Exam 2/3 Busi Law 2700

Question 1

Vicarious Liability

Answer 1

• Makes employer liable for the torts of the employee
• If employee commits either an unintentional or intentional in the scope of their employment the employer is liable
• Greatest tort risk in business today

Question 2

Tort Definition

Answer 2

Civil wrong for which the law provides a remedy
French word for “wrong”

Question 3

Compensatory Damages

Answer 3

Consequential (Actual or “out of pocket”) or General (other than direct monetary loss)

Question 4

Punitive Damages

Answer 4

To punish the wrongdoer, appropriate only when defendant’s conduct was outrageous or reprehensible

Question 5

Intentional Torts

Answer 5

Fault + Intent

Question 6

Tortfeasor

Answer 6

Person committing the tort, must “intend”

Question 7

Assault

Answer 7

Intentional threat of immediate harmful or offensive contact (words or acts), contact not necessary

Question 8

Battery

Answer 8

Physical contact required,
Act that created the apprehension is completed and results in harm to plaintiff

Question 9

False Imprisonment

Answer 9

Confining/restraining of another person’s activities or freedom

Question 10

Intentional Inlfiction pf Emotion Distress

Answer 10

Act that amounts to extreme and outrageous conduct resulting in sever emotional distress
Must be so outrageous it exceeds the bounds of decency accepted by society

Question 11

Defamation

Answer 11

Wrongfully hurting a person’s good reputation
Slander(orally breaching) / Libel (print/media)
Reposting defamatory statements can make you liable as well!!

Question 12

If plaintiff is a public figure, plaintiff must show:

Question 13

Invasion of Privacy

Answer 13

Reasonable expectation of privacy and invasion must be highly offensive

Question 14

Fraudulent Misrepresentation (Fraud)

Answer 14

Intentional deceit for personal gain

Question 15

Wrongful Interference with a Contractual Relationship

Answer 15

Occurs when defendant benefits from a contract breach between parties A and B

Question 16

Trespass to Land

Answer 16

Person w/o permission enters land physically or causes anything to enter the land
Must be damage to recover

Question 17

Wrongful Interference with a Business Relationship

Answer 17

Defendant takes action with intent of unlawfully driving competitors completely out of market
Cannot be predatory

Question 18

Conversion

Answer 18

Wrongful possession or use of property without permission and without just cause
Good intentions NOT a defense

Question 19

Negligence

Answer 19

Unintentional Tort
Someone suffers injury bc of another’s failure to live up to a required duty of care

Question 20

Negligence Elements

Answer 20

Duty
Causation

Question 21

Res Ipsa Loquitor

Answer 21

Occurrence of accident implies negligence
“The thing speaks for itself”

Question 22

Negligence per se

Answer 22

Violates a statute/regulation (Accidentally hitting someone bc of speeding)

Question 23

Good Samaritan Statutes

Answer 23

Can’t sue for negligence against someone who aided you in emergency

Question 24

Dram Shop Acts

Answer 24

Bar Owner/Bartender can be liable for injuries caused by intoxicated person

Question 25

Social Host Liability

Answer 25

Can be liable for injuries caused by intoxicated person who became intoxicated at house

Question 26

Strict Liability

Answer 26

Without regard to Fault, Foreseeability, Standard of Care or Causation
Abnormally dangerous activities

Question 27

Product Liability

Answer 27

Physical harm/property damage caused by goods to a customer, user, bystander

Question 28

Preemption (Defense vs Product Liability)

Answer 28

Govt regulations preempt claims for product liability

Question 29

Assumption of Risk (Defense vs Product Liability)

Answer 29

Plaintiff knew and appreciated risk created by product defect and voluntarily assumed the risk

Question 30

Product Misuse (Defense vs Product Liability)

Answer 30

Only when particular use was not foreseeable

Question 31

Intellectual Property gives

Answer 31

protection (or “rights”) to those who create writings and things.

Question 32

What is a trademark

Answer 32

A distinctive mark, motto, symbol, device, or implement affixed to goods the business produces

Question 33

Do generic terms receive protections?

Answer 33

No - ex. bicycle, computer

Question 34

Trade names may be protected as a trademark if

Answer 34

trade name is also the name of the company’s trade-marked product (ex: Coca-Cola)

Question 35

Licensing only grants rights

Answer 35

that are explicitly stated in agreement

Question 36

Trade secrets are

Answer 36

Basically anything that pertains to how you conduct
your business. (Can;’t be patented/copyrighted/trademarked)
* Ex. Ingredients for coca-cola
* Ex. How you develop client

Question 37

What are Patents

Answer 37

Grant from the government that gives an inventor exclusive right to
make, use or sell his invention
* “First to file” rule – first person to file an application for a patent on a
product or process will receive patent protection

Question 38

What is not patentable and how long does a patent last?

