Studicata (and Themis Examples) - Contracts

Question 1

The gateway issue in ___ contracts and sales questions is to determine whether ____ or ____ governs.

Answer 1

The gateway issue in ALL contracts and sales questions is to determine whether the COMMON LAW or ARTICLE 2 OF THE UCC governs.

Question 2

The _______ governs if a contract deals with services or _____. (hiring someone to mow your lawn)

Answer 2

The COMMON LAW governs if a contract deals with services or REAL ESTATE.

Question 3

The _____ governs if a contract deals with goods (agreement to buy 100 reams of paper)

Answer 3

The UCC governs if a contract deals with goods.

Question 4

For mixed contracts (having elements of both services and goods), 2 rules operate to determine whether CL or UCC applies:

Answer 4

Rule 1: Mixed contracts must fall into one category or another (UCC or CL) UNLESS it is a divisible contract; there is a limited exception for divisible contracts which can divide the goods and services portions into separate mini-contracts.

Rule 1: Predominant purpose of the contract or transaction.

Question 5

A traditional, _____ contract is formed when there is:

1. ________ ( ______ +_______)
2. ________ and
3. ____________

Answer 5

A traditional ENFORCEABLE contract is formed when there is

1. Mutual assent (a valid offer and valid acceptance of that offer)
2. Consideration; and
3. No defenses to formation that would invalidate the otherwise valid contract.

Question 6

To form a valid offer, the offeror must:

Answer 6

1. Manifest an objective willingness to enter into agreement AND
2. create a power of acceptance in the offered (ie the offer can say “I accept” and know that he has concluded the deal)

Question 7

Objective test for OBJECTIVE silliness to enter into an agreement:

Answer 7

The offer is governed by an objective test, which means that outward appearances of words and actions are determinative–not subjective, hidden information (like fingers crossed behind back- irrelevant)

Question 8

Generally, an offer must be directed to a _____ offered. However, there is a limited exception for ______ offers and _____ offers that promise something to anyone who __________.

Answer 8

Generally, an offer must be directed to a SPECIFIC offeree. However, there is a limited exception for CONTEST offers and REWARD offers that promise something to anyone who ACCOMPLISHES A CERTAIN TASK.

Question 9

An advertisement is usually considered to be an _______ rather an offer because ______

Answer 9

An advertisement is usually considered to be an INVITATION TO DEAL rather than an offer, because advertisements usually fail to confer a power of acceptance to the other side.

Question 10

Advertisements that are __________ and leave _________ may constitute offers.

Answer 10

Advertisements that are VERY SPECIFIC and leave NOTHING OPEN TO NEGOTIATION may constitute offers.

Question 11

_________ MUST be specified in the offer in order for the offer to be valid.

Answer 11

Certain terms

Question 12

Under ______, all essential terms must be specified in the offer. Generally, this includes 4 terms:

Answer 12

Under COMMON LAW all essential terms must be specified in the offer. Generally this includes: 1. parties 2. subject 3. quantity and 4. price

Question 13

Under _____, the law is more willing to plug the gaps.

Answer 13

Under the UCC the law is more willing to plug the gaps.

Question 14

Unlike the common law ________ is not required in the offer under the UCC. Generally, _____ is required under the UCC.

Answer 14

Unlike the common law, PRICE is not required in the offer under the UCC. Generally, only three terms are required under the UCC:

1. parties
2. subject
3. quantities

Question 15

______ and _____ contracts are valid under the UCC even though they do not specify an exact amount.

Answer 15

REQUIREMENTS and OUTPUT CONTRACTS are valid under the UCC.

Question 16

Requirement contract

Answer 16

In a requirement contract, the seller agrees to sell as much as the buyer would require.

Question 17

Output contract

Answer 17

the seller agrees to sell his entire production to the buyer.

Question 18

If a ____ offer is terminated at _____ time before acceptance, the offer is _____.

Answer 18

If a VALID offer is terminated at ANY time before acceptance, the offer is INVALIDATED. It cannot be accepted or revived unless a new offer is made.

