MEE - Contracts

Question 1

*What constitutes anticipatory repudiation and what remedies are available to the non-repudiating party?

Answer 1

Anticipatory repudiation occurs when there has been an unequivocal refusal of the buyer or seller to perform or when a party creating reasonable grounds for insecurity fails to provide adequate assurances within 30 days of demand for such assurances.

The non-repudiating party may either: (1) Treat the anticipatory repudiation as a total repudiation and sue, (2) Suspend performance until performance date is due and wait to sue, (3)) Treat repudiation as an offer to rescind and threat the contract as discharged, or (4) Ignore the repudiation and urge promisor to perform.

A party may withdrawal a repudiation and must provide any assurances previously requested unless the other party has: (1) Materially changed position in reliance on the repudiation, (2) Cancelled the contract in response to the repudiation, or (3) Indicated they consider the repudiation to be final.

Question 2

*What is required to assign a contract?

Answer 2

To assign a contract, a party to the contract must manifest an intent to transfer his rights under the contract to an assignee. Oral assignments generally are effective. Most contractual rights may be assigned unless the contract forbids assignment, assignment is forbidden by law, or assignment would substantially change the obligor’s duty or risk. Contracts for personal services cannot be assigned if the performance of the service so involves the personality or personal characteristics of the obligor such that it would be unfair to require the obligor to perform for a third party.

Consideration is not required, but an assignment without consideration is considered gratuitous (meaning revokable).

Question 3

*How do you determine Third Party Beneficiary status?

Answer 3

Whether a TPB is an intended beneficiary under the contract is a question of fact; courts look to the following: Is the TPB expressly designated in the contract?; Does the TPB directly benefit from some performance under the contract?; Does the TPB have rights under the contract?; Does the TPB stand in such a relationship to the promisee under the contract that an intent to benefit the third party can be inferred? If the answer to any of these is yes, the party is likely an intended beneficiary

Question 4

*What are third party beneficiaries and what are their rights?

Answer 4

A third party that benefits from a contract entered into between other parties is a third party beneficiary. Intended TPBs exist where the parties to the contract intend for the TPB to benefit from the contract and extends rights under the contract to the TPB. Incidental TPB stands to benefit from a contract although not intended by the parties to the contract and does not extend any rights under the contract.

Intended Beneficiaries have a right to sue for breach of a contract.

Question 5

-?-How is a contract formed under the UCC?

Answer 5

Under the UCC, a contract is formed if both parties intend to contract and there is a reasonably certain basis for giving a remedy. The only essential term is quantity, and as long as the parties intend to create a contract, the UCC “fills the gap” if other terms are missing such as the time or place for delivery. At Common Law, all essential terms must be covered in the agreement, including the parties, subject, price, and quantity. Note: Both Requirements & Output Contracts are considered specific enough under the UCC even though they don’t have a specific quantity term.

Question 6

*What is required for formation of a contract under common law?

Answer 6

To form an enforceable contract, there must be mutual assent, consideration, and the absence of any formation or enforcement defenses.

Question 7

*What is consideration?

Answer 7

Consideration is a bargained-for exchange that has legal value. There is no bargain when one party gives a gift to another. Legal value is usually considered to be either a benefit to the promisor or a detriment to the promise. Most courts focus on the detriment element. The promise must induce the detriment and the detriment must induce the promise. Therefore, past consideration is insufficient.

Question 8

*What is the exception to a bargained-for exchange for past consideration?

Answer 8

While the general rule is that something already given or performed cannot be consideration, some courts have created exceptions. Under a modern trend, some courts will enforce a promise If:(1) it is based on a material benefit that was previously conferred by the promisee on the promisor, and (2) the promisee did not intend to confer the benefit as a gift.

The second restatement includes a limitation that the promise is unenforceable to the extent it is disproportionate to the benefit conferred.

Question 9

*How can an offer be revoked, and what is the objective test for creating a legal offer?

Answer 9

In general, an offer can be revoked by the offeror at any time prior to acceptance, even if the offeror has promised not to revoke for a certain, unless an exception applies which limits the offeror’s power to terminate.

Question 10

*In regards to revocation, what is an option contract?

Answer 10

One way in which an offeror’s power to revoke may be limited is when an option contract is present. An option is a distinct contract in which the offer gives consideration for a promise by the offeror not to revoke an outstanding offer. This does not apply in this scenario because the cook did not provide any consideration to the gardener to hold the offer open.

