Contracts Law

Question 1

Pre-Existing Legal Duty

Answer 1

The promise to perform a legal duty already owed to a promisor is not consideration.

Question 2

Modification (Common Law)

Answer 2

Any modification to a contract requires new consideration. However, some courts will allow a contract to be modified without additional consideration if the modification is “fair and equitable” in view of circumstances not anticipated when the contract was made.

Question 3

Modification (UCC)

Answer 3

Under Article 2, contract modifications sought in “good faith” are binding without consideration. Good faith means there must be a legit commercial reason for the modification.

Question 4

Duress

Answer 4

A contract can be voided based on duress when a party’s assent to a contract is induced by an improper threat by the other party that leaves the victim no reasonable alternative.

Withholding something someone wants or needs will constitute economic duress if: (1) 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.

Question 5

Repudiation

Answer 5

A definite statement that a party will not perform his part of the contract. May be treated by the other party as anticipatory breach.

Question 6

Required Terms for a Common Law Contract

Answer 6

1) parties, 2) subject, 3) quantity, AND 4) price

Question 7

Required Terms for a UCC Contract

Answer 7

1) parties, 2) subject, AND 3) quantity

***price not required for UCC

Output and requirement Ks are valid under the UCC

Question 8

Requirements for a valid offer

Answer 8

The offeror must 1) manifest an objective willingness to enter into an agreement and 2) create a power of acceptance in the offeree

Question 9

Option Contract

Answer 9

An agreement where consideration is given in exchange for a promise to keep an offer open.

Type of irrevocable offer.

Question 10

Firm Offer

Answer 10

An irrevocable offer by a merchant. Must be in 1) writing, 2) contain an explicit promise not to revoke, and 3) be signed by merchant.

Lasts for as long as stated in offer, or a reasonable time if not stated. Not to exceed 90 days.

Question 11

Can a unilateral contract be revoked?

Answer 11

A unilateral offer to contract cannot be revoked by the offeror if the offeree has started performance.

Note: offeree is not bound to finish performance, she may withdraw at any time prior to completion, and thus will not have accepted.

Question 12

Detrimental reliance (as an irrevocable offer)

Answer 12

An offer cannot be revoked if the offeree reasonable and detrimentally relies on the offer in a foreseeable manner.

Question 13

Option Contract

Answer 13

Distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer.

Question 14

Merchant’s Firm Offer

Answer 14

If (1) a merchant (2) offers to sell goods in a signed writing, and (3) the writing gives assurances that it will be held open, (4) the offer is not revocable for lack of consideration during the time stated.

Question 15

Detrimental Reliance

Answer 15

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

Question 16

Liquidated Damages Clause

Answer 16

Enforceable if: (1) damages are difficult to ascertain at the time of the making of the contract and (2) the damages are a reasonable forecast of compensatory damages.

Question 17

Vesting of an Intended Third-Party Beneficiary’s Rights

Answer 17

When the beneficiary (1) manifests assent to the promise in a manner invited or requested by the parties; (2) brings suit to enforce the promise; or (3) materially changes his position in justifiable reliance on the promise.

Question 18

Predominant Purpose Test (UCC or Common Law)

Answer 18

If a contract involves both goods and services, that is, a mixed (or hybrid) contract, a court typically will determine which aspect is predominant and apply the law governing that aspect to the whole contract.

Question 19

Merger Clause

Answer 19

Statement in a writing reciting that the agreement is the complete agreement between the parties. The presence of a merger clause is often determinative in large commercial contracts in which both parties are represented by lawyers. Modern trend is to consider the clause as one factor in determining the integration issue.

Question 20

Avoiding a Contract Based on Mutual Mistake (Requirements for Adversely-Affected Party)

Answer 20

(1) The mistake must concern a basic assumption on which the contract was made;
(2) The mistake must have a material effect on the agreed exchange of performances; and
(3) The adversely affected party must not bear the risk of the mistake.

Question 21

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 contract on the basis of the offered terms. To determine if a communication creates a reasonable expectation, ask:

Answer 21

1) was there an expression of a promise, undertaking, or commitment to enter into a contract?
2) were there certainty and definiteness in the essential terms?
3) Was there communication of the above to the offeree?

Question 22

Are advertisements offers?

Answer 22

No. Ads are usually construed to be mere invitations for offers.

Question 23

What missing terms can a court supply in a contract?

Answer 23

1) price – reasonable price at time of delivery

2) time – within a reasonable time

Question 24

Offer Revocation

Answer 24

Offer may be revoked by 1) directly communicating revocation to offeree or 2) indirectly if the offeree receives a) correct information, b) from a reliable source, c) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer

Revocations are effective when received (recipient doesn’t actually have to read the communication).

Question 25

Detrimental Reliance to create an Option Contract

Answer 25

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

Question 26

Offer Rejection

Answer 26

Rejection can be either express or through a counteroffer. Counteroffers are both a rejection and a new offer.

Note: mere inquiries are not counteroffers, and thus not rejections, i.e., “Would you consider accepting a lower price?”

Rejections are effective when received.

Question 27

Rejections by operation of law

Answer 27

1) death or insanity of either party – need not be communicated to the other party
2) destruction of the subject matter
3) supervening illegality

Question 28

Impracticability

Answer 28

Where a party encounters extreme and unreasonably difficult and/or expense, and such difficulty was not anticipated.

Duties will not be discharged where performance is merely more difficult or expensive than anticipated. The facts giving rise to impracticability must be such that their nonoccurence was a basic assumption on which the K was made.

Question 29

Novation

Answer 29

Arises when the parties enter into an agreement to substitute a third party for one of the parties in a contract, releasing the party who was substituted. All parties must agree to the substitution.

Question 30

Expectation Damages

Answer 30

Goal is to place the nonbreaching party in the position that they would be had the contract been performed.

Question 31

Consequential Damages

Answer 31

The non-breaching party is entitled to additional damages that were suffered as a result of the breach, as long as the reason for the damages was known to the breaching party and such damages were foreseeable.

Question 32

Duty to Mitigate

Answer 32

Parties have a duty to mitigate damages, thereby reducing the amount for which the breaching party is liable.

Question 33

Crossing Letters in the Mail

Answer 33

If offers starting precisely the same terms cross in the mail, they do not give rise to a contract despite the apparent meeting of the minds.

Question 34

Debtor Partial Payment (Exception to Pre-Existing Legal Duty Rule)

Answer 34

If, in addition to making a partial payment, the debtor: (1) gives security in addition to the party payment;

(2) refrains from bankruptcy or insolvency proceedings;
(3) arranges for a composition agreement; or
(4) pays part of the claim, the full amount amount of which is in a bona fide dispute….

the debtor has given consideration for the discharge of the larger amount.