Question 19

An offer is terminated if any of the following occur at anytime BEFORE acceptance: (7)

Answer 19

1. The offeree rejects the offer by express communication to the offeror
2. offeree learns that the offeror has taken an action that is absolutely inconsistence with a continuing ability to contract (this is called constructive revocation)
3. the offered rejects by express communication
4. counteroffer is expressly communicated
5. offeror dies or otherwise becomes incapacitated
6. A reasonable amount of time passes
7. the subject matter of the offer becomes illegal or is destroyed.

Question 20

The offeror is normally free to revoke at any time prior to acceptance; however, there are four types of offers that are irrevocable:

Answer 20

1. option contracts
2. firm offers
3. offeree has started performing
4. detrimental reliance

Question 21

Option contracts

Answer 21

an agreement where consideration is given in exchange for a promise to keep an offer open. (I promise not to revoke for one week if you pay me 500)

Question 22

Firm offers

Answer 22

Under the UCC, a merchant (someone who regularly deals in the type of good at issue) can make a FIRM OFFER to buy or sell goods.

Question 23

A firm offer will either last ______ or for a reasonable time period not to exceed _____.

Answer 23

A firm offer will either last AS LONG AS STATED IN THE OFFER or for a reasonable time not to exceed 90 DAYS.

Question 24

A firm offer must a) b) c)

Answer 24

A firm offer must be a) n writing b) contain an explicit promise not to revoke, and c) be signed by the merchant.

Question 25

A unilateral offer to contract cannot be revoked by the offeror if

Answer 25

A unilateral offer to contract cannot be revoked by the offeror IF THE OFFEREE HAS STARTED PERFORMANCE.

Question 26

A unilateral offer arises from…

Answer 26

A unilateral offer arises from a promise that requests acceptance by an action of the promisee.

Question 27

A bilateral contract

Answer 27

asks for a return promise

Question 28

Detrimental Reliance

Answer 28

An offer cannot be revoked if the offeree reasonably and detrimentally relies on the offer in a foreseeable manner.

Question 29

Acceptance of an Offer

Answer 29

Acceptance is a MANIFESTATION OF A WILLINGESS to enter into the agreement.

Question 30

Acceptance usually must be ______ to the other party. Silence generally does not manifest willingness unless____________.

Answer 30

Acceptance usually must be communicated to the other party. Silence generally does not manifest willingness unless there is a past history of silence serving as acceptance.

Question 31

The offeror is the _____________.

Answer 31

Master of the Offer. This means that the offeree MIST accept the offer according to the rules of the offer (whether the offer is bilateral or unilateral)

Question 32

For bilateral contracts ____________ manifests acceptance.

Answer 32

For bilateral contracts, the START OF PERFORMANCE manifests acceptance.

Question 33

For unilateral contracts, the start of performance ________________

Answer 33

For unilateral contracts, the start of performance only makes the offer IRREVOCABLE– the offer is ONLY accepted once PERFORMANCE IS COMPLETE.

Question 34

Acceptance is governed by an objective test, meaning

Answer 34

that the outward appearances of words and actions are determinative— not hidden intentions

Question 35

The offer must be ___________ to the person trying to accept it—-cannot accept an offer directed _____.

Answer 35

The offer must be SPECIFICALLY DIRECTED to the person trying to accept it– cannot accept an offer directed elsewhere (for open-to-all contests and reward offers, the person must KNOW about the contest or reward offer in order to accept it)

Question 36

Remember if a valid offer is terminated __________________ acceptance, the offer is invalidated. It CANNOT be ______ unless _____.

Answer 36

Remember if a valid offer is terminated AT ANY TIME BEFORE acceptance, the offer is invalidated. It CANNOT be ACCEPTED OR REVIVED unless A NEW OFFER IS MADE.

Question 37

Mailbox Rule

Answer 37

An acceptance that is sent by mail, email or fax is valid at the moment of dispatch (not when the letter is received) UNLESS

1. the offeree-sender uses the wrong address or has improper postage
2. the offeror expressly stipulates that the acceptance is valid upon receipt
3. an option contract is involved
4. The offeree-sender sends a termination letter BEFORE the acceptance letter OR if the offeree places a counteroffer/rejection letter in the mailbox and a moment later, places an acceptance in the mailbox, whichever letter the offeror receives and opens first controls.
5. The offeree detrimentally relies on a termination BEFORE he receives the acceptance letter.

