Unit 4: Contracts

Question 1

Contract

Answer 1

Agreement between private parties that’s enforceable by law

Question 2

What rules govern a contract?

Answer 2

• UCC
• Common Law

Question 3

What contracts does common law cover?

Answer 3

Covers contracts for:
- Services
- RE
- Employment
- Insurance

Question 4

What does the UCC cover contracts for?

Answer 4

Covers sale of tangible & moveable goods

Goods/services $500+ require sales contract signed by party

Question 5

(4) Requirements for a valid contract

Answer 5

1. Agreement
2. Consideration
3. Contractual Capacity
4. Legality

Question 6

Agreement (Contract)

Answer 6

Offer & acceptance
Accept/reject/counteroffer

Question 7

Revocation

Answer 7

Person who made offer can withdraw up to the point the offer is accepted

Question 8

Consideration (Contract)

Answer 8

Both parties must give something of value to have a contract, doesn’t have to be cash

Question 9

Legal Sufficient value

Answer 9

A promise to do something
Performance of an action
Refrain from an action

Question 10

Contractual Capacity (Contract)

Answer 10

legally able to get into a contract
Minors can enter a contract but voidable if they choose (disaffirmance)
Intoxication
Mental Incompetency

Question 11

Types of Contracts

Answer 11

Bilateral - promise for a promise
Unilateral - promise for an act
Formal
Informal - most contracts, oral/written
Executory - still need to do actions
Executed

Question 11

Legality (Contract)

Answer 11

Contract must be made for legal purposes

Unconscionable contract is no bueno

Procedural - didn’t get to read the contract, or it was written to be hard to understand
Substantive - contract is oppressive/really harsh

Question 12

Contracts that must be in writing to be enforceable

Answer 12

• RE
• Sales of goods (UCC) $500+
• Takes more than 1yr to complete
• Marriage contracts

Question 13

Voluntary Consent

Answer 13

Meeting of the minds, genuinely agree to terms of the contract

Question 14

When to argue no consent?

Answer 14

When there is a mistake in the contract.

Question 15

Contract Mistakes

Answer 15

Unilateral Mistake - error made by 1 person, contract is still enforceable unless the other party knows of the error or it’s a math error

Bilateral Mistake - both parties made an error

Question 16

Mistake of Value

Answer 16

Mistake of what it’s worth, future value is irrelevant, contract is enforceable

Question 17

Reason to argue no voluntary consent?

Answer 17

Fraudulent misrepresentation
Undue influence
Duress

Question 18

Anticipatory Repudiation

Answer 18

one party notifies the other that they won’t complete the contract

Question 19

Novation (Contract)

Answer 19

both parties agree to substitute a 3rd party for one of the original parties

Question 20

Accord & Satisfaction

Answer 20

Accept something different than what’s in the original contract

Accord: contract to perform to satisfy existing contractual duty
Satisfaction: performance of the accord

Question 21

Operation of Law (Discharge)

Answer 21

Beyond control of parties
- altered written contract w/o consent
- statute of limitations
- bankruptcy
- Impossibility to perform

The limitations period for bringing suits for breach of oral contracts usually is two to three years, and for written contracts, four to five years. Parties generally have ten to twenty years to file for recovery of amounts awarded in judgments, depending on state law.

Question 22

Damages (Contract)

Answer 22

Compensatory - $$, covers direct loss & costs
Consequential - covers indirect & foreseeable losses
Punitive - rare, punishment
Nominal - recognize wrongdoing when no monetary loss shown, no $
Liquidated - contract lists amount to be pd if contract is breached
Penalty: punish/penalize breaching party

Question 23

Open terms

Answer 23

used to fill gaps in a contract

ex: Toy store owner emails toy maker to buy another batch of toys, toy maker sends bill after products and the price is higher than in the past. Court can use previous invoices/purchase price to grant remedy

Question 24

Requirement Contract

Answer 24

I’ll buy w/e I need from you, the seller

Question 25

Output Contract

Answer 25

W/e I produce, I will sell to the buyer

Question 26

Merchant’s Firm Offer

Answer 26

Written/signed offer to a buyer

ex: Used car dealership offers to sell a specific car for a specific price for a certain time period

Question 27

Insurable Interest

Answer 27

Protects against damage/loss/destruction of goods
Both buyer and seller can have (ex renter’s insurance)
Right to recover from 3rd parties who damaged the goods

Question 28

Tender of Delivery

Answer 28

Obligation of the seller
Make goods available to buyer in a reasonable/timely manner

Question 29

Perfect tender rule

Answer 29

Buyer entitled to receive exactly what was agreed upon in the contract

Question 30

Remedies for breach (Seller)

Answer 30

Right to cancel
Right to withhold delivery
Right to resell goods

Question 31

Remedies for breach (Buyer)

Answer 31

Right to cancel
Right to obtain specific performance
Right of cover
Right of Replevin

Question 32

Right of Cover

Answer 32

Seller can sue for the difference between cost of getting substituted goods and the contract price

Question 33

Right of Replevin

Answer 33

Recover property that’s wrongfully taken or held

ex: Person rents equipment but doesn’t return as outlined in the contract

Question 34

Warranty

Answer 34

Assurance by seller about the quality and features of a good being sold

Question 35

Warranty of Title

Answer 35

Seller has good title to sell the items

Question 36

Express Warranty

Answer 36

Concerns the quality, condition, description, or performance potential

Only applies to factual statements, not opinions

Question 37

Implied Warranty of Merchantability

Answer 37

Fit for ordinary purpose

To be merchantable, goods must be “reasonably fit for the ordinary purposes for which such goods are used.”

They must be of at least average, fair, or medium-grade quality.

They must conform to the promises or affirmations of fact made on the container or label, if any.

Question 38

Implied Warranty of Fitness for Particular Purpose

Answer 38

Applies when the seller knows:
1. Purpose the buyer will use the goods
2. Buyer relied on skills/judgement of seller to select suitable goods

Question 39

WGU tells all employees if they complete the voluntary training, “Communicating with Pets, empathy training for our four-legged friends” by December 15, 2023, they will pay each employee who completes the program $250. Gail, a mentor, ignores the offer, Beverly, a mentor, starts the training but doesn’t finish it until March of 2024 and Elin, a course instructor and dog lover, completed the training on November 2, 2023. Who does WGU owe money and when is that money due?

1) WGU owes all employees $250 in their December paycheck.
2) WGU owes Gail and Elin, because they both completed the course.
3) WGU owes Elin, because she completed the course timely, they are free to pay her when they get around to it.
4) WGU owes Elin, because she completed the course timely, money is owed as of November 2, 2023, when the course was completed.

Answer 39

4) WGU owes Elin, because she completed the course timely, money is owed as of November 2, 2023, when the course was completed.

Question 40

Under the Uniform Commercial Code, and without the parties agreeing to the contrary in the contract, when is a title passed from the seller to the buyer for the sale of goods?

1) During delivery of the goods to a shipping company
2) During receipt of the goods by a buyer
3) During physical acceptance of the goods by a buyer
4) During receipt of the goods by a buyer and delivery of physical title to a shipping company

Answer 40

1) During delivery of the goods to a shipping company

Question 41

The doctrine of substantial performance states that a party, who in good faith, performs substantially all the terms of a contract can enforce the contract against the other party.

What is a basic requirement for performance to qualify as substantial?

1) The performance may vary greatly from the performance promised in the contract.
2) The performance must not create substantially the same benefits as those promised in the contract.
3) There is an intentional failure to comply with the contract terms.
4) There is a minor omission that can be remedied by monetary damages.

Answer 41

4) There is a minor omission that can be remedied by monetary damages.

Question 42

A client owed an accountant $2,500 for an accounting service provided. The client believed that the services the accountant provided cost less than $2,500 because they did not seem difficult, based on the client’s judgment. When the accountant demanded payment, the client sent a check for $2,250 marked “tendered in full satisfaction.” The accountant endorsed and cashed the check.

Which type of settlement agreement is this?

1) Accord and satisfaction
2) Bargained-for-exchange
3) Novation
4) Mutual rescission

Answer 42

1) Accord and satisfaction

Question 43

Buddy Hobbs ordered 1200 Santa Hats from Christmas Supply Inc. Purchase Price for each hat is $7.00, he planned to sell them for $20.00 each. The hats were to be delivered on Friday, July 7th. Buddy told Christmas Supply he needed them no later than Friday, because on Saturday he had a booth at the Santa Claus Convention, his biggest sales event of the year. Christmas Supply breached the contract when they failed to deliver the hats? Does Buddy have a claim for damages?

