Formation of Contract

Question 1

For how long is a firm offer irrevocable under the UCC?

Answer 1

Under the UCC, a firm offer is irrevocable for the time stated in the contract. If no time is stated, it will remain open for a reasonable time not to exceed three months (unless consideration is given to keep it open for longer).

Question 2

When is an offer firm under the UCC?

Answer 2

Under the UCC, an offer is firm if:
1. The offeror is a merchant
2. There is an assurance to keep the offer open
3. The assurance is contained in signed writing from the offeror

Question 3

Is separate consideration needed for a UCC firm-offer to be enforceable?

Answer 3

No, separate consideration is NOT needed for a UCC firm offer to be enforceable.

Question 4

True or False

An offer contained on ________ or ____________ is sufficient for the signature requirement in a UCC firm offer.

Answer 4

An offer contained on business letterhead or initialled by the company is sufficient for the signature requirement.

Question 5

When is acceptance effective for a UCC Firm Offer? How about for an option?

Answer 5

Acceptance of both a firm offer and option is effectively only when it is received. The traditional mailbox rule does not apply.

Question 6

When does an offer terminate?

Answer 6

An offer terminates when the offeror dies or becomes mentally incapacitated - unless the parties formed an option contract.

An option contract will not terminate until the stated time because consideration was paid to keep it open.

Question 7

What is constructive revocation?

Answer 7

If an offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked and can no longer be accepted.

Question 8

If the offerree acquires reliable ____ that the offeror has taken ________ ________ ________ with the offer, the offer is automatically ________ and can no longer be accepted.

Answer 8

If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is automatically revoked and can no longer be accepted.

Question 9

An offer terminates when the offeror ____ or becomes ________.

Answer 9

dies

mentally incapacitated

Question 10

What is the perfect-tender rule for UCC goods?

Answer 10

The perfect-tender rule states that the goods and the seller’s delivery of those goods must fully conform with the terms of the agreement.

Question 11

What is the expectation for delivery to ensure perfect-tender?

Answer 11

Delivery is expected to come in a single shipment

Question 12

What can a buyer do if the tender of goods in a single delivery is unreasonable (because, for example, the seller tries to deliver substantially more than agreed)?

Answer 12

If tender of goods in a single delivery is unreasonable, the buyer can reject the delivery for imperfect tender.

Question 13

What are three ways in which an offer to buy goods for prompt shipment can be acceted?

Answer 13

1. Promising to ship the goods
2. Shipping goods that conform to the order
3. Shipping nonconforming goods without notice that the goods are being offered as an accomodation

Question 14

If a seller tenders non-conforming goods, what options does the buyer have?

Answer 14

If a seller tenders nonconforming goods, the buyer can:

1. Accept the goods in whole or in part
2. Reject the goods in whole or in part

Regardless of which they choose, a buyer can always sue for damages related to the seller’s breach.

Question 15

What is the rule if a seller ships nonconforming goods as an accomodation?

Answer 15

If a seller ships nonconforming goods and seasonably notifies the buyer that the goods are tendered as an accomodation, then the accomodation operates as a counteroffer.

Question 16

If a seller ships nonconforming goods and ____ the buyer that the goods are tendered as an ________, then the accomodation operates as a __________.

Answer 16

seasonably notifies

accomodation

counteroffer

Question 17

Under the UCC, a contract for goods is formed if both parties manifest __________.

Answer 17

Under the UCC, a contract for goods is formed if both parties manifest an objective intent to be bound.

Question 18

Is a contract formed if the two parties will only consider themselves bound if the price is set after the fact?

Answer 18

When an agreement reflects an intent to be bound only if the price is subsequently set, no contract is formed until that price is set.

Question 19

What happens if an offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer?

Answer 19

The offer is automatically revoked (i.e. constructive revocation) and can no longer be accepted.

Question 20

What happens if a contract omits the price term (or if the parties agree to set the price in the future but fail to do so)?

Answer 20

The UCC will gap-fill the missing price term by supplying a reasonable price at the time of delivery.

Question 21

The parties’ contract omits a price term. The UCC will gap-fill - but what price will it supply?