Question 38

Mailbox Rule continued. If the offeree-sender places an acceptance letter in the mailbox first,

Answer 38

then the acceptance become effective at the moment of dispatch (unless another exception applies)

Question 39

Counteroffer v Acceptance

A counteroffer operates as both ___ and ___

Answer 39

A counteroffer operates as both a REJECTION THAT TERMINATES THE ORIGINAL OFFER and as FORMATION OF A NEW OFFER.

Question 40

Counteroffer v Acceptance

Mirror Image Rule - Under the _____ the terms in the ____ must match the terms of the _______

Answer 40

Under the COMMON LAW, the terms in the acceptance must match the terms in the offer EXACTLy. Otherwise, it is not an acceptance- it is a counteroffer.

Question 41

UCC 2-207 (Battle of the Forms)

Answer 41

Under the UCC, the acceptance does NOT have to mirror the offer. UCC 2-207 determines whether the purported acceptance (containing new terms) will operate as an acceptance or as a counter offer.

Question 42

UCC 2-207- What does the battle of the forms provision of the UCC state?

Answer 42

1. A definite and seasonable expression of acceptance or written confirmation;
2. which is sent within a reasonable amount of time
3. operates as an ACCEPTANCE even though it states terms additional to or different from those offered or agreed upon
4. UNLESS acceptance is expressly made conditional upon assent to the additional or different terms.

Question 43

If the purported acceptance is valid under 2-207 (Battle of the Forms)- the next issue is…

Answer 43

whether the additional or different terms in the acceptance will govern the contract OR whether UCC gap fillers will be implemented.

Question 44

Under UCC 2-207 (Battle of the Forms) additional terms WILL GOVERN THE CONTRACT if…

Answer 44

BOTH PARTIES ARE MERCHANTS…unless..

1. the initial offer expressly limited acceptance to its terms
2. the additional terms materially alter the deal or
3. the offeror objects to the additional terms within a reasonable amount of time

Question 45

UCC 2-207 “The Knockout Rule”

Answer 45

Most courts apply the knockout rule to determine whether the new terms control or whether UCC gap fillers must be implemented. Under the knockout rule, a distinction is made between “different” and “additional” terms.

Different terms= term that was not included in the original offer that conflicts with the terms of the original offer (offeree changes the price from 5k to 4k for example)

Additional term= term that was not included in the original offer that does NOT conflict with the original offer (eg offeree adds a choice of law provision and sends it back to the offeror)

Question 46

UCC 2-207 “The Knockout Rule” part 2 (different terms)

Answer 46

Under the knockout rule, DIFFERENT TERMS in the original offer and acceptance knock each other out creating a gap in the contract. UCC gap fillers are then used to plug this gap (regardless of whether the parties are merchants). The knockout rule does not apply to ADDITIONAL TERMS added by the offeree. . UCC 2-207 will determine whether the additional terms control or whether UCC gap fillers must be implemented.

Question 47

Consideration definition

Answer 47

Consideration involves a transfer of LEGAL VALUE in BARGAINED FOR EXCHANGE

Question 48

Consideration is present if:

Answer 48

1. the promise incurs a legal detriment OR the promisor receives a legal benefit AND
   a. a legal detriment generally consists of:

i. promising to do something the party has no prior legal duty to do
ii. performing an action that the party is not otherwise obligated to undertake
iii. refraining from or promising to refrain from exercising a legal right which the party is otherwise entitled to exercise.

2. The promise induces the detriment and the detriment induces the promise (bargained for exchange)

Question 49

(Consideration)

Promising not to sue (____ of a legal claim) will constitute a legal detriment so long as

Answer 49

Promising not to sue (settlement of a legal claim) will constitute a legal detriment so long as the party promising not to sue has an honest and good faith belief in the validity of the claim.

Question 50

Gift promises are NOT consideration. For example,

Answer 50

A promises to give B his truck if B will drive 30 minutes away to pick the truck up from A’s house. Here, A’s promise to give B his truck is not induced by B coming to pick the truck up. Thus, A is not bargaining for B to come. This is a conditional gift, not bargained for exchange.