Question 11

*In regards to revocation, what is a Merchant’s Firm Offer?

Answer 11

Another way an offeror’s power to revoke may be limited is if the offeror has made a merchant’s firm offer under Article 2. If a MERCHANT offers to sell goods in a signed writing and the writing gives assurances that it will be held open, the offer is not revocable for lack of consideration during the time stated. Article 2 generally defines a merchant as one who regularly deals in goods of the kind sold or who otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved.

Under Article 2, if the term of an offer assuring that the offer will be held open is on a form supplied by the offeree, that term must be separately signed by the offeror to be enforced as a firm offer.

Question 12

*In regards to revocation, what is detrimental reliance?

Answer 12

In some cases, an offeror may be prevented from revoking an offer based on detrimental reliance. When an offeror could reasonably expect that the offer would rely to her detriment on an offer, and the offer does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time.

Question 13

*Under the common law, what is substantial performance?

Answer 13

In every contract, the duty of each party to render performance is impliedly conditioned on the other party rendering his performance or making a tender of his performance. The rules for determining whether performance is substantial are the same as those for determining whether a breach is minor or material. If the breach is minor, performance is substantial; if the breach is material, performance is not substantial.

Question 14

*What is the difference between a material and a minor breach of contract?

Answer 14

To determine whether a breach is material, the court looks at: the amount of benefit received, the adequacy of damages, extent of performance, hardship to the breaching party, and whether the breach was negligent or willful.

A reasonable delay in performance is usually considered a minor breach unless the nature of the contract is such as to make performance on the exact day of vital importance or the contract, by its terms, provides that time is of the essence. If time is of the essence, any delay will be a material breach. To determine whether time is of the essence, the trial of fact looks at the instrument itself as well as all of the surrounding circumstances.

Question 15

*What is a dividable contract?

Answer 15

If a contract is divisible, a party who has performed one or more parts is entitled to collect the contract price for those parts even if it breaches the other parts. It is not a condition precedent to the other party’s liability that the whole contract be performed. However, the non breaching party has a cause of action for each of the unperformed units and may withhold counter performance for those units. For a contract to be divisible, (1) the performance of each party must be divided into two or more parts under the contract, (2) the number of parts due from each party must be the same, and (3) the performance of each part by one party is agreed on the equivalent of the corresponding part from the other party. Divisibility questions involve contract interpretation and generally turn on fairness.

Question 16

*What is the equitable remedy of restitution?

Answer 16

Restitution damages arise where a party has been unjustly enriched. These damages are awarded based on value of the benefit wrongfully conferred. A party cannot recover both expectation damages and restitution damages.

Question 17

*What are expectation damages?

Answer 17

These damages are intended to put the injured party in the same position as if the contract had been performed. One measure of damages is the cost of restoration. Often, where the cost to restore is many times greater than the difference in value of the property in its unrestored condition, damages are measured by the difference in value. Courts are split on which measure to use because the value measure encourages breach. In a case of willful breach, where only completion of the contract will enable the non breaching party to use the land for its intended purposes, the cost of completion may be considered the appropriate damage award.

Question 18

*What are consequential damages?

Answer 18

Consequential damages consist of losses beyond those covered by the standard measure that a reasonable person would have foreseen would occur as a result of the breach. Often the availability of consequential damages turns on the breaching party’s awareness of the other party’s circumstances. Awards are reduced by the amounts saved by not using resources assigned to the project, and any amounts that could have been avoided with mitigation efforts.

As alluded to above, contract damages must be foreseeable to be recoverable. Damages are foreseeable if a reasonable person in the position of the breaching party would have known at the time the contract was made that the damages were likely to occur as a result of the breach.

To recover, damages must be certain and not speculative; i.e. they must be ascertainable with reasonable certainty. The modern trend, however, is to allow recovery if there is sufficient evidence to determine profits with reasonable certainty.

Under the UCC, only buyers have access to consequential damages.

Question 19

*What is promissory estoppel?

Answer 19

If necessary to avoid injustice, a court will enforce a promise without consideration if: (1) the promisor should have expected the promisee to change his position in reliance on the promise; (2) the promisee did change his position; and (3) the change in position was to the promisee’s detriment.

Question 20

**What are the requirements for a contract to be within the UCC Statute of Frauds?

Answer 20

When the price of goods is at least $500, the UCC requires a memorandum of the sale that must (i) indicate that a contract has been made, (ii) identify the parties, (iii) contain a quantity term, and (iv) be signed by the party to be charged. A signature includes any authentication that identifies the party to be charged, such as a letterhead on the memorandum. A mistake in the memorandum or the omission of other terms does not destroy the memorandum’s validity. An omitted term can be proved by parol evidence. However, enforcement is limited to the quantity term actually stated in the memorandum.

