Themis MBE Contracts

Question 1

Define the parol evidence rule.

Answer 1

The parol evidence rule generally prevents a party to a written contract from presenting extrinsic evidence of a prior or contemporaneous agreement that contradicts the terms of the contract as written.

Question 2

What requirements must be met to allow an adversely affected party to void a contract based on mutual mistake?

Answer 2

(i) Mistake of fact existing at the time the contract was formed;
(ii) The mistake relates to a basic assumption of the contract;
(iii) The mistake has a material impact on the transaction; and
(iv) The adversely affected party did not assume the risk of the mistake.

Question 3

What is a requirements contract?

Answer 3

A requirements contract is a contract under which a buyer agrees to buy all that is required of a product from the other party. There is consideration in these agreements because the promisor suffers a legal detriment.

Question 4

At what point can repudiation no longer be retracted?

Answer 4

Repudiation may be retracted until such time as the promisee

(i) acts in reliance on the repudiation,
(ii) signifies acceptance of the repudiation, or
(iii) commences an action for breach of contract.

Question 5

If a destination contract authorizes the seller to ship the goods by carrier, when does the risk of loss shift from the seller to the buyer?

Answer 5

Once the goods are delivered to a particular place (specified in the contract)

Question 6

When is the implied warranty of merchantability implied, and how is it disclaimed?

Answer 6

The implied warranty of merchantability is implied whenever the seller is a merchant.

The disclaimer can be oral, but must use the term “merchantability” and must be conspicuous if in writing. Language that indicates there is no implied warranty is sufficient (e.g., “as is” or “with all faults”).

Question 7

Under the Second Restatement, can an extrinsic term that would “naturally be omitted” from a writing be introduced?

Answer 7

Yes, so long as it does not contradict the writing.

Question 8

Define condition precedent.

Answer 8

A condition that precedes the obligation to perform

Question 9

What is the difference between a void and voidable contract?

Answer 9

A void contract results in the entire transaction being regarded as a nullity, as if no contract existed between the parties; the contract is unenforceable.

A voidable contract operates as a valid contract unless and until one of the parties takes steps to avoid it.

Question 10

Define constructive condition of exchange.

Answer 10

When a party’s performance can be rendered at the same time as the other party’s performance, each party’s performance is conditioned on the other party’s performance; both parties’ performances are due simultaneously, unless the language or circumstances indicate otherwise.

Question 11

What types of contracts are governed by the UCC?

Answer 11

Any contract involving the sale of goods

Question 12

When is the warranty of fitness for a particular purpose implied, and how is it disclaimed?

Answer 12

The warranty of fitness for a particular purpose is implied whenever the seller has reason to know that

(i) the buyer has a particular use for the goods, and
(ii) the buyer is relying upon the seller’s skill to select the goods.

A disclaimer must be in writing and be conspicuous.

Question 13

Define fraud in the inducement, and state its effect on a contract.

Answer 13

Fraud in the inducement occurs when a fraudulent misrepresentation is used to induce another to enter into a contract.

Effect: Contract is VOIDABLE by the adversely affected party if she justifiably relied on the misrepresentation in entering into the agreement.

Question 14

Under the UCC, in what two circumstances does the seller have a right to cure a defective tender?

Answer 14

(i) The time for performance under the contract has not yet elapsed; or
(ii) The seller had reasonable grounds to believe that the buyer would accept despite the nonconformity.

Note: The seller must give notice of the intent to cure and make a new tender of conforming goods.

Question 15

What are four forms of consideration?

Answer 15

Consideration can take the form of:

1. A return promise to do something
2. A return promise to refrain from doing something legally permitted
3. The actual performance of some act
4. Refraining from doing some act

Question 16

What is the basic concept of legal detriment?

Answer 16

There must be something of substance, either an act or a promise, which is given in exchange for the promise that is to be enforced.

Question 17

What are the three events that would cause the rights of an intended beneficiary to vest?

Answer 17

The rights of an intended beneficiary vest when the beneficiary:

i) Materially changes position in justifiable reliance on the rights created;
ii) Manifests assent to the contract at one party’s request; or
iii) Files a lawsuit to enforce the contract.

Question 18

What is an implied-in-fact contract?

Answer 18

An implied-in-fact contract is a contract that results when a person’s assent to an offer is inferred solely from the person’s conduct. To be contractual bound, the person must not only intend the conduct but also know or have reason to know that the conduct may cause the offeror to believe the offer was accepted.

Question 19

Define offer.

Answer 19

An offer is an objective manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree.

Question 20

What is an illusory promise?

Answer 20

An illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. Such a promise is not legally binding (i.e., void).

Question 21

Define acceptance.

Answer 21

An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer.

Question 22

When is a plaintiff entitled to restitutionary recovery, and how is it measured?

Answer 22

When a defendant is unjustly enriched by the plaintiff, restitution generally allows the plaintiff to recover on the benefit conferred by the plaintiff upon the defendant.