Question 51

Pre-existing legal duties are NOT consideration. For example,

Answer 51

A promises to give B $100 if B stops smoking crack cocaine for 6 moths. Here, B already has a pre-existing legal duty imposed by law (no smoking cocaine). Thus, B incurs no legal detriment, which means consideration is not present.

Question 52

Past consideration is not consideration. For example,

Answer 52

A’s truck catches fire as A is demonstrating the truck’s safety features to B. After the fire erupts, B rushes over and extinguishes the flames saving A’s life. Grateful, A promises to pay B $100 for the rescue. Here, B’s detriment (saving A’s life) was not induced by A’s promise. This is past consideration, not bargained-for consideration.

Question 53

A pretense of consideration is not consideration. For example,

Answer 53

A and B are cousins. A wishes to give B his truck that is valued at 10K as a birthday gift for B’s birthday. Attempting to form an enforceable contract, A “sells” B his truck for $1 solely to meet the consideration requirement. Here, A is not induced to give B his truck for $1. This is merely a pretense for consideration, not bargained-for consideration.

Question 54

An illusory promise is NOT consideration. For example,

Answer 54

A promises to buy B’s truck if “he feels like it.” Here, A is not committing to the deal. This is an illusory promise, not bargained-for consideration.

Question 55

Under _____ contract modification MUST be supported by consideration.

Answer 55

Under COMMON LAW contract modification must be supported by consideration.

Question 56

Preexisting duty rule

Answer 56

The common law follows the pre-existing duty rule which means that a promise to do something that a party is already legally obligated to do (by contract or otherwise) is NOT consideration

Question 57

Pre-Existing Duty Rule Bar exam trick:

Answer 57

Alex rents an apartment from Slumlord for one year at a rent of 1500/mo. Later that year, Alex (running short on cash) and Slumlord both AGREE TO MODIFY the rent to 1000.mo. Here, under the common law, Slumlord CAN SUE ALEX at the end of the month for the extra $500 because there was NO CONSIDERATION for the modification of the contract (Alex had a preexisting legal duty to pay the full 1500)

Question 58

Under the UCC, what is the consideration requirement for modifying a contract?

Answer 58

Under the UCC, there is no consideration requirement. A contract modification is valid if it is made in good faith (ie the UCC DOES NOT APPLY the pre-existing duty rule)

Question 59

Promissory Estoppel-

Answer 59

Promises that LACK CONSIDERATION may STILL BE ENFORCED under the doctrine of promissory estoppel if:

1. the promisor should REASONABLY EXPECT the promise to induce action or forbearance from the promisee;
2. The promise DOES INDUCE such action or forbearance to the promisee’s detriment and
3. injustice can be avoided ONLY BY ENFORCEMENT of the promise.

Question 60

Under the restatement approach, the remedy granted for promissory estoppel ….

Answer 60

may be LIMITED AS JUSTICE REQUIRES. Courts that follow the restatement approach usually limit the P’s recovery to the monetary value of losses incurred in reliance on the promisor’s promise (ie reliance damages).

Question 61

What kind of fact patterns are typical for promissory estoppel?

Answer 61

Fact patterns where gift promises that lack consideration are made to charity organizations. Under the second restatement, a charitable subscription (ie a written promise) or a marriage settlement is BINDING without proof that the promise induced action or forbearance

Question 62

Contracts that lack consideration (___________) may be enforced to avoid ___________ if :

2. 3.

Answer 62

Contracts that lack consideration (quasi-contracts) may be enforced to avoid unfair results if:

1. the plaintiff confers a measurable benefit on the D
2. P reasonably expected to get paid ANd
3. It would be unfair to let the D keep the benefit without paying.

Question 63

Under a quasi-contract theory, the P’s recovery is limited to

Answer 63

restitution (the amount equal to the economic benefit that the plaintiff conferred on the D)

Question 64

Moral Obligation and Subsequent Promise

Answer 64

A few jurisdictions have some case law suggesting that a moral obligation plus a subsequent promise can be binding. Normally, this type of promise would be past consideration and thus nonbinding. For example, Tom’s truck catches fire. Brady rushes over and extinguishes the flames saving Tom’s life. Grateful, Tom promises to pay Brady $100 for the rescue. Here, this is NOT bargained-for-consideration. However, Brady could argue that the promise should be enforced due to the strong moral obligation involved).

