Contracts

Question 1

Contract Requirements

Answer 1

1) Mutual Assent

2) Consideration

3) No Defenses to Contract Formation

Question 2

Mutual Assent

Answer 2

Demonstrated by offer and acceptance

Determined by objective actions.

Question 3

Consideration

Answer 3

Bargained for exchange of legal value.

The bargain must view the return promise as the price of the contract

In a unilateral contract the performance is the offered consideration.

Question 4

Why are the 2 types types of valid contract and 2 types of contract formed by legal remedies?

Answer 4

1) Bilateral

2) Unilateral

3) Quasi-Contract

4) Promissory Estoppel

Question 5

Bilateral Contract

Answer 5

Promise is exchanged for a promise.

Acceptance is made at the exchange of promises.

Partial performance counts as acceptance even if acceptance required a return promise. The offeror must be aware of acceptance.

An offer may always limit acceptance.

Question 6

Unilateral Contract

Answer 6

Promise is exchanged for a performance.

Contract becomes irrevocable at the start of performance, not mere preparation. Offeree does not become obligated to finish performance and failure to perform does not constitute breach.

Offeree is not required to give notice of start of performance but offeror must be notified within a reasonable amount of time after completion.

Contract is accepted once performance completes.

Question 7

Quasi-Contract

Answer 7

Not a contract, but a legal remedy.

1) plaintiff has conferred a benefit

2) Plaintiff expects to be paid

3) Defendant accepted the benefit

4) Defendant will be unjustly enriched if plaintiff is not compensated

Question 8

When does the UCC apply to contracts?

Answer 8

UCC Article 2 applies for the sale of goods or for contracts which are predominantly for the purpose of selling goods.

Question 9

What is an Offer?

Answer 9

An objective manifestation of a present intent to contract.

The terms of an offer must be definite and certain and communicated to an offeree from an offeror.

Question 10

What does it mean to have an objective manifestation of intent

Answer 10

As a result of the offer, the offeree has a reasonable expectation that the offeror is willing to enter into a contract and acceptance of the offer will create a contract.

Question 11

What terms are required for a Common Law contract?

Answer 11

Sufficient terms that a court may enforce the contract.

1) Parties

2) Subject

3) Quantity

4) Price

Question 12

What terms are required for a UCC contract?

Answer 12

1) Parties

2) Subject

3) Price

Price does not need to be specific but must determinable with reasonable certainty by a court.

Quantity is not required and parties may contract to sell or buy as much as required as long as both parties are bound to performance.

Question 13

How may a a contract offer be terminated?

Answer 13

1) By the act of a party

2) By the act of law

Question 14

How does a party terminate an offer?

Answer 14

1) Revocation by offeror

2) Rejection by offeree

3) lapse of reasonable time

Question 15

When is an offer terminated by law?

Answer 15

1) Death or insanity of a bound party

2) Destruction of the subject matter to be contracted

3) Supervening illegality

Question 16

How can an offer be revoked?

Answer 16

1) unambiguous statement by offeror to the offeree

2) Offeree becomes aware of the offeror’s unambiguous conduct or statement indicating an unwillingness or inability to contract.

Question 17

What are the limits on revocation?

Answer 17

1) Only becomes effective on receipt by offeree

2) cannot be revoked once accepted

3) unilateral contracts cannot be revoked once performance starts

Question 18

What types of contracts are irrevocable?

Answer 18

1) Option contracts

2) UCC firm offers

3) Detrimental reliance

Question 19

How does an option contract work?

Answer 19

An option contract is a promise to hold a contract offer open for an amount of time. Because an option contract is a contract, it requires consideration.

A UCC contract may be considered to have an option contract when the UCC firm offer rules do not apply.

Question 20

How is a UCC firm offer formed?

Answer 20

1) a signed merchant’s offer

2) assuring that the offer will be held open

Firm offers do not require consideration and by default last for 3 months.

Question 21

When my an offeree claim detrimental reliance

Answer 21

The offeree must reasonably rely on the contract offer.

Question 22

What methods are available to reject an offer?