Answer 38

Laws of nature
* Natural phenomena
* Abstract ideas
* Things that are obvious, not new, not novel. E.g. Wheels, water.
* Protection is for 14 years for designs of products, and 20 years for
products.

Question 39

Patent Infringement

Answer 39

Making/using/selling another’s patented design, product,
or process without the patent owner’s permission

Question 40

What is protected by a Copyright?

Answer 40

Only the expression of an idea, not the idea itself

Question 41

Fair Use Exception

Answer 41

You may briefly copy from any copyrighted work for the purposes of criticism, comment, news, teaching, research.

Question 42

What is Not Copyrightable

Answer 42

Anything that is not an original expression (facts widely known to the public, page numbers, mathematical equations
Ideas (but the way the idea is expressed can be)

Question 43

Reproduction

Answer 43

does not have to be the same as the original, nor does it have to reproduce the original in its entirety
Example: “Ice Ice Baby” / “Under Pressure”
under pressure / ice ice baby

Question 44

CAN-SPAM Act

Answer 44

Aimed at limiting online pornography and commercial SPAM
* Generally permits sending of unsolicited commercial email but
prohibits certain types of spamming activities

Question 45

U.S. Safe Web Act

Answer 45

Allows FTC to cooperate and share info with foreign agencies to
investigate and prosecute violators
* Attempts to limit SPAM
* Helps and protects Internet Service Providers (ISP)

Question 46

Cybersquatting

Answer 46

Registering a domain name that is same as or confusingly similar to
trademark of another and then tries to sell name back to trademark owner

Question 47

Typosquatting

Answer 47

Registering a name that is a misspelling of a popular brand
* If misspelling is significant, trademark owner may have difficulty proving name is identical or confusingly similar

Question 48

Anti-Cybersquatting Consumer Protection Act

Answer 48

Makes cybersquatting illegal when both of the following are true:
* Domain name is identical or confusingly similar to trademark of another
* The one registering, trafficking in, or using domain name has “bad faith intent”
to profit from that trademark

Question 49

Meta Tags

Answer 49

May use copyrighted/trademarked words in search engines

Question 50

Electronic Communications Privacy Act

Answer 50

Prohibits private individuals and entities from intentionally intercepting any wire, oral or electronic communication and disclosure/use of the info obtained
* Exception – communications through devices an employer
provides for employee to use in ordinary course of business
* Prohibits retrieval and use of stored (saved) electronic
communications

Question 51

Felonies

Answer 51

Serious crimes, punishable by Death or
prison for more than one (1) year and/or by fines

Question 52

Misdemeanors

Answer 52

Non-serious (petty) crimes punishable by jail for less than one (1) year and/or
by fines

Question 53

Violations

Answer 53

Violation of city, county minor
traffic/good order ordinances

Question 54

To be convicted, person must:

Answer 54

Commit a guilty act (actus reus)
*Have the guilty mind or mental state (mens
rea) during commission of the guilty act
*And must meet the other elements of the crime

Question 55

State of Mind (mens rea)

Answer 55

Required intent (or mental state) is indicated in the applicable statute or law:

Question 56

Corporate Criminal Liability

Answer 56

A corporation itself cannot be imprisoned but can be convicted of crime through acts of its officers

Question 57

Violent Crime

Answer 57

cause others to suffer harm or death
* Murder, sexual assault, rape, robbery

Question 58

Property Crime

Answer 58

goal of offender is some form of
economic gain/damaging of property; most common
type of criminal activity
* Burglary
* Larceny/Robbery
* Theft
* Receiving Stolen Goods
* Arson
* Forgery

Question 59

Public Order Crime

Answer 59

considered contrary to public
values/morals
* Public drunkenness, prostitution, gambling, illegal drug use

Question 60

White-Collar Crime

Answer 60

Crimes occurring in the business context using non-violent means to obtain personal or business
advantage
* Embezzlement
* Mail and Wire Fraud (federal)
* Bribery
* Bankruptcy Fraud (federal)
* Insider Trading (federal)
* Theft of Trade Secrets and other Intellectual Property

Question 61

Terrorist Threats

Answer 61

A person commits the crime of making a terrorist threat when he or she credibly, based on an objective evaluation, threatens to commit a crime of violence against a person or to
damage any property by use of a bomb, explosive, weapon of mass destruction, firearm, deadly weapon, or other mechanism
CLASS C FLEONY