Question 65

Defenses to Contract Formation - Incapacity

Answer 65

3 main types of incapacity - infancy, mental illness, and intoxication

Question 66

Infancy - unless ______ a person has the capacity to incur only _________ until the beginning of the day before the person turns 18.

Answer 66

Unless STATUTE PROVIDES OTHERWISE a person has the capacity to incur only VOIDABLE CONTRACUAL DUTIES until they are 18.

Question 67

If a minor enters into a contract with an adult, the minor may choose to either:

Answer 67

1. Disaffirm (rescind) the contract and avoid liability under it; OR
2. Affirm (enforce) the contract and hold adult party liable under it.

Question 68

A person incurs only _____________ by entering into a transaction if by reason of mental illness or defect the individual is unable to
1)
2)

Answer 68

A person incurs only VOIDABLE CONTRACTUAL duties by entering into a transaction if by reason of mental illness of defect the individual is unable to:

1. understand in a reasonable manner the nature and consequences of the transaction or
2. act in a reasonable manner in relation to the transaction AND the other party has reason to know of the condition.

Question 69

If the mentally ill party wishes to avoid liability under the contract, he may ____
However…

Answer 69

disaffirm the contract when lucid or by his legal representative. However, a party to a contract who is mentally ill CANNOT disaffirm the contract if:

1. the contract was made on fair terms AND
2. the other party is without knowledge of the mental illness or defect (eg the mentally ill party is in a lucid state at the time of contracting)

Question 70

Incapacity- Intoxication

A person incurs only ________________ by entering into a transaction if the ___________________________

Answer 70

A person incurs only VOIDABLE contractual duties by entering into a transaction if the other party has reason to know that due to intoxication the individual is unable to:

1. understand in a reasonable manner and the nature and consequences of the transaction or
2. act in a reasonable manner in relation to the transaction.

Question 71

Incapacity- Intoxication

If the intoxicated party wishes to avoid liability under the contract, he must

Answer 71

act promptly upon recovery to disaffirm the contract and is required to return any value received, if possible.

Question 72

(Necessaries Doctrines) When necessaries (eg food, shelter, clothing, healthcare etc) are furnished to a party who lacks capacity (minors, mentally ill persons and intoxicated persons)

Answer 72

the party who lacks capacity is LIABLE for the REASONABLE VALUE of the services or goods (not the agreed-upon price) under a quasi-contract theory of restitutionary recovery.

Question 73

Duty to Mitigate

Answer 73

The plaintiff has a duty to take REASONABLE STEPS TO MITIGATE his losses. If the p fails to do so, the court will REDUCE THE TOTAL DAMAGES by the amount that could have been avoided had the plaintiff taken reasonable steps to mitigate his losses.

Question 74

Expectation Damages - The goal of expectation damages is _________________________________. Expectation damages are measured by _______________.

Answer 74

The goal of expectation damages is to put the non-breaching party in the same economic position that it would be in if the contract had been performed as promised. Expectation damages are measured by comparing the value of the performance without the breach to the value of the performance with the breach.

Question 75

3 major limitations on the calculation of expectation damages:

Answer 75

1. Expectation damages MUST be proven with REASONABLE CERTAINTY. (common fact patterns- new or unproven business ventures that have trouble proving lost profits from a consistent sales record).
2. Unforeseeable consequential damages are NOT recoverable UNLESS the breaching party had some reason to know about the possibility of these unforeseeable damages.

Question 76

General damges:

Answer 76

the type of losses that almost anyone would suffer from a breach (cost of storing rejected goods, finding a new buyer, finding a replacement vendor, etc)

Question 77

consequential damages

Answer 77

the type of losses that are unique or special to THIS PLAINTIFF (losses that arise indirectly from the breach due to the plaintiff’s special circumstances)

Question 78

Anticipatory Repudiation

Under common law…

Answer 78

Under the common law, anticipatory repudiation occurs when a promisor clearly and unequivocally repudiates a promise before the time for performance is due (by words or conduct).

