K&S - Rules, Definitions & Mneumonics

Question 1

Compensatory Damages - Define.

Answer 1

Damages that seek to compensate the non-breaching party for the injuries suffered.

Examples:

• Expectancy damages
• Reliance damages
• Restitutionary damages

Question 2

Expectancy Damages - Define.

Answer 2

Damages that seek to place the non-breaching party in the same position s/he would have been in had the contract been performed as expected.

Also called “fair market value damages” under the UCC.

Question 3

Restitution - Define.

Answer 3

Money awarded typically in the absence of a contract, that seek to compensate by returning the partis to their positions before the transaction, and seek to prevent unjust enrichment.

Relates to:

• Quantum meruit
• Implied-in-law contracts
• Quasi-contract
• Unjust enrichment

Question 4

Liquidated Damages - Define.

Answer 4

Enforceable where:

1. The actual damages were difficult to ascertain at the time of the contract formation AND
2. The liquidated damages amount is reasonable.

If the liquidated damages provision does not meet this two-part test, it is viewed as a penalty, and is not enforceable.

Remember that a non-breaching party is also entitled to incidental and consequential damages.

Question 5

Nominal Damages - Define.

Answer 5

Damages awarded, typically $1, for a breach for which no compensable damages were suffered.

Because every legal wrong must have a remedy, something must be awarded.

Question 6

Consequential Damages - Define.

Answer 6

Damages that, at the time of the contracting, the breaching party could reasonably forsee would be incurred in the event of breach. (i.e., lost profits resulting from the breach.)

These damages are reasonably forseeable because they are either:

1. Naturally occuring (the natural and probable consequences of the breach); or,
2. Disclosed (within the contemplation of the parties at the time of the contract).

Question 7

Incidental damages - Define.

Answer 7

Typically minor expenses resulting from the breach.

Example:

• Postage and handling
• Advertising
• Storage

Question 8

Punitive Damages - Define.

Answer 8

Damages that seek to punish malicious conduct and generally, are not available for breach of contract.

a.k.a. Exemplary damages.

Question 9

When does the common law govern for a K&S question?

Answer 9

For questions involving:

1. Land
2. Employment
3. Services
4. Construction

Question 10

When does the UCC govern for a K&S question?

Answer 10

1. For transactions in “goods”, except secured transactions - sale of movable objects, also crops to be severed;

2. Predominant Factor Test: When goods and services are combined and the value of goods “predominate”

3. Gravamen Test: When goods and services are combined in a K where the services predominate, if the “gravamen” of the complain involves the goods, UCC still controls.

Note:

• The UCC applies to transactions in goods **whether or not a merchant [expert in the trade] is involved. **
• However, a few UCC provisions apply ONLY to Merchants, so always not if the seller or buyer is a merchant.

Question 11

The UCC Art. 2 does NOT apply to what? (3)

Answer 11

1. Sales of realty - home or land
2. Leases of goods - transfer of a right to possess and use goods (UCC 2A)
3. Secured transactions - security interest in goods; a right in the goods of another taken to secure an obligation, such as repayment of debt (UCC 9)

If a contract is for the sale of real property, such as home or land, it is governed by the CL of contracts.

Question 12

If both the UCC and CL apply and conflict, which is the controlling law?

Answer 12

UCC

Question 13

When a contract is for a mix of goods and something else (such as a service), how do you determine whether the UCC applies to all or part of the transaction?

Answer 13

Answer: Apply the Predominant Factor Test.

• Predominant Factor = the main reason for the contract
• Test: If the purchase of goods is the main reason for the contract (the predominant factor), and the services are incidental, the contract will be governed by the UCC.
• Service of food by a restaurant - UCC2 applies
• Goods = anything moveable at the time it is identifified as the subject of the contract.

Example 1: A contracts with B, a house painter, for B to paint A’s house. B is to supply the paint. While the paint is a good, the predominant factor in the contract is the painting to be done by B, not the paint B is to supply. Therefore, the contract is predominantly for services and NOT governed by the Code.

Example 2: A contracts with B, a carpet seller, for B to provide and install carpet in A’s home. Even through B’s installation service is critical to the contract, the predominant factor in the contract is the carpet itself, not the installation service. Therefore, the contract is predominantly for goods and IS governed by the Code.

Question 14

What is considered a “good” for the purpose of determining UCC2 applicability?

Answer 14

Answer: Anything moveable at the time that it is identified as the subject of the contract.

Includes:

• Unborn animals
• Crops attached to, but to be severed from real property (wheat in the field before it’s harvested)

Does NOT include:

• Real property

Question 15

What is the basic definition of a contract?

What are the general requirements of a valid contract by law? (4)

Answer 15

Answer: a promise that the law will enforce.

