act/event leading to frustration; (2) at time of entering into K, parties did not reasonably foresee act/event occurring; (3) purpose of K has been completely destroyed by act/event; (4) purpose of K was realized by both parties at time of making K [usually buyer will raise]

Question 46

Rescission

Answer 46

MUTUAL – K may be discharged by express agreement between parties to rescind; for K to be effectively discharged, duties must be executory on both sides |

UNILATERAL – when one of parties to K desires to rescind it but other party desires that K be performed according to its terms; party desiring it must have adequate legal grounds

Question 47

Novation

Answer 47

new K substitutes new party to receive benefits and assume duties that had originally belonged
to one of parties under terms of old K – (1) a previous valid K; (2) an agreement among all parties, including new party; (3) immediate extinguishment of K duties between original K parties; (4) valid and enforceable new K

Question 48

Accord and Satisfaction

Answer 48

agreement in which one party to existing K agrees to accept some other different performance the performance of accord agreement; accord must be supported by consideration; if breach of accord before satisfaction, debtor can (1) raise accord agreement as equitable defense and ask that K action be dismissed; or (2) wait until damaged and bring action at law for damages for breach of accord K

Question 49

Lapse (Contracts)

Answer 49

if duty of each party is condition concurrent to other’s, possible on day set for performance, neither party is in breach b/c of lapse

Question 50

Breach

Answer 50

(1) the promisor is under an absolute duty to perform, and (2) this absolute duty of performance has not been discharged, then this failure to perform in accordance with K terms will amount to breach of K – nonbreaching party who sues for breach must show that she is WILLING AND ABLE to perform but for the breaching party’s failure to perform

Question 51

Material Breach

Answer 51

if obligee does NOT receive the substantial benefit of her bargain, the breach is considered material; if material, the nonbreaching party (1) may treat the K as at an end [any duty of counter- performance owed by her will be discharged]; and (2) will have an immediate right to all remedies for breach of entire K, including total damages

Question 52

Minor Breach

Answer 52

breach of K is minor if the oblige gains the substantial benefit of her bargain despite the obligor’s defective performance [does NOT RELIEVE the aggrieved party of her duty of performance under the K; merely gives right to damages]

Question 53

Perfect Tender Rule

Answer 53

if goods or their delivery fail to conform to the K in any way, the buyer generally may reject all, accept all, or accept any commercial units and reject the rest

Question 54

Exceptions to Perfect Tender

Answer 54

(1) installment K; (2) Seller’s right to cure (if buyer has rejected goods because of defects, seller may within the time originally provided for performance “cure” by giving reasonable notice of her intention to do so and making a new tender of conforming goods that the buyer must then accept)

Question 55

Specific Performance

Answer 55

if the legal remedy is inadequate, the nonbreaching party may seek specific performance, which is an order from the court to the breaching party to perform or face contempt of court charges

***always available for land sale Ks and also available for goods that are rare or unique at time performance is due; NOT AVAILABLE for breach of K to provide SERVICES

Question 56

Expectation Damages (Contracts)

Answer 56

sufficient damages for her to buy a substitute performance – benefit of the bargain damages

Question 57

Reliance Damages (Contracts)

Answer 57

if expectation damages are too speculative, plaintiff may elect to recover damages based on reliance – award plaintiff the cost of her performance [designed to put plaintiff in the position she would have been had the contract never been formed]

Question 58

Consequential Damages (Contracts)

Answer 58

arise because of the nonbreaching party’s particular circumstances, and most often consist of lost profits – can be recovered ONLY IF (1) at the time K was made, a reasonable person would have foreseen the damages as a probable result of the breach, (2) the damages could not have been avoided through reasonable efforts, and (3) the damages can be proved with reasonable certainty [*foreseeability: breaching party must have known or had reason to know of the special circumstances giving rise to the damages] [in sale of goods K only BUYER can recover]

Question 59

Incidental Damages (Contracts)

Answer 59

include expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to seller’s breach, and by seller in storing, shipping, returning, and reselling the goods as a result of buyer’s breach

Question 60

Certainty Rule (Damages)

Answer 60

plaintiff must prove losses suffered were certain in their nature and NOT SPECULATIVE

Question 61

Punitive Damages (Contracts)

Answer 61

generally NOT AWARDED in K cases

Question 62

Nominal Damages (Contracts)

Answer 62

may be awarded when breach is shown but no actual loss proven

Question 63

Liquidated Damages (Contracts)

