Exam 2

Question 1

Contracts

Answer 1

contract is a legally enforceable promise. Analyzing whether a contract exists involves inquiring into these issues: offer, acceptance, consideration, capacity, legal purpose, consent, and, sometimes, whether the deal is in writing.

Question 2

Development

Answer 2

The development of contract law stretches into the distant past. Before the fifteenth century, courts rarely enforced promises at all. By the 1600s, courts enforced many mutual promises, and, by 1900, most promises containing the seven elements of a contract were strictly enforced.

Question 3

Unilateral and Bilateral Contracts

Answer 3

In bilateral contracts, the parties exchange promises. In a unilateral contract, only one party makes a promise, and the other must take some action—his return promise is insufficient to form a contract.

Question 4

Executory and Executed Contracts

Answer 4

In an executory contract, one or both of the parties have not yet done everything that they promised to do. In an executed contract, all parties have fully performed.

Question 5

Enforceability

Answer 5

The ability of a properly formed contract to be enforceable in a court of law; determined by examining whether the contract is a product of genuine assent and is in writing (under certain circumstances).

Question 6

Express and Implied Contracts

Answer 6

If the parties formally agreed and stated explicit terms, there is probably an express contract. If the parties did not formally agree but their conduct, words, or past dealings indicate they intended a binding agreement, there may be an implied contract.

Question 7

Promissory Estoppel

Answer 7

A doctrine that applies when a promisor makes a clear and definite promise on which the promisee justifiably relies; such a promise is binding if justice will be better served by the enforcement of the promise.

Question 8

Quasi Contract

Answer 8

An obligation or contract imposed by law (a court), in the absence of an agreement, to prevent the unjust enrichment of one party.

Question 9

Meeting of the minds

Answer 9

The parties can form a contract only if they have a meeting of the minds, which requires that they understand each other and show that they intend to reach an agreement.

Question 10

Offer

Answer 10

An offer is an act or statement that proposes definite terms and permits
the other party to create a contract by accepting those terms.

Question 11

Other Statements

Answer 11

Invitations to bargain, price quotes, letters of intent, and advertisements are generally not offers. However, an ad in which a company proposes to take a specific action when a customer takes a specific action can amount to an offer. And letters of intent that indicate the parties intended to be bound can also count as offers.

Question 12

Definiteness

Answer 12

The terms of the offer must be definite, although under the UCC the parties may create a contract that has open terms.

Question 13

Termination

Answer 13

An offer may be terminated by revocation, rejection, expiration, or operation of law.

Question 14

Clickwrap and Browse wrap Agreements

Answer 14

Clickwrap agreements are generally enforceable, but browse wraps are only enforceable when websites provide reasonable notice and access to them.

Question 15

Manner of Acceptance

Answer 15

If an offer demands acceptance in a particular method or manner, the offeree must follow those requirements. If the offer does not specify a type of acceptance, the offeree may accept in any reasonable manner and medium.

Question 16

Mailbox Rule

Answer 16

An acceptance is generally effective upon dispatch, meaning from the moment it is out of the offeree’s control. Terminations usually are not effective until received.

Question 17

Consideration

Answer 17

The inducement, price, or promise that causes a person to enter into a contract and forms the basis for the parties’ exchange

Question 18

What is a Value?

Answer 18

● An essential part of consideration is that both parties must get something of value
● That item of value can be either an “act,” a “forbearance,” or a promise to do either of these

Question 19

Act

Answer 19

Any action that a party was not legally required to take in the first place

Question 20

Forbearance

Answer 20

Refraining from doing something that one has a legal right to do

Question 21

What is a Bargained-For Exchange

Answer 21

When something is sought by the promisor and given by the promise in exchange for their promises

Question 22

What Consideration is Not

Answer 22

● Courts have created three exceptions to the basic rule of consideration
- Illusory Promises
- Preexisting Duties
> If someone provides a service that she is already obligated to do, that act does not count as
consideration
● Past Consideration
- A completed act cannot be the basis for consideration

Question 23

Settlement of Debts

Answer 23

Liquidated Debts
● A debt in which there is no dispute about the amount owed

Unliquidated Debts
● A debt that is disputed because the parties disagree over its existence or amount
● When a debt is unliquidated for either reason, the parties may enter into a binding agreement to settle for less than what the creditor demands
● Such a compromise will be enforced if:
- A debt that is disputed because the parties disagree over its existence or amount
- When a debt is unliquidated for either reason, the parties may enter into a binding agreement to settle for
less than what the creditor demands
- Such a compromise will be enforced if:
> The debt is unliquidated
> The parties agree that the creditor will accept as full payment a sum less than she has claimed
> The debtor pays the amount agreed upon

Question 24

Accord and Satisfaction

Answer 24

A completed agreement to settle a debt for less than the sum claimed

Question 25

Moral Consideration

Answer 25

There are commitments whose obligation is moral, not necessarily legal, in nature. Under some circumstances, courts will uphold agreements with “moral consideration.”