Requirements:

1. Mutual Assent - an offer and acceptance of that offer;
2. Consideration
3. Legal Capacity - by two or more parties with the legal capacity to contract;
4. No Prohibition - an object of the agreement that is not prohibited by law.

Question 16

When determining whether the mutual assent element of a contract has been satisfied, does it matter what the parties secretly or subjectively intended?

Answer 16

Answer: No.

• Objective manifestation of assent is essential for there to be a true meeting of the minds.
• It is immaterial what the parties secretly intended.

Question 17

A manifestation of assent may be made by… (4)

Answer 17

Answer:

1. Written words
2. Spoken words
3. Acts
4. Failure to act

Question 18

What are the elements required to determine whether conduct is effective as a manifestation of assent? (2)

Answer 18

Answer:

For conduct to be effective as a manifestation of assent, the party must show:

1. Intent - intent to engage in the conduct, and,
2. Knowledge of Potential for Inferred Consent by Conduct - know or have reason to know that the other party may infer consent from his conduct.

Question 19

Does an intent to adopt a written memorial of an agreement later prevent the formation of a contract once an offer has been accepted?

Answer 19

Answer: No.

An intent to adopt a written memorial of an agreement later does not in and of itself prevent the formation of a contract once an offer has been accepted.

A contract concluded by preliminary agreements is, however, modified by a subsequent written memorial of the contract that changes the terms, pursuant to the Parole Evidence Rule.

Question 20

What is the general definition and test of an “offer”?

Answer 20

Answer:

• An offer is defined as a communication which gives the recipient of the communication the power to conclude a contract by accepting.
• The test of whether a communication amounts to an offer is whether the recipient could r_easonably believe_ that the one communicating intended to give him the power to conclude a contract.
• A determination of whether it is reasonable for the recipient to believe that an offer has been made takes into consideration the words and actions of the person making the offer, and the circumstances surrounding the making of the communication.
• Direct Communication. The more direct the communication is, the more likely it is to be held to be an offer.
• Quote. Use of word “quote” - generally indicates that no offer is intended, although circumstances ultimately control.
• Offer. Use of word “offer” - generally indicates that an offer is intended, although circumstances ultimately control.
• Language Must be Sufficiently Certain. For a communication to operate as an offer, it must be suffieciently certain to allow the court to determine when a breah of the promise occurs, and also to permit the court to fashion a remedy for that breach.

Question 21

Inquiries, invitations for offers, and simple statements - valid offer in support of mutual assent element of a contract?

Answer 21

Answer: No.

• Inquires, invitations for offers, and simple statements of intent are not offers.

Example 1:

Statement, “I want to sell my car for $10,000; are you interested?” - is not an offer (inquiry).

Example 2:

Placing a “For Sale” sign on a car - not an offer (invitation for offer).

Example 3:

Statement: “I need 200 widgets and will pay up to $400 for them. Can you deliver them by January 15th?” - not an offer (statement of intent).

Question 22

A communication is sent to many people - valid offer in support of mutual assent element of a contract?

Answer 22

Probably not.

Example:

A flyer sent our by a real estate company to all past customers advertising a reduced price on a house would not be construed as an offer, if it was clear from the body of the letter that the flyer was sent to more than one person.

Question 23

Can an offer create a power of acceptance in more than one person?

Answer 23

Yes.

Example:

A, the purceyor of a medical preparation, says that he will pay $100 to anyone who contracts a certain disease after useing the preparation as directed. B, C, D use it as directed. Each has made a contract independent of the others, and is entitled to the $100 if he later contracts the disease.

Question 24

Advertisement in newspaper, on TV, or by direct mail - offer?

Answer 24

No.

Generally, they are merely invitations to make an offer.

However, an advertisement may be held to be an offer where it is:

1. Definite
2. Limits Quantity, and,
3. States something indicating an intent to be an offer

Example: if a store advertised: “One fur coat, $1,500 value for $1 - onlyone, first come, first served. - offer.

Question 25

Promise to pay a reward in the event that something is found or a criminal is captured - valid offer?

Answer 25

No.

Question 26

Statement that could be construed as an offer is made in anger, jest, and the person to whom it is made knows this, or should have known it - offer?

Answer 26

No.

Example:

A is unhappy with her car, which is worth $5000. She says, “I’ll sell this thing to the first person who pays me $100.” If a reasonable person would conclude that she is simply saying this as a joke or because she is angry, there would be no offer.

Question 27

Contract of Adhesion - definition and general rule.

Answer 27

A contract of adhesion is a conract in which one party, typically, the offeror, sets forth the offer, leaving little opportunity for the other party to bargain or alter the terms (take it or leave it basis.)