Question 62

4th Amendment

Answer 62

Requirement that no warrant for a search or an arrest be issued without
probable cause. (“Plain View” Exception)
* The Exclusionary Rule.
* Evidence obtained in violation of the 4th, 5th, or 6th amendments is excluded from trial. (“Fruit of the Poisonous Tree”)
* The Miranda Rule: based on the 1966 Miranda v. Arizona case –
arrested individuals must be informed of certain constitutional rights

Question 63

Consideration in Business Law

Answer 63

Something given in exchange for a service rendered; a recompense. 6. Law.
Something promised, given or done that has the effect of
making an agreement a legally enforceable contract

Question 64

Must have “legally sufficient value”

Answer 64

• Performance or
• Forbearance (i.e., self control, restraint)
  CASE 13.1 HAMER V. SIDWAY ( COURT OF APPEALS OF NY 1891)
  *Promise

Question 65

“Bargained for exchange”

Answer 65

tem of value must be given or promised in
return for promise, performance, or promise of
performance
Why?
* Distinguishes contracts from gifts

Question 66

Adequacy of Consideration

Answer 66

General Rule:
* A court will not question the adequacy of consideration
based solely on the comparative value of things
exchanged
* Something need not be of direct economic or financial value to
be considered legally sufficient consideration
* Freedom of contract – courts leave it up to the parties to decide
what something is worth and parties are usually free to bargain as
they wish

Question 66

Agreements that lack consideration

Answer 66

Preexisting Duty – a promise to do what one already has a legal obligation
to do does not constitute legally sufficient consideration
* “I promise to drive the speed limit”

Past Consideration – promises made for actions or events that have already
taken place are unenforceable
* Tom promises Cindy to pay $25.00 after Cindy has already found his wallet.

• Illusory Promises – terms of the contract express such uncertainty of
  performance that promisor has not definitely promised to do anything, it
  lacks consideration and is unenforceable
• “I promise to paint the house…if I have time

Question 67

Accord & Satisfaction

Answer 67

Debtor offers to pay and a creditor accepts a lesser amount
than the creditor originally claimed was owed
* Accord – agreement
* Satisfaction – performance (usually payment) that takes
place after accord is executed

Question 68

Release

Answer 68

Contract in which one party forfeits the right to pursue a legal
claim against the other party – bars any further recovery beyond
terms stated in the release
* Generally binding if:
* The agreement is made in good faith
* The release contract is in a signed writing
* The contract is accompanied by consideration
* Done frequently to settle claim

Question 69

Covenant not to Sue

Answer 69

Does not always bar further recovery – parties simply
substitute a contractual obligation for some other type of
legal action based on a valid claim

Question 70

Exemptions to Consideration Requirement

Answer 70

• Promises that induce detrimental reliance under
  doctrine of Promissory Estoppel-
• Promises to pay debts that are barred by statute of
  limitations
• Promises to make charitable contributions

Question 71

Promissory Estoppel

Answer 71

a.k.a. “detrimental reliance” – will keep promisor from asserting lack
of consideration as defense and allow promisee to obtain some
measure of recovery
* In order to be applied:
* Must be clear and definite promise
* Promisor should have expected that the promisee would rely on the promise
* Promisee reasonably relied on the promise by acting or refraining from some
act
* Promisee’s reliance was definite and resulted in substantial detriment
* Enforcement of the promise is necessary to avoid injustice
* EX: family promising land to children, allowing children to build on property,
then refusing to transfer property via a deed

Question 72

Promises to pay debts barred by SOL (statute of limitations)

Answer 72

Statutes of Limitation (SOL) require a creditor to sue within a
specified period to recover a debt
* A debtor who promises to pay a previous debt even though recovery
is barred by SOL makes an enforceable promise – the promise needs
no consideration
* In effect, promise extends the limitations period and creditor can sue to
recover entire debt or at least the amount promised
* Promise can be implied if debtor acknowledges the barred debt by making
partial payment

Question 73

Promises to make charitable contributions

Answer 73

Charitable subscription – promise to make a donation to a religious,
educational, or charitable institution
* Traditional view: unenforceable, because they are not supported by legally
sufficient consideration (a gift)
* Modern view: make exceptions to the rule by applying the doctrine of
promissory estoppel
* EX: church solicits and receives pledges (commitments to contribute funds)
from church members to erect a new building. On basis of these pledges,
church purchases land, hires architects, etc – because of the church’s
detrimental reliance, court may enforce pledges under promissory estoppel

Question 74

Contractual Capacity

Answer 74

Legal ability to enter into a contractual
relationship.
* Contractual Capacity is either not present or
subject to special rules

