Contracts CMR Modules 1-4

Question 1

What is a contract?

Answer 1

A contract is a promise for the breach of which the law gives a remedy or the performance of which the law recognizes as a duty.

Question 2

What is a quasi contract?

Answer 2

Quasi contracts are NOT CONTRACTS: quasi-contract occurs when an unenforceable K results in unjust enrichment, a ct. permits a P to bring an action in restitution to recover the amount of the benefit conferred on the ∆.

Question 3

What is a bilateral contract?

Answer 3

A bilateral K is the exchange of mutual promises, that is, a promise for a promise. Each party is both a promisor and a promisee.

Question 4

How can a bilateral contract be accepted?

Answer 4

A bilateral contract can be accepted in any reasonable way.

Question 5

What is a unilateral contract?

Answer 5

A unilateral contract is a contract in which the offeror-promisor promises to pay upon the completion of the requested act by the promisee.

A unilateral contract occurs: (1) when the offeror clearly & unambiguously indicates that completion of performance is the only manner of acceptance; or (2) where there is an offer to the public (e.g., reward offer)

Look for magic words!! “offer … only by” or a reward offer

Question 6

At what moment is a unilateral contract formed?

Answer 6

A unilateral contract is formed once the requested act is completed.

Question 7

Void vs. voidable vs. unenforceable contract?

Answer 7

A void K is totally without any legal effect from the beginning (e.g., an agreement to commit a crime)

A voidable K is where one or both parties may elect to avoid (e.g., infancy or mental illness)

An unenforceable K is otherwise valid but not enforceable due to a defense (SOL or SOF)

Question 8

What is the definition of goods?

Answer 8

Goods are movable, tangible things.

Question 9

What is the Art. 2 definition of a merchant?

Answer 9

A merchant is one who regularly deals in goods of the kind sold or who otherwise by their profession holds themselves out as having special knowledge or skills as to to the practices or goods involved.

Question 10

What is the predominant purpose test?

Answer 10

The predominant purpose test is a way to determine if a mixed transaction (involving both goods and services) falls under Art. 2. If a sale involves both goods and services, determine which aspect is dominant and apply the law governing that aspect to the whole K.

If the K divides payment between goods and services, then Art. 2 will apply to the sale portion the CL will apply to the services portion.

Question 11

What is the rule for good faith and fair dealing in contracts?

Answer 11

Every contract, whether governed by the common law or the UCC, imposes an obligation of good faith and fair dealing in its performance and enforcement.

Good faith means honesty in fact & the observance of reasonable commercial standards.

A breach of the duty of good faith and fair dealing may deprive the breaching party of the fruits of the K.

Question 12

What is mutual assent?

Answer 12

For an agreement to be enforced as a contract, there must be mutual assent, that is, words or conduct must have manifested a present intention of both parties to enter into a contract.

Mutual assent requires an offer by the offeror and an acceptance by the offeree.

Question 13

What is an offer?

Answer 13

An offer is an expression of a promise, undertaking, or commitment with definite & certain terms communicated to the offeree.

For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a K on the basis of the offered terms, rather than a mere invitation to deal or negotiate.

An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror.

Question 14

Are price quotations offers?

Answer 14

Generally, price quotations are not offers, but if a price quotation is given in response to an inquiry containing a price term then they may be an offer.

Question 15

An offer involving real estate must …

Answer 15

An offer involving real estate must identify the land with some particularity (but deed description is not required) & the price terms.

Question 16

What term must be in a sale of goods contract?

Answer 16

In a contract for the sale of goods, the quantity being offered must be certain or capable of being made certain.

Question 17

What is a “requirements” and “output” contract?

Answer 17

In a requirements contract, a buyer promises to buy from a seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer.

In an output contract, a seller promises to sell to a buyer all of the goods the seller produces, and the buyer agrees to buy that amount from the seller.

Look for magic words: require, need, produce, all, only, exclusively, solely.