Answer 22

1) Express Rejection effective on receipt

2) Counteroffer becomes a new offer

3) Conditional Acceptance as long as the condition is not something that would have been included anyway

4) Acceptance with additional terms is dependent on which law the contract falls under

Question 23

How does the Common Law Mirror Offer Rule treat additional terms?

Answer 23

Under Common Law acceptance must mirror the offer. Any additional terms rejects the offer and presents a counter offer.

Question 24

How does the UCC handle additional terms?

Answer 24

Merchant - Merchant: additional terms become part of the contract unless they materially change the offer or the offer expressly limits the acceptance to the offers terms. The offeror is given reasonable time to object to changed terms.

Non-merchant - Merchant: Additional terms are dropped and the original offer stands.

Question 25

When does Acceptance arise?

Answer 25

When the offeree clearly expresses assent to the terms of the offer in a manor sough by the offeror. Under common law this must mirror the terms of the offer. A clear expression of assent can include providing a promise to ship or actually shipping goods, even if the shipment does not conform to the contract.

Question 26

What effect does the Mailbox rule have on offers and acceptances?

Answer 26

Offers, revocations, and acceptances transmitted by mail fall under the mailbox rule. Offers are effective on receipt. Revocations are effective on receipt. Acceptances are effective on dispatch. Offers may modify the mailbox rule. If both a rejection and an acceptance are sent, the first to arrive controls. If the sender fails to properly dispatch a rejection it is not valid until receipt.

Question 27

What is consideration and what fails to rise to the level of consideration?

Answer 27

Consideration is the bargained exchange of legal value between parties. The promisor receives a benefit and the promisee a detriment. A bargained for exchange means that the promise must induce the detriment and the detriment must induce the promise. Gifts, Illusory Promises, and Pre-existing duties are not valid forms of consideration. Foregoing the pursuit of an Invalid claim may still be valid consideration.

Question 28

What is the primary characteristic of an illusory promise?

Answer 28

The promise fails to create a legal obligation to perform.

Question 29

What is a Pre-existing duty and how can it be used as consideration?

Answer 29

A pre-existing duty is something that the promisor was already legally obligated to do or refrain from and generally cannot be used as consideration. If the manor of performing or non-performance is legally altered then the modification is considered sufficient consideration.

Question 30

Under what requirements will a court apply Promissory Estoppel?

Answer 30

When a promise is given but a legal contract was not formed a court will enforce the promise if: 1) Promisor should reasonably expect to induce action or forbearance by promisee 2) Promisee acts or refrains from acting in detrimental reliance 3) Injustice will occur without enforcement of the promise

Question 31

What are the 8 defenses to contract formation and enforcement?

Answer 31

1) Incapacity 2) Statute of Frauds 3) Illegality 4) Misrepresentation or Fraud 5) Duress 6) Unconscionably 7) Misunderstanding 8) Mistake

Question 32

What does it mean to not have the capacity to contract and what are the effects?

Answer 32

Infants and the mentally incompetent lack the capacity to contract. Mental incapacity extends to intoxication as long as the pther party has a reason to know of the intoxication. An incompetent person has a right to disaffirm the contract, redering it void A contract involving incompetents may be enforced if it is later affirmed or ratified expressly or by conduct. If a party refuses to affirm they may be required to return any benefits. Infants are legally obligated to pay for necessities that are if the contracts were entered into under good faith.

Question 33

What is the statute of frauds?

Answer 33

Statute of Frauds is a writing requirement for any contract involving transactions susceptible to increased opportunity for fraud or mistake in its terms. SoF requires a writing containing all the essential terms and the signature of the party to charged. If both parties are merchants the writing may be a memorializing agreement containing the essential terms that was not objected to in 10 days of receipt. SoF is required for the following contracts: 1) Real Estate 2) Contracts that cannot be performed within 1 year 3) Promises to pay debts 4) marriage agreements 5) Sale of goods over $500

Question 34

When can performance satisfy the Statute of Frauds even if the writing requirement is not met?

Answer 34

When some action buy the party to be charged provides evidence supporting the contracts oral terms. 1) Service contracts require full performance 2) Sale of Goods, payment or acceptance of the goods in question; the existence of highly specialized goods that are not suitable for other businesses 3) Real Estate: any 2 of the following: Full/part payment, Possession, Valuable improvements

Question 35

How can a party use illegality as a defense to contract?

