MBE - Contracts With GA Distinctions

Question 1

Applicable Law

What types of contracts does the UCC and the Common Law govern?

Answer 1

The UCC governs the sale of goods. The Common Law applies to all other contracts such as service contracts, construction contracts and real property contracts.

Question 2

What law governs a transaction when a contract involves the sale of goods and services?

Answer 2

When the contract is a “mixed contract” involving both services and a sale of goods, the “predominant purpose” of the contract controls the law to apply.

Courts apply the predominate purpose test.

Question 3

When asking, “Do we have a contract,” what topics are testable?

Answer 3

Contract Formation (Offer, Irrevocable Offers, Revocation, Acceptance, Mirror Image Rule, Battle of the Forms, Mailbox Rule, Consideration, Consideration Alternatives, Contract Modification); Defenses to Contract Formation

Question 4

When asking, “We have a deal, but is the contract void or voidable,” what topics may be testable?

Answer 4

Statute of Frauds and Defenses to Contract Formation (Minor Incapacity, Mental Incapacity, Intoxication, Fraudulent Misrepresentation, Nonfraudulent/Material misrepresentation, Nondisclosure, Concealment, Duress, Undue Influence, Unconscionability (Procedural and Substantive), Illegality, Public Policy)

Question 5

When asking, “The contract can be enforced, but who has to perform what and when is performance excused,” what topics may be testable?

Answer 5

Finding the contract terms (Parol Evidence Rule, Ambiguity/Interpretation); Implied Terms (Good faith; Missing Terms/Gap Fillers); Warranties (Express, Implied);** Conditions** (Express, Implied, Constructive, Waiver of Condition); Modification; Excuses for Nonperformance (Unilateral Mistake, Mutual Mistake, Impossibility, Impracticability, Frustration of Purpose).

Think “P.W.C.E.” (Pizza With Crawling Escargot): Parol Evidence Rule, Warranties, Conditions, Excuses for Nonperformance

Question 6

When asking, “someone failed to perform when required, what is breach and what are the remedies for breach,” what topics may be testable?

Answer 6

**Anticipatory Repudiation **& Right to Demand Adequate Assurances; Material Breach (Substantial Performance, UCC Perfect Tender Rule; Nonperformance by Seller; Nonperformance by Buyer; Breach of Installment K); **Measuring Money Damages **(Expectation Damages, Reliance Interest, Restitution, Consequential Damages; Incidental Damages; Liquidated Damages); UCC Buyer’s and Seller’s Remedies; Limitatons on Money Damages (Certainty, Causation, Foreseeability; Mitigation/Avoidability); Equitable Remedies (Specific Performance, Injunctive Relief); Other Damages (Punitive); Rescission; Reclamation; Replevin

Question 7

Requirements of mutual assent:

Answer 7

Mutual assent requires (1) an offer by one party (the offeror) and (2) acceptance of that offer by another party (the offeree).

Question 8

What are the requirements to form a valid contract?

Answer 8

To form a valid contract, there must be (1) mutual assent (offer and acceptance), (2) consideration (or a consideration alternative), and (3) no defenses to formation.

Question 9

What is an offer? What are the elements of a valid offer?

Answer 9

An offer is (1) an objective manifestation of present intent to enter into a contract, (2) with definite and reasonably certain terms (for CL K’s–including essential terms), (3) communicated to an identified offeree, (4) creating the power of acceptance in the offeree.

Remember that CL contracts require essential terms (subject matter, parties, price, and quanity); the UCC only requires that the quantity be stated, but the price can be filled by a UCC gap filler.

Question 10

Terms of an agreement must be definite and reasonably certain. When will a contract fail for absence of essential terms/indefiniteness?

Answer 10

If the terms of an agreement are not reasonably certain, it is NOT enforceable.
* Common Law: Under the CL, essential terms include the parties, subject matter, price and quantity.

• UCC: Contracts that fall under the UCC must only state the quantity. Under the UCC, as long as the parties intend to create a contract, the UCC “fills the gaps” when other terms are missing.
• Both: If the duration is missing in a contract, courts will apply a reasonable time. Contractss for an indefinite duration are generally invalid.
• Real Estate: Requires (1) sufficient description of the land and (2) the price.

A K for the sale of goods should also state the subject matter an

Question 11

How are offers different from invitations to deal? What are advertisements?

Answer 11

Invitations to deal are not offers and may be mere inquiries.
Advertisements are generally considered invitations to receive offers from the public, unless they offer a stated reward.

Question 12

In an auction contract, how does a person make an offer, and when does acceptance occur?

Answer 12

In an auction contract, each individual bid should be understood as an offer. Acceptance occurs with the fall of a hammer.

Question 13

How (and when) can an offer be terminated?

Answer 13

An offer can be terminated before acceptance by:
* (a) revocation by the offeror;
* (b) rejection or counteroffer by the offeree;
* (c) lapse of time – the time for acceptance expires after (1) the time limit stated, or (2) if no time stated, after a reasonable time;
* (d) death of incapacity of either party, OR
* (e) supervening illegality – the proposed contract becomes illegal after the offer is made.

Question 14

How (and when) can an offer be revoked?

When no exceptions apply.

Answer 14

An offer may be revoked by the offeror at any time before acceptance by:
* (a) unambiguous words or conduct indicating an unwillingness to contract communicated to the offeree; OR
* (b) indirect revocation –when (1) offeror takes definite action inconsistent with entering into a proposed contract, AND (2) offeree learns reliable info to that effect.

Question 15

In what situations is an offer irrevocable?

Answer 15

An offer is irrevocable in the following situations:
* Option Contract
* UCC Merchant’s Firm Offer
* Detrimental Reliance
* Start of Performance on a Unilateral Contract

Question 16

What is an option contract?

How does it keep an offer open/irrevocable?

Answer 16

An option is a promise to keep an offer open for a specified period of time that is supported by consideration.

GA Distinction: In GA, if the time period during which an option is to be held open is not stated, a reasonable time is implied. Irrevocability of an option cannot exceed 3 months.

Question 17

What is a Merchant’s Firm Offer?

How does it keep an offer open/irrevocable?

Answer 17

A Merchant’s Firm Offer is an offer:
* (1) by a merchant to buy or sell goods,
* (2) in a signed writing,
* (3) stating the offer will be held open for a specified time (not to exceed 3 months), and
* (4) separately signed by the offeror (if the form was supplied by the offeree).

Under the UCC, a merchant is essentially a businessman. GA Distinction: In GA, a merchant means a person who deals in goods of the kind or who holds himself out as having knowledge and skill peculiar to the practices or goods involved in the transaction.

Question 18

When is an offer held open due to reliance?

How does it keep an offer open/irrevocable?

Answer 18

An offer is irrevocable if the offer was reasonably relied on to the offeree’s detriment.

Question 19

When is an offer irrevocable in a unilateral contract?

How does it keep an offer open/irrevocable?

Answer 19

The start of performance on a unilateral contract makes an offer temporarily irrevocable for a reasonable time for an offeree to complete performance.

Mere preparation by the offeree is insufficient to keep the offer open.

Question 20

What is rejection of an offer, and how can an offeree reject an offer?

Answer 20

Rejection is a manifestation of intent to NOT accept an offer, communicated to the offeror. An offeree can reject an offer by:
* Counteroffer: A counteroffer is both a rejection and a new offer.
* Conditional Acceptance: A conditional acceptance is treated as a counteroffer.
* Acceptance with Varying Terms: An acceptance with varying terms is either an acceptance or counteroffer under the UCC.

Acceptance with varying terms would fail the mirror image rule (CL); but, under the UCC, whether the terms are part of the contract depends on the Battle of the Forms analysis.

Question 21

What is acceptance of an offer? In what ways can an offeree accept an offer?

Answer 21

Acceptance is an offeree’s objective manifestation of assent to the terms of the offer. An offeree can accept an offer by:
* By Words/Conduct: An offeree can accept by express words or conduct manifesting acceptance.
* By Performance: (a) In a Bilateral Contract, an offeree can accept a promise by making a return promise or starting performance. In a Unilateral Contract, full performance by the offeree means acceptance of the offeror’s offer; starting performance only makes the offer irrevocable.
* By Silence: Silence is generally not acceptance unless the contract is “implied-in-fact.”
* By Shipment of Goods: In a sale of goods K, if a buyer requests a shipment of goods, the buyer’s request can be accepted by (1) a promise to ship, or (2) prompt shipment of conforming or nonconforming goods.

Question 22

Can an acceptance have varying terms in a contract governed by the CL? What is the mirror image rule?

Answer 22

CL: Under the Mirror Image Rule, acceptance must exactly mirror the offer, and any variations constitute a counteroffer.

Contrast this from the Battle of the Forms (UCC).

GA Distinction - Choosing an Election: Under GA law, the mirror image rule does not apply if an offer contains alternative propositions; the offeree may elect between the alternative propositions.

Question 23

In what manner can a contract for the sale of goods be formed in GA?

Answer 23

In a contract for the sale of goods can be formed in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a contract.

Same rule for GA

Question 24

In a contract for the sale of goods, what terms of agreement control when an offeree provides the offeror with a definite and seasonable expression of acceptance, the acceptance is not expressly made conditional on assent to the additional or different terms, and one or both parties is NOT a merchant?

Battle of the Forms Acceptance With Varying Terms

Answer 24

When:
* (1) one or both parties are not merchants,
* (2) a definite and seasonable expression of acceptance given with additional or different terms, and
* (3) the acceptance is not expressly made conditional on the additional or different terms, THEN:
* the acceptance to the original offer is VALID,
* BUT the additional or different terms will be construed as proposals for addition to the contract and require the offeror’s separate acceptance to become part of the contract.