Question 75

Contractual Capacity Minors

Answer 75

Minors: the Age of Majority is either 18 or 19 depending on
the state. (Common Law was 18 for females and 21 for males.)
* Alabama is 19
* Minor status can be terminated by marriage or emancipation
* General rule: minor can enter into any contract that an adult can
except contracts prohibited by law
* BUT: a contract entered into by a minor is generally voidable at
the option of the minor (can be disaffirmed)
* To disaffirm: express intent through words or conduct not to be bound
to the contract – must be entire contract, not just a portion of it
* Note: an adult cannot avoid his/her contractual duties on the ground
that the minor can do so – adult will be bound unless minor disaffirm

Question 76

Contractual Capacity Intoxication

Answer 76

If person was sufficiently intoxicated to lack mental capacity,
agreement may be voidable, even if intoxication was purely
voluntary
* BUT – if person understood legal consequences of the agreement
despite intoxication, contract will be enforceable
* Courts look at objective indications of the person’s condition to
determine if he/she possessed or lacked required capacity
* Difficult to prove that a person was so severely impaired that he/she
could not comprehend legal consequences
* Courts RARELY permit contracts to be avoided due to intoxicatio

Question 77

Contractual Capacity Incompetency

Answer 77

Either VOID, VOIDABLE, or VALID
* VOID: if court has previously determined a person
is mentally incompetent – any contract made by
that person is VOID
* VOIDABLE: if a court has not previously judged a person
to be mentally incompetent but the person is later
determined to be incompetent at the time contract was
formed, VOIDABLE
* Voidable if person did not know he/she was entering
into contract or lacked mental capacity to
comprehend its nature, purpose, and consequences
* Voidable at option of incompetent person, not
other party
* VALID: if person had capacity at time contract was
formed
* Note: some people who are incompetent have lucid
intervals – during such intervals, they will be considered
to have legal capacity to enter into contracts

Question 78

For a contract to be legal, it must be _______

Answer 78

Performed for a specific purpose

Question 79

Contracts Contrary to Statute

Answer 79

Contracts to do something prohibited by federal or state
statutory law is illegal and therefore void (never existed).
* Contracts to Commit a Crime.
* Contracts for Usury.
* Gambling.
* Licensing Statutes: only remember that where a license is
required, a contract without a license is unenforceable.`

Question 80

Contracts contrary to Public Policy (Generally: VOID)

Answer 80

Health, Safety, Welfare, Morals
* Contracts in Restraint of Trade are generally void.
* Exception(s): Sale of an ongoing business, covenants
not to compete*

Question 81

Contracts In Restraint of Trade

Answer 81

Covenant Not to Compete in a Sale of a Business
enforceable as long as type of business restriction, time
and geographic terms are reasonable (same business/2
years/75 miles)
*Covenant Not to Compete in Employment is
enforceable as long as time and geographic terms
are reasonable.

Question 82

Unconscionable Contracts/Clauses

Answer 82

So oppressive that courts will relieve innocent parties of all or
some of their duties
* Procedural – often involves inconspicuous print, unintelligent language
(“legalese”), or one party’s lack of opportunity to read or ask questions
about contract’s meaning
* Substantive – contracts or portions of contracts are oppressively harsh
* Deprive one party of benefits of the agreement or leave that party
without a remedy for non-performance
* Ex: business gets unrestrained access to courts but other party has
to arbitrate
* also when there is such disparity in bargaining power between the
two parties – called an adhesion contract- written exclusively by one
party and presented on a take-it-or-leave-it basis - no opportunity to
negotiate terms
* Only those adhesion contracts that unreasonably favor the drafter

Question 83

Exculpatory Clauses

Answer 83

Release a party from liability in event of
monetary or physical injury no matter who is
at fault
*Can be upheld if they are reasonable, do not
violate public policy, and do not protect
parties from liability for intentional
misconduct

Question 84

Discriminatory Clauses

Answer 84

Party promises to discriminate on the basis of
race, color, national origin, religion, gender,
age, or disability are contrary to both statute
and public policy, and unenforceable.

Question 85

Effect of Legality

Answer 85

Generally, illegal contracts are void.
*If contract is executory (not yet fulfilled),
cannot be enforced.
*If it has been executed, neither party can
recover damages.
*Unjust enrichment is not an issue – Courts
just leave the parties where they find them

Question 85

Mistake of Fact vs. Mistakes of Value/Quality

Answer 85

*Only a mistake of fact makes a contract
voidable!
*Mistake must involve a material fact – a fact
that a reasonable person would consider
important when determining his/her course of
action
Mistakes of Value
* Generally, contract is enforceable by either party because value
is variable – depending on the time, place, and other
circumstances, same item may be worth considerably different
amounts – each party is considered to have assumed the risk
that the value will change in the future or prove different to be
from what he/she thought

Question 86

Unilateral vs. Bilateral Mistake of Fact

Answer 86

Unilateral – made only by 1 of the parties
* In general, does not give the mistaken party any right to
relief from the contract – normally contract is
enforceable UNLESS:
* If other party to the contract knows or should have known
that a mistake of fact was made, OR
* If mistake was due to an inadvertent mathematical
mistake and without gross negligence.
Bilateral (Mutual) Mistake – mutual
misunderstanding concerning a basic
assumption on which the contract was
made
*can be rescinded by either party.