Generally, the benefit is measured by either

(i) the reasonable value of the defendant obtaining that benefit from another source, or
(ii) the increase in the defendant’s wealth from having received that benefit.

Question 23

Define intended beneficiary.

Answer 23

One to whom the promisor will pay directly to relieve the promisee from a debt or whom the promisee intends to give the benefit of the promised performance

Question 24

What are the rights of the assignee?

Answer 24

An assignee takes all of the rights of the assignor as the contract stands at the time of the assignment, but she takes subject to any defenses that could be raised against the assignor.

Question 25

Define accord and satisfaction.

Answer 25

Under an accord agreement, a party to a contract agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other party’s existing duty.

A “satisfaction” is the performance of the accord agreement; it will discharge both the original contract and the accord contract.

Question 26

Define condition subsequent.

Answer 26

A condition that excuses the duty to perform after a particular event occurs

Question 27

When is a revocation of an offer, sent by mail, effective?

Answer 27

Upon receipt. (Example: On 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 revocation, a contract is formed.)

Question 28

[UCC Firm Offer Rule] Under the UCC, what three requirements must be met for an offer to buy or sell goods to be an irrevocable firm offer?

Answer 28

(i) The offeror is a merchant;
(ii) There is an assurance that the offer is to remain open; and
(iii) The assurance is contained in a signed writing from the offeror.

Question 29

What is the difference between an assignment and a delegation?

Answer 29

An assignment is the transfer of rights under a contract, and a delegation is the transfer of duties and obligations under the contract.

Question 30

Define the common-law four-corners rule.

Answer 30

Under the common law, a court was permitted to look only to the writing itself (within the “four corners” of the document) for evidence of intent (regarding whether there is total, partial, or no integration).

Question 31

When a preexisting duty is at issue, what two options does a promisor have to create valid consideration?

Answer 31

The promisor can:

1. Give something in addition to what is already owed
2. Vary the preexisting duty in some way

Question 32

What is the formula for expectation damages?

Answer 32

Expectation Damages = loss in value + other loss - cost avoided - loss avoided

Question 33

Under the common law, what terms must be covered in order for a contract to be formed?

Answer 33

All essential terms (i.e., the parties, subject matter, price, and quantity)

Question 34

If a shipment contract authorizes the seller to ship the goods by carrier, when does the risk of loss shift from the seller to the buyer?

Answer 34

Once the goods are delivered to the carrier

Question 35

When is the doctrine of anticipatory repudiation applicable, and in what manner must the repudiation be made?

Answer 35

The doctrine of anticipatory repudiation is applicable when a promisor repudiates a promise BEFORE the time for performance is due. The repudiation must be clear and unequivocal, may be by conduct or words, and, if a statement, must be made to the promisee or a third-party beneficiary or assignee of the promise.

Question 36

State the common-law mirror-image rule.

Answer 36

The common-law mirror-image rule states that the acceptance must mirror the terms of the offer. Any change to the terms of the offer, or the addition of another term not found in the offer, acts as a rejection of the original offer and as a new counteroffer.

Question 37

What types of contracts are governed by the common law?

Answer 37

Contracts for services or real estate

Question 38

How is a bilateral offer accepted?

Answer 38

An offer requiring a promise to accept can be accepted either with a return promise or by starting performance.

Question 39

What doctrine comes into play when an unexpected event arises that destroys one party’s purpose in entering into the contract, but performance of the contract is not rendered impossible?

Answer 39

The doctrine of frustration of purpose.

The frustrated party is entitled to rescind the contract without paying damages.

Note: The event that arises must not be the fault of the frustrated party, and its nonoccurrence must have been a basic assumption of the contract.

Question 40

What is the difference between a gift and valid consideration?

Answer 40

The test to distinguish a gift from valid consideration is 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 41

Under the mailbox rule, when is acceptance effective?

Answer 41

An acceptance that is mailed properly (i.e., correct postage and address) within the allotted response time is effective when sent as opposed to on receipt, unless the offer provides otherwise.

Question 42

Who lacks the capacity to make a contract?

Answer 42

(i) Minors (under the age of 18);
(ii) People who are mentally ill;
(iii) People who are intoxicated; and
(iv) People whose property is under guardianship by reason of adjudication.

Question 43

How is a unilateral offer accepted?

Answer 43

Acceptance of an offer for a unilateral contract requires complete performance.

Note: Once performance has begun, the unilateral offer is irrevocable for a reasonable period of time to allow for complete performance unless there is a manifestation of a contrary intent.

Question 44

What is the main difference between contract modification under the common law and contract modification under the UCC?

Answer 44

At common law, modifications require consideration; under the UCC, they require only good faith.

Question 45

What are the requirements of a writing for contracts that fall under the Statute of Frauds?

Answer 45

The writing must:

(i) Be signed by the party against whom enforcement is sought; and
(ii) Contain the essential elements of the deal.

Question 46

What is an output contract?

Answer 46

An output contract is a contract under which a seller agrees to sell all that she manufactures of a product to the buyer. There is consideration in these agreements because the promisor suffers a legal detriment.