Same Rule in GA

Question 25

In a contract for the sale of goods, what terms of agreement control when an offeree provides the offeror with a definite and seasonal expression of acceptance, the acceptance is not expressly made conditional on assent to the additional or different terms, and BOTH parties are merchants?

Battle of the Forms Acceptance With Varying Terms

Answer 25

Additional terms are INCLUDED in a contract for a sale of goods when:
* (1) both parties are merchants;
* (2) there is a definite and seasonable expression of acceptance given (or a written confirmation sent within a reasonable time);
* (3) the acceptance is not expressly made conditional on assent to the additional or different terms IF:
* (a) the offer does not expressly limit acceptance to the offer’s terms,
* (b) the additional terms do not materially affect the contract, AND
* (c) notification of objection to them has not already been given.

Material Effect: Terms materially affect a contract when they would result in surprise, hardship, or change a party’s risk profile.

Same Rule in GA

Question 26

In a contract for the sale of goods, what terms of agreement control when an offeree provides a definite and seasonable expression of acceptance, BUT makes their acceptance expressly conditional on the offeror’s assent to additional or different terms?

Battle of the Forms Acceptance With Varying Terms

Answer 26

If an offeree provides a definite and seasonable expression of acceptance BUT makes their acceptance expressly conditional on the offeror’s assent to additional or different terms, the offeree has made a COUNTEROFFER;
* a contract can still be formed by the offeror’s express acceptance to the new terms OR by conduct that indicates the existence of a contract between the parties.

Terms the Forms Don’t Agree On: Under the knockout rule, the contract will consist of the terms both parties’ forms agree, and varying terms are knocked out and filled by UCC gap fillers.

Same Rule in GA

Question 27

In a contract for the sale of goods, what terms control when an offeree has not given a definite and seasonable expression of acceptance BUT by conduct indicates the existence of a contract between the parties?

Answer 27

When the offeree does not give a definite and seasonable expression of acceptance, a contract can still be created if the conduct of the parties indicates the existence of a contract.
​
Under the knockout rule, the contract consists of only what the parties’ agree upon and varying terms will be knocked out and filled by UCC Gap Fillers.

Question 28

When is an offer, revocation, rejection, or counteroffer effective?

Timing of Offer/Acceptence and Mailbox Rule

Answer 28

An offer is effective when received.
Revocation or Rejection/Counteroffer: effective when received.

Question 29

When is an acceptance of an offer effective?

Mailbox Rule

Answer 29

Under the Mailbox Rule, an acceptance is effective when sent. (Dispatch)

Except, acceptance of an option contract is effective upon receipt.

Question 30

When an offeree sends both an acceptance and a rejection, which controls?

Depends on what is sent first; Mailbox Rule

Answer 30

If an offeree sends both an acceptance and a rejection:
* If Acceptance is sent before Rejection: The contract is formed on dispatch; however, if the offeror relies on a rejection that is received before the acceptance, then the offeree may be estopped from contract enforcement
* If Rejection is sent before Acceptance: Whichever the offeror receives first controls.

Question 31

When is an implied-in-fact contract created?

Answer 31

An implied-in-fact contract is created by conduct if:
* (1) the conduct is intentional; AND
* (2) each party has reason to know the other party will interpret the conduct as an agreement.

Question 32

When is an implied-in-law/quasi contract created?

Answer 32

Implied-in-law/quasi contract: In the absence of a contractual relationship between parties, the court can create a quasi or “implied-in-law” contract when:
* (1) the plaintiff has conferred a measurable benefit on the defendant;
* (2) the plaintiff acted without gratuitous intent; AND
* (3) it would be unfair to let the defendant retain the benefit without compensating the plaintiff.

Example: In an emergency, a doctor rushes to aid a woman in a car accident. The woman was too delirious to respond to the doctor or consent to the doctor pulling glass shards out of the woman’s skin. The doctor later send a bill to the woman.

Question 33

What is consideration?

Without alternatives for this question; Answer includes GA Distinctions

Answer 33

Consideration is a bargained for exchange of any act or forbearance that induces a detriment to the promisee and a benefit of the promisor.

GA Distinction: GA law follows the minority rule for consideration, only requiring that there be a benefit OR detriment, but not both.

GA Distinction - Good vs. Valuable Consideration: Under GA law, Good Consideration is founded on a natural duty and affect, or on a strong moral obligation. Valuable Consideration is founded on money or something that can be converted into money. Although marriage cannot be converted into money, it is considered valuable consideration.

GA Distinction - Contracts Under Seal: In GA, contracts under seal raise a rebuttable presumption of consideration. However, any nominal consideration will suffice to defeat a defense of failure of consideration.

Question 34

What types of promises fail for insufficient/inadequate consideration?

Answer 34

A promise for the following generally fails for lack of consideration:
* Preexisting Legal Duty (CL): A promise to perform a preexisting legal duty is not sufficient consideration because the promisor is already bound to perform (there are exceptions);
* Past Consideration/Moral Obligation: A promise made in return of something given in the past or out of moral obligation is not sufficient consideration;
* Illusory Promise: Illusory Promises are invalud and occur when one party has no actual obligation to perform;
* Promise of a Gift: A promise of a gift is not sufficient consideration;
* Sham/Nominal/Token Consideration are not sufficient consideration.

A Preexisting Legal Duty will not fail adequate consideration when:
(1) there is an addition or change in performance, (2) there are severe unforeseen circumstances and the contract is not fully performed by either party; OR (3) the duty/promise was owed to a third-party, not the promisor. See flashcard on Consideration Alternatives.

Question 35

Material Benefit Rule: When will a material benefit previously received be sufficient consideration?

Consideration Alternative

Answer 35

Under the material benefit rule: a promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice. However, a promise in recognition of a material benefit is NOT binding when:
* (1) the benefit was conferred as a gift; OR
* (2) the value of the promise is disproportionate to the benefit conferred.

Question 36

Promissory Estoppel Doctrine: What is promissory estoppel, and when will promissory estoppel satisfy the consideration requirement?

Consideration Alternative

Answer includes a GA Distinction

Answer 36

Promissory Estoppel is an exception to the requirement of consideration for a contract to be enforceable. Promissory estoppel applies when:
* (1) a promisee reasonably relied on a promise,
* (2) the promisee shifted their position to their detriment, AND
* (3) enforcing the promise is necessary to prevent inherent injustice.

GA Distinction - Promissory Estoppel - Charitable Institutions: In GA, a charitable institution does not have to prove reliance on a promise to recover under promissory estoppel.

Question 37

When is a promise to pay a Non-Legally Enforceable Past Debt enforceable without new consideration?

Consideration Alternative

Answer 37

A promise to pay a non-legally enforceable past debt is binding without new consideration if it is IN WRITING.

Question 38

What are the requirements of a contract modification in a contract under the Common Law?

Contract Modification; Answer includes any exceptions.

Answer 38

Modification of a contract governed by the CL requires: (1) mutual assent AND (2) new consideration (unless an exception applies).

Preexisting Legal Duty Exceptions: Past performance or a preexisting legal duty is NOT adequate consideration, except when:
* Addition or Change in peformance;
* Unforeseen Circumstances: a fair and equitable modification due to severe unanticipated circumstances AND the contract isn’t fully performed by either party; OR
* Third-Party Promise: Where the duty was owed to a third-party, not the promisor.

Question 39

What is required to modify a contract for the sale of goods (UCC)?

Contract Modification

Answer 39

Under the UCC, No consideration is required to modify a contract; BUT, the modification must be made in good faith.

Modifications under the UCC require a writing if:
* (a) if falls within the statute of frauds, OR
* (b) the original contract states that modifications must be in writing.

Question 40

How does a party’s lack of capacity affect the enforcement of a contract?

Defenses to Formation

Answer 40

If a party does not have capacity to enter into a contract, the contract is voidable by the person who lacked capacity.

Incapacity can include: Minor Contract, Mental Incompetence, and Intoxication.

Question 41

When is a contract voidable by a party who lacks Mental Incapacity? When is the contract void?

Defenses to Formation

Answer includes GA Law

Answer 41

A contract is voidable by a party that lacks mental capacity. A party lacks mental capacuty when:
* (1) they cannot understand the contract’s nature and consequences or act in a reasonable manner; AND
* (2) the other party has reason to know of this fact.

If a party is adjudicated mentally incompetent, a purported contract is VOID.

A contract made by a mentally incompetent party during a lucid interval is enforceable.

GA Law: In GA, if an individual has not been adjudicated mentally incompetent, the contract is voidable, unless it was made during a lucid interval.

Question 42

When is a contract voidable due to the Intoxication of one of the parties entering into the agreement?

Defenses to Formation

Answer includes GA Law

Answer 42

Intoxication: A contract is voidable by the party who entered into an agreement intoxicated only if the other party has reason to know of the intoxication.

GA Law: A contract entered into while intoxicated is voidable, but it may be ratified either expressly or through conduct inconsistent with rescission.

Question 43

When (and by who) is a contract entered into between a minor and an adult voidable?

Defenses to Formation; Include Minor Contract Exceptions

Answer includes GA Distinctions

Answer 43

A contract between a minor and an adult is voidable by the minor before reaching the age of majority or within a reasonable time after.
* A minor that disaffirms a contract is entitled to recover all consideration and in return must return all consideration that remains in the minor’s possession.

Necessities Exception: Contracts entered into by minors for necessities are enforceable, but the minor must only pay the fair value of the necessities.

Necessities include: food, shelter, clothing, medical care, etc.

GA Distinctions - Necessities: In GA, a contract for necessities is binding on a minor, BUT the person supplying the necessities must show that: (1) the parent or guardian failed to supply the sufficient necessities; or (2) the minor was emancipated.