Answer 21

a reasonable price at the time of delivery

Question 22

What are the five ways an offer can be terminated?

Answer 22

1. Rejection
2. Counteroffer
3. Death or incapacity of offeror
4. Revocation
5. Lapse

Question 23

What are the four types of offers that are irrevocable?

Answer 23

1. Option contracts
2. UCC Firm-Offers
3. When there is detrimental reliance
4. When an offeree has started performance on a unilateral contract

Question 24

What is required in order for an option contract to be irrevocable?

Answer 24

1. Offeror promised to keep offer open for a specific period of time;
2. This promise was supported by consideration

Question 25

Under the UCC, what happens if an acceptance contains “additional or different” terms from the original offer if both parties are merchants?

Answer 25

When both parties are merchants, a new or additional term becomes part of the contract unless:

1. The new term materially alters the contract.
2. The offeror objects to the new term within a reasonable time (or has already objected).
3. The offer was expressly limited to the original terms.

Question 26

Under UCC §2-207, what happens if an acceptance contains “additional or different” terms from the original offer if both parties are NOT merchants?

Answer 26

If one (or both) parties are non-merchants, any additional terms are not incorporated, but the acceptance is still valid.

The additional term is merely treated as a proposal, which the other party can accept/reject.

Question 27

What happens if both an acceptance and rejection are sent by the offeree when the:

• Rejection is sent first?
• Acceptance is sent first?

Answer 27

Rejection is sent first: Acceptance will be effective if received BEFORE the rejection

Acceptance is sent first: Acceptance effective upon dispatch (regardless of whether rejection is received before)

Question 28

When is acceptance of an option contract effective?

Answer 28

Acceptance of an option contract is effective when it is received.

Question 29

What is the ‘merchant exception’ to the Statute of Frauds?

Answer 29

Under the merchant exception to the Statute of Frauds, a confirmation signed and sent by one merchant to another merchant binds both parties if the recipient has reason to know its contents and does not object within 10 days.

Question 30

A signed written confirmation for goods is sent from one merchant to another. How many days does the recipient have to object if she does not want to be bound?

Answer 30

She has 10 days to object.

Question 31

How can a bilateral offer be accepted?

Answer 31

There are two ways to accept a bilateral offer.

1. Make a return promise
2. Start performance

Question 32

Pick one

An offer is presumed to be (unilateral) or (bilateral).

Answer 32

An offer is presumed to be bilateral if ambiguous.

Question 33

What is the common law mirror-image rule?

Answer 33

Acceptance must be a mirror image of every single term of the offer.

If any part of the terms are different, it will function as a counter-offer and rejection of the original offer.

Question 34

How does one accept a unilateral offer?

Answer 34

1. Full performance; and
2. Notice to offeror that you accepted within a reasonable time frame after performance starts

⚠️ Note: partial performance does not constitute acceptance (but you may still be able to argue detrimental reliance or quasi-contract)

Question 35

As ‘master of the offer,’ the offeror can dictate the ____ and the ____ by which the offer may be accepted.

Answer 35

The offeror can dictate the manner and means of acceptance.

Question 36

If the offeror does not dictate a specific manner or means of acceptance, how can an offeree accept?

Answer 36

The offeree can accept in any reasonable manner and by any reasonable means

Question 37

An offeror is silent about the manner and means of acceptance. The offeree wishes to accept by mail. Does the mailbox rule still apply?

Answer 37

Yes, the mailbox rule will apply if the offeree chooses to accept by mail. Acceptance is valid upon dispatch.

Question 38

The subject matter of an offer is destroyed. What happens to the offer?

Answer 38

The offer is terminated by operation of law

Question 39

Under the objective theory of contract, the parties’ ________ do not control.

Answer 39

subjective beliefs

Question 40

If goods are auctioned in lots, what does each lot represent?

Answer 40

If goods are auctioned in lots, each lot represents a separate sale

Question 41

The warranty of merchantability is only implied when the seller is a ____________.

Answer 41

The implied warranty of merchantability is only implied when the seller is a merchant with respect to the goods sold

Question 42

Does the UCC require consideration to make a modification of a contract?

Answer 42

No, as long as both parties are acting in good faith

Question 43

Is consideration required to modify a contract under common law?