Answer 63

parties to K may stipulate what damages are to be paid in the event of breach; must be in an amount that is REASONABLE in view of the actual or anticipated harm caused by the breach

Question 64

Restitution (Contracts)

Answer 64

awarded to prevent unjust enrichment - when one party confers a benefit onto another party -
damages will be based on value of benefit conferred

Question 65

Seller does not deliver or buyer rejects goods or revokes acceptance:

Answer 65

Seller does not deliver or buyer rejects goods or revokes acceptance: the difference between the K price and EITHER: (1) the market price OR (2) the cost of buying replacement goods, plus incidental and consequential damages, if any, LESS expenses saved as a result of seller’s breach

Difference between K price and market price: market price determined as of time buyer learns of breach and at place of tender

***buyer’s damages are measured as of the time she learns of the breach, while seller’s damages are measured as of the time for delivery

Difference between k price and cost of replacement goods: buyer must make a reasonable K for substitute goods in good faith and without unreasonable delay

Question 66

Seller delivers nonconforming goods that buyer accepts

Answer 66

Warranty damages: buyer may recover as damages loss resulting in the normal course of events from the breach; basic measure is the difference between the value of the goods as delivered and the value they would have had if they had been according to the K, plus incidental and consequential damages

Notice requirement: to recover damages for any defect as to accepted goods, buyer MUST, within a reasonable time after she discovers or should have discovered the defect, notify the seller of defect

Seller Anticipatorily breaches K: measure of damages when seller anticipatorily breaches K is the difference between the market price at the time the buyer learned of the breach and the K price

Question 67

Where buyer repudiates or refuses to accept conforming goods

Answer 67

in addition to incidental damages, the seller can (1) recover the difference between the MARKET PRICE (measured as of the time and at the place of delivery) and the K price; (2) resell the goods and recover the difference between the K price and the resale price; OR (3) if the above measures are inadequate because the seller could have made an additional sale, recover under “lost profits” measure the difference between the K price and cost to seller

Question 68

LOST VOLUME SELLER

Answer 68

look at seller’s supply – if seller’s supply of goods is UNLIMITED then he is a lost volume seller, and the lost profits measure can be used; if seller’s supply is LIMITED the lost profits measure cannot be used, and one of the other 2 must be used instead

Question 69

Where buyer accepted goods – action for price:

Answer 69

if buyer accepted goods and has not paid, or has not accepted goods, and the seller is UNABLE TO RESELL them at any reasonable price, or if the goods have been lost or damaged at a time the risk of loss was on the buyer, the seller may maintain an action against buyer for full K price
Mitigation: plaintiff CANNOT recover damages as a result of breach that could have been avoided - must take reasonable steps to mitigate losses

Question 70

Identifying Third-Party Beneficiaries

Answer 70

two parties contracting with the common intent of benefit to a third party

Question 71

Third-Party Beneficiaries Groups

Answer 71

Third-Party Beneficiary: not a party to K; able to enforce K others made for her benefit

Promisor: person who is making the promise that benefits the third party

Promisee: person who obtains the promise that benefits the third party

Intended/Incidental: only intended beneficiaries have K law rights; intent of the two parties to contract determines whether intended or incidental

Creditor/Donee: intended beneficiaries are either donees or creditors [usually donees] – look at whether third party beneficiary was a creditor of promisee before the K

Question 72

Efforts to Cancel or Modify - Third Party Beneficiaries

Answer 72

test is whether the third party knows of and has RELIED on or assented as requested; if so, her rights have vested and the K cannot be cancelled or modified without her consent unless the K otherwise provides

Question 73

Who Can Sue Whom? (Third Party Beneficiaries)

Answer 73

Beneficiary can recover from promisor
Promisee can recover from promisor
As a general rule, beneficiary CANNOT recover from promisee
As a limited exception to the general rule, a creditor beneficiary can recover from a promisee BUT ONLY on a pre-existing debt

Question 74

Defenses (Third Party Beneficiaries)

Answer 74

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

Question 75

Assignment of Rights

Answer 75

rights and benefits under K can be transferred to third party IF (1) assignor manifests intent to transfer rights; AND (2) assignee assents to assignment

Question 76

Delegation of Duties

Answer 76

all K duties are delegable UNLESS (1) K prohibits delegations or assignments; (2) delegation is against public policy; (3) K is for personal services that calls for personal skill or discretion; OR (4) delegation materially alters expectancy of obligee