GA Distinctions - Statutory Exceptions/Additional Binding Contracts on Minors:
* (1) If a minor is engaged in any trade or business, the minor is bound for all contracts in connection with that trade or business;
* (2) Marriage contracts and settlements made by minors who are of lawful age to marry are binding;
* (3) Any indebtedness for a loan from a trust fund for educational purposes to any educational institution is binding on a minor.

Question 44

When is a contract entered into by a minor deemed ratified?

Defenses to Formation

Answer includes GA point of Law

Answer 44

A contract is deemed ratified and enforceable once a party that entered into the contract as a minor:
* (1) reaches the age of majority; and
* (2) retains the benefit or consideration of the contract.

Same Rule in GA

Question 45

What is Duress, and when does duress make a contract voidable or void?

Defenses to Formation

Answer includes GA Distinction

Answer 45

Duress: Under the duress rule, a contract is voidable by the victim if
* (1) a party makes an improper threat;
* (2) that induces the other party to enter into the contract; and
* (3) the induced party has no reasonable alternative.
NOTE: An improper threat can be: threat of criminal prosecution, a civil action pursued in bad faith, a crime, a tort, etc.

Physical Duress: A contract is void if a party physically compels another party by duress to enter into an agreement.

Non-Physical/Economic Duress: A contract is voidable if a party takes advantage of the economic circumstances of another party through an improper threat to enter into an agreement.

Economic: A mere threat to breach a K (without more) is insufficient.

GA Distinction: In GA, A party to a contract who is a victim of duress, whether by imprisonment, threats, or other acts can void the contract.

GA Distinction - Overcoming the Mind: In GA, the duress must be such that it overcomes the mind and will of a person who is of ordinary firmness.

Question 46

How does Physical Duress differ from Non-Physical/Economic Duress?

Defenses to Formation

Answer 46

Physical Duress: A contract is void if a party physically compels another party by duress to enter into an agreement.

Non-Physical/Economic Duress: A contract is voidable if a party takes advantage of the economic circumstances of another party through an improper threat to enter into an agreement.

Economic: A mere threat to breach a K (without more) is insufficient.

Question 47

What is undue influence, and when is a contract voidable due to undue influence?

Defenses to Formation

Answer 47

Undue Influence: A contract is voidable by a victim induced by undue influence to enter into a contract when a party uses Unfair Persuasion on a party that is:
* (1) under their domination OR
* (2) in a sufficiently close relationship with them to justify believing they will act in their interest or welfare.

Examples usually include manipulation of the victim, such as a trustee encouraging a beneficiary to enter into a contract OR a family-member-caretaker refusing to provide essentials to the ill family member to persuade them into entering into a contract.

Question 48

What is a mistake?

Defenses to Formation

Answer 48

A mistake is a belief not in accord with a present fact.

Question 49

What is a Mutual Mistake, and when is a contract voidable using the mutual mistake defense?

Defenses to Formation

Answer includes GA Point of Law

Answer 49

Mutual Mistake: A contract is voidable by the adversely affected party under mutual mistake if at the time of contract formation:
* (1) both parties made a mistake about a basic assumption of fact;
* (2) that has a material impact on the contract; and
* (3) the party asserting the mistake did not bear the risk of the mistake.

Bears the Risk: A party bears the risk when:
* (1) risk is allocated to him by agreement;
* (2) risk is allocated to him by the court; OR
* (3) he is aware at the time of contract formation that he has limited knowledge of the facts but treats the limited knowledge as sufficient.

A mistake as to price or value is NOT considered material (opinion)

GA Law - Mutual Mistake: In GA, a contract cannot be enforced if it was executed on the basis of a mutual mistake of law or fact.

Question 50

What is a Unilateral Mistake, and when is a contract voidable using the unilateral mistake defense?

Defenses to Formation

Answer includes GA Point of Law

Answer 50

Unilateral Mistake: A unilateral mistake is generally not a valid defense. However, a contract IS voidable under unilateral mistake if at the time of contract formation:
* (1) one party made a mistake about a basic assumption of fact;
* (2) that has a material impact on the contract;
* (3) the party asserting the mistake did not bear the risk of the mistake AND:

• (a) the mistake’s effect makes the contract unconscionable, OR
• (b) the other party has reason to know of the mistake.

Bears the risk: A party bears the risk when:
* (1) risk is allocated to him by agreement;
* (2) risk is allocated to him by the court; OR
* (3) he is aware at the time of contract formation that he has limited knowledge of the facts but treats the limited knowledge as sufficient.

GA Law - Unilateral Mistake: In GA, a unilateral mistake that results from the defendant’s own negligence does not justify the defendant’s failure to perform.

Question 51

When does a Misunderstanding as to a contract term provide a defense to formation?

Defenses to Formation

Answer includes what meaning controls IF a contract is formed irregardless of the misunderstanding.

Answer 51

Misunderstanding: A contract is NOT formed when:
* (1) a contract term is material and ambiguous;
* (2) the parties have different subjective meanings of the contract terms; AND
* (3) neither party knows or should know of the ambiguity.

What Terms Form the Contract:
* If one party is aware of the meaning understood by the other party, a contract is formed according to the understanding of the unaware party
* If both parties have the same incorrect subjective meaning a contract is formed according to that meaning.

Question 52

When does a Misrepresentation render a contract voidable?

Defenses to Formation

Answer comprises of both types of misrepresentation; Another flashcard will separate them. Answer also includes the terms GA uses to describe the types of misrepresentation.

Answer 52

Misrepresentation: A misrepresentation is an untrue assertion of fact made by words or conduct. When this occurs, a contract is voidable by the adversely affected party if:
* (1) the misrepresentation was fraudulent OR material;
* (2) the misrepresentation induced assent to the contract; AND
* (3) the adversely affected party justifiably relied on the misrepresentation.

Fraudulent Misrepresentation: A party knowingly or recklessly made a false representation of material fact with intent to induce the other party.

Material Misrepresentation: Is a representation that would have affected whether the party would have entered into the contract.

GA Distinctions: In GA, Fraudulent Misrepresentation is called Actual Fraud; and Non-fraudulent/Material Misrepresentation is called Constructive Fraud.

Question 53

When does a Fraudulent Misrepresentation render a contract voidable?

Defenses to Formation

Answer includes the GA Law on Actual Fraud.

Answer 53

Fraudulent Misrepresentation: A contract is voidable under fraudulent misrepresentation by the adversely affected party IF:
* (1) a party knowingly or recklessly made a false representation of material fact with intent to induce another party;
* (2) the misrepresentation did induce assent to the contract; AND
* (3) the adversely affected party justifiably relied on the misrepresentation.

NOTE active concealment IS a statement. Visit nondisclosure card.

GA Distinction - Actual Fraud: In GA, Actual Fraud exists if misrepresentation of a material fact is (1) made willfully to deceive or recklessly without knowledge and (2) acted on by the opposite party.

GA Distinction - Procedural Req. to Recover for Actual Fraud: In GA, to recover on a claim of fraud, the party must, upon the discovery of the fraud, promptly restore or offer to restore to the other whatever he received from the contract.

Question 54

When does a Fraudulent Misrepresentation render a contract VOID?

Defenses to Formation

Think Fraud in the Execution

Answer 54

Fraud in the Execution: A contract is void when the fraudulent misrepresentation prevents a party from knowing the character of the transaction.

Ex: Tricking a party into signing a document that they do not know is a contract.

Question 55

When does Nondisclosure allow an uninformed party to seek rescission of a contract?

Defenses to Formation

Answer 55

Nondisclosure: Generally, there is no duty to disclose all facts. However, the uninformed party may seek rescission of a contract IF:
* (1) a party actively conceals the nondisclosed facts;
* (2) the other party is entitled to know the facts because of a confidential or fiduciary relationship; OR
* (3) to correct an earlier mistake of the uninformed party/correct a past statement from being misleading and the nondisclosure would breach good faith and fair dealing.

NOTE: Concealment: Concealment is an affirmative act intended to prevent the discovery of facts and is deemed a misrepresentation.

Note that if there is concealment, disclosure and required, and the fraudulent misrepresentation rule is implicated.

Question 56

When does Active Concealment amount to a fraudulent misrepresentation?

Defenses to Formation

Answer includes GA Distinction

Answer 56

Concealment: Concealment is an affirmative act intended to prevent the discovery of facts and is deemed misrepresentation.

A contract is voidable under fraudulent misrepresentation by the adversely affected party IF:
* (1) a party knowingly or recklessly made a false representation of material fact with intent to induce another party;
* (2) the misrepresentation did induce assent to the contract; AND
* (3) the adversely affected party justifiably relied on the misrepresentation.

Concealment IS a false representation knowingly made.

GA Distinction - Concealment & Direct Inquiry: In GA, Concealment amounts to fraud when a direct inquiry is made and the truth is evaded.

Question 57

When does Illegality render a contract void or voidable?

Defenses to Formation; Think Subject Matter vs. Purpose

Answer 57

Illegality:
* A contract that includes illegal subject matter/requires illegal conduct is VOID.

• A contract with an illegal purpose is voidable by the party who did not know od the illegal purpose. This party can recover damages if the OTHER party acted with knowledge of the illegality.
• If a contract becomes illegal AFTER it is formed, the duty to perform under the contract is discharged.

Question 58

When does Public Policy render a contract unenforceable? When is it enforceable?

Defenses to Formation

For enforceable, when are restrictive covenants enforceable?

Answer 58

Courts will NOT enforce contracts that are contrary to Public Policy.

Restrive Covenants: A restrictive covenant IS enforceable if it is reasonable: in
* (1) time;
* (2) geographic area, AND
* (3) scope of activity limited

Question 59

When will a court modify or refuse to enforce a contract or term due to Unconscionability?