Answer 43

Yes, consideration is required to make a contract modification at common law, unless:

(1) New obligations on both sides or
(2) Existence of circumstances unforeseen by either party

Question 44

What is an illusory promise?

Answer 44

Promise that doesn’t obligate the promisee to anything, and therefore doesn’t qualify for consideration

Question 45

A bid is made at the same time as the end-of-sale announcement at an auction. What happens?

Answer 45

The auctioneer has the discretion to continue the bidding.

Question 46

Can a bidder at an auction retract their bid?

Answer 46

Yes, a bidder at auction may retract their bid up until the auctioneer anounces the completion of the sale (usually with the fall of a hammer). However, a revocation will not revive earlier bids.

Question 47

True or False

The UCC prohibits a seller from communicating with the auctioneer using pre-arranged singals.

Answer 47

False! There is no such prohibition in the UCC. Sellers can communicate with auctioneers.

Question 48

Can an option holder make counteroffers during the option period without terminating the original offer?

Answer 48

Yes, an option holder can make counteroffers during this period without terminating the original offer.

Question 49

When can a contracting party’s duty to perform be discharged by impracticability?

Answer 49

Impracticability is availabe to discharge duty to perform when:

(1) An unexpected or extraordinary event makes it impracticable for the party to perform

(2) The contract was performed under a basic assumption that event would not occur

(3) The party seeking discharge is not at fault

Question 50

When can a winning bidder at an auction avoid the sale (or pay the price of the last-good faith bid)?

Answer 50

A winning bidder can avoid the sale if the auctioneer:

(i) knowingly accepted a bid by the seller or on the seller’s behalf; or

(ii) procured the seller’s bid to drive up the price

Question 51

The winning bidder is at a forced sale (i.e. a foreclosure) and learns that the auctioneer accepted a bid by the seller to drive up the price. Can the winning bidder avoid the sale or pay the price of the last good-faith bidder?

Answer 51

No, at a forced sale (e.g. a foreclosure), the winning bidder cannot avoid the sale.

Question 52

True or False

If a seller at a forced sale gives notice reserving the right to bid, can the winning bidder avoid the sale?

Answer 52

No, this is a situation where the winning bidder cannot aboid the sale.

Question 53

Can an option be terminated if the duty to keep the offer open is discharged?

Answer 53

Yes, an offer can be terminated if the duty to keep the offer open is discharged, such as through impracticability.

Question 54

When will an offer terminated by lapse?

Answer 54

An offer will terminate by lapse if it is not accepted by the time stated in the offer. If no time is stated, the offer will lapse within a reasonable period of time.

Question 55

How will the court determine whether a ‘reasonable period of time’ has passed such that an offer will lapse? What factors are used?

Answer 55

Reasonableness depends on:

(i) the nature of the contract;
(ii) the purpose and course of dealing between the parties; and
(iii) trade usage

Question 56

With contracts for ____, the common law applies.

With contracts for ____, the UCC aplies.

Answer 56

services

goods

Question 57

What is a substitute contract?

Answer 57

A substitute contract is when the parties form a second agreement that immediately discharges the original contract.

Question 58

If a substitute contract is breached, a party can sue under _______.

Answer 58

If a substitute contract is breached, a party can sue under the substitute contract only

Question 59

The more formal the agreement (e.g. words discharging original duties, consideration on both sides), the more likely the fact finder will determine the parties intended to create a ________ contract.

Answer 59

substitute contract

Question 60

Under the common law, a modification of an existing contract is permitted if it is supported by _______.

Answer 60

consideration

Question 61

Is a modification permitted under the common law if one party agrees to compensate the other due to unanticipated difficulties?

Answer 61

Yes, an agreement to compensate owing to unanticipated difficulties is permitted so long as the modification is fair and equitable.

Question 62

In a requirements contract, a buyer’s purchase of goods from another seller violates ______?

Answer 62

In a requirements contract, a buyer’s purchase of goods from another seller violates the **implied duty of good faith and fair duty and constitutes a breach of contract. **

Question 63

The UCC requires a quantity term in a contract for goods. Does the lack of a concrete quantity term in a requirements contract violate this?