Contracts of adhesion are valid and enforceable unless they are unconscionable, such as if the fine print contains a harsh term, or the parties to the contract are in substantially unequal bargaining positions.

Question 28

For what period (for how long) can a valid offer be accepted?

Answer 28

• An offer can be accepted from the moment it is made until it terminates.
• Once an offer is terminated, it can no longer be accepted.

Question 29

Can an offer be accepted after it has been terminated?

Answer 29

No.

Question 30

How can an offer be terminated?

Answer 30

1. By time specified
2. No time specified, reasonable period of time
3. Rejection

Reasonable period of time:

• even if “any time”;
• reasonable person standard from standpoint of offeree
• An offer sent by mail clearly is seasonably accepted if the acceptance is mailed any time before midnight on the day the offer is recieved. A longer time may be reasonable. (Example: A makes B offer my mail to sell goods. B recieved the offer at the close of busness hours. His prompt acceptance by letter the next morning is timely.)
• Trade custom or language in the offer may expressly or impliedly extend the time for accepting.
• In the case of an offer for a reward, the reasonable period of time can be as long as is necessary for the criminal to be captured and convicted.

Question 31

What are the rules of rejection and counter-offer? (3)

Answer 31

1. Rejection is effective upon reciept - a rejection is not effective until it is brought to the attention of the offeror
2. Express rejection terminates offer - may be oral, written or implied from conduct
3. Counter-offer terminates offer - counter offer is an offer by the offeree to the offeror relating to the same matter as the original offer and proposing a substitute bargain, different from that proposed by the original offer. An attempted acceptance which changes the terms of the offer.

Example: If the offeror offers to sell Blackacre for $200,000 and the offeree states that he will buy the property, but pay $185,000, this amounts to a rejection of the offer and it cannot be later accepted.

Question 32

Counter-offer - definition

Answer 32

A counter-offer is an offer by the offeree to the offeror relating to the same matter as the original offer and proposing a substitute bargain, different from that proposed by the original offer.

An attempted acceptance which changes the terms of the offer is a counter-offer.

Question 33

Does an inquiry or request for different terms constitute a counter offer?

Answer 33

No.

An inquiry or request for different terms does NOT constitute a counter-offer.

Example:

Offeree, in response to the original offer, said: “I dont think I can pay $200,000, but would you consider $185,000?” - this would not consitute a counter offer and would not terminate the original offer to sell for $200,000.

Question 34

State rule: Right of Revocation.

Answer 34

Generally, the offeror retains the right to revoke - take back - the offer at any time, even if the offer states that it will be held open for a specified period of time, EXCEPT where the offer is “irrevocable” or a “firm offer”.

If the offer is “irrevocable” or a “firm offer” the offeror can only revoke the offer in compliance with the rules.

Question 35

The UCC 2-207 alters the rules of counter-offers in what way?

Answer 35

Under this section, an acceptance which changes the terms of the offer can operate as an acceptance.

Question 36

Rule of Indirect/Implied Revocation

Answer 36

Where the offeree becomes aware of facts which clearly show that the offeror no longer wishes to contract, the offer is revoked.

Example:

If A offers to sell her violin to B, and promises to keep the offer open for 10 days, the offer is nonetheless revked if B learns from a reliable source that A has solkd her violin to C during the 10-day period.

Question 37

What is the rule for revocation of a general offer?

Answer 37

General offers (those made to a large number of unnamed people, such as by advertisement in a newspaper), can only be revoked by a notice given publicly equal to that given the offer.

Question 38

What is the rule for revocation of a divisible offer?

Answer 38

A divisible offer may be revoked so that no future contracts will be created, even though some contracts have already been formed.

An offer is divisible if it contemplates a series of independent contracts created by separate acceptances.

Example:

A offers to sell B a ton of cotton daily and tenders one ton at once. B accepts the tender. The same amount is furnished daily for a number of days. A notifies B that he revokes the offer and will furnish no more cotton. A contract is formed each day that cotton was furnished, but the revocation prevents the formation of any contracts thereafter.

Question 39

After an offer has terminated, can it be revived by the offeror?

Answer 39

Yes.

After an offer has terminated, it can be revived by the offeror. This usually occurs when the termination is cause by a rejection or a counteroffer.

Question 40

In what situations can’t a offeror revoke his offer? (3)

Answer 40

1. where there is a promise not to revoke and that promise is enforceable
2. where the acceptance consists of an act by the offeree and the offeree has begun to perform; and,
3. where UCC 2-205 makes the offer irrevocable

Question 41

If the offeror promises to keep the offer open for a specified period of time, and the offeree pays him for this promise to keep the offer open, is the offer revocable?

Answer 41

No.