Defenses to Formation

Answer includes GA Point of Law

Answer 59

Unconsionability: A court may modify or refuse to enforce a contract or term when the contract or term shocks the conscience of the court. Unconsionability requires on a sliding scale BOTH:
* (1) Procedural Unconscionability (meaning a gross inequality in the parties’ bargaining positions); AND
* (2) Substantive Unconscionability (meaning the contract terms are obviously unfair and one-sided in favor of the superior party).

GA Law: A contract term is unconscionable IF no reasonable person in the position of the party would agree to it.

Question 60

Contracts subject to the Statute of Frauds are not valid UNLESS…

When no exceptions apply.

A different flaschard will describe the types of contracts subject to the SOF

Answer 60

Statute of Frauds: Contracts subject to the Statute of Frauds are not valud unless they are in writing, which must:
* (1) be signed by the party to be charged;
* (2) reasonably identify the subject matter;
* (3) indicate that a contract was made by the parties; AND
* (4) state the essential terms

Remember: The essential terms for CL are subject matter, parties, price, and quantity. Under the UCC, the subject matter and parties should be stated, and there MUST be the QUANTITY.

Question 61

Contracts subject to the Statute of Frauds Include…

Answer will include the GA Distinctions/Additions that fall under the SOF

Answer 61

Contracts subject to the Statute of Frauds include:
* Marriage: A contract including a promise in consideration of marriage is subject to the SOF writing req.
* Suretyship: A contract including a promise to pay the debt of another is subject to the SOF writing req.
* One Year: A contract that cannot be fully performed within 1 year from its making (impossible) is subject to the SOF writing req.
* UCC: Contracts for the sale of goods of $500 or more are subject to the SOF writing req. (need not state price, but must state quantity)
* Real Property: Contracts for the sale of land or creating an interest in land (e.g., lease for over 1 year) are subject to the SOF writing req.

Think “M.SOUR”; Exceptions will be in a different flashcard.

GA Distinction – Additional Ks subject to SOF:
* Payment from Executor Estate: In GA, a promise by an executor, administrator, guardian, or trustee to pay damages out of his own estate is subject to the statute of frauds.
* Revive a Debt: In GA, a promise to revive a debt barred by a statute of limitations is subject to the statute of frauds.
* Lend Money: In GA, any commitment to lend money is subject to the statute of frauds.

Question 62

In a contract for the sale of goods (UCC), a contract satisfies the statute of frauds WITHOUT meeting the signed writing by the party to be charged requirement when any of the following exceptions apply:

4 UCC exceptions

Answer 62

Merchant’s Confirmatory Memorandum: If both parties are merchants, the SOF writing requirement is satisfied IF in a reasonable time:
* a merchant’s confirmatory memo signed only by the party enforcing it
* is received by the other party AND
* the recipient did not object within 10 days.

Goods Accepted or Paid For: If goods are accepted or paid for, the statute of frauds is satisfied as to those goods, but not the whole contract.

Custom Made Goods: If the seller of goods
* (1) made a substantial start on custom made goods AND
* (2) the goods are not suitable for sale in the ordinary course of the seller’s business, the statute of frauds is satisfied.

Judicial Admission: If the party to be charged makes an admission or acknowledgment during a judicial proceeding, the statute of frauds is satisfied.

Question 63

In a contract for services or land (CL), a contract satisfies the statute of frauds WITHOUT meeting the signed writing by the party to be charged requirement when any of the following exceptions apply:

4 Exceptions

Answer 63

Full Performance: …of a contract that cannot be completed within one year satisfies the statute of frauds.

Partial Performance of Land Contracts:… satisfies the statute of frauds IF two of the following occur: a party
* (1) made payment for the land;
* (2) took possession of the land;
* (3) made valuable improvements to the land.

Judicial Admission: If the party to be charged admits to the contract in judicial pleadings or during a judicial proceeding, the SOF is satisfied.

Estoppel: The party to be charged can be estopped from denying the existence of the K if the unjured party reasonably relied on the other party’s promuse to her detriment in some jurix.

Question 64

When there is a written agreement and prior or contemporaneous written or oral statements in the fact pattern, what rule is implicated?

Contract Content

Answer 64

The Parol Evidence Rule.

Question 65

When only oral statements have been made (no writing) and a party is trying to assert that a contract has been formed without the writing in the fact pattern, what rule is implicated?

Is the contract valid?

Answer 65

The Statute of Frauds.

Question 66

What does the Parol Evidence Rule do?

Contract Content

Answer 66

Parol Evidence Rule:
When there is a written agreement and prior or contemporaneous written or oral statements about the agreement, the parol evidence rule makes those prior or contemporaneous statements inadmissible to contradict the unambiguous terms of a completely or partially integrated writing.

However, evidence of a prior or contemporaneous statement that supplements (adds to), but does not contradict the writing is only barred if the writing is completely integrated

There are situations where the Parol Evidence will not bar prior or contemporaneous statements.

Question 67

Does the parol evidence rule bar oral or written statements about subsequent agreements?

Parol Evidence

Answer 67

No. The parol evidence rule does not bar oral or written statements about subsequent agreements.

Question 68

What is a Partially Integrated Writing, and how does it affect the application of the parol evidence rule?

Proving Contract Content/Performance Obligations

Answer includes GA Point of Law

Answer 68

Partial Integration: When a writing is partially integrated, the writing does not contain a complete statement of all the terms.

If the writing is partially integrated, evidence of prior or contemporaneous statements is ALLOWED if it does not contradict the writing.

Note: The UCC presumes that writings are most likely only a partial integration. If not agreed upon, the court will fill in default contract terms.

GA Law - Unwritten Portions: Under GA law, proof of unwritten portions of a contract that are consistent with the written portions of the contract are admissible IF the writing does not purport to contain all stipulations of the contract.

Question 69

What is a Completely (or Fully) Integrated Writing, and how does it affect the application of the parol evidence rule?

Proving Contract Content/Performance Obligations

Answer 69

Complete Integration: When a writing is completely integrated, the writing contains a complete and exclusive statement of the terms, and any prior or contemporaneous statements are discharged.

Applying the parol evidence rule, evidence of prior or contemporaneous oral or written statements about the agreement is INADMISSIBLE when the writiting is completely integrated.

Merger Clause: The presence of a merger clause is evidence that the writing is completely integrated on its face.

NOTE: Situations where even though a writing is completely integrated, evidence will still be admitted.

Question 70

Even if a writing is completely integrated, the parol evidence rule will not make inadmissible prior statements used to …

Contract Content

Answer 70

1. Correct a clerical error or typo;
2. Establish a defense against formation;
3. Interpret Vague or ambiguous terms (but courts will use plain meaning rule);
4. To Supplement a partially integrated writing;
5. Show an extrinsic term that would would naturally be omitted from the writing that does not contradict the contract;
6. Prior or contemporaneous statements referencing a separate deal/ subsequent contract modifications
7. Condition precedent to effectiveness
8. Establish Ground for granting or denying remedy (reformation, rescission).

Question 71

In a contract for the sale of goods, if terms (except quantity) are not agreed upon, the court will fill in the following default contract terms, “gap fillers”:

UCC Gap Fillers/Omitted Terms

Answer 71

• Price: If the price is missing, the court will app;y a reasonable price at the time of delivery
• Time for Payment: If the time for payment is missing, the court will apply that payment is due at the time and place the buyer is to receive the goods
• Time for Shipment: If the time for shipment/delivery is missing, the court will apply within a reasonable time and at a reasonable hour
• Place for Delivery: If the place for delivery is missing, the court will apply the seller’s place of business. If seller has no place of business, deliver will be to seller’s residence. If the identified goods are known by the parties to be at some other place, that is the place of delivery.

Note: Contract terms may be established by the course of trade performance, course of dealong, and/or trade usage.

Question 72

What is a Warranty?

When asking has Performance Been rendered?

Answer 72

A warranty is a promise about a term of the contract that explicity shifts risk to the party making the promise.

There are express and implied warranties.

Question 73

What is an Express Warranty? Can it be disclaimed?

Answer 73

An express warranty is created when:
* (1) the seller makes an affirmation of fact, promise, description, or provides a sample;
* (2) relating to the goods,
* (3) that becomes part of the basis of the bargain.

If the seller makes an express warranty, the seller is liable for the breach of the express warranty, and it cannot be disclaimed by the seller.

An “opinion” does not create an express warranty.

Note: No intent is necessary to create an express warranty, nor does the seller need to use the words “warrant” or “guarantee.”

Question 74

What is the Warranty of Title?

Risk Shifting Promise

Answer 74

The warranty of title: is an implied warranty that warrants that title:
* (1) shall be good and rightful; AND
* (2) is free from any security interests, liens, or encumbrances.

Warranty of Title may be disclaimed by specific language or circumstances.

Question 75

What are the two main implied warranties in a sale of goods contract? How can they be disclaimed?

Risk shifting promise

Answer 75

1. The Implied Warranty of Merchantability (goods sold by a merchant)
2. The Implied Warranty of Fitness for a Particular Purpose

The implied warranties (of Merchantability and Fitness for Particular Purpose) can be disclaimed by the seller:
* (1) in a conspicuous writing;
* (2) with “as is language;
* (3) by waiver by the buyer if defects can be discovered by a reasonable inspection; OR
* (4) by course of dealing, course of performance, or trade usage.

Question 76

In a sale of goods contract, what is the Implied Warranty of Merchantability?

Warranties

Answer 76

The Implied Warranty of Merchantability warrants that all goods sold by a merchant are fit for their ordinary purpose, and if not—the merchant seller will be liable for breach.

One-off sales by a merchant do not carry the warranty.