Answer 63

No, the quantity term in a requirements contract is sufficiently definite because the quantity can be made certain by reference to objective facts (i.e. the buyer’s actual requirements).

Question 64

True or False

An accord requires consideration to be valid.

Answer 64

True

Question 65

An accord requires consideration to be valid. What happens if that consideration is worth less than what was agreed in the original contract?

Answer 65

Consideration can be worth less than what was agreed in the original contract if:

(1) There is a good-faith dispute as to the amount owed and
(2) The new consideration is of a different type than what was owed under the original contract

Question 66

If a debt is disputed in good faith, how can the debtor satisfy the debt?

Answer 66

If a debt is disputed in good faith, the debtor can satisfy the debt by giving the creditor a check with a conspicous ‘payment in full’ notation.

Question 67

If a debt is certain and undisputed, can the debtor satisfy the debt by giving the creditor a check for a lesser amount with a ‘payment in full’ notion?

Answer 67

No, if a debt is certain and undisputed, it cannot be satisfied by a check for a lesser amount, even if the creditor cashes the check.

Question 68

What is the ‘charitable subscription’ exception to promissory estoppel?

Answer 68

A charitable subscription - i.e. a written promise to contribute money/property to charity - is enforceable on promisorry estoppel grounds without proof of detrimental reliance or substantial injustice. All that is needed is inducement.

Question 69

A mutual mistake may render a contract ______?

Answer 69

A mutual mistake may render a contract voidable by the adversely affected party

Question 70

If a party knows at time time of the contract that they have limited knowledge of the facts and accept this knowledge as sufficient, can they void the contract on the ground of mutual mistake?

Answer 70

No, a party assumes the risk of the mistake if they do this - they cannot void the contract.

Question 71

When can a court reform a contract due to mutual mistake?

Answer 71

A court may reform due to mutual mistake if:

(1) There was a prior agreement;
(2) The parties agreed to put the agreement in writing
(3) There is a difference between the agreement and the writing due to mistake.

Question 72

Can either party request reformation based on mutual mistake?

Answer 72

Yes, reformation based on mutual mistake can be granted at the request of either party as long as the requirements are met.

Question 73

The parol evidence rule does not apply when a party is raising ___________.

Answer 73

The parol evidence rule does not apply when a party is raising a defense to contract formation or enforcement.

Question 74

A contract to perform an illegal act is ____ and _____.

Answer 74

A contract to perform an illegal contract is void and unenforceable.

Question 75

True or False

A court may modify or refuse to enforce a contract that is unconscionable.

Answer 75

True

Question 76

When is a contract ‘unconscionable’ (such that the court may modify or refuse to enforce it)?

Answer 76

A contract is unconscionable when it is so unfair to one party that no reasonble person in that party’s position would have agreed to it.

Question 77

What are the three forms of incapcity?

Answer 77

(1) Infancy
(2) Mental Incompetence
(3) Intoxication

Question 78

When can a minor not void a contract?

Answer 78

A minor cannot void a contract for necessities (e.g. shelter, food, clothing). The minor must pay the reasonable value of the goods (but not necessarily the contract price).

Question 79

A minor enters a contract. Can they choose to enforce it or is it automatically void?

Answer 79

A minor can enforce a contract if:

(1) The minor entered into the contract before reaching adulthood.

(2) The minor has now reached the age of majority.

(3) The minor ratifies the contract either explicitly or implicitly (by failing to disavow the contract)

Question 80

When is a person considered “mentally incompetent”?

Answer 80

A person is considered ‘mentally incompetent’ for the purposes of entering a contract when they:

• **Fail to comprehend ** the contract; or
• Comprehend it, but act in an unreasonable manner, and the other party knows the person is acting unreasonably.

Question 81

A contract is [void or voidable] for one who has been adjudicated mentally incompetent, but [void or voidable] for one in which no judgment has been made

Answer 81

A contract is void for one who has been adjudicated mentally incompetent, but voidable for one in which no judgment has been made.

Question 82

When can an intoxicated party void a contract?

Answer 82

An intoxicated party can void a contract when:

• They are not able to understand the nature of the contract; and
• The other party knew (or had reason to know) of that fact.