Question 26

Contracts that Violate a Statute

Answer 26

Wagers
● A gambling contract is illegal unless it is a type of wagering specifically authorized by state statute

Insurance
● Anyone taking out a policy on the life of another must have an insurable interest in that person

Licensing Statutes
● When a licensing requirement is designed to protect the public, any contract made by an unlicensed worker is unenforceable
● When a licensing requirement is designed merely to raise revenue, a contract made by an unlicensed person is generally enforceable

Usury
● Usury laws prohibit charging excess interest on loans

Question 27

Contracts that Violate Public Policy

Answer 27

Restraint of Trade: Non-compete Agreements
● A non-compete agreement is a contract in which one party agrees not to compete with another in a stated type of business
● To be valid, an agreement not to compete must be part of a larger agreement
● [Sale of a Business]
- When a non-compete agreement is ancillary to the sale of a business, it is enforceable if reasonable in
time, geographic area, and scope of activity
● [Employment]
- In the absence of specific state statutes, non-compete agreements are enforceable only if they meet all of
the following standards:
> They are reasonably necessary for the protection of the employer
> They provide a reasonable time limit
> They have a reasonable geographic time limit
> They are not harsh or oppressive to the employee
> They are not contrary to public policy

Question 28

Exculpatory Clauses

Answer 28

Exculpatory Clause
- A contract provision that attempts to release one party from liability in the event the other is injured
● Unenforceable:
- When it attempts to exclude an intentional tort or gross negligence
- When the affected activity is in the public interest, such as medical care, public transportation, or some
essential service
- When the parties have greatly unequal bargaining power
- Unless the clause is clearly written and readily visible
Bailment Cases
● Bailment
> Giving possession and control of personal property to another person
● Bailor
> One who creates a bailment by delivering goods to another
● Bailee
> A person who rightfully possesses goods belonging to another

Question 29

Difference between Capacity and Consent

Answer 29

● [Capacity]
- Means the legal ability of a party to enter a contract in the first place
- Someone may lack capacity because of youth or mental infirmity
● [Consent]
- Refers to whether a contracting party truly understood the terms of the contract and whether she made
the agreement voluntarily
- Consent issues arise in cases of fraud, mistake, duress, and undue influence
● Problems with capacity and consent make a contract voidable
● [Voidable Contract]
- When a contract is voidable, the injured party may choose to terminate it

Question 30

Minors

Answer 30

● Because a minor lacks legal capacity, she normally can create only a voidable contract
- A voidable contract may be canceled by the party who lacks capacity
- Difference between a [voidable] contract and a [void] contract
> A [void] contract is illegal from the beginning and may not be enforced by either party
> A [voidable] contract is legal but permits one party to escape, if she so wishes
● [Disaffirmance]
- A minor who wishes to escape from a contract generally may disaffirm it
- [Disaffirm]
> To give notice of refusal to be bound by an agreement
- A minor may go further—he can undo a contract that has already been completed by filing a suit to
rescind the contract; that is, to have a court formally cancel it
● [Restitution]
- A minor who disaffirms a contract must return the consideration he has received, to the extent he is
able
● [Timing of Disaffirmance/Ratification]
- A minor may disaffirm a contract any time before she reaches age 18
- She also may disaffirm within a reasonable time after turning 18
- But the minor’s right to disaffirm ends if he [ratifies] the contract
> [Ratification] is made by any words or action indicating an intention to be bound by the contract
● [Exceptions: Necessaries]
- On a contract for necessaries, a minor must pay for the value of the benefit received
● [Exceptions: Misrepresentation of Age]
- The rules change somewhat if a minor lies about his age
- States have been troubled by this problem, and there is no clear rule

Question 31

Reality of Consent

Answer 31

There are four claims that affect consent

  - Fraud
  - Mistake
  - Duress
  - Undue Influence

Question 32

Fraud

Answer 32

● Elements of Fraud
- [Element One: Intentional or Reckless Misrepresentation of Fact]
> The injured party must show a false statement of fact
> Opinions and “puffery” do not amount to fraud
- [Element Two: Materiality]
> The injured party must demonstrate that the statement was material, or important
- [Element Three: Justifiable Reliance]
> The injured party also must show that she actually did rely on the false statement and that her
reliance was reasonable
● [Special Problem: Silence]
- [Nondisclosure of a fact amounts to misrepresentation in these four cases:]
> Where disclosure is necessary to correct a previous assertion
> Where disclosure would correct a basic mistaken assumption that the other party is relying on
> Where disclosure would correct the other party’s mistaken understanding about a writing
> Where there is a relationship of trust between the two parties