Remember: A merchant is a person who deals in goods of the kind or holds themselves out as having knowledge or skill peculiar to the goods or practices involved in the transaction. (Under UCC, can be a businessman).

Question 77

In a sale of goods contract, what is the Implied Warranty of Fitness for a Particular Purpose?

Warranties

Answer 77

The Implied Warranty of Fitness for a Particular Purpose applies when:
* (1) the seller knows or has reason to know of the buyer’s particular purpose for which the goods are required; AND
* (2) the buyer relies on the seller’s skill or judgment to select or furnish suitable goods.

NOTE: a nonmerchant can extend by implication this warranty as long as the buyer relies on any seller’s expertise.

Question 78

Can a nonmerchant extend by implication the implied warranty of fitness for a particular purpose?

Warranties

Answer 78

Yes. A nonmerchant can extend by implication the Implied Warranty of Fitness for a Particular Purpose as long as the buyer relies on any seller’s expertise.

Question 79

What is a Condition in a contract?

Answer 79

A condition makes performance contingent upon the occurrence or completion of a future event.

There are Express conditions (e.g., satisfaction) and Implied Conditions (e.g., constructive condition of exchange)

Question 80

How is an Express Condition created? Can it be waived?

Conditions to Performance

Answer 80

An express condition is created by language in the contract (e.g., “provided that,” “only if”), and must be strictly satisfied unless the condition is waived.

An express conditon can be waived IF:
* (1) the party receiving the protection of the express condition does so by words or conduct;
* (2) the protected party wrongfully interferes or hinders the occurrence of the condition or fails to make a good faith effort to satisfy the condition.

Question 81

What two ways can a satisfaction condition be met?

A satisfaction condition is an express condition.

Answer 81

Objective standard of Satisfaction: If most reasonable people would be satisfied, then the condition is satisfied.

Subjective standard of Satisfaction: If the contract involves aesthetic taste; the condition is satisfied if the person is subjectively satisfied,
* BUT the party can still breach if they claim dissatisfaction in bad faith.

Question 82

What does the Constructive Condition of Exchange say about performance?

Implied Condition to performance

Answer 82

The constructive condition of exchange states that one party’s performance is conditioned upon the other side’s performance.

Note that the CCE is satisfied with substantial performance in an agreement governed by the Common Law.

Question 83

Under the common law, how is the constructive condition of exchange satisfied?

Implied Condition to Performance

Answer 83

Under the CL, the doctrine of substantial performance states that a party will satisfy the Constructive Condition of Exchange unless there is a material breach, or the failure is willful.

Note that if a party has substantially performed, the other party cannot withhold payment, but can recover for the breach.

Question 84

In an agreement governed by the Common Law, when does a material breach occur?

Answer 84

CL: A material breach occurs when a party does not render substantial performance. A material breach ezcuses the nonbreaching party’s performance.

To determine if a breach is MATERIAL, courts look to:
* (1) the extent of performance;
* (2) the adequacy of compensation for loss to the nonbreaching party;
* (3) hardship;
* (4) the likelihood the breaching party will cure; AND
* (5) whether the breach was intentional

Question 85

Does the nonbreaching party still have to perform if there has been a minor breach?

Answer 85

A minor breach does not excuse the nonbreaching party’s performance, but the nonbreaching party may bring a separate action for damages.

Question 86

If a contract is divisible, how is substantial performance determined?

Answer 86

If a contract is divisible, then it will be broken into mini contracts to determine if there has been substantial performance.

Question 87

When is delayed performance a material breach?

Because it typically is not in a CL (service or land)contract.

Answer 87

A party’s failure to perform by a specified time is typically NOT a material breach unless:
* (1) it significantly deprives the other party of the benefit of the contract; OR
* (2) if the contract had a Time is Of the Essence Clause, mandating complete performance by a specific date.

A “Time if of the Essence” Clause can be indicated by using “Time is of the Essence” or similar langage in the contract.

Question 88

In a contract for the Sale of goods, what is the Perfect Tender Rule?

Answer 88

Under the perfect tender rule, performance of a sale of goods contract requires perfect tender. If there is any nonconformity, there is a breach and the buyer may reject all or a portion of the goods.

The perfect tender rule does not apply to installment contracts.

NOTE: Substantial performance does not apply to a sale of goods contract generally. However, there CAN be material breach in an installment contract.

Question 89

When does a seller have a Right to Cure in a sale of goods contract?

Answer 89

A seller has a right to cure the breach of a sale of goods contract when:
* (1) the time for performance has not yet expired; OR
* (2) if the seller had reasonable grounds to believe that substitute goods would be accepted

Example with respect to (2): When the same type of nonconforming goods had been accepted in the past.

Question 90

If a buyer receives nonconforming goods in an installment contract, the Buyer can…

Note: Installment contracts do not fall under the Perfect Tender rule; Material Breach applies.

Answer 90

• (1) Cancel the Contract only IF an installment is so defective that it susbstantially impairs the value of the entire contract and cannot be cured; OR
• (2) Reject an Installment only IF the nonconformity substantially impairs the installment and the time to cure has passed.

Question 91

The buyer is obligated to pay for goods once accepted unless…

UCC

Answer 91

revocation of acceptance is allowed.

Question 92

In a contract for the sale of goods, when does the buyer accept the goods?

Answer 92

The buyer accepts the goods when:
* (1) after a reasonable opportunity to inspect, the buyer signifies to the seller that goods are conforming or that it will retain them despite a nonconformity;
* (2) the buyer fails to reject the goods after a reasonable time to inspect them; OR
* (3) the buyer does any act inconsistent with the seller’s ownership of the goods.

Question 93

In a contract for the sale of goods, when may a buyer revoke acceptance of goods?

Answer 93

A buyer may revoke acceptance of goods within a reasonable time after the buyer discovers or should have discovered a nonconformity ONLY IF:
* (1) the nonconformity substantially impairs the value of the goods; AND
* (2) either: (a) the defect was latent or difficult to discover; (b) acceptance was reasonably induced by the seller’s assurances, or (c) the buyer had a reasonable assumption that the defect would be cured

Question 94

In a sale of goods contract, when is the buyer’s revocation of acceptance effective?

Answer 94

The buyer’s revocation of acceptance of goods is not effective until: the buyer notifies the seller, and it must occur before there is any substantial change in the goods not caused by their own defects.

Question 95

Can a seller try to accept an offer by shipping wrong goods?

Answer 95

The UCC treats this as an acceptance and a breach.

However, when the seller seasonably notifies the buyer that the wrong goods are being shipped as an accomodation, no acceptance occurs and the seller made a counteroffer.

Question 96

How does a buyer properly reject goods?

Answer 96

To properly reject goods, the buyer must:
* (1) notify the seller of the rejection within a reasonable time;
* (2) notify the seller of the particular defect; and
* (3) hold the goods for a reasonable amount of time so the seller can get them back.

Question 97

Does the Buyer have a Security Interest in Rejected Goods?

Answer 97

Yes. If the goods are rightfully rejected and the buyer has paid some or all of the purchase price, then she will have a security interest in the rejected goods.

Question 98

What can the buyer do if the seller fails to give reasonable instructions once bad/wrong goods have been delivered?

Answer 98

If the seller fails to give reasonable instructions to the buyer for the rejected goods, the buyer can either:
* (1) store the goods on the seller’s account;
* (2) ship the goods back themselves; or
* (3) resell the goods for the seller.

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Question 99

When can a seller sue a buyer for conversion?

Answer 99

If a buyer wrongfully disposes of the rejected goods, the seller may sue the buyer for conversion to recover the fair market value of the converted property at the time of the conversion.

Question 100

What is the implied obligation of Good Faith and Fair Dealing?

Answer 100

Every contract contains an implied obligation of good faith and fair dealing to act honestly and fairly.

UCC requires:
* (1) honesty in fact; AND
* (2) observance of reasonable commercial standards of fair dealing.

It is applicable in all contracts, but the UCC includes observing commercial standards.

Question 101

If the goods in a sale of goods contract are to be tendered at the Seller’s place of business, what does the seller need to do with the goods to satisfy perfect tender?

Answer 101

If the goods are to be tendered at the seller’s place of business, the seller just needs to give the goods to the buyer.

Question 102

If a sale of goods contract requires delivery “F.O.B. Seller’s Place of Business/Location, what type of delivery contract is it, and what must the seller do to satisfy delivery?

Answer 102

A F.O.B. Seller’s Place of Business contract is a shipment contract. If a contract is a shipment contract, then the seller must:
* (1) get the goods to a common carrier;
* (2) make arrangements for the delivery; and
* (3) notify the buyer

Question 103

If a sale of goods contract requires delivery “F.O.B. Buyer’s Place of Business/Location, what type of delivery contract is it, and what must the seller do to satisfy delivery?

Answer 103

A F.O.B. Buyer’s Place of Business contract is a Destination contract. If a contract is a destination contract, then the seller must:
* (1) get the goods to the Buyer’s place of bsuiness, and
* (2) notify the buyer.

Question 104

In a sale of goods contract, how do you determine whether the buyer or the seller bears the Risk of Loss when there is damage or destruction of the goods before the buyer receives them?

Answer 104

First, if agreed upon in the contract,
* the contract terms govern whether the buyer or seller bears the risk of loss

Second, If the risk of loss is not contractually agreed upon, AND there is a breach of some part of the contract
* the breaching party bears the risk of loss

Third, if the risk of loss is not contractually agreed upon AND NO party breached the contract,
* the risk of loss in a Shipment Contract (seller delivers to carrier) passes to the Buyer when the goods are delivered to the carrier.
* the risk of loss in a Destination Contract (seller delivers to buyer) remains with the seller and passes to buyer when the goods are delivered to the Buyer.

Question 105

When is a sale of goods contract presumptively a Shipment Contract?