Question 87

Fraudulent Misrepresentation

Answer 87

Contract is Voidable by Innocent Party because
they did not voluntarily consent to its terms
*Consists of the following Elements:
* Misrepresentation of Material Fact - by words or
actions
* Intent to Deceive
* Reliance on Misrepresentation
* Injury to the Innocent Party

Question 88

Misrepresentation by Conduct

Answer 88

occurs when a
party takes specific action to conceal a fact that
is material to the contract.
* Ex: selling a horse and acting as though horse is fit
to ride in competitions when in reality horse unfit
due to a medical condition
*Statement of Fact vs. Statement of Opinion
* Statement of Opinions are not actionable.

Question 89

Misrepresentation of Law

Answer 89

ordinarily does not entitle a party to relief
* Exception can occur when misrepresenting party is in a profession that is
known to require greater knowledge of the law than the average citizen

Question 90

Misrepresentation by Silence

Answer 90

Ordinarily neither party has duty to disclose facts
* Ex: disclosing that car has been in an accident and been repaired – don’t have to
disclose, but can’t lie about it if asked
* However, seller will be liable if she knows of material defect that cannot be
reasonably discovered by buyer.
* Fiduciary Relationship (doctor/patient, lawyer/client) – duty to disclose
material facts

Question 91

Innocent Misrepresentation

Answer 91

An innocent misrepresentation occurs
when a person makes a statement he
believes to be true but actually
misrepresents facts.
*Innocent party can rescind contract, but
usually cannot seek damages

Question 92

Negligent Misrepresentation

Answer 92

When party does not exercise reasonable care in
uncovering or disclosing facts, or use the skill and
competence required by his/her business or
profession
* In almost all states, negligent misrepresentation =
knowingly making a misrepresentation and treated as
fraudulent even if not purposeful.

Question 93

Justifiable Reliance on Misrepresentation

Answer 93

Deceived party must have a justifiable reason for
relying on the misrepresentation AND
* Misrepresentation must be an important factor (but
not necessarily sole factor) in inducing the deceived
party to enter into the contract
* Reliance is NOT justified if innocent party knows the true
facts or relies on obviously extravagant statements

Question 94

Undue Influence

Answer 94

Arises from relationships where one party can greatly
influence another party, thus overcoming that party’s
free will.
* Contract lacks voluntary consent and is voidable
* Based on Confidential or Fiduciary Relationship, or
Relationship of Dependence.
* Minors, elderly people – under influence of guardians
* physician/patient, parent/child, husband/wife, etc.
* Undue Influence or Persuasion is presumed if weak
party talked into doing something not beneficial to him
or herself.

Question 95

Duress

Answer 95

Party who enters into a contract under fear or threat makes the contract voidable.
* Threatened act must be wrongful or illegal and render
person incapable of exercising free will.
* Threat of civil suit is not unlawful.
* Economic Duress: generally not sufficient to constitute
duress.
* However – if party exacting the price creates the need,
economic duress may be found

Question 96

Statute of Frauds

Answer 96

The primary purpose of the SOF is to
prevent harm to innocent parties by
requiring written evidence of
agreements.

Question 97

Contracts that Require a Writing

Answer 97

Marriage contracts
Contracts which can’t be performed within a year
Contracts which involve interests in land
Executor’s contracts
Contracts for the sale of goods worth over $500.00 under
UCC
Surety (Guarantor) contracts
“MYLEGS”

Question 98

Collateral Promises

Answer 98

Collateral Promises are promises by a third party to answer for the debt of
another if that party does not perform.
 Covers both Executor’s contracts and Surety contracts.
 EXCEPTION: “Main Purpose” Rule – an oral promise to answer for the debt of
another is covered by SoF unless guarantor’s main purpose in incurring a secondary
obligation is to secure a personal benefit – then it doesn’t have to be in writing.
 Court can infer from circumstances whether the leading objective was to secure a personal
benefit – i.e., the guarantor is, in effect, answering for his or her own debt