Question 83

Contracts made under threats of physical violence are _______.

Answer 83

void

Question 84

Contracts made under economic duress and/or other non-physical threats are ______.

Answer 84

voidable by the aggrieved party

Question 85

Who bears the burden to show that the contract was made without undue influence?

Answer 85

The party being accused bears the burden.

Question 86

Differentiate between contracts that have an illegal purpose vs. **subject matter. **

Answer 86

A contract with an illegal purpose is voidable by a party who:
- Did not know of the purpose; or
- Knew but did not facilitate the purpose and the purpose does not involve “serious moral turpitude”

A contract with an illegal subject matter is **void and unenforceable. **

Question 87

If both parties know about the illegal purpose of a contract, is the contract void or voidable?

Answer 87

Void and unenforceable

Question 88

If a plaintiff confers a non-gratuitous benefit on another that results in unjust enrichment, under what theory can a plaintiff recover?

Answer 88

Quasi-contract

Question 89

What does the implied warranty of merchantability promise?

Answer 89

The implied warranty of merchantability promises that the goods sold are fit for their **ordinary, commercial purpose and use. **

Question 91

Can the implied warranty of merchantability be disclaimed? If so, how?

Answer 91

Yes, the implied warranty of merchantability can be disclaimed for defects that an examination would have revealed if, before entering the contract, the buyer examined the goods fully or refused to examine them.

Can also be disclaimed orally or through conspicous writing - include term ‘merchantability.’

Question 92

Is selliing a good ‘as is’ sufficient to disclaim the implied warranty of merchantability?

Answer 92

Yes, expressions like ‘as is’ or ‘with all faults’ is a sufficient disclaimer.

Question 93

Before ________ happens, the contracting parties can modify or rescind a contract without the third-party beneficiary’s consent.

Answer 93

the beneficiary’s rights vest

Question 94

What are the three ways a third-party beneficiary’s rights can vest?

Answer 94

(1) Justifable reliance
(2) Assent
(3) Initiation of a lawsuit

Question 95

A donee beneficiary - i.e. the recipient of a ‘gift promise’ - may generally only sue _______?

Answer 95

the promisor

But the promisee may also be sued if the promisee tells the beneficiary about the contrat and the beneficiary foreseeably, justifiably, and detrimentally relies on it.

Question 96

When can a donee beneficiary sue a promisee?

Answer 96

The promisee may be sued if the promisee tells the beneficiary about the contrat and the beneficiary foreseeably, justifiably, and detrimentally relies on it.

Question 97

Can an incidental beneficiary sue to enforce a contract if a breach of that contract causes them harm?

Answer 97

No, incidental beneficiaries do not have contractual rights and cannot sue to enforce them. This is true even if a breach of the contract causes them harm.

Question 98

What happens to a gratuitous assignment upon the death, incapacity or bankruptcy of the assignor?

Answer 98

A gratutitous assignment - i.e. an assignment that is not supported by consideration - is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.

Question 99

What do we call an assignment of rights made without consideration?

Answer 99

A gratuitious assignment

Question 100

Under what circumstances can a gratuitious assignment NOT be revoked by the assignor?

Answer 100

A gratutitous assignment can be revoked unless:

(1) The obligor has already performed
(2) A document symbolizing the assigned right has been delivered
(3) A written assignment signed by the assignor has been delivered
(4) The assignee has detrimentally relied on the assignment

Question 101

An assignment for value is ___________.

Answer 101

irrevocable

Question 102

In an assignmenet for value, what does the assignor warrant?

Answer 102

The assignor warrants that she has the right to assign, she is not subject to limitations, and she will not defeat or impair the assigned rights.

Question 103

A contractual duty or obligatoin cannot be delegated when…

Answer 103

(1) The other party has a substantial interest in having the delegating party personally perform

or

(2) The delegation is void under the contract

Question 104

A contract right cannot be assigned if the assignment…

Answer 104

(1) Materially increases the duty or risk of the obligor or reduces their chance of obtaining performance

or

(2) The assignment is void under the contract

Question 105

True or False

When delegation is permitted, the other contracting party must accept the delegatee’s conforming performance or be in breach of contract.

