CONTRACTS PREP

Question 1

Define Offer

Answer 1

An offer is a manifestation of willingness to enter into an agreement that creates the power of acceptance in the offeree.

Question 2

Define Acceptance

Answer 2

Acceptance is the manifestation of willingness by the offeree to be bound by the terms of the agreement.

Question 3

Define a legally enforceable contract

Answer 3

A legally enforceable contract is one that is created through the process of mutual assent (offer, acceptance, and consideration), provided that no valid defenses to contract formation exists.

Question 4

Essential term of an offer under Common Law

Answer 4

Essential terms consist of price, subject matter, parties, and quantity.

Question 5

Termination of offers

Answer 5

Lapse, death, mental incapacity, destruction, revocation

Question 6

Define Revocation

Answer 6

An offer can be revoked by the offeror at any time prior to acceptance even if it states that the offer will be left open for a specified amount of time. It must be communicated to the offeree and revocation sent by mail is effective upon receipt.

Question 7

Limitations on Revocations

Answer 7

Option contracts, UCC firm offer rule, Promissory Estoppel, Partial Performance.

Question 8

Option Contracts

Answer 8

An option contract is an independent promise to keep an offer open for a specified amount of time. If the option contract is a promise to not revoke the offer for a time period, than it must be supported by adequate consideration.

Question 9

UCC Firm Offer Rule

Answer 9

If offeror is a merchant, an offer can be irrevocable for a reasonable amount of time but no longer than 3 months. Assurances must be made in a signed writing assuring that the offer will remain open.

Question 10

Promissory Estoppel

Answer 10

(1) when the promisor should reasonably expect the promise to induce action on the part of the promisee; (2) the promise does actually induce reliance; and (3) the only way to avoid injustice is to enforce the promise.

Question 11

Partial Performance

Answer 11

An exception to the Statute of Frauds can be partial performance. This occurs when there is the payment of all or part of the purchase price, there is possession, or there have been substantial improvements made.

Question 12

Statue of Frauds

Answer 12

Needs to be in writing, signed by the party to be charged, and include all essential elements such as the parties, the subject matter, and the price.

Question 13

Rejection by Offeree

Answer 13

Offeree clearly conveys that he no longer intends to accept the offer.

Question 14

Counteroffer

Answer 14

Serves as a rejection of original offer and creates a new offer.

Question 15

Silence as a means of acceptance

Answer 15

Silence is not acceptance unless the offeree has reason to believe that the offer could be accepted by silence or previous dealings make it reasonable to believe that silence is acceptance.

Question 16

Nonconforming goods shipped. What are the buyers options?

Answer 16

This violates the perfect tender rule and it could be both an acceptance and a breach, unless the seller reasonably notifies the buyer that it is an accomodation, then the buyer has the option to accept or reject the nonconforming goods.

Question 17

Preexisting Duty Rule

Answer 17

Common Law: Performing a preexisting duty does not qualify as new consideration.

Question 17

Define Consideration

Answer 17

There must be a bargained for legal detriment to the promisee. Consideration can be in the form of a return promise, a promise to refrain from doing something, performance of an act, or actually refraining from doing something.

Question 18

Modification

Answer 18

CL- must be supported by new consideration

UCC- no new consideration required, only requires good faith.

Question 19

Accord and Satisfaction

Answer 19

When one party agrees to accept a different performance from the other party to satisfy the other party’s existing duty.

Satisfaction: performance of the accord agreement will discharge both the original contract and the accord contract.

A disputed claim can be discharged by a negotiable instrument (payment in full or a check)

Question 20

Defenses to Contract Formation

Answer 20

Mistake, misunderstanding, duress, misrepresentation, undue influence

Question 21

Buyers Rights on Improper Delivery

Answer 21

When the buyer accepts the goods, the buyer must pay the seller the contract price of the accepted goods minus any damages incurred as a result of the breach.

Question 22

Intended Beneficiary

Answer 22

A person who receives a direct benefit from a contract because the persons intended to benefit him. They can enforce their rights to the contract and those rights vest when the beneficiary relies on the rights created, manifests assent to the contract, or files suit in order to enforce the contract.

Question 23

Incidental Beneficiary

Answer 23

Receives indirect benefit from contract even though there was no contractual intent to benefit them. They have no rights to enforce the contract.

Question 24

Anticipatory Repudiation

Answer 24

When a contracting party indicates an unwillingness to perform a promise before the time performance arises or elapses. The repudiation must be clear and unequivocal and may be shown through words or actions. Upon repudiation, the non-breaching party may either treat the repudiation as a breach or ignore it and demand performance pursuant to the contract.

Question 25

Consequential Damages

Answer 25

Damages for losses stemming from the nonbreaching party’s special circumstances if breaching party:

1. Knew of those special circumstances OR
2. could have reasonably foreseen harm caused by breach.

Question 26

Specific Performance

Answer 26

An equitable remedy whereby a court orders a breaching party to perform a contractual duty when monetary damages would be inadequate- e.g. breach of contract for the sale of land.

Question 27

Unilateral Mistake

Answer 27

One party is mistaken as to essential element of contract, but either party can enforce the contract on its terms.

Question 28

Mutual Mistake

Answer 28

Both parties are mistaken as to an essential element of the contract.

Contract can be voidable by adversely affected party if:
1. The mistake existed when the contract was formed
2. Mistake relates to a basic assumption of the contract
3. Mistake has a material impact on the contract
4. Adversely affected party did not assume the risk of the mistake

Question 29

Misunderstanding

Answer 29

Both parties believe that they are agreeing to the same material terms, but there are actually agreeing to different terms.

Question 30

Requirements Contract

Answer 30

A requirements contract is created when a buyer agrees to purchase all of a good that it needs from a seller. A requirements contract is an exception to the UCC’s usual quantity requirement.

Question 31

Divisible or Installment Contracts

Answer 31

Various units of performance are divisible into distinct parts.

Question 32

Impracticability

Answer 32

Excuses a party from performing if:

1. Unforseen event has occured
2. Non-occurence of that event was a basic assumption in the contrac
3. Party to be discharged is not at fault.

Question 33

Installment Contract

Answer 33

An installment contract is created when goods are delivered in a number of shipments, each shipment is accepted separately, and payment is due upon delivery of each shipment.

Question 34

Consequential Damages

Answer 34

Nonbreaching party can get damages if breaching party knew of the special circumstances or could have reasonably seen harm that was caused by breach.

Question 35

Liquidated Damages

Answer 35

Damages stipulated by the parties to the contract as a reasonable expectation of actual damages to be recovered if the event of a breach.

Question 35

Expectation Damages

Answer 35

Meant to put nonbreaching party where they would be if contract had been performed. Loss in value + other loss- cost avoided- loss avoided.

Question 36

Incidental Damages

Answer 36

Compensation for commercially reasonable expenses incurred as a result of the breach.

Question 37

Mitigating Damages

Answer 37

Partys have a duty to mitigate damages

Question 38

Restitution Damages

Answer 38

Damages designed to restore to a party the benefit conferred on the other party.

Question 39

Reliance Damages

Answer 39

Reasonable out of pocket expenses inccurred by the non-breaching party.