Question 33

Mistake

Answer 33

• [Unilateral Mistake]
- Occurs when only one party enters a contract under a mistaken assumption
- To rescind for unilateral mistake, the mistaken party must demonstrate that he entered the contract
because of a basic factual error and that:
> The non-mistaken party knew or had reason to know of the error
> The mistake is mathematical or mechanical alone
> Enforcing the contract would be unconscionable
• [Mutual Mistake]
- Occurs when both contracting parties share the same mistake. If the contract is based on a fundamental
factual error by both parties, the contract is voidable by either one

Question 34

Duress

Answer 34

If one party makes an improper threat that causes the victim to enter into a contract, and the victim had no reasonable alternative, the contract is [voidable]

Question 35

Undue Influence

Answer 35

• Where one party has used undue influence, the contract is voidable at the option of the injured party
• To prove undue influence, the injured party must demonstrate:
- A relationship between the two parties either of trust or of domination
- Improper persuasion by the stronger party

Question 36

Contracts must be in writing

Answer 36

• For the transfer of an interest in land,
• That cannot be performed within one year,
• In which a party promises to pay the debt of another,
• Made by an executor of an estate to pay a debt of the estate,
• Made in consideration of marriage
  • Exceptions
    > Full performance by the seller
    > Part performance by the buyer

Question 37

Promise to pay the debt of another

Answer 37

When one person agrees to pay the debt of another as a favor to that debtor, it is called a collateral promise, and it must be in writing to be enforceable

• Exception: When the promisor guarantees to pay the debt of another and the leading object of the promise is some benefit to the promisor himself, then the contract will be enforceable even if unwritten.

  - promise made by an executor of an estate.
  - promises made in consideration of marriage

Question 38

What is a writing?

Answer 38

• writing must be signed by the defendant
• state with reasonable certainty the name of the party, the subject matter of the agreement, and all of these central terms of the promises to satisfy the Statute of frauds and employment contract must contain all essential terms, including the duration of the employment relationship

Question 39

Parole Evidence Rule

Answer 39

Has to do with bringing in agreements that were made before you signed the contract. But that are not included in the contract

Question 40

Discharged

Answer 40

• no more duties under the contract
• most contracts are discharged by full performance.
• Sometime the parties discharge a contract by the agreement

Question 41

Condition

Answer 41

• obligation under the contract

- must occur before a party becomes obligated under a contract.

Question 42

How are conditions created?

Answer 42

• no special language necessary to create a condition

- implied condition

Question 43

The difference between a condition precedent vs condition subsequent

Answer 43

• A condition precedes - Is an event that must occur before preceding
• Condition subsequent this type of condition must occur after a particular duty arises. If the condition does not occur, the duty is discharged.

Question 44

Strict Performance

Answer 44

Requires one party to perform its obligations precisely with no deviation

Question 45

Substantial performance

Answer 45

Occurs when one party fulfills enough of its contract obligations to warrant payment

Question 46

Personal satisfaction contracts

Answer 46

Permits the promisee to make subjective evaluations of the promisor’s performance

Question 47

Time of the essence clause

Answer 47

If we have dates in the contract that things must be done

Question 48

Nonperformance

Answer 48

Another way to terminate a contract.
- anticipatory breach: anticipatory breach by making it unmistakably clear that it will not honor the contract
• you are discharged
• you can sue for damages
- statute of limitations: limit within which an injury, an injured party must file suit
- True impossibility - There are three ways
• First is a destruction of the subject matter
• Personal services contract then the person dies
• Illegality

Question 49

Interest

Answer 49

• expectation interest: you would get from the contract and if both parties had fully performed, then that interest would have been met
• reliance interests: you spend money in reliance on the agreement, then you should receive some compensation for the money that you spent.
• restitution interest: get her money back
• Equitable interest

Question 50

Damages

Answer 50

• the difference between Compensatory (direct damages) vs incidental damages
  • direct damages are those that flow directly from the contract. Consequential damages are unique circumstances
  that must be foreseeable. The injured party may recover consequential damages only if the breaching party should
  have foreseen them when they form the contract
  • Incidental damages are really nominal damages

Question 51

Reliance Interests

Answer 51

Puts the injured party in the position he would have been in had the parties never entered into a contract

Question 52

Specific Performance

Answer 52

A court will award specific performance, ordering the parties to perform the contract, only in cases involving the sale of land or some other asset that is considered “unique.”

Question 53

Reformation

Answer 53

A court may partially rewrite a contract to fix a mistake or cure and unenforceable provision

Question 54

Mitigation

Answer 54

A party injured by a breach of contract may not recover for damages that he could have avoided with reasonable efforts

Question 55

Nominal Damages

Answer 55

It’s a very small amount. Nominal damages are token damages

Question 56

Liquidated Damgaes

Answer 56

You agree how much the penalty will be for a breach of contract liquidate.