Question 79

Under the common law, repudiation may be retracted until the promisee:

Answer 79

1. acts in reliance on the repudiation
2. signifies acceptance of the repudiation
3. commences an action for breach of contract.

Question 80

Under the UCC, anticipatory repudiation occurs when:

Answer 80

1. the buyer or seller makes an unequivocal refusal to perform OR
2. reasonable grounds for insecurity arise regarding either party’s ability or willingness to perform, and the repudiating party fails to provide adequate assurances within a reasonable time (not to exceed 30 days) upon the non-repudiating party’s demands for such assurance.

Question 81

Under the UCC, anticipatory repudiation may be retracted until…..

Answer 81

the non-repudiating party cancels the contract or materially changes his position.

Question 82

When an anticipatory repudiation occurs, the non-repudiating party may:

Answer 82

1. Treat the repudiation as a breach and sue immediately for damages OR
   - However, if the date of performance has not passed and the only performance left is payment, the non-repudiating party must wait until performance is due and the actual breach occurs before filing suit.
2. Ignore the repudiation, urge performance, and see what happens.
   - However, if the repudiation is ignored, then continued performance by the non-repudiating party must be suspended if the performance would increase the damages of the repudiating party.

Question 83

Substantial Performance - Performance under the common law

Answer 83

Under the common law, substantial performance is required, which means that performance will be satisfied so long as there is NOT a material breach of the contract. If there is a material breach, the non-breaching party’s performance is excused. If the breach is NOT MATERIAL, the non-breaching party’s performance is not excused.

Question 84

Without paying, B joins a tour group that is walking through a downtown area learning about landmark buildings. The tour guide can charge B the fee for the tour because _____

Answer 84

B’s conduct of joining the group implied agreement with the contract. (When conduct indicates assent or agreement, the agreement is considered implied in fact).

Question 85

When presented with a question involving an employment agreement that is NOT AT WILL, use ______ analysis.

Answer 85

a traditional breach of contract analysis.

Question 86

Compare: “What is your lowest price?” to “We can quote you $5 per cross for immediate acceptance.”

Answer 86

The first question is merely an inquiry, whereas the second statement is an offer. Note- for the offeree to accept the offer, the offeree must supply the quantity term in order for the contract to meet who definiteness requirement.

Question 87

If an offer has been accepted, death of the offeror__

Answer 87

does not automatically terminate the contract. the contract may be enforceable unless there is some reason, such as impracticability, that justifies discharge of the contractual obligation.

Question 88

One day 1, A mails an offer to B. On day 2, A mails a revocation to B. If B receives the offer and accepts before receiving the renovation….

Answer 88

a contract is formed

Question 89

Under the UCC firm offer rule, what consideration is needed to keep the offer open?

Answer 89

No consideration by the offeree is needed to keep the offer open under the UCC firm offer rule.

Question 90

A firm offer in a form prepared by the offeree must be _______

Answer 90

separately signed by the offeror to protect against inadvertent signing.

Question 91

Remember that a counteroffer is both _____

Answer 91

a rejection and a new offer. Examine the offer’s statement clearly. It may be a rejection, but it may also be only an inquiry.

Question 92

A offers to paint B’s house for $500. B rejects the offer. A states the offer remains open. Can B change her mind and accept the offer?

Answer 92

Yes, B can change her mind and accept the revived offer.

Question 93

The offeree of a unilateral contract can only accept an offer that _____.

Answer 93

he is aware of. In other words, if the offeree does not become aware of the offer until after acting, then his acts do not constitute acceptance.

Question 94

The mailbox rule applies only to ____ and therefore almost exclusively applies to _____.

Answer 94

The mailbox rule applies only to ACCEPTANCE and therefore applies almost exclusively to bilateral contracts (when there is one promise in exchange for another promise), because bilateral unilateral contracts require action as acceptance.

Question 95

In situations where both parties are merchants, remember that a contract _____ under the terms of acceptance unless ___

Answer 95

In situations where both parties are merchants, a contract exists under the terms of acceptance unless (i) the terms materially alter the agreement, (ii) the offer expressly limits the terms or (iii) the offeror objects to the new terms within a reasonable time after notice of the new terms is received.