Question 99

Exceptions to the Writing Agreement

Answer 99

• Partial Performance
  Contract has been partially performed and parties
  cannot be returned to their positions prior to contract
  formation – court can grant specific performance –
  equitable remedy that requires performance of
  contract according to its precise terms
  Indicates that at least one party believes there is
  a contract (since there was partial performance –
  why else would the party have performed?)
• Admissions
  If a party against whom enforcement of an oral contract
  is sought “admits” under oath that a contract for sale was
  made, contract will be enforceable
  Admission can occur at any stage of the court
  proceedings
  If a party admits a contract subject to the UCC, contract is
  enforceable, but ONLY to the extent of the quantity
  admitted
• Promissory Estoppel
   If a person justifiably relies on another’s promise to his/her detriment,
  court may prevent (estop) the promisor from denying a contract exists
   As such, an oral promise can be enforceable notwithstanding SoF IF:
   Promisee justifiably relied on it to his/her detriment AND
   Reliance must have been foreseeable to person making the promise
   ALSO: there must be no way to avoid injustice except to enforce the
  promise
  *SIMILAR TO PARTIAL PERFORMANCE
• Specially Manufactured Goods
  Once manufacturer begins production of
  specially made goods, may be enforceable
  without written contract
  Why?
  Same theory as partial performance and promissory
  estoppel – detrimental to company to use resources,
  time, etc.

Question 100

Sufficiency of the Writing

Answer 100

Statute of Frauds requires a ‘Written Memorandum’ (written
or electronic) signed by the party against whom enforcement
is sought.
What Constitutes a Writing?
Order confirmation, invoice, sales slip, check, fax, email – doesn’t have
to be a single document, one document can incorporate another by
express reference
What Must Be Contained in the Writing?
The essential terms: quantity, signed by party to be charged, names of
parties, subject matter, consideration. Sales of land must state the
price and description of property with sufficient clarity.

Question 101

Parol Evidence Rule

Answer 101

Oral representations or promises made prior to the contract’s formation or at the
time the contract was created, may not be admitted in court.
Under Parol Evidence Rule, if a court finds that a written contract represents
complete and final statement of parties’ agreement, it will not allow either party
to present parol evidence
 Parol evidence – testimony/other evidence of communications between parties that is not
contained in contract itself
 Normally cannot present evidence of any of the following if evidence contradicts/varies the
terms of the written contract:
 Negotiations prior to contract formation
 Agreements prior to contract formation
 Oral agreements contemporaneous with contract formation
 EX: landlord tells a person who agrees to rent an apartment that cats are allowed but lease
specifically says no pets allowed.

Question 102

Exceptions to Parol Evidence Rule

Answer 102

Contracts subsequently modified
* Oral modifications may not be enforceable under SoF (i.e., modification that increases price
of goods sold to over $500) or if original contract provides modification must be in writing
* Voidable or Void contracts
* Oral evidence can show deception led one of the parties to agree to terms
* Contracts containing ambiguous terms
* Evidence admissible to show meaning of terms
* Incomplete Contracts
* Lacks one or more of the essential terms – can “fill the gaps”
Prior dealing, course of performance, usage of trade
* When buyers/sellers deal with each other over period of time, customary practices develop
– parties may overlook these practices in writing so courts use evidence to do show how
parties have acted in the past
* Contracts subject to orally agreed-on conditions precedent
* If parties have orally agreed on a condition precedent that does not conflict with terms of
their written agreement, parol evidence may be allowed – existence of the entire written
contract is subject to an orally-agreed on condition
* Contracts with an obvious or gross clerical error
* Admissible to correct the error

Question 103

Privity of Contract

Answer 103

*Only original parties to a contract have rights
and liabilities under the contract.
*Exceptions:
*Assignment or Delegation
*Third Party Beneficiary Contract

Question 104

Assignments vs Delegations

Answer 104

*Transfer of contractual rights is an
assignment.
*Transfer of contractual duties is a
delegation.

Question 105

Assignments

Answer 105

*Effect of an Assignment:
*When rights of assignor are unconditionally
assigned, her rights are extinguished.
*The third party (assignee) has right to
demand performance from original party
to contract.
Rights That Cannot be Assigned:
* When a statute expressly prohibits assignment
* Ex: Alabama Code §8-5-21 – prohibits assignment of
future wages
* When a contract is personal in nature
* Ex: tutor for children, housekeeper
* If assignment materially changes risks or duties of obligor
* Ex: insurance on a hotel – assigned by hotel owner to
another hotel (Ins. Co. may not have info on the other
hotel)
* When the contract expressly prohibits assignment
* Ex: operating agreement of a business