Question 21

-?-What are the exceptions to the UCC Statute of Frauds?

Answer 21

A contract for the sale of goods is outside the Statute of Frauds to the extent that goods are received and accepted and to the extent that payment has been made and accepted. There is an exception for specially manufactured goods for the buyer that are not suitable for sale to others. Additionally, a confirmatory memo sufficient against one party is enforceable against the receiving party if they do not object in writing within 10 days.

Question 22

*What is the statute of frauds under common law?

Answer 22

Under the Statute of Frauds, contracts that cannot by their terms be performed within a year are unenforceable unless they are evidenced by a writing or writings signed by the party to be bound and counting the contract’s essential terms, including the identity of the party to be charged and a description of the contract’s subject matter.

Question 23

*When will the courts enforce the equitable remedy of specific performance in a service contract?

Answer 23

A court will not order specific performance of a contract for services, both because of the difficulties in enforcing such an order and because it may constitute involuntary servitude.

Question 24

*What is insecurity and adequate assurances?

Answer 24

Under Article 2, if a party has reasonable ground for insecurity with respect to the other party’s performance, he may demand assurances that the performance will be forthcoming at the proper time. A demand for assurances must be made in writing. Until the party so demanding receives adequate assurance, he may suspend his own performance. The other party must give adequate assurances within a reasonable time not to exceed 30 days.

Question 25

-?-How does UCC 2-207 address acceptance with additional or different terms in contracts between merchants?

Answer 25

Under UCC 2-207, if both parties are merchants, additional terms in an acceptance become part of the contract unless they materially alter it, the original offer expressly limits acceptance to the terms of the offer, or the offeror objects to the new terms within a reasonable time. If at least one party is not a merchant, the additional terms are proposals for addition to the contract and do not become part of the contract without the offeror’s assent.

Question 26

*Under the common law, what is required for a contract to be modified?

Answer 26

Contracts for services are governed by the common law of contracts. Under the common law, every contract requires consideration to be enforceable, and any modification to a contract requires new consideration. Consideration is bargained-for exchange of something of legal value. Under the preexisting duty rule, the promise to perform a legal duty already owed to a promisor is not consideration.

Question 27

*Are there circumstances where a contract modification does not require consideration?

Answer 27

While it is true that some courts now will allow a contract to be modified without additional consideration if the modification is “fair and equitable” in view of circumstances not anticipated when the contract was made. This usually means that a party encountered difficulties in performing bordering on impracticality. Since such an unanticipated event significantly increases the cost of performance, a court might allow a modification of the contract’s price without additional consideration if it would be fair and equitable to do.

Question 28

*What is Rescission of a contract?

Answer 28

Recession of a contract serves to discharge duties under the contract. It occurs when parties agree to rescind their contract. The agreement to rescind is itself a new, binding contract supported by consideration, except in at-will employment. Recession of a contract may be made orally. Parties may not rescind a contract if the rights of a third-party beneficiary have vested.

Unilateral rescission is when only one party wants to rescind the contract. It usually only arises where there is a defense to contract enforcement or formation (mistake, misrepresentation, duress, lack of consideration). Usually occurs as a court-ordered remedy when there is a valid defense to contract enforcement or formation.

Question 29

*Under the UCC, what is required to modify a contract?

Answer 29

UCC Article 2 does not follow the common law rule requiring new consideration for contract modification. Under Article 2, contract modifications sought in good faith are binding without consideration. Only those modifications that are extorted from the other party in bad faith are unenforceable.

Question 30

*Under the UCC, what is good faith?

Answer 30

Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing. There must be legitimate commercial reasons for the modification.

Question 31

*What is the defense of duress?

Answer 31

A contract can be voided based on duress when a party’s assent to a contract is induced by an improper threat by the other party that leaves the victim no reasonable alternative. Generally, taking advantage of another person’s economic needs is not duress. However, withholding something someone wants or needs will constitute economic duress if: (1) the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and (2) there are no adequate means available to prevent the threatened loss.

Question 32

*What are goods under Article 2?

Answer 32

Contracts for the sale of goods are governed by article 2 of the UCC. Goods are all things movable at the time they are identified to the contract. Under the UCC, the term goods specifically includes growing crops, such as tomatoes.