Question 47

If a party has substantially complied or performed with a constructive condition, what can the party recover?

Answer 47

In general, the party can recover the contract price minus any amount that it will cost the other party to obtain the promised full performance.

Note: A party who has not substantially performed generally cannot recover damages based on the contract, but she may be able to recover through restitution.

Question 48

What three conditions must be met for the defense of impracticability to be available?

Answer 48

(i) An unforeseeable event has occurred;
(ii) Nonoccurrence of the event was a basic assumption on which the contract was made; and
(iii) The party seeking discharge is not at fault.

Question 49

Under the common law, why was something given in the past not considered adequate consideration for a new contract?

Answer 49

Under the common law, past consideration is typically not adequate consideration because it could not have been bargained for, nor could it have been done in reliance upon a promise.

Note: there is a modern trend toward enforcing such promises under the material benefit rule.

Question 50

Define incidental beneficiary.

Answer 50

One who benefits from a contract even though there is no contractual intent to benefit that person

Note: An incidental beneficiary has no rights to enforce the contract.

Question 51

Under the common law, if the breach is material, what remedies can be sought by the nonbreaching party?

Answer 51

The nonbreaching party is able to withhold any promised performance and pursue remedies for breach, including damages.

Note: If the breach is minor, the nonbreaching party may be able to recover damages, but that party also still must perform under the contract.

Question 52

Under the UCC, what is required by the “perfect tender rule”?

Answer 52

The perfect tender rule requires perfect goods and perfect delivery. “Perfect” means in accordance with the contract provisions or in accordance with the UCC if the contract is silent on tender.

Question 53

When may a nonbreaching party pursue specific performance as a remedy?

Answer 53

When damages are an inadequate remedy, the nonbreaching party can pursue specific performance.

Note: Legal remedies are often inadequate in contracts for land or other unique goods.

Question 54

Define the material benefit rule.

Answer 54

Under the material benefit rule, when a party performs an unrequested service for another party that constitutes a material benefit, the modern trend permits the performing party to enforce a promise of payment made by the other party after the service is rendered, even though, at common law, such a promise would be unenforceable due to lack of consideration.

Question 55

Define fraud in the factum, and state its effect on a contract.

Answer 55

Fraud in the factum (or fraud in the execution) occurs when the fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction.

Effect: No contract is formed, and the apparent contract is VOID.

Question 56

Under the UCC, even if the terms of a written contract for the sale of goods appear to be unambiguous, what evidence can be presented to explain or supplement the contract?

Answer 56

Course of performance, course of dealing, and trade usage.

Note: If the express contract terms are inconsistent with the course of performance, or trade usage, priority is given to the express terms, followed by course of performance, course of dealing and trade usage.

Question 57

When are objective and subjective standards each used to determine whether a condition is satisfied?

Answer 57

The preferred method is an objective standard based upon whether a reasonable person would be satisfied. However, when the aesthetic taste of a party determines whether the other party’s performance is satisfactory, satisfaction is determined under a subjective standard.

Question 58

[Battle of the Forms] Under the UCC, when both parties are merchants, an additional term in the acceptance is automatically included in the contract, unless: (Name the 3 exceptions)

Answer 58

(i) The term materially alters the original contract;
(ii) The offer expressly limits acceptance to the terms of the offer; or
(iii) The offeror has already objected to the additional terms, or objects within a reasonable time after notice of them was received.

Note: If any one of these three exceptions is met, the term will not become part of the contract, and the offeror’s original terms control.

Question 59

Define consideration.

Answer 59

Consideration is evidenced by a bargained-for exchange in legal position between the parties. Most courts conclude that consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.

Question 60

What are consequential damages?

Answer 60

Consequential damages arise out of special circumstances unique to the parties to the contract, rather than arising necessarily from the transaction itself.

Question 61

What three factors does a court use to determine if restitutionary recovery is available in a quasi-contract situation?

Answer 61

A court may allow restitutionary recovery if:

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 because either
   (i) the defendant had the opportunity to decline the benefit but knowingly accepted it, or
   (ii) the plaintiff had a reasonable excuse for not giving the defendant such opportunity.

Question 62

What are the three requirements for a promise to be binding under promissory estoppel?

Answer 62

(i) The promisor should reasonably expect it to induce action or forbearance on the part of the promisee or a third person;
(ii) The promise does induce such action or forbearance; and
(iii) Injustice can be avoided only by enforcement of the promise.

Question 63

Name the types of contracts that fall within the Statute of Frauds.

Answer 63

Marriage - a contract made upon the consideration of marriage;
Suretyship - a contract to answer for the debt or duty of another;
One year - a contract that cannot be performed within one year from its making;
UCC - under the UCC, a contract for the sale of goods for a price of $500 or more; and
Real Property contract - a contract for the sale of an interest in real property.

(Acronym: Mr. SOUR)

Question 64

Under the UCC, what essential term(s) are required for a contract to be formed?

Answer 64

Quantity

Note: The UCC “fills the gap” if other terms are missing.