Question 106

Delegations

Answer 106

Duties That Cannot Be Delegated:
*When Duties are Personal in Nature (special
trust, special skill/talents)
*When Performance by a Third Party Will Vary
Materially From that Expected by the Obligee
*When the Contract Prohibits Delegation
Effect of a Delegation.
* Delegator remains liable
* If it is enforceable, obligee must accept
performance from delagatee
* Obligee can legally refuse performance only if the
duty is one that cannot be delegated
*Assignments of “All Rights.”
* When an “assignment of all rights” is made this is
can create both an assignment and a delegation

Question 107

Third Party Beneficiaries

Answer 107

• Second Exception to Privity of Contract:
• Types of Intended Beneficiaries
• Distinguish only between intended and incidental
  beneficiaries
• Intended = intentional – can sue to enforce
• Ex: beneficiary under life insurance
• Incidental = unintentional – cannot sue to enforce
• Ex: spectators at Mike Tyson boxing match where he bit
  opponent’s ear sued for a refund – claimed they were 3rd party
  beneficiaries. Court said they could not sue – spectators got
  what they paid for - “the right to view whatever transpired”

Question 108

Distinguishing Third Party Beneficiaries

Answer 108

• Courts look at intent – as expressed in contract language
  and implied by surrounding circumstances
• “reasonable person” test – Would a reasonable person in the
  position of the beneficiary believe that the promise intended to
  confer on the beneficiary the right to enforce the contract?
  PLUS other surrounding circumstances:
• Performance is rendered directly to 3rd party
• 3rd party has the right to control details of the performance
• 3rd party is expressly designated as a beneficiary in the contract

Question 109

Conditions

Answer 109

A possible future event, the occurrence or
nonoccurrence of which will trigger the performance
of a legal obligation or terminate an existing obligation
under a contract.

Question 110

Precedent vs Subsequent

Answer 110

Precedent – must be fulfilled before performance is
required
* Subsequent – operates to terminate a party’s absolute
promise to perform (follows or is subsequent to the time
at which duty to perform arose)

Question 111

Discharge by Performance

Answer 111

Types of performance:
* Complete – party performs exactly as agreed
* Substantial – party who in good faith performs
substantially all the terms of the contract can
enforce
* Must not vary greatly from performance promised (or
be easily remedied by compensation)
* Performance must create substantially same benefits
as those promised
Performance to the Satisfaction of Another.
* Reasonable Person Standard: for most contracts, unless contract explicitly states third
party approval.
* *Unless subject matter is personal, obligation is conditional – ex: contracts for
portraits/works of art (exception if court find party expressing dissatisfaction simply to
avoid payment/not acting in good faith)
* Material Breach of Contract.
* Occurs when performance is not at least substantial.
* Non-breaching party is excused from performance and entitled to damages.
* Anticipatory Repudiation – before either party has duty to perform, one party refuses to
carry out his or her obligations – treated as a material breach even if time to perform
hasn’t occurred yet
* Non-Material (Minor) Breach of Contract.
* Duty to perform is not excused and the non-breaching party must resume performance
of the contractual obligations undertaken.
Time for Performance.
*If no time is stated in contract, reasonable
time is implied.
*Unless time is expressly stated to be vital, a
delay in performance will not destroy
performing party’s right to payment (“time is
of the essence”)

Question 112

Discharge by Agreement

Answer 112

*Discharge by Mutual Rescission.
*If executory (not yet performed by either
party), parties must make a new contract, oral
or written (UCC requires in writing)
*If one party has performed, agreement to
rescind must have additional consideration.
* By Accord and Satisfaction.
* Agreement to accept performance different from what
was originally promised
* Accord is a contract to perform some act to satisfy an
existing contractual duty that is not yet discharged.
* Satisfaction: performance of accord.
* Example: Bart has judgment against J.D. for $8,000.00.
The parties later agree judgment can be satisfied if J.D.
transfers his car to Bart. Agreement to accept car is
accord, satisfaction is when J.D. actually transfers.

Question 113

Discharge by Operation of Law

Answer 113

Material Alteration: allows innocent party to be
discharged after material alteration by other
party without consent.
* Ex: changing quantity of items in contract without
telling the other party
*Statutes of Limitations
*Bankruptcy: generally bars enforcement of non-
exempt transactions.
*Impossibility of Performance (not
inconvenience).
* Objective Impossibility of Performance:
supervening event was not foreseeable.
* When Performance is Impossible.
* Death or Incapacitation in personal contract prior to
performance,
* Destruction of the Subject Matter; or
* Change in Law makes Contract Illegal.
* Commercial Impracticability
* Performance becomes extremely difficult or costly, and
not foreseeable by parties when contract made
* Frustration of Purpose
* Supervening event makes it impossible to attain purpose
both parties had in mind.
* Event must not have been foreseeable, and decreases
value of what a party receives under contract.