Question 96

Define “materially alter”

Answer 96

a term that results in surprise or hardship if incorporated without express awareness by the other party MATERIALLY ALTERS the original contract.

Question 97

Test to distinguish a gift from valid consideration

Answer 97

whether the offeree could have reasonably believed that the intent of the offeror was to induce the action. If yes, there is consideration and the promise is enforceable.

Question 98

A borrower knows that he owes a lender $1,000 today. The borrower promises to repay the loan if the lender promises to lend the borrower an additional $100. The borrower _______ provided consideration.

Answer 98

has not provided consideration

Question 99

A borrower knows that he owes a lender $1,000 tomorrow. The borrower offers to pay the lender $900 today if the lender agrees to forego the additional $100. The lender accepts the offer. The borrower _____ provided consideration.

Answer 99

the borrower HAS provided consideration for the lender’s promise.

Question 100

C contracts with P for P to install plumbing in a house being built by C for H. C subsequently becomes insolvent and walks away from the project. H contracts with P and promises to pay P the same amount P would have received from C if P installs the plumbing. P’s completion of the job constitutes consideration for the promise by H, even though P was already contractually obligated to C to do the work.

What is this an example of?

Answer 100

Exception to the pre-existing duty rule for a third party

Question 101

A is drowning and B dives in and saves A. Grateful to have been saved, A promises B $500. Under the common-law approach, there is no consideration, and the promise is therefore______. It is based on ____.

Answer 101

the promise is therefore unenforceable. It is based on a mere moral obligation arising out of past conduct.

Question 102

Good Faith under the UCC

Answer 102

“Good Faith” requires HONESTY IN FACT and FAIR DEALING IN ACCORDANCE WITH REASONABLE COMMERCIAL STANDARDS. It applies to both merchants and non merchants alike.

Question 103

If a party demands an increased in price because the other party has no choice but to agree, the courts will ))))

Answer 103

invalidated such a bad-faith modification.

Question 104

On Monday, a contractor completes construction of a garage for a homeowner. Under the terms of the contract, the homeowner owes the contractor $40,000 in cash. The homeowner offers to deliver a sports car worth $35,000 to the contractor on Friday in satisfaction of his contractual obligation. The contractor agrees. The contractor’s acceptance of the homeowners offer creates an _____.

Answer 104

ACCORD. Because the homeowner is offering payment in a different form than that called for under the contract (ie a car instead of cash), it does not matter that the car is worth less than $40,000.

Question 105

On Monday, a contractor completes construction of a garage for a homeowner. Under the terms of the contract, the homeowner owes the contractor $40,000 in cash. The homeowner offers to deliver a sports car worth $35,000 to the contractor on Friday in satisfaction of his contractual obligation. The contractor agrees. Then, on Wednesday the contractor changes his mind and seeks to collect the 40k from the homeowner. What happens?

Answer 105

The contractor cannot enforce the original contract. although the debt is not yet satisfied, because there was an accord regarding the sports car, the homeowner’s obligation under the original contract is suspended until Friday.

Question 106

On Monday, a contractor completes construction of a garage for a homeowner. Under the terms of the contract, the homeowner owes the contractor $40,000 in cash. The homeowner offers to deliver a sports car worth $35,000 to the contractor on Friday in satisfaction of his contractual obligation. The contractor agrees. On Friday, the homeowner delivers the sports car to the contractor. This constitutes ______

Answer 106

SATISFACTION. The contractor cannot enforce the contractual obligation of the homeowner to pay 40,000 in cash.

Question 107

Mental Illness - a person incurs only ______ by entering into a transaction if by reason or mental illness or defect the individual is unable to : 1) — 2)—

Answer 107

A person incurs only voidable contractual duties by entering into a transaction is by reason of mental illness or defect, the individual is unable to:

1) understand in a reasonable manner the nature and consequences of the transaction OR
2) act in a reasonable manner in relation to the transaction AND the other party has reason to know of his condition.