Answer 35

If the is an illegal subject matter or purpose for the contract at the time of formation, courts will react the following way 1) illegal subject matter - contract is not enforceable 2) illegal purpose - the party that is unaware of the legal purpose can enforce the contract. If both parties are aware the less culpable may still be able to enforce

Question 36

What is a misrepresentation defense to contract?

Answer 36

If a party uses false assertions, concealment, or misstatements about a material fact before contract formation. Contracts are void if the party did not know they were entering into a contract. Contracts are voidable if the party was misrepresented about the terms of the contract. The party must show that there was: 1) a fraudulent misrepresentation 2) was made knowingly or negligently 3) with the intent to defraud

Question 37

What are the effects of Duress on a contract?

Answer 37

Physical - contracts are void if induced by threat of physical duress Non-physical - contracts are voidable by the coerced or threatened party

Question 38

What is required to show undue influence in the inducement?

Answer 38

The application of pressure by the defendant and the susceptibility of the plaintiff to that pressure.

Question 39

Where will courts look to find a party's susceptibility to pressure?

Answer 39

- The nature of the relationship between the parties - The relative levels of sophistication and expertise between the parties; AND - Any physical, mental, emotional, or financial conditions that might make a party more susceptible to pressure.

Question 40

What are the Odorizzi factors for determining if pressure rises to an excessive nature?

Answer 40

- Discussion of the transaction at an unusual or inappropriate time; - Consummation of the transaction in an unusual place; - Insistent demand that the business be finished at once; - Extreme emphasis on untoward consequences of delay; - The use of multiple persuaders by the dominant side against a single servient party; - Absence of third party advisers to the servient party;AND - Statements that there is no time to consult financial advisers or attorneys.

Question 41

What makes the terms of a contract rise to the level of Unconscionability?

Answer 41

If one party lacks any meaningful choice other than terms that are unfair or oppressive because of an inferior bargaining position the courts will refuse to enforce an unconscionable contract.

Question 42

What is a Misunderstanding and how does the awareness of the misunderstanding effect enforcement?

Answer 42

When there is ambiguity in the understanding of the terms of the contract there is a misunderstanding. - Neither party aware: no contract is formed unless both parties has intended the same meaning. - Single party aware: a contract is formed, it is enforced according to the unaware party's understanding - Both parties aware: no contract is informed unless both parties intended the same meaning

Question 43

What is a Mistake and how does the awareness of the mistake effect enforcement?

Answer 43

When there is a mistake about an underlying factual assumption at the time of contract formation. If both parties are mistaken it is a mutual mistake and the contract is voidable by an adversely affected party upon a showing that: 1) both parties are mistaken concerning a basic assumption or fact 2) mistake materially effects the agreed-upon exchange 3) adversely effected party did not accept the risk If 1 party is mistaken the contract is formed. The mistaken party may only void if the mistake was material and the other party was aware of the mistake.

Question 44

What is the Parole Evidence Rule?

Answer 44

Evidence that is extrinsic to a written contract is inadmissible to supplement or contradict the written contract. Applies if the contract is a complete integration. This bars evidence of prior or contemporaneous expressions that contradict a later contract.

Question 45

What does the Parole Evidence Rule permit.

Answer 45

1) Extrinsic evidence for partially integrated contracts 2) Terms normally included in a separate document 3) Evidence of mistake in drafting the writing 4) misrepresentation, duress, fraud, illegality 5) Condition Precedent 6) Modifications made after the writing 7) definitions 8) Party customs

Question 46

Under the UCC where does the risk of loss during shipment vest?

Answer 46

Shipment by Carrier - the contract will determine if it is a shipment contract where risk passes to buyer when the seller delivers goods to carrier, this is the presumed default standard, or a destination contract where risk passes when buyer takes possession. Non-carrier delivery - merchant delivery risk passes when buyer takes physical possession, non-merchant seller risk passes upon tender of delivery (seller is prepared to transfer possession) If the goods are destroyed before the risk passes and no party is at fault the contract is avoided.

Question 47

What are the 3 UCC default warranties?