Answer 105

True! If delegation is permitted, the delegatee’s performance must be accepted (unless an exception applies). Refusal to accept is a breach.

Question 106

When contractual obligations or duties are delegated, what happens to the delegator’s liability?

Answer 106

When contractual obligations/duties are delegated, the delegator remains liable under the contract unless the other party expressly or impliedly agrees to release her and substitute a new one (i.e. a novation).

Question 107

Consent to a delegation [does/does not] create a novation.

Answer 107

Mere consent to a delegation does not create a novation.

Question 108

What does a novation require?

Answer 108

A novation requires the parties to release the delegator from the contract and substitute in the delegatee.

Question 109

Unilateral mistake is not grounds to avoid a contract unless…

Answer 109

(1) The mistake would make enforcement of the contract unconscionable

(2) The nonmistaken party caused, knew, or had reason to know of the mistake.

Question 110

A seller has breached a contract by failing to deliver some or all of the goods. What are the buyer’s recoverable damges?

Answer 110

When a seller breaches a contract by failing to deliver perfectly conforming goods, the buyer’s recoverable damages include the cost of cover, incidental damages, and consequential damages - but **NOT attorney’s fees. **

Question 111

When a party does not have a required license, the enforceability of the contract depends on whether the purpose behind the license requirement is ____ or ________.

Answer 111

economic or regulatory

Question 112

If the purpose behind a licensing requirement is economic the contract is ______.

If the purpose behind a licensing requirement is regulatory, the contract is _________.

Answer 112

Economic: the contract is enforceable.

Regulatory: the contract is unenforceable if the public policy behind the requirement outweighs the interest in enforcement.

Question 113

Does a promise to surrender a claim or defense constitute valid consideration for a settlement agreement?

Answer 113

Yes, a promise to surrender a claim/defense constitutes consideration so long as:

(1) The claim / defense is valid or subject to a good faith dispute

and

(2) The surrendering party believes the claim / defense is valid.

Question 114

True or False

The offeror states that acceptance is effective only on receipt. Can he do this or does the mailbox rule apply?

Answer 114

The mailbox rule does not apply if the offeror states that acceptance is effective only on receipt.

Question 115

A new promise to pay a debt after the ____________ has run is ____ without any new consideration.

Answer 115

A new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration.

Question 116

When is a liquidated damages clause unenforceable?

Answer 116

A liquidated damages clause is unenforceable as a penalty if the amount is so unreasonbly large in realtion to the actual / anticipated damages that it punishes the breaching party.

Question 117

When is a suretyship agreement enforceable without writing?

Answer 117

A suretyship is enforceable without writing if it was made mainly for the surety’s own economic advantage (not the principal’s benefit) or to indemnify a creditor.

Question 118

For the parol evidence rule, the UCC presumes that contracts for goods are ________. Therefore, evidence that ________ a written contract is admissible. Evidence that ________ a written contract is inadmissible.

Answer 118

For the parol evidence rule, the UCC presumes that contracts for goods are partially integrated. Therefore, evidence that supplements a written contract is admissible. Evidence that contradicts a written contract is inadmissible.

Question 120

For partial integration, evidence of additional consistent terms is admissible unless the court concludes…

Answer 120

that the parties certainly would have included those terms in writing

Question 121

True or False

A merger clause is definitive evidence that a contract is completed integrated.

Answer 121

False. A merger clause is strong - but not definitive - evidence of total integration.

Question 123

Evidence of a prior or contemporaneous written or oral agreement can be admissible to…

Answer 123

(1) Establish the meaning of ambiguous terms
(2) As a defense to contract formation or enforcement
(3)

Question 124

Incapacity due to intoxication is a defense when the intoxicated party cannot ____________ AND _____________.

Answer 124

Intoxication is a defense when the intoxicated party cannot understand the nature and consequences of the transaction and the other party had reason to know of the intoxication

Question 125

If a buyer wrongfully converts goods (e.g. by selling them), what can the seller recover?

Answer 125

The seller can recover the fair market value of the goods at the time of the conversion.

Question 126

Unless a party ____ and ____ indicated their willingness to perform, there is no anticipatory repudiate

Answer 126

clearly and unequivocally