1) Buddy can seek compensatory damages
2) Buddy had a duty to mitigate and can only seek the difference between cost and price paid for the replacement hats.
3) Buddy can seek consequential damages
4) Buddy can get nominal damages and Christmas Supply will be hit with punitive damages for missing Christmas.

Answer 43

3) Buddy can seek consequential damages

Question 44

Shelly Sender is shopping for a new car. She goes to Slippery Eddies used cars and finds the perfect vehicle, a 2019 Ford F150 XLT truck. On the front window, in big letters, it read “as is”. Shelly talks to the salesperson, who tells her it was owned by a little old lady who only drove it church on Sundays and she agrees to buy the vehicle for $32,000. While signing the paperwork she is shown the statement that say no warranties come with this vehicle. Shelly drives away and six day later she has transmission problems, she goes back to Slippery Eddie and tells him he sold her a lemon and demands her money back. Eddie says all sales are final. What warranty claim does Shelly have against Eddie?

1) The warranty of merchantability
2) The warranty of good title
3) The warranty of fitness for a particular purpose
4) Eddie made a warranty Disclaimer

Answer 44

4) Eddie made a warranty Disclaimer

Warranty Disclaimers – UCC allows warranties to be disclaimed or limited by specific and unambiguous language. Must be language that is clear and conspicuous and called to buyers’ attention.

Question 45

Bean Processor Inc. agrees to ship a certain quantity of coffee beans to Coffee Café LLC. Bean sends to Coffee an e-mail indicating that the parties intended to form a contract. Against Bean, as a contract, the e-mail will be sufficient

1) under no circumstances.
2) if it is signed by Coffee.
3) if Coffee responds with an acknowledgment of the deal.
4) if it is signed by Bean.

Answer 45

4) if it is signed by Bean

This case is an illustration of a firm offer made to Coffee Café by Bean. The electronic signature in an email is sufficient to meet the requirement that the offer be both written and signed.

Question 46

Dona offers to sell her used sofa, chair, coffee table, end table, and lamp to Etta for $700. Etta responds that she will pay that price if Dona’s TV set is included. Neither party is a merchant. Their contract is formed according to

1) under no circumstances.
2) the terms of the original offer.
3) whatever is reasonable.
4) the new terms of the acceptance.

Answer 46

2) the terms of the original offer

In the law of contracts, the mirror image rule, also referred to as an unequivocal and absolute acceptance requirement, states that an offer must be accepted exactly with no modifications. The offeror is the master of their own offer. An attempt to accept the offer on different terms instead creates a counteroffer, and this constitutes a rejection of the original offer. Therefore, they proceed according to the terms of the original offer.

Question 47

Elegant Carpet Inc. agrees to sell a certain quantity of carpeting to Fabulous Floor stores under a shipment contract. Elegant must

Incorrect deliver the goods to a particular destination.
2) allow the buyer to reject the goods for any reason.
3) inspect the goods before shipping it.
4) place the goods in the hands of a carrier.

Answer 47

4) place the goods in the hands of a carrier.

A shipment contract requires or authorizes the seller to ship goods by a carrier, rather than to deliver them at a particular destination

Under a shipment contract, unless otherwise agreed, the seller must do the following:
1. Place the goods into the hands of the carrier.
2. Make a contract for their transportation that is reasonable according to the nature of the goods and their value. (For instance, certain types of goods need refrigeration in transit.)
3. Obtain and promptly deliver or tender to the buyer any documents necessary to enable the buyer to obtain possession of the goods from the carrier.
4. Promptly notify the buyer that shipment has been made

Question 48

A landlord offers a 12-month lease to a tenant for the third floor of the landlord’s three-story home. The landlord provides the tenant only with the final page of the lease to sign, stating that the rest of the contract is all legalese and boilerplate. The lease provided that the tenant would have to submit to arbitration.

Which claim could this tenant bring to set aside the lease?

1) Rescission
2) Substantive unconscionability
3) Accord and satisfaction
4) Procedural unconscionability

Answer 48

4) Procedural unconscionability

The tenant’s lack of opportunity to read and review parts of the contract will likely qualify as procedural unconscionability, likely allowing the tenant remedies for any harm.