Answer 47

1) Express Warranty 2) Implied Warranty of Merchantability 3) Implied Warranty of Fitness for a particular purpose

Question 48

Express Warranty

Answer 48

A promise about the quality or feature of a product. Breached if the product falls short of seller's promise or description.

Question 49

Implied Warranty of Merchantability

Answer 49

Merchant sellers automatically warrants that goods are fit for their ordinary purpose.

Question 50

Implied Warranty of Fitness for a Particular Purpose

Answer 50

Seller warrant that good are fit for a buyers purpose if: 1) Buyer has a particular purpose 2) Buyer relies on seller to select suitable goods 3) Seller has reason to know of buyer's purpose and reliance on seller

Question 51

How can a contract limit warranty liability?

Answer 51

Disclaimer - limits the application of implied warranties Remedy Limitation - limits the amount of recovery available for breach of warranty Damages for Breach - difference between current value and warranty value

Question 52

Under the UCC, what are the buyers options if the seller provides an imperfect tender?

Answer 52

The UCC requires perfect performance with respect to the goods delivered and manner of delivery. A buyer may keep or reject non-conforming deliveries. Rejection requires buyer to notify, keep safe, and allow reasonable time for return of goods to seller. In an installment contract a buyer must show that an installment substantially impairs the installment and cannot be cured. In order to reject an entire contract, the entire contract needs to be substantially impaired. In all cases the buyer may hold some goods and sue for damages on the defective/nonconforming goods.

Question 53

What are the requirements for a UCC acceptance of goods?

Answer 53

The buyer does not officially accept delivery until the buyer receives and has an opportunity to inspect the shipment. Acceptance occurs when: 1) Buyer confirms acceptance of conforming or non-confirming goods, or 2) Buyer is silent

Question 54

How can a buyer revoke acceptance under the UCC?

Answer 54

The buyer must discover a defect to revoke an acceptance within a reasonable time after discovery. The defect must substantially impair the goods value and the buyer either had a reasonable belief the defect would be cured or buyer was ignorant because they relied on sellers assurances that goods conformed.

Question 55

How can a seller cure an imperfect tender?

Answer 55

The seller must give buyer notice of the intent to cure and there must be time to correct before the contract terms expire. or, due to prior dealings with the buyer, seller believed nonconforming goods would be acceptable. Seller has a reasonable amount of time to remedy the situation.

Question 56

Under Common Law, when does a party's imperfect performance obligate performance by the other party?

Answer 56

If a party substantially performs, the other party is obligated to perform. Substantial is usually interpreted as at least halfway. Even with substantial performance the party is still liable for breach and may be compelled to pay damages for the difference between performance rendered versus expected.

Question 57

Under Common Law, what is a material breach?

Answer 57

A material breach occurs when 1 party's failure to perform under the contract substantially deprives the other party of the benefit they bargained for. Timing is only material if there is a "time is of the essence clause". A material breach excuses performance by the other party. The breaching party is liable for damages to the extent that they are foreseeable as a probable result of that breach.

Question 58

What are contract conditions?

Answer 58

Conditions are agreed-upon limitations on performance. Failure of a condition relieves a party's performance obligation. The parties intent controls the interpretation of a condition. The party protected by a condition has the choice to waive or estop the condition from being enforced. A party whose performance is subject to a condition cannot prevent or hinder the conditions occurrence.

Question 59

What circumstances give rise to anticipatory repudiation?

Answer 59

When party to a contract makes it clear they will not perform under the contract. 1) a party makes an unambiguous act 2) prior to performance being due 3) indicating their intent to non-performance

Question 60

What are both parties possible responses to anticipatory repudiation?

Answer 60

Repudiating party may withdraw the repudiation unless the other party has: 1) materially changed their position in reliance on the repudiation 2) cancelled the contract in response to the repudiation 3) has indicated the repudiation is final The non repudiating party may: 1) treat it as a total repudiation and sue 2) suspend performance until due date and wait to sue 3) treat as an offer to rescind and discharge the contract 4) ignore the repudiation and encourage performance

Question 61

What events excuse performance as impractical or impossible?

Answer 61

1) substantial damage or destruction of the contracts subject matter 2) death of a party if obligations are non-delegable 3) Subsequent law or regulation

Question 62

What occurs when the reason for contracting is undermined?