Question 108

If the mentally ill party wishes to avoid liability under the contract, he may ______-. However, a party to contract who is mentally ill CANNOT ____ if 1) AND 2)

Answer 108

He may disaffirm the contract when lucid or by his legal representative. However, a party to a contract who is mentally ill CANNOT disaffirm the contract if:

1) the contract was made on fair terms AND
2) the other party is without knowledge of the mental illness or defect (e.g. the mentally ill party is in a lucid state at the time of contracting).

Question 109

Intoxication -

Answer 109

A person incurs only voidable contractual duties by entering into a transaction is the other party has reason to know that due to intoxication, the individual is unable to:

1) understand in a reasonable manner the nature and consequences of the transaction or 2) act in a reasonable manner in relation to the transaction.

Question 110

If the intoxicated party wishes to avoid liability under the contract, he must

Answer 110

act promptly upon recovery to disaffirm the contract and is required to return any value received, if possible.

Question 111

Mutual Mistake

Answer 111

a mutual mistake occurs when both parties are mistaken as to a basic assumption on which the agreement is made.

Question 112

With mutual mistake, the adversely affected party may rescind the deal if:

Answer 112

1) there is a mistake of fact, existing at the time that the deal is made
2) the mistake relates to a basic assumption of the contract
3) the mistake has a material impact on the deal and
4) the impacted party did not ASSUME THE RISK of the mistake

Question 113

With mutual mistake, the impacted party assumes the risk when:

Answer 113

1. he is aware, at the time the contract is made, that he has only limited knowledge regarding the facts to which the mistake relates but creates his limited knowledge as sufficient OR
2. the risk is allocated to him by agreement of the parties (e.g. “as is” contracts)

Question 114

Unilateral mistake

Answer 114

A unilateral mistake is a mistake made by ONE party that is unknown to the other party. The adversely affected party may rescind the deal if:

1. there is a mistake of fact, existing at the time that the deal is made;
2. the mistake relates to a basic assumption of the contract
3. the mistake has a material impact on the deal
4. The impacted party did not assume the risk AND
5. The mistake would make the contract unconscionable OR the other side knew of, had reason to know of, or caused the mistake.

Question 115

A misrepresentation is a statement _______. It can be ____ or _______. To assert this defense, the park must show:

2. 3.

Answer 115

A misrepresentation is a statement at the time of contracting that is NOT TRUE. It can be intentional (fraudulent) or accidental. To assert this defense, the party must show:

1. a misrepresentation of a present fact (not opinion)
2. That is material or fraudulent (knowingly or reckless) AND
3. That is made under circumstances in which it is justifiable to rely on the representation.

Question 116

Duress- when is a contract VOID and when is a contract VOIDABLE

Answer 116

A contract is VOID if a party to the contract is compelled by physical duress, such as the threat to inflict physical harm (sign this or I’ll break your legs).

Otherwise, a contract is VOIDABLE by the adversely affected party if the adversely affected party’s assent is induced by an IMPROPER THREAT that leaves the adversely affected party no reasonable alternative.

Question 117

A threat is improper if:

Answer 117

1. What is threatened is a crime or tort, or the threat itself would be a crime or tort if it resulted in obtaining property;
2. What is threatened is a criminal prosecution
3. What is threatened is the use of civil process AND the threat is made in bad faith.
4. The threat is a breach of the duty of good faith and fair dealing under a contract with the recipient OR
5. The resulting exchange is NOT on fair terms; AND
   a. The threatened act would harm the recipient and would not significantly benefit the party making the threat;
   b. the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat OR
   c. What is threatened is otherwise a use of power for illegitimate ends.

Question 118

Undue Influence

Answer 118

A contract is VOIDABLE by the adversely affected party if the adversely affected party’s assent is induced

1) due to the adversely affected party’s susceptibility to pressure AND
2) the other side’s application of excessive pressure

Question 119

Good faith requires _____. The definition of “good faith” no longer _____

Answer 119

Good faith requires honesty in fact and fair dealing in accordance with reasonable commercial standards. The definition of “good faith” no longer limits the fair dealing prong of the rule to merchants. The same definition of good death applies to all parties.

Question 120

The following contracts are NOT valid unless they satisfy the statute of frauds (usually requires that the contract be a signed writing):

Answer 120

Marriage
Suretyship
One Year
UCC
Real Estate