Answer 105

A Shipment Contract is presumed if the contract does not specify, and the shipment is by an independent carrier.

Note: Remember, if it does specify, a Shipment contract will be indicated by “F.O.B. Seller’s Place of Business/Location”

Question 106

Non-Common Carrier Shipment: If the Risk of Loss analysis does not apply, the risk of loss depends on whether the seller is a merchant. If the Seller is a merchant, explain when the risk of loss passes to the buyer.

Answer 106

If the seller is a merchant, the risk of loss passes to the Buyer upon receipt of the goods.

If the seller is not a merchant, the risk of loss passes to the buyer upon tender of delivery.

Question 107

What are the Excuses for Nonperformance

Discharging Performance of a Valid Contract

Answer 107

• Impossibility
• Impracticability
• Frustration of Purpose

Question 108

What is impossibility, and when will it excuse nonperformance of a contract?

Answer 108

The Impossibility Excuse discharges performance IF after contract formation:
* (1) a supervening event occurs outside of the party seeking relief’s control;
* (2) that makes the contract objectively impossible; and
* (3) the nonoccurrence of the event was a basic assumption of the contract

UNLESS, a party bears the risk under the contract or circumstances.

Examples:
* The death or incapacity of a person that is necessary to effectuate the contract can render it impossible.
* The unanticipated destruction of the subject matter of the contract can render it impossible;
* The supervening illegality such as a subsequent and unanticipated law or regulation can render the contract impossible.

Remember: A party bears the risk under a contract when: (1) it is allocated to him by the contract; (2) it is allocated to him by the court; or (3) he is aware at the time of formation that he has limited knowledge of the facts and treats the limited knowledge as sufficient.

Question 109

What is impracticability, and when will it excuse nonperformance of a contract?

Answer includes GA Distinction

Answer 109

The Impracticability Excuse discharges performance IF after contract formation:
* (1) a supervening event occurs ouside of the party seeking relief’s control;
* (2) that makes the contract extremely and unreasonably difficult or expensive; and
* (3) the nonoccurrence of the event was a basic assumption of the contract

UNLESS the party bears the risk under the contract or circumstances.

*Remember; a party bears the risk under the contract when:
(1) it is allocated to him by the contract; (2) it is allocated to him by the court; or (3) he is aware at the time of formation that he has limited knowledge of the facts and he treats the limited knowledge as sufficient.

GA Distinction - Impracticability: In GA, generally a party cannot excuse himself ffrom a contract by pleading that performance is impracticable in the absence of a statutory provision or a provision in the contract for such a contingency.

Question 110

What is Frustration of Purpose, and when will it excuse nonperformance of a contract?

Answer 110

The Frustration of Purpose excuse discharges performance IF after contract formation:
* (1) a supervening event occurs outside of the party seeking relief’s control;
* (2) that substantially frustrates the contract’s principal purpose; and
* (3) the nonoccurrence of the event was a basic assumption of the contract

UNLESS the party bears the risk under the contract or circumstances.

Remember: A party bears the risk under a contract when: (1) it is allocated to him by the contract; (2) it is allocated to him by the court; or (3) he is aware at the time of formation that he has limited knowledge of the facts and treats the limited knowledge as sufficient.

Question 111

In what additional circumsatances (in addition to impracticability, impossibility, and frustration of purpose) will excuse/discharge a party’s performance under a contract?

Excuses for nonperformance

Answer 111

• Mutual Rescission (or cancellation)
• Accord (new act) and Satisfaction (excusal)
• Novation

Question 112

When is Mutual Rescission/Cancellation allowed by the parties to an agreement?

Discharging Performance

Answer 112

Mutual Rescission (or cancellation) by mutual agreement:
* Both parties can mutually agree to cancel the agreement by rescission as long as there is some performance remaining from each side.

Otherwise, there is no consideration for this modification.

Question 113

What is Accord and Satisfaction? How do they operate to discharge a party’s performance under a contract?

Discharging Performance

Answer 113

Accord: The parties to an earlier contract can contract to relieve a party of their performance under the earlier contract in exchange for the completion of a new act, or “accord.”

Satisfaction: Satisfaction is the excusal of performance required under the initial contract upon satisfaction of the accord (new act).
* If a party fails to satisfy the accord, the other party may sue under either the: (1) original contract; OR (2) the accord terms.

Question 114

If a party fails to satisfy an accord, which contract can the other party sue under?

Discharging Performance

Answer 114

If a party fails to satisfy the accord, the other party may sue under either the: (1) original contract; OR (2) the accord terms.

Question 115

What is a Novation, and who does it discharge from performing under a contract?

Discharging Performance

Answer 115

A Novation occurs when:
* (1) All parties (including the substitute party) agree to discharge an original party to the contract; AND
* (2) substitute a new third party in the original party’s place.

Under a novation, the substitute party assumes all duties required of the original party, and the original party’s duties are discharged/excused, meaning they cannot be sued for breach.

Contrast novation from a delegation; where only one party decided to allocate his duties to a third party. In that case, the delegating party would not be released from liability.

Question 116

When does a party anticipatorily repudiate a contract?

Anticipatory Repudiation; Breach

Answer 116

A party anticipatorily repudiates the contract when that party:
* (1) clearly and unequivocally
* (2) communicates that they are unable or unwilling to perform under a contract;
* (3) before performance is due.

Note: A party can retract its repudiation and restore the contract unless: the nonbreaching party has (1) commenced a lawsuit; or (2) materially changed its position in reliance on the repudiation.

Question 117

If an anticipatory repudiation occurs, how may the nonbreaching party proceed?

Anticipatory Repudiation; Breach

Answer 117

If an anticipatory repudiation occurs, the nonbreaching party may:
* (1) treat the contract as repudiated and sue immediately for damages (but cannot sue early IF party has completed performance and is only waiting on payment); OR
* (2) ignore the repudiation, demand performance, and sue after performance is due

Question 118

When may a party that anticipatorily repudiates its obligations under a contract retreact its repudiation?

Anticipatory Repudiation; Breach

Answer 118

A party can retract is repudiation and restore the contract unless the nonbreaching party has:
* (1) commenced a lawsuit; OR
* (2) materially changed its position in reliance on the repudiation.

Question 119

When can a party make a written request for adequate assurances of performance?

Anticipatory Repduiation

Answer 119

Insecurity: If a party has reasonable grounds for being insecure about another party’s ability or willingness to perform, then the insecure party may makw a written request for adequate assurance of performance.

• Then insecure party, after making this request, may suspend performance until adequate assurances are received.

Question 120

If an insecure party made a written request for adequate assurances and the other party failed to respond within a reasonable time, how can the insecure party treat this failure?

Answer 120

When a party has failed to respond to the insecure party’s proper demand for adequate assurances of performance within a reasonable time, the insecure party may treat this failure as a repudiation of the contract.

Remember, when a contract is anticipatorily repudiated, the nonbreaching party may: (1) sue immediately for damages (but cannot sue early IF you have completed performance and are only waiting on payment); OR
(2)** ignore the repudiation**, demand performance and sue after performance is due.

Question 121

What are the different types of Money Damages?

Breach and Remedies

Answer 121

Expectation Damages
* Compensatory/General Damages;
* Consequential Damages
* Incidental Damages

Reliance Damages
Restitution

Question 122

What are expectation damages meant to do?

Breach; Remedies

Answer 122

Expectation Damages: Expectation damages are meant to put the nonbreaching party in the same economic position that they would have been in had the contract been performed as promised.

Question 123

To recover expectation damages, what limits on damages are applicable?

Breach, remedies

Answer 123

To recover expectation damages, the damages must be:
* (1) caused by the breaching party;
* (2) foreseeable;
* (3) reasonably certain (not speculative); AND
* (4) unavoidable because reasonable steps were taken to mitigate the damages.

Note: An award of damages MUST account for and deduct for any costs the injured party avoided because of the breach.

Question 124

What is the general Expectation Damage formula?

Breach; Remedies

Answer 124

Expectation Damages =
Compensatory/General Damages (direct loss) + Consequential Damages (indirect loss arising from plaintiff’s special/foreseeable circumstances) +
Incidental Damages (indirect costs in an effort to mitigate losses) —
Costs or Loss Avoided (by not having to perform).

Remember: Consequential damages are not recoverable unless they were:(1) reasonably certain; (2) reasonably foreseeable; and (3) arise from the plaintiff’s special circumstances that the breaching party had reason to know of at the time of contracting.

Question 125

When are Consequential Damages recoverable?

Breach; Remedies

Answer includes GA Rule Statement

Answer 125

Consequential Damages are not recoverable unless they were:
* (1) reasonably certain;
* (2) reasonably foreseeable; and
* (3) arise from the the plaintiff’s special circumstances that the breaching party has reason to know of at the time of contracting.

Consequential damages may be limited or excluded by agreement unless it is unconscionable.

GA Law: In GA, consequential damages are not recoverable unless they can be traced solely to the breach; or are capable of exact computation.

Question 126

What are incidental damages?

Breach; Remedies

Answer 126

Incidental Damages are the reasonable costs or expenses incurred to mitigate or avoid additional loss from the breach/

(e.g., cost to return, store, inspect, transport, care for nonconforming goods)

Question 127

When must a nonbreaching party mitigate their losses?

Breach; Remedies

Answer includes GA distinction

Answer 127

Mitigation: A nonbreaching party must mitigate losses by taking reasonable steps to avoid additional loss after a breach. If a party fails to do so, the court will reduce the total damage award by the amount that could have been avoided.

• When NOT required: Affirmative steps to mitigate are NOT required when they would involve undue risk, burden, or humiliation.