Answer 62

A party's duty to perform is discharged if an unforeseen event frustrate one or both party's principal purpose for entering a contract as long as the event is not the fault of the frustrated party and non-occurrence was a basic assumption of the contract.

Question 63

What is Rescission?

Answer 63

When both parties agree to discharge the duties under a contract. An agreement to rescind is a new binding contract requiring consideration. It may be subject to SoF or UCC writing requirements. You cannot rescind a contract where third party rights have vested.

Question 64

What are the requirements to modify a contract?

Answer 64

1) Mutual Assent 2) Consideration - although good faith modifications are possible under both UCC and Common Law

Question 65

What is a novation?

Answer 65

When parties agree to substitute new parties to assume the obligation of a contract. 1) requires an existing valid contract 2) all parties must agree 3) new contract extinguishes original duties 4) a new valid and enforceable contract

Question 66

What are the types of 3rd party beneficiaries?

Answer 66

- Intended TPBs—parties to the K intend for TPB to benefit from the K; has rights under the K - Incidental TPBs—stands to benefit from K although not intended by parties to the K; has no rights under the K

Question 67

When does 3rd party rights vest in a contract?

Answer 67

Assent—manifests assent to the promise in a manner invited or requested by the parties, Sues to enforce—brings suit to enforce the K, or Detrimental reliance—detrimentally relies on the K (i.e., materially changes position in justifiable reliance on the K)

Question 68

When can an invalid legal claim be used as valid consideration?

Answer 68

Agreeing not to pursue an invalid claim is valid consideration if: 1) a reasonable person could believe the claim is well founded 2) the claim can be pursued in good faith

Question 69

What are the ways a condition is formed?

Answer 69

1) express - strict compliance 2) implied - substantial performance 3) constructive - substantial performance

Question 70

What can and cannot be delegated?

Answer 70

Personal duties, things requiring skills specific to an individual, cannot be delegated. If a duty is impersonal but materially alters the nature of performance, risks, or burdens to the party receiving the performance, it is not delectable. An assignment implies delegation and follows the same limits. An offer may limit delegation and assignment. If prohibited assignment is valid and breach occurs. If void assignment is voidable. If assignment of the contract is prohibited only delegation results in breach.

Question 71

When does a party assume the risk of mistake?

Answer 71

1) allocated by agreement 2) when the party is aware of their limited knowledge but treats it as sufficient 3) allocated by the court because it is reasonable to do so

Question 72

Expectation Damages

Answer 72

standard measure of money damages intended to put the party's back in the economic position they would have been at had the contract been performed

Question 73

Reliance Damages

Answer 73

alternative measure used when expectation damages are too speculative design to compensate plaintiff on the value of the performance and put the plaintiff in the position the would have been in had the contract never been formed

Question 74

Consequential damage

Answer 74

foreseeable losses indirectly resulting from a breach 1) damages must be foreseeable result of the breach 2) when contract was formed defendant had reason to know plaintiff would suffer special, unpreventable or unexpected damages in the event of a breach UCC limits this recovery to buyers

Question 75

Incidental damages

Answer 75

commercially reasonable expenses incurred by the non-breaching party in UCC contracts

Question 76

What effect does the duty to mitigate have on recovery?

Answer 76

Plaintiff cannot recover reasonably avoidable damages, but can recover for the costs of avoiding further damages. Plaitiff must refrain from incurring additional losses. Defendant bears burden of showing that mitigation was insufficient.

Question 77

Specific Performance

Answer 77

Available for contracts dealing in unique items such as real estate or antiques. Requires defendent to fulfill the terms of the contract specifically.

Question 78

Reformation

Answer 78

A contract is changed so that it better represents the original intent of the parties. Arises out of mistake, misrepresentation, and illegality.

Question 79

Restitution

Answer 79

Arises when a party has been unjustly enriched. Awards are based on the amount a party has been unjustly enriched. You cannot receive both expectation and restitution.

Question 80

Liquidated damages

Answer 80

Agreed-upon contract provisions that stipulate specified damages upon the occurrence of a breach. 1) damages must be difficult to predict at contract formation 2) the provision is a reasonable estimate