Contracts MBE-ES

Question 1

Pre Existing Duty Rule

Answer 1

Does not apply if duty is owed to to a third person. If a person already owed a duty to perform that performance cannot be used as consideration for another promise

Modern Trend: But if duty is owed to a third party, a promise to perform given to another is valid consideration as long as it was bargained for.

Question 2

Past or moral consideration

Answer 2

Usually insufficient except where a technical defense such as a statute of limitations bars enforcement of prior obligation and a new promise is made in writing.

Question 3

Effect of Promissory estoppel

Answer 3

Renders an offer binding as an option contract even without consideration if the offeror should reasonably expect it to induce action or forbearance of a substantial character by the offeree before acceptance.

Question 4

Risk of loss with particular goods.

Answer 4

If a contract requires particular goods before risk of loss passes to the buyer, and the goods are destroyed with neither party at fault, the contract is avoided.

Question 5

Intended 3rd party beneficiary

Answer 5

1. expressly designated in the contract
2. performance is to be made directly to her
3. stands in a relationship to the promisee that an intent to her benefit can be inferred.

Question 6

When do a 3rd party ben rights vest?

Answer 6

vesting occurs 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 position in justifiable reliance on the promise.

Question 7

effect of a valid assignment

Answer 7

to establish privity of contract between the obligor and the assignee while extinguishing privity between the obligor and assignor.

Question 8

Delegation

Answer 8

A transfer of contractual duties to a third party is called a delegation of duties. The party delegating her duties (delegator-obligor) remains liable on her contract even if the third person expressly assumes duties.

Question 9

Effect of unilateral mistake

Answer 9

will not be grounds to rescind a contract unless the nonmistaken party knew or should have known of the mistake.

Question 10

What damages is a seller entitled to when a buyer repudiates his offer

Answer 10

incidental damages plus either the difference between the contract price and them market price or the difference between the contract price and the resale price, less expensees saved as a result of the breach.

Question 11

Anticipatory Repudiation

Answer 11

Occurs where a promisor, prior to the time set for performance of her promise, indicates that she will not perform when the time comes. Serves to excuse the conditions:

1) there is an executory bilateral contract with executory duties on both sides AND
2. the words or conduct of the promisor unequivocally indicate that she cannot or will not perform when the time comes. Non-repudiating party has the option to treat the contract as being breached and sue immediately.

Question 12

Age of maturity: Is a minor liable for K after age of majority?

Answer 12

An infant may affirm (choose to be bound) upon reaching majority. Affirmance may be either express or by conduct (failing to disaffirm the K within a reasonable time after reaching majority) Disaffirmance discharges all liability. –Making payments after reaching maturity constitutes affirmance.
Exception: Minor is liable for the reasonable value of necessaries, not the K price.

Question 13

Mailbox Rule

Answer 13

acceptance effective on dispatch, but if mail gets lost, then, acceptance effective when given to messenger company. But Mailbox rule does not apply if a period of acceptance is stated in the offer.

Question 14

Is a condition precedent excused in a tornado?

Answer 14

No because construction is not made impossible, but rather more costly, A builder can rebuild. But most courts will excuse “timely” performance.

Question 15

Unilateral mistake

Answer 15

General Rule:
K will not be avoided by unilateral mistake
Exception:
Non-mistaken party either knew or should have known of the mistake.

Question 16

Parol Evidence

Answer 16

prevents introduction of oral statements made prior to or contemporaneously with a written contract. Oral terms agreed upon after the original contract was made is ok.
If there is a mistake: Ct will allow parties to show the reformed terms because of mistake.

Question 17

Liquidated Damages Clause

Answer 17

only enforceable if damages were difficult to estimate at the time the contract was formed, and the amount agreed upon is a reasonable forecast of damages that would result from the breach. A party can recover either liquidated damages or if not available, actual damages, but not both.

Question 18

Condition precedent requirement:

Answer 18

A party does not have a duty to perform if a condition precedent to that performance has not been met.

Question 19

When is specific performance available?

Answer 19

It is available only where a legal remedy( money damages) is inadequate. It is not available as a remedy regarding a contract for unique services. (if the services are not unique, then the nonbreaching party can prob find someone else to perform.

Question 20

Sale of goods with 1 party non-merchant and additional terms

Answer 20

the additional terms will not be included unless specifically accepted.

Question 21

Does the mailbox rule apply to option contracts?

Answer 21

No. Acceptance under an option contract is effective only upon receipt.

Question 22

Does an omission of the agreed upon price in the contract for a sale of goods prevent the formation of a contract?

Answer 22

No. Not if the parties intended to form a contract without the price being settled. In such a case, is left to be agreed to by the parties and they fail to agree, a reasonable price at the time of delivery one will be supplied by the court.

Question 23

What is an accord?

Answer 23

an agreement in which one party to an existing contract agrees to accept in lieu of the performance. Satisfaction is the performance of the accord agreement. It may generally be accomplished by tender and acceptance of a check marked payment in full.