Option Contract Rule: If the offeror promises to keep the offer open for a specified period of time, and the offeree pays him for this promise to keep the offer open, the offer is irrevocable during that period of time.

An option contract, supported by consideration is irrevocable during the specified time.

Question 42

Offeree has relied to its detriment on the offer or on an otherwise unenforceable promise to keep an offer open - offer revocable?

Answer 42

Answer. No.

Rule of Promissory Estoppel: Where the offerreee has relied to its detriment on the offer or on an otherwise unenforceable promise to keep an offer open, the offeror may be estopped from revoking the offer.

Question 43

Offeror requires that his offer be accepted by the performance of some act, and the offeree performs part of the act - revocable offer?

Answer 43

No.

Unilateral Contract Rule: An offer is irrevocable as soon as there is substantial part performance. An offer is NOT irrevocable if the act done be the offeree is merely in prepartaion for doing what was asked.

Question 44

UCC Section 2-205 provides that offers to buy or sell goods become irrevocable under what circumstances?

Answer 44

1. When there is an assurance that the offer to buy or sell goods will not be revoked;
2. The assurance is in a writing;
3. The writing is signed by the offeror; and,
4. The offeror is a merchant.

The period of irreovability cannot exceed three months under this section.

No consideration necessary.

Question 45

A offer can be terminated by what circumstances? (4)

Answer 45

1. Death or insanity - of the offeror automatically terminates, even if the offeree is unaware of the death or insanity; likewise for offeree;
2. Illegality - where performance by one of the parties becomes illegal prior to acceptance
3. Destruction of the subject matter - before acceptance
4. Occurrence of conditions - i.e., acceptance by one of a bid or reward

Question 46

Acceptance - Definition and Requirements

Answer 46

An acceptance is the assent by the offeree to the proposal made by the offeror.

Requirements:

1. It must be made by the party to whom the offer is addressed;
2. it must be in the terms of the offer;
3. the offeree must know of the offer at the time he accepts; and,
4. the acceptance must be communicated to the offeror to be effective.

Question 47

Mirror Image Rule

Answer 47

An offeror is in complete control of his offer, and the acceptance must mirror the offer, meaning that it must in the terms of the offer.

1. The acceptance cannot add to or change the terms of the offer;
2. Unilateral offers muct be accepted by the doing of an act; bilateral offers generally must be accepted by a promise, but can sometimes be accepted by performance; and,
3. If the offeror specifies any particular manner of acceptance, this must be followed by the offeree. If the offeror does not specify a form of acceptance, the offeree may accept by any reasonable means of acceptance.

Question 48

An acceptance must be in the terms of the offer (Element 2 of an Acceptance) - meaning what?

Answer 48

• The acceptance must mirror the offer (Mirror Image Rule)
  
  • The acceptance cannot add to or change the terms of the offer;
  • Unilateral offers must be accepted by the doing of an act; bilateral offers generally must be accepted by a promise, but can sometimes be ccepted by performance; and,
  • If the offeror specifies any particular mannr of acceptance, this must be followed by the any reasonable means of acceptance.
• Change in acceptance is a counter offer at CL
• Adding implied-in-law terms = acceptance
• Reasonabily filling in details = acceptance
• Inquiry not a co 2 unter-offer or rejection
• Acceptance with a condition - a conditional return promise by the offeree does nto make the acceptance conditional
• Bilateral contract
• Unilateral contract

Question 49

Parole Evidence Rule

Answer 49

Prohibits you from contradicting the unambiguous terms of a written contract with prior or contemporaneous agreements.

Question 50

Contracts subject to the Statute of Frauds involve what?

Answer 50

SLY ME Goods

S = Surety

L = Land

Y = The terms cannot be performed within one Year

M = Marriage contracts

E = Executor’s contracts regarding estates

Goods = Goods valued at $500 or more

These contracts are unenforceable if not in writing.

Question 51

Bilateral Contract

Answer 51

Contracts formed by offers which call for a promise. Upon formation, both parties are bound by enforceable promises.

Question 52

Unilateral Contracts

Answer 52

Contracts formed by offers which call for an act. Upon formation, only the original offerror has any remaining obligation. When an offer calls for an act, the doing of the act constitutes the acceptance, and it must be done before the contract is formed.

Question 53

General Rule - Communication of Acceptance

Answer 53

Where acceptance is make by a promise (bilateral contract), the offeree generally must notify the offeror of his acceptance.

Were the acceptance is by performance an act (unilateral contract), no notification of acceptancce is necessary, unless:

1. the offeror requests it
2. the performance is not likely to come to the attention of the offeror.

Question 54

Mailbox Rule

Answer 54

The acceptance takes effect as soon as it is ut out of the control of the offeror.