GA Distinction - Mitigation: In GA, the general rule is an injured party must mitigate damages as far as is practicable by the use of ordinary care and diligence, but this DOES NOT APPLY to a Landlord when a tenant breaches a lease.
When a tenant breaches, the landlord may leave the premises vacant and hold the tenant liable for rent accrued…unless:
* (1) the landlord accepts the tenant’s surrender OR
* (2) the tenant successfully terminates the lease.
* Then, the landlord must make reasonable efforts to re-lease the premises and mitigate.

Question 128

As an alternative to expectation damages, what is the waste doctrine?

Breach; Remedies

Answer 128

Waste Doctrine: When the award for expectation damages or the cost of completion of a contract is wasteful such that it would grossly overcompensate the nonbreaching party, a court may award damages for diminution in value, the difference in value of the property/land.

The waste doctrine applies when:
* (1) a contractor performs in good faith, but defects exist; AND
* (2) Remedying the defects would entail economic waste (the cost of completion greatly exceeds the value of the completed work)

Ex: When the nonbreaching party wants to demolish the whole building because of defects made in good faith and wants the contractor to pay for the demolition and the cost to rebuild; this would be WASTE.

Question 129

What types of damages can be awarded when expectation damages are too speculative?

Remedies/Breach

Answer 129

• Reliance Damages
• Restitution
• Liquidated Damages (if applicable)
• Specific Performance (if applicable)

Question 130

What are Reliance Damages meant to do for the nonbreaching party, and when are they available?

Breach; Remedies

Answer includes GA Distinction

Answer 130

Reliance Damages are meant to reimburse the nonbreaching party for losses caused by reliance on the contract, putting them in the position they would have been in if the contract never existed.

Reliance damages are available when
* (1) the plaintiff acted in reliance on the other party’s agreement to perform under a contract AND
* (2) the plaintiff’s reliance was foreseeable.

GA Distinction - Reliance: In GA, there can be no justificable reliance on a promise that is unenforceable at the time it is made.

Question 131

What are Restitution Damages meant to do?

Can a party recover restitution and expectation damages?

Answer 131

Restitution Damages are meant to prevent unjust enrichment; the plaintiff’s damage award is equal to the economic benefit that they conferred on the defendant.

A pary CANNOT recover both expectation damages and restitution.

Question 132

In GA, when are Litigation Expenses and Interests awarded as damages?

They generally are not, BUT

Breach; Remedies

Answer 132

Generally, litigation expenses and interest are not allowed as damages in GA. However, litigation expenses can be awarded when the defendant:
* (1) has acted in bad faith
* (2) has been stubbornly litigious; OR
* (3) has caused the plaintiff unnecessary trouble and expense.

Question 133

When is a liquidated damages clause enforceable? When are Liquidated Damages awarded?

Breach; Remedies

Answer includes Georgia Distinction

Answer 133

A liquidated damages clause will be enforced IF: (1) the damages amount is difficult to estimate at the time the contract is formed; AND (2) the amount is reasonable to the actual damages suffered.

If a liquidated damage clause is valid,
* then only that amount will be awarded.

If a liquidated damage clause is invalid,
* then actual damages are available.

A court will not award liquidated damages as a penalty.

GA Distinction - Liquidated Damages: In GA, both parties are bound by the agreement to accept liquidated damages, and therefore the nonbreaching party cannot elect to take actual damages if he has already agreed to liquidated damages.

Question 134

When can a court order Specific Performance?

Breach; Remedies

Answer includes GA Distinction

Answer 134

The court can award Specific Perdormance of a contract IF money damages are inadequate to compensate an injured party.

Specific Performance is NOT awarded for personal service contracts, but injunctive relief may be awarded.

• CL: Specific performance is presumptively available for real estate contracts
• UCC: Specific performance is available only for unique or custom made goods

GA Distinction - Specific Performance: In GA, to recover in the form of specific performance on a K for the sale of land, the purchaser must show that he paid or tendered the purchase money price according to the contract.

Question 135

When is Rescission allowed?

Breach; Remedies

Answer includes GA Distinction

Answer 135

Rescission treats the original contract as cancelled and is available when there is a problem with contract formation. A contract will not be rescinded IF:
* (1) there is a valid equitable defense; OR
* (2) the plaintiff sued for damages under the contract in a prior action (party can sue for damages & rescisision at the same time)

GA Distincton - Rescission for Fraud: In GA, to rescind a contract on the basis of fraud, the defrauded party must promptly, upon discovery of the fraud, restore or offer to restore whatever the received under the contract.

GA Distinction - Pre-Contract Position Recovery in Fraud: In GA, A party may only rescind a contract on the basis of fraud when both parties can be restored to their pre-contract position.

Question 136

When is Reformation of a contract by the court an available remedy?

Remedies

Answer 136

Reformation allows a contract to be changed to conform to the parties’ original intent. Reformation is an available remedy when:
* (1) a valid contract exists, but there was a misrepresentation; OR
* (2) mutual istake of a material fact (or a unilateral mistake IF the nonmistaken party had reason to know of the mistake).

Reformation is NOT allowed if there is a valid equitable defense (e.g., unclean hands/laches).

Question 137

When a buyer breaches a contract for the sale of goods, how can the seller recover?

Breach; Remedies

Answer 137

When a buyer breaches, a seller may recover by:
* Withhold delivery of the goods
* Cancel the contract
* Stop delivery of the goods by carrier (if buyer is insolvent and goods are in possession of the carrier/bailee)
* Replevy identified goods from an insolvent buyer (see reclamation rule) AND

Receive one of the general damages:
* Cover Damages
* Market Damages
* Lost Volume Seller
+
* Incidental Damages

Think: Buyer breach can include (1) the buyer wrongfully rejecting goods or revoking acceptance; (2) buyer anticipatorily repudiating; (3) buyer failing to pay…

Question 138

What are Cover Damages and when are they available to a Seller?

Buyer Breach; Remedies

Answer 138

When a buyer breaches and the seller resale the goods in good faith for a lower price than the contract price, the seller can recover the difference between the resale price and the contract price as cover damages.

A nonbreaching seller is also entitled to incidental damages, which are the commercially reasonable costs as a result of the breach.

Question 139

What are Market Damages and when are they available to a Seller?

Buyer Breach; Remedies

Answer 139

When a buyer breaches and the seller did not resell the goods, the measure of damages for nonacceptance or repudiation is: (1) the difference between the market price at the time and place for tender AND the unpaid contract price, with any incidental damages less expenses saved.

Question 140

What damages are available to a Lost Volume Seller when a buyer breaches by refusing to purchase the goods under a contract?

Buyer Breach; Remedies

Answer 140

When a buyer breaches by refusing to purchase the goods, a volume seller (seller who regularly sells the contracted for item) is entitled to recover:
* the profit it would have made on the sale to the contract buyer, EVEN though the seller mitigated damages by selling the item at a contract price to another buyer.

A nonbreaching seller is also entitled to incidental damages, which are the commercially reasonable costs as a result of the breach.

Question 141

When a seller breaches a contract for the sale of goods, how can the buyer recover?

Seller breach; Remedies

Answer 141

A buyer who never received the goods, rightfully rejected the goods, or justifiably revoked acceptance MAY:
* (1) cancel the contract
* (2) recover any amount paid;
* (3) recover incidental and consequential damages; AND/OR
* (4) recover either: Cover Damages or Market Damages

Think: A seller can breach by: (1) not delivering the goods; (2) delivering nonconforming goods and buyer rejecting them; (3) seller repudiating; (4) delibering nonconforming goods and buyer accepting imperfect tender

Question 142

When are Warranty Damages available to a nonbreaching buyer in a sale of goods contract?

Seller breach; Remedies

Answer 142

When the buyer has accepted noncomforming goods and has given notice to the seller of the nonconformity, the buyer may recover warranty damages:
* the difference between the value of the nonconforming goods and the value they were warranted as.

Question 143

When can a third-party assert a claim for breach of contract?

Privity; Third Party Rights

Answer 143

Generally, Generally, a party who is not in privity of contract to another party cannot assert a claim for a breach of contract. However, an intended third-party beneficiary has the same rights as those in privity and can sue for breach of contract.

Question 144

What type of third-party beneficiary has enforcement rights, and how is this right formed by the contracting parties?

Third Party Rights

Answer includes a GA Distinction

Answer 144

Only an Intended Beneficiary has enforcement rights because the contracting parties intended for performance under the contract to benefit the identified third party

Note: the third party need not be identified by Name

GA Law - Intended Beneficiary: In GA, for a third party beneficisry to have standing to enforce a contract, it must clearly appear that both parties intended that the third party should be the beneficiary of the contract.

Question 145

What is an Incidental third party beneficiary?

Third Party Rights

Answer 145

An incidental third-party beneficiary is someone who just happens to benefit from the contract but has NO legal rights.

Question 146

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When does a third party’s right to enforce a contract VEST?

Third Party Rights

Answer 146

A third-party may enforce rights under a contract ONLY IF the rights have vested. Vesting occurs when the third party:
* (1) manifested assent to the contract at the request of a contracting party;
* (2) the third party detrimentally relied on the contract; OR
* (3) the third-party sues to enforce the contract.

Once vested, the contract cannot be changed or modified without consent of the third-party.

Question 147

What are the two types of Intended beneficiaries?

Third Party Rights

Answer 147

Creditor beneficiary: A creditor beneficiary arises when the promisee strikes a deal with the promisor in order to repay some earlier debt to a third party.

Donee Beneficiary: A donee beneficiary arises when there is no preexisting obligation, but the promisee clearly intends to confer a gift of enforcement on a third party.

Question 148

What is Assignment and how is a party’s rights assigned?