Question 24

FOB

Answer 24

delivery term that governs the contract if it is a contract for the sale of goods. It obligates the seller to get the goods to the location indicated after the term ex: FOB jewelers shop, so the jeweler is not obligated to pay for the costs of shipmet beyond his shop.

Question 25

name one instance where an assignment of rights will be barred

Answer 25

if it will substantially change the obligor’s duty. EX: contract to get 10 cases of dog food monthly, rights assigned to another and they change the terms to make the delievery 5000 cases per month.

Question 26

What options does a buyer have with regard to acceptance for non-conforming goods

Answer 26

Generally has the right to accept all, reject all, or accept any commercial units and reject the rest. TO properly reject, the rejecting party ust do so in a reasonable time after delivery and before acceptance, reject the goods or notify the seller of the rejection.

Question 27

Quasi Contract

Answer 27

Equitable Remedy that protects against unjust enrichment whenever K yields an unfair result.
Elements:
P has conferred a benefit on D and
P reasonably expected to be paid and
D will be unjustly enriched if P is not compensated
Note that it is not a description of an agreement..it is a REMEDY!

Question 28

Unilateral K

Answer 28

Offer can be accepted only by performance.
2 common situations:
1. offer expressly says it can be accepted by performance or
2. involves a reward, contest or prize.

Question 29

Revocation

Answer 29

GR: Offer can be revoked at any time before acceptance
Effective only on receipt.
Once accepted cannot be revoked

Question 30

Irrevocable Offers

Answer 30

1. Option- a promise to keep the option open that is paid for cannot be revoked during the option period.
2. Offeree’s Forseeable Reliance Before Acceptance (general/sub-contractor cases)
3. Unliateral K-
   When actual performance has begun (but mere preparation not enough)
4. Firm Offer Rule (UCC)- If a merchant promises in a signed writing to keep an offer open, can’t exceed 3 mo. No consideration needed.

Question 31

What does Mailbox Rule apply to?

Answer 31

Acceptance only. Acceptance effective upon dispatch.
Rejection sent first, and then acceptance is sent. MBR no longer applies, and it’s a race. Whichever one gets there first is effective.

Question 32

Ambiguity/Misunderstanding

Answer 32

If neither party knows/has reason to know of the ambiguity, then there is no K. (neither party liable)
But if one did know, the other party’s meaning governs.

Question 33

Consideration

Answer 33

Bargained for legal detriment/benefit- can bargain for a promise, performance, or even forbearance.
A promise to see is consideration for a promise to pay

Question 34

Modification

Answer 34

CL: New consideration req’d to modify K based on pre-existing duty rule( performance of pre-existing duty is NOT new consideration)
UCC: Consideration not req’d to modify K if made in good faith.

Question 35

Who cannot raise a pre-exisisting duty rule?

Answer 35

A 3rd party because it’s only available to the original parties.

Question 36

Promissory Estoppel as a substitute for Consideration

Answer 36

Forseeable reliance may make a promise enforceable even without consideration. Always your 2nd choice- Consideration, is always 1st choice.

Question 37

Duress

Answer 37

K induced by duress and coercion are voidable and may be rescinded as long as not affirmed. Duress will usually not be found where one party takes economic advantage of the other’s pressing need to enter the K.

Question 38

Misrepresentation/Fraud in the Inducement-

Answer 38

K is voidable by the innocent party if she justifiably relied on the fraudulent misrepresentation.

Question 39

Unconscionability

Answer 39

Where one of the parties of the K has substantially superior bargaining power at the time of the K was formed. Court can refuse to enforce a provision or an entire K.

Question 40

Statute of Frauds

Answer 40

Only certain types of K must be in writing
MYLEGS
Marriage K
Performance cannot be completed in more than a YEAR
Interest in LAND
EXECUTOR promises to pay estates debts out of their own funds
Sale of GOODS for more than $500- TX only, Lease of goods for more than $1000
SURETYSHIP- promise to answer for the debt of another

Question 41

Exception to SOF- Merchants

Answer 41

Both parties are merchants
the writing claims a prior oral agreement and has a quantity
AND
the recipient doesn’t object in writing within 10 days.

Question 42

Exceptions to Parol Evidence Rule

Answer 42

1. To correct a clerical error
2. To establish a defense against formation of the K.
3. To explain or interpret a vague or ambiguous term (but cannot contradict)
4. To supplement a partially integrated writing –UNLESS K contains a merger clause, then cannot be supplemented
5. Condition Precedent- Where the parties agree that a CP must occur before the K is effective
6. Subsequent Developments- Nothing to do with after the agreement is written.

Question 43

Conduct- to explain gap fillers

Answer 43

1. Course of Performance- What the parties did under THIS K.
2. Course of Dealing: What the parties did under PRIOR Ks with each other
3. Usage of Trade- What others do in similar K.