Requirements and output contracts imply a presumption of good faith that the tender or demand is not for a quantity unreasonably disproportionate to:

(1) any stated estimate, or
(2) any normal or comparable prior output requirements.

Question 18

What is an express rejection?

Answer 18

An express rejection is a statement by the offeree that they do not intend to accept the offer; a rejection terminates the offer.

Question 19

What is a counteroffer?

Answer 19

A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer but differs in its terms; a counteroffer is a rejection of the original offer.

Question 20

What is the distinction between a counteroffer and a mere inquiry?

Answer 20

A mere inquiry won’t terminate the offer when it’s consistent with the idea that the offeree is still keeping with the original proposal.

The test: whether a reasonable person would believe that the original offer had been rejected.

Question 21

When an acceptance is made expressly conditional on the acceptance of new terms, it is …

Answer 21

When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer.

The offer that results from a conditional acceptance cannot be accepted by performance. If the parties ship or accept goods after a conditional acceptance, a contract is formed by their conduct.

Question 22

When is a rejection effective?

Answer 22

A rejection is effective when it is received by the offeror.

Question 23

Can you reject or terminate on option contract?

Answer 23

No!

Because an option is a K to keep an offer open, a rejection of or a counteroffer to an option does not constitute a termination of the offer.

The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree’s rejection.

Question 24

What is a revocation?

Answer 24

A revocation is the retraction of an offer by the offeror.

An offeror may revoke by directly communicating the revocation to the offeree or indirectly if the offeree receives:

(1) correct information;

(2) from a reliable source;

(3) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer.

Question 25

When is a revocation effective?

Answer 25

A revocation is effective when received by the offeree. A written or recorded communication is “received’ when it is delivered to a place of business through which the K was made (or other authorized location). It does not matter whether the recipient actually reads the communication.

Question 26

What is the limitation on the offeror’s power to revoke?

Answer 26

An offeror cannot revoke an offer for which an option contract has been made to keep the offer open for a definite period of time.

Question 27

Merchant’s Firm Offer Rule

Answer 27

Under Art. 2, an offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but no more than 3 months), if:

(1) A merchant

(2) offers to buy or sell goods in a signed writing, AND

(3) the writing gives assurance that it will be held open.

Example: “This offer will be held open for 10 days” or “This offer is firm for 10 days.”

Remember that merchant firm offer’s are not supported by consideration. If it’s supported by consideration, it’s an option contract!!

Question 28

Detrimental reliance’s effect on termination?

Answer 28

When the offeror could reasonably expect that the offeree would rely to their detriment on the offer, and the offeree does so rely, the offer will be held irrevocable for a reasonable length of time (just like an option contract).

For example, offeree builds expensive foundation to custom fit a machine that she has contracted with a seller to buy.

Question 29

Can the offeror revoke an offer in a unilateral contract once offeree has begun performance?

Answer 29

No. An offer for a unilateral K becomes irrevocable once performance has begun.

The offeror must give the offeree a reaosnable time to complete performance.

But the offeree is not bound to complete performance; they may withdraw at any time prior to completion of performance.

Again, there is no acceptance until performance is complete.

Substantial preparations to perform (like buying paint) do not make the offer irrevocable but may constitute detrimental reliance sufficient to make the offeror’s promise binding to the extent of the detrimental reliance

Question 30

Effect of beginning performance in a bilateral contract.

Answer 30

The contract is formed upon the start of performance.

A bilateral contract may be formed upon the start of performance by the offeree, and, upon the start of performance, the contract is formed and revocation becomes impossible. But note that it may be necessary for the offeree to notify the offeror that they have started performance.

Question 31

When is a K terminated by operation of law?

Answer 31

a. Death or insanity of either party (doesn’t need to be communicated to the other party to be effective). Doesn’t work for option contracts.

b. Destruction of the K’s subject matter

c. Supervening illegality

Question 32

What is an acceptance of a contract?

Answer 32

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