Question 114

Damages

Answer 114

Damages are the most common Breach of Contract remedy.
* The goal of damages is either to “make the party whole” or
give them the “benefit of their bargain.”
* Types of Damages:
* Compensatory – covers direct losses and costs
* Consequential – to cover indirect and foreseeable losses
* Nominal – to recognize wrongdoing when no monetary loss is
shown
* Punitive – to punish and deter wrongdoing

Question 115

Compensatory Damages

Answer 115

Compensate injured party only for damages actually sustained and
proved to have arisen from the loss of bargain caused by breach –
replace what was lost and “make the person whole”
* Ex: employee under separation agreement not to work in same
industry for 18 months received $750K severance package and agreed
not to disclose confidential info. Employee works at new company
and discloses confidential info. Old employer only entitled to the
severance payment – anything more would leave old employer better
off than if employee had not breached contract.
* Two-step process:
* Was there a contract between parties and a breach of that contract?
* Prove that the breach caused damages.

Question 116

Standard Measure

Answer 116

difference between value of
breaching party’s promised performance under
contract and value of his/her actual performance. The
amount is reduced by any loss that the injured party
has avoided.
* Incidental Damages – expenses that are caused
directly by a breach of contract (i.e., incurred to
obtain performance from another source)

Question 117

Certain types of contracts have different measures

Answer 117

• Sale of Goods – amount = difference between contract price
  and market price
• Sale of Land – because land is unique, remedy is specific
  performance for buyer (get the property for which buyer
  bargained), if buyer breaches, seller’s measure = difference
  between contract price and market price
• Construction –
• Breach by owner – depends on when breach occurred
• Breach by contractor – cost of completion (including reasonable
  compensation for delay in performance), if late, can get loss of use
• Breach by both – courts try to strike a fair balance

Question 118

Consequential Damages

Answer 118

Foreseeable damages that result from a party’s breach of contract
* “Special Damages”
* Caused by special circumstances beyond the contract itself
* For non-breaching party to recover, breaching party must have known
(or had reason to know) that special circumstances would cause the
non-breaching party to suffer additional loss
* Ex: Marty contracts to buy a certain quantity of Gatorade from
Nathan. Nathan knows Marty has contracted with Ruthie to resell
and ship the Gatorade within hours of its receipt. The beverage will
then be sold to fans attending the Super Bowl. Nathan fails to deliver
the Gatorade on time. Marty can recover consequential damages
(the loss of profits from the planned resale to Ruthie)

Question 119

Nominal Damages

Answer 119

When no actual damage or financial loss results from
a breach and only a technical injury is involved
* Often small ($1.00) – establish Defendant acted
wrongfully
* Brought as a matter of principle

Question 120

Punitive Damages

Answer 120

Very seldom awarded in lawsuits for breach of
contract
* Could see in a situation when a person’s actions cause
both a breach of contract and a tort (such as fraud)

Question 121

Mitigation of Damages

Answer 121

When breach of contract occurs, the innocent injured
party is held to a duty to reduce the damages that he or
she suffered.
* Depends on nature of contract
* Ex: rental agreement – landlord has to try to find a new
tenant if tenant breaks lease, former tenant liable for
difference between original lease and rent from new tenant
if not same
* Ex: employment contract – employee has to try to find a
similar job if wrongfully terminated if such a job is available.

Question 122

Equitable Remedies

Answer 122

Sometimes damages are an inadequate remedy.
* If there is no legal remedy, courts can create equitable
remedies
* Rescission: Remedy whereby a contract is cancelled and the parties are
restored to the original positions that they occupied prior to the
transaction.
* Can be unilaterally cancelled if fraud, mistake, duress, undue influence,
misrepresentation, or lack of capacity is present or other party fails to
perform
* Appropriate where breach is found to be material and willful
* Party seeking rescission must be able to show contracting parties can
be restored to their position before contract was formed

Question 123

Restitution

Answer 123

Restitution: Both parties must return goods,
property, or money previously conveyed.
* If the property or goods have been consumed,
restitution must be made in equivalent dollar
amount
* Not limited to rescission cases! Can seek restitution
in breach of contract, tort actions, and other types
of actions

Question 124

Specific Performance

Answer 124

*Specific Performance
*Equitable remedy calling for the
performance of the act promised in the
contract – only if legal remedy (damages)
inadequate
*Provides remedy in cases involving:
* Sale of Land.
* Contracts for Personal Services.

Question 125

Reformation

Answer 125

Equitable remedy allowing a contract to be
reformed, or rewritten, to reflect the parties’
true intentions.
* Available if Fraud or Mutual Mistake is Present.
* Written contract incorrectly states the parties’
oral agreement (ex: clerical error)