Question 44

Risk of Loss- Common Carrier

Answer 44

ROL shifts to the buyer when seller completes its delivery obligations

Question 45

Shipment K

Answer 45

Delivery obligations complete when seller
1. Gets the goods to a common carrier
2. Makes delivery arrangements 
and
3. Notifies buyer of these arrangements

Question 46

Destination K

Answer 46

Delivery obligations complete when the seller gets the goods to a specific destination. (usually where buyer is located)

Question 47

Free on Board (FOB) K

Answer 47

FOB (Seller’s City) =Shipment K,

FOB (any other city)= Destination K

Question 48

Non-Carrier Cases-

Answer 48

If Seller is Merchant- Seller bears ROL until buyer takes possession of the goods
If Seller NOT a merchant- Seller bears ROL until it tenders the goods (makes them available to buyer by telling them where it is and how to pick it up. Once goods have been tendered, buyer bears ROL

Question 49

Construction K

Answer 49

Where newly constructed building is destroyed without fault of either party, builder bears ROL

Question 50

Perfect Tender Rule

Answer 50

Seller must deliver perfect goods in the right place at the right time, in not buyer has the right to reject the goods

Question 51

Option to Cure

Answer 51

Seller who fails to make perfect tender, may have an option to cure, depending on whether time has expired.

Question 52

If time has not expired

Answer 52

Seller may reasonably notify the buyer of seller’s intention to cure AND
2. Make conforming delivery within reasonable time

Question 53

If time has already expired

Answer 53

Seller cannot cure UNLESS seller has reason to believe that buyer would take the non-conforming goods based on their prior dealings, trade usage, or other circumstances surrounding the K. Then seller has reasonable time to cure.

Question 54

Installment sales K

Answer 54

Requires or authorizes delivery in separate installements- Perfect Tender rule DOES NOT apply, apply substantial impairment test

Question 55

Substantial Impairment Test:

Answer 55

Buyer can reject the installement if there is a substantial impairment in the installment that it can’t be cured.
The entire K if a defect in the installment substantially impairs the value of the entire K.

Question 56

Buyer’s Acceptance of Goods

Answer 56

Implied acceptance- when buyer keeps goods without objection after having an opportunity to inspect. Merely paying for goods is NOT implied acceptance. Look for long period of time and then buyer complains.

Question 57

Consequences of acceptance

Answer 57

once good are accepted, buyer cannot reject but a buyer who accepts non-conforming goods can still get damages for seller’s breach.

Question 58

Buyer’s Revocation of Acceptance of Goods

Answer 58

A buyer cannot revoke acceptance of goods, unless the non-conformity substantially impairs the value of the good AND it was difficult to discover

Question 59

Consequences of Rejection/Revocation

Answer 59

Return, Refund, Damages

Question 60

Other Party breach:

Answer 60

may provide an excuse for non-performance. Buyer has 3 options:

1. accept all the goods or
2. reject all the goods
3. or accept some and reject the rest. No matter which one, buyer is entitled to damages from seller for breach of K.

Question 61

Modification

Answer 61

an agreement to replace an existing k with a new one-agreement takes effect immediately (I will discharge you of your debt now if you promise to fix the clasp on my purse)

Question 62

Accord and Satisfaction

Answer 62

an agreement to accept performance in future satisfaction of an existing duty, takes effect when performance is rendered (if you fix my clasp, i’ll discharge you of your debt)

Question 63

Novation

Answer 63

an agreement to substitute a new party for an existing one, requires consent on non-substituting party bc novation causes her to give up her rights as to the old party

Question 64

Impossibility

Answer 64

a later unforseen event that makes performance impossible CL

Question 65

Impracticablity

Answer 65

Much harder or more expensive

Question 66

Request for assurance

Answer 66

A party with reasonable grounds for insecurity may request in writing adequate assurance that the other party will perform in accord with the K. If the other party doesn’t provide adequate assurance, the requesting party may treat that as an Anticipatory Repudiation

Question 67

CL Damages

Answer 67

Take the non-breaching party from where he ended up to where he expected to be.

Question 68

UCC Art 2 Damages: Buyer

Answer 68

Cover Damages= Cover price- K Price
Market Damages= Market price-K price
Loss in Value= Value as Promised-Value delievered

Question 69

UCC Art 2 Damages: Seller

Answer 69

Re-Sale Damages= K Price- Re-sale Price
Market Damages=K price-Market price
Lost Profit Damages= Lost profit
Contract Price= K Price (very rare)

Question 70

Incidental Damages

Answer 70

Cost of transporting or caring for goods after breach and costs associated with arranging a substitute transaction. Available to both buyer and seller

Question 71

Consequential Damages

Answer 71

Damages that are special to this P and were reasonably forseeable by the breaching party at the time of the K.

Question 72

Delegation of duties

Answer 72

may be delegated without consent of the person to whom performance is owed (obligee)
Except: if K prohibits it
Special skill or reputation