Question 33

*What is an offer?

Answer 33

To form a contract, there must be an offer and an acceptance. An offer is a promise, undertaking, or commitment to enter into a contract. It contains terms that are definite and certain and is communicated to the offer. Once an offer is made, it may be accepted or rejected until and unless it is terminated.

Under common law, an offer may accept an offer expressly or by other means, or reject the offer.

Question 34

*What is an acceptance?

Answer 34

An acceptance is a manifestation of assent to the terms of an offer in the manner prescribed or authorized by the offer.

Under the mailbox rule, an acceptance is effective at the moment of dispatch. Rejection of an offer may be made expressly or by making a counteroffer, i.e., an offer that contains the same subject matter as the original offer but that differs in its terms.

Question 35

*What is a counteroffer?

Answer 35

A counteroffer is both a rejection of the original offer, which terminates the offer, and a new offer. A mere inquiry is not a counteroffer.

Question 36

*What is a rejection?

Answer 36

A rejection is effective upon receipt.

The mailbox rule does not apply if an offer sends a rejection and then sends an acceptance - in that case, whichever is received first is effective.

Question 37

**What damages are available to the seller for breach of contract under Article 2?

Answer 37

The seller’s basic damages are when the buyer refuses to accept goods or repudiates are either the difference between the contract price and the market price or the difference between the contract price and the resale price of the particular goods, plus incidental damages, if any, less expenses saved as a result of the breach. Incidental damages typically include expenses reasonably incurred by a seller in storing, shipping, returning, and reselling the goods as a result of the buyer’s breach.

The usual measure of a seller’s damages is the difference between the contract price and the resale price. If the seller chooses to resell, he must do so with a good faith, commercially reasonable sale that may be either private or public auction. In the case of a private sale, the breaching buyer must be given reasonable notice of intention to resell.

Question 38

*What is a mixed contract under the UCC?

Answer 38

If a contract involves both goods and services, a court typically will determine which aspect is predominant and apply the law governing that aspect to the whole contract. A court will use the predominate purpose test to determine whether the common law of contracts or Article 2 applies. Can be based on a price comparison or other relevant factor to the contract. If the balance of the two competing components of the contract are even, the court may determine the contract is divisible and apply the applicable law associated with the two areas of law.

Question 39

**What is parol evidence?

Answer 39

The parol evidence rule governs whether an oral agreement that predates or is contemporaneous with a written agreement is part of the ensuing contract. It’s designed to carry out the intentions of the parties.

When parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an integration. Any other expressions written or oral made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing. Whether a writing is an integration of all agreements between the parties depends on whether the writing is intended as a final expression and whether the writing is a complete or partial integration.

Writings that evidence a purported contract are not necessarily the final expression of that contract. If so, the parol evidence rule will not bar introduction of further evidence. Any relevant evidence is admissible to show that the parties did not intend the writing to be final. The more complete the agreement appears to be on its face, the more likely it is that it was intended as an integration.

After establishing that the writing is final, it should be determined whether the integration was complete or only partial. If complete, the writing may not be contradicted or supplemented by proving up consistent additional terms. As with the finality component, whether an integration is complete or partial depends on the intent of the parties. All relevant evidence is admissible for the purpose of making the determination, even the evidence whose admissibility is challenged.

Question 40

**What is a merger agreement?

Answer 40

A merger clause is a statement in a writing reciting that the agreement is the complete agreement between the parties. The presence of a merger clause is often determinative in large commercial contracts in which both parties are represented by lawyers. The modern trend, however, is to consider the clause as one factor in determining the integration issue.

Question 41

**Can parole evidence be offered to show subsequent modifications?

Answer 41

Yes, parol evidence can be offered to show subsequent modifications of a written contract, because the parol evidence rule applies only to prior or contemporaneous negotiations.

However, a final contract cannot be modified unless the modification is supported by new consideration. Under the preexisting duty rule, the promise to perform, or the performance of, and existing legal duty is not consideration. Though the modern view permits modification without consideration if: (1) the modification is due to circumstances that were unanticipated by the parties when the contract was made, and (2) it is fair and equitable.

Question 42

**What is effective termination of a contract?

Answer 42

An offer creates a power of acceptance in the offer. A revocation terminates the offer’s power of acceptance if it is directly communicated to the offer before she accepts. But the offer may also be effectively terminated if the offer indirectly receives: (1) correct information, (2) from a reliable source, (3) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer.