Vocab

Question 1

Contract

Answer 1

A legally enforceable promise that can be either oral or in writing.

Question 2

When to Use UCC

Answer 2

Has been adopted in every state except Louisiana

Any contract that involves a sale of goods (as opposed to land or services)

Question 3

When to Use Common Law

Answer 3

Anything except the sale of goods. Often applies to services and real estate.

Question 4

Goods

Answer 4

All things movable at the time they are identified as items to be sold under a contract. Thus, most tangible things (e.g., cars, books, groceries) are goods.

Question 5

What happens to contracts that involve both goods and services/land/etc.?

Answer 5

The court will decide upon the applicable law, common law or UCC, by looking at which part of the contract is dominant; i.e., the court will ask, is this primarily a contract for the sale of goods or of services?

Note, that if the contract divides payment between goods and services, then the UCC will apply to the goods and common law will apply to the services portion.

Question 6

Elements of a Contract

Answer 6

Mutual Assent
Manifested by an offer and acceptance of the offer,
Consideration (includes a bargained for exchange and legal value)

Question 7

Consideration

Answer 7

Bargained for Exchange

Of Legal Value

Question 8

Things That Aren’t Consideration

Answer 8

Gifts (no exchange of value)
Past Consideration (payment for something that has already been performed)
An Act that a Party Is Already Legally Obligated to Perform (i.e. a police officer cannot claim a reward for finding a missing child because it's his job to do so).

Question 9

Times Consideration is Not Required

Answer 9

Promissory Estoppel

Question 10

Promissory Estoppel

Answer 10

A promise is binding even without consideration if the promisor could reasonably expect that the promisee would rely on the promise and the promisee did actually rely on the promise to her detriment.

Question 11

General Rules for Contracts

Answer 11

Contracts are construed as a whole;

Words are generally given their ordinary meaning;

Written or typed terms prevail over printed provisions (which indicate a form contract);

Custom and usage in a business and locale (where the contract was made or performed) is considered;

The interpretation that results in the contract being valid and enforceable is preferred; and

Ambiguities are construed against the party preparing the contract.

Question 12

Parol Evidence Rule

Answer 12

Other expressions (typically testimony) will not be admitted to vary or change a written contract if the writing is an integration (meaning the parties intended it to be a final draft of the bargain).

An integration can be full or partial. If full (meaning it was intended to be the complete bargain), the written contract cannot be contradicted or supplemented. If partial, the parol evidence rule allows the contract to be supplemented by proving additional consistent terms.

Question 13

Integration

Answer 13

Meaning the parties intended that the written contract would be the final expression of their bargain, rather than a draft or points for discussion.

An integration can be full or partial. If full (meaning it was intended to be the complete bargain), the written contract cannot be contradicted or supplemented. If partial, the parol evidence rule allows the contract to be supplemented by proving additional consistent terms.

Question 14

Full Integration

Answer 14

The contract was intended to be the complete bargain as is. Thus the written contract cannot be contradicted or supplemented.

Question 15

Partial Integration

Answer 15

The contract was not intended to be complete and the parol evidence rule allows the contract to be supplemented by proving additional consistent terms.

Question 16

Exceptions to the Parole Evidence Rule

Answer 16

It does not apply to evidence offered to show lack of consideration, fraud, duress, or mistake because those issues go to whether there was a contract at all rather than which terms are included.

Question 17

Perfect Tender

Answer 17

Required by the UCC (which applies to goods).

The delivery and condition of the goods must be exactly as promised in the contract.

The parties must act in good faith (honesty and the observance of reasonable commercial standards of fair dealing).

Question 18

Good Faith under the UCC

Answer 18

Honesty and the observance of reasonable commercial standards of fair dealing.

Question 19

Defenses to Formation and Enforcement

Answer 19

Fraud and Misrepresentation
Legal Incapacity
Mutual Mistake
Unconscionability
Statute of Frauds

Question 20

Defenses to Formation and Enforcement (voiding the contract)

Answer 20

Fraud and Misrepresentation
Legal Incapacity
Mutual Mistake
Unconscionability
Statute of Frauds

Question 21

Legal Incapacity

Answer 21

Minors, mentally incompetent, and people who are so intoxicated that they don’t know what they are doing cannot enter into contracts.

A minor who enters into a contract is excused, but if the contract was with an adult, the adult may still be required to perform.

Question 22

Legal Incapacity

Answer 22

Minors, mentally incompetent, and people who are so intoxicated that they don’t know what they are doing cannot enter into contracts.

A minor who enters into a contract is excused, but if the contract was with an adult, the adult may still be required to perform.

Question 23

Mutual Mistake

Answer 23

When both parties entering into a contract are mistaken about existing facts relating to the agreement, the contract may be voidable by the affected party if

(i) the mistake concerns a basic assumption on which the contract is made
(ii) the mistake has a material effect on the agreement
(iii) the party seeking avoidance did not assume the risk of the mistake.

Question 24

Unconscionability

Answer 24

This concept allows a court to refuse to enforce a provision or an entire contract (or to modify a contract) to avoid “unfair” terms. Often this is because of unfair surprise or unequal bargaining power.

Question 25

Statute of Frauds

Answer 25

Certain agreements must be in writing and signed by the parties to be bound to be enforceable. Note that this doesn’t say the contract must be writing—there only needs to be a writing that memorializes the material terms.

Transactions that must be in writing to be enforceable include interests in land, marriage, contracts where one party becomes a guarantor on the debt of another person, goods priced at $500 or more, and contracts that cannot be performed within one year.

Question 26

Ways to Excuse or Discharge Performace (without voiding the contract)

Answer 26

Conditions
Impossibility, Impracticability, and Frustration of Purpose
Illegality

Question 27

Conditions that Excuse or Discharge Performance

Answer 27

A contract may provide that a party does not have a duty to perform unless some condition is fulfilled. In such a case, the party’s failure to perform will normally be justified if the condition was not fulfilled. A condition normally means either (i) an event or state of the world that must occur or fail to occur before a party has a duty to perform under a contract or (ii) an event or state of the world, the occurrence or nonoccurrence of which releases a party from its duty to perform under a contract. Conditions can be either express (written) or implied.

Question 28

Impossibility

Answer 28

No one could perform the contract

Question 29

Impractical

Answer 29

The party has encountered extreme and unreasonable difficulty and expense in performing.

Question 30

Frustration of Purpose

Answer 30

The purpose of the contract has become valueless because of some supervening event that was not the fault of the party seeking to be discharged.

Question 31

Remedies for Contract Breach

Answer 31

Nonmonetary Remedies (i.e specific performance)
Damages (compensatory, expectation, consequential, reliance, putitive, nominal, liquidated, and restitution).

Question 32

Specific Performance

Answer 32

If the legal remedy (money) is inadequate, most often because the subject matter of the contract is unique (like land) or rare (like an antique paining), the nonbreaching party may seek specific performance, which is essentially an order from the court to the other party to perform as agreed or face contempt of court charges.

Question 33

Compensatory Damages

Answer 33

Compensate a party for the breach, putting the non-breaching party in the same position he would have been in had the contract been performed.

These include expectation damages, consequential damages, and reliance damages.

Question 34

Expectation Damages

Answer 34

These are the most common form of damages and are based on what the party expected to get out of the bargain. This is money sufficient to buy substitute performance. For common law contracts, these are sometimes called “benefit of the bargain” damages. In contracts for the sale of goods, these damages are called the cost of cover.

Question 35

Benefit of the Bargain Damages

Answer 35

Used in common law to refer to Expectation Damages (money sufficient to buy substitute performance)

Question 36

Cost of Cover Damages

Answer 36

Used in UCC to refer to Expectation Damages (money sufficient to buy substitute performance)

Question 37

Consequential Damages

Answer 37

These are special damages above the normal expectation damages, and they arise because of the non-breaching party’s particular circumstances. Typically, these damages are the lost profits that result from a breach.

Question 38

Reliance Damages

Answer 38

If the plaintiff’s expectation damages are too speculative to measure, the plaintiff may choose to recover the cost of her performance (i.e., costs she incurred in reliance on the contract). This measure of damages should put the plaintiff in the same position she would have been in had the contract never been made, rather than the position she would have been in had the contract been performed as promised.

Question 39

Punitive Damages

Answer 39

Punitive damages are damages awarded to punish a defendant for wrongful conduct. Punitive damages normally are not awarded in contracts cases but you will see them frequently in torts cases.

Question 40

Nominal Damages

Answer 40

Token damages, like awarding $1, show that there was a breach and a party was wronged, but no actual loss was proven.

Question 41

Liquidated Damages

Answer 41

These are agreed-upon contract damages; parties can stipulate, in the contract, what the damages would be in the event of a breach. Note that liquidated damages must be reasonable in view of what the actual or anticipated harm caused by the breach.

Question 42

Restitution

Answer 42

Restitution is an alternative to contract damages.

The purpose of restitution is to prevent unjust enrichment when one party has benefitted the other party without intending to make a gift. It can provide a remedy not only when a contract exists and has been breached, but also when a contract is unenforceable—and in some cases, when there is no actual contract. Generally, the measure of restitution is the value of the benefit that was conferred.

Question 43

Third Parties and Contracts

Answer 43

Generally, a contract operates to confer rights and impose duties only on the parties to the contract.

However, there are two notable exceptions:

(i) contractual rights involving third-party beneficiaries
(ii) rights or duties that are transferred to other parties.

The basic rule is that if a contract provides for performance to be rendered to someone or to benefit someone who is not a party, you have a third-party beneficiary situation.

In the second situation, a party to a contract seeks either to assign a right arising under a contract to a third party or to delegate a duty imposed under the contract to a third party. In both instances, a party to the contract is transferring something to a third party, whether a right or duty/obligation—and that third party steps into the original party’s shoes. Most contract rights can be assigned and duties delegated, but there are of course some exceptions (like personal service contracts).