Assignment and Delegation

Answer 148

A party’s rights and benefits may be transferred (assigned) to a third party IF: (1) the assignor manifests his intent to transfer; AND (2) Assignee assents to the assignment

Note that someones the Bar Exam refers to Assignment but means both assignment and delegation.

Question 149

If a contract states that rights are not assignable, whether the contract benefits can be assigned depends on whether the contract prohibits assignments or invalidates assignments. Explain.

Assignment and Delegation

Answer includes a GA distinction

Answer 149

If a contract prohibits assignments,
* the assignment is valid, but the assignor has breached the contract and is liable for damages.
* Note that a contract that prohibits assignment will be construed to: (1) allow the assignment of rights; and (2) bar delegation of duties.

If a contract invalidates assignments,
* the assignment is void and the third party assignee cannot recover because there was no power to assign.

GA Distinction - Assignment: In GA, unless the contract is for personal services or requires particular skills or qualifications, once a party performs its obligations under the contract, that party’s right to enforce the contract may be assigned without the other party’s consent, when if the contract contains a no assignment clause.

Question 150

When is a gratuitious assignment revocable vs. irrevocable?

Assignment & Delegation; Think Consideration vs. Gratuitious

Answer 150

Gratuitous Assignment
* If the rights under a contract are assigned without consideration, the assignment is generally revocable and the last assignment controls

However, a gratuitous assignment cannot be revoked if:
* (1) the obligor has already performed
* (2) assignee reasonably and forseeably relies on the assignment to their detriment; OR
* (3) a document evidence the assigned right or wrtitten assigned signed by the assignor was delivered to the assignee.

Question 151

When an assignor makes multiple assignments, which assigment prevails?

Assignment & Delegation; Think Gratuitous vs. For Consideration

Answer 151

If a Gratuitous Assignment:
* the last assignee prevails UNLESS earlier assignment is irrevocable (obigor performance, deterimental reliance, or document/writing evidencing the assignment delivered to assignee)

If Rights were assigned For Consideration: then the first assignment for consideration prevalis UNLESS the later assignee:
* (1) has no notice; and
* (2) is the first to obtain either: (a) payment; (b) a judgment; or (c) a new contract from the obligor by novation

Question 152

When can a party **delegate **their contract duties to a third party?

Delegtation

Answer 152

All contract duties are delegable to a third party UNLESS:
* (1) the contract prohibits delegation or assignment;
* (2) delegation is prohibited by law or public policy;
* (3) the contraxt is a personal service contract that calls for exercise of personal skill/disctetion; OR
* (4) delegation materially alters the expectation of the obligee.

The delegating party remains liable for nonperformance UNLESS a novation occurs.

NOTE: Remember that a novation is different b/c BOTH parties substitute the obligee in a novation. Also note that bar exam may use assignment and mean assignment and delegation.

Question 153

Is a delegatee liable for breach when a party to the contract delegated their duties to them?

Assignment and Delegation

Answer 153

A delegatee is not liable for breach unless she receives consideration from the delegating party.

Question 155

In an auction contract, if someone bid exactly when the hammer falls..

Offer

Answer 155

Under the UCC, an auctioneer has discretion to either: reopen the bidding; or declare the auction final?

Question 156

When does a seller have insurable interest in goods?

Answer 156

A seller has an insurable interest as long as she has title or a security interest in the goods.

Question 157

When does a buyer have insurable interest in goods?

Answer 157

A buyer has an insurable interest when the goods are specifically idenfitied.

Question 158

If there has been a total destruction of the goods before the buyer receives them and the risk of loss is on the buyer…

Answer 158

The buyer must still pay for the goods.

Remember, risk of loss on buyer if buyer breached or if the contract is a Shipment Contract “F.O.B. Seller’s Place of Business” and the goods are damaged in transit.

Question 159

If the risk of loss for damages goods is on the seller and there has been a total destruction of the goods

Answer 159

If the ROL for damages goods is on the seller and there has been a total destruction of the goods,
* the contract is avoided and neither party must perform or pay.

Remember, risk of loss on seller if seller breached or if the contract is a Destination Contract “F.O.B. Buyer’s Place of Business” and the goods are damaged before reaching the Buyer.

Question 160

If the risk of loss for damages goods is on the seller and the goods have been damaged but not totally destroyed…

Answer 160

If the ROL for damages goods is on the seller and the goods have been damaged but not totally destroyed,
* the contract is avoided unless the buyer wishes to take the damages goods at a reduced price.
* If so, buyer has no claim against the seller.

Remember, ROL on seller if seller breached or if the contract is a Destination Contract “F.O.B. Buyer’s Place of Business” and the goods are damaged before reaching the Buyer.

Question 161

When can a buyer or seller sue a third party for damages to the contract goods?

Security Interest

Answer 161

• The seller can sue IF she retains title or has a security interest.
• The buyer can sue IF the goods are specifically identified.

The statute of limitations is normally 4 years, but it can be modified down by the contract, but NOT less than 1 year.

Question 162

When does a buyer possess voidable title?

Answer 162

A buyer who unlawfully obtains title possesses a voidable tite.

Question 163

Can a person with voidable title transfer good title to a good faith purchaser for value?

Answer 163

Yes. A person with voidable title can transfer good title to a good faith purchaser for value. This is true even when:
* the seller was deceived by the buyer’s identity;
* the buyer’s check bounced;
and
* delivery was procured through fraud.

Question 164

Can title be obtained by THEFT?

Answer 164

No. Title cannot be obtained by theft. Even a good-faith purchase by a subsequent buyer cannot normally cut off the rights of the true owner if there has been theft,
EXCEPT WHEN:
* the **buyer has made improvements **to the goods; OR
* the true owner indicates, by words or conduct, that the thief had good title.

Question 165

When can an unpaid seller assert the Right of Reclamation for goods sold on credit?

Answer 165

An unpaid seller can assert the right of reclamation for goods sold on credit when:
* (1) the buyer was insolvent when it received the goods,
* (2) the seller makes a demand within 10 days of buyer’s receipt of the goods (or within a reasonable time if the buyer misrepresented his solvency to the seller in writing within 3 months before delivery); and
* (3) the buyer still has the goods (buyer didn’t sale to a good faith purchaser for value).

Question 166

When can a buyer assert the Right to Replevin for a seller’s failure to Deliver or the Seller’s Repudiation?

Answer 166

In GA, buyer has a right to replevin for goods identified in the K if:
* (1) after reasonable effort, the buyer cannot cover or the circumstances show the effort will be unavailing; OR
* (2) the goods have been shipped under reservation and satisfaction of the security interest has been made or tendered.

Question 167

When will a contract that violates the law not be deemed unenforceable on public policy grounds?

Exception to Public Policy Unenforceability

Answer 167

A contract that violates the law is often unenforceable on public policy grounds. However, there is an exception to this rule when the contract violates a law designed to propect the party seeking to enforce the contract. In that case, the contract is enforceable so as to avoid frustrating the public policy behind the statute.

Question 168

When can a party terminate an employment contract if the employment duration is for (1) a definite time; (2) an indefinite time; or (3) a permanent time?

Employment

Answer 168

• Definite Duration: An employment contract for a definite duration can be terminated only for cause or by mutual agreement.
• Indefinite Duration: An employment contract for an indefinite duration is construed as an at-will employment and can be terminated by either party at any time and for any reason. (unless the termination violates public policy i.e., firing in retaliation of discrimination suit)
• Permanent Duration: An employment contract for a permanent duration is construed as an at-will employment and can be terminated by either party at any time for any reason. (unless the termination violates public policy)

Question 170

Does an option to terminate (at any time) an agreement that otherwise could not be fully performed in a year remove it from being subject to the statute of frauds?

Statute of Frauds

There is a minority and majority rule. Use Majority for MBE.

Answer 170

Jurisdictions are split as to whether parties’ option to terminate the contract w/in a year removes it from the statute.

Minority Rule:
* the option to terminate removes the contract from the statute, because the duration of the agreement is uncertain.

Majority Rule:
* the option to termibate does not remove the contract from the statute of frauds, because the agreement may not be fully perfomed before its termination.

Question 171

What is an output contract?

Exclusive Dealing

Answer 171

An output contract is a contract for sale of as many goods as seller produces during a specific period.

Note: Exact Quanity doesn’t need to be specified here because a method of determining the quantity is identified.

Question 172

What is a Requirements contract?

Exclusive Dealing

Answer 172

A requirements contract is a contract for sale of as many goods as buyer requires during a specified period.

Note: Exact Quanity doesn’t need to be specified here because a method of determining the quantity is identified.

Question 173

What implied obligation is included in an outputs or requirements/exclusive dealing contract?

Exclusive Dealing

Answer 173

A contract for exclusive dealing carries with it an implied obligation by the seller to use its best efforts to supply the goods and the buyer to promote their sale (even if they do not need it or want it).

Question 174

When a debt is disputed in good faith and the debtor offers to settle the debt by giving the creditor a check with a conspicuous notation stating that it constitutes payment in full, what options does the creditor have in response?

Satisfaction of Debt

Answer 174

When a debt is disputed in good faith and the debtor offers to settle the debt by giving the creditor a check with a conspicuous notation stating that it constitutes payment in full, the creditor can then:
* Cash the check, in which case the creditor impliedly agrees to an accord and satisfaction, and the debt is discharged OR
* Reject the check, in which case the debt is not discharged.

Question 175

What factors are used to determine whether the Unfair persuasion was such that it impaired the induced party’s ability to exercise free and competent judgment?

Defenses to Contract Formation

Answer 175

The following factors are relevant to make this determination:
* Susceptibility of the assenting party (e.g., elderly, in poor health)
* Unfairness of the resulting bargain (e.g., sale of business for less than half its market value)
* Unavailability of Independent Advice (e.g., attorney unavailable to discuss sale).