Contracts

Question 1

Offer

Answer 1

Validity, termination
An offer is a manifestation of intent to contract demonstrated by a promise, undertaking or commitment, in definite and certain terms, and communicated to an identified offeree. Offers for real estate require a description of the land and price term. Offers for goods require a quantity term, which can be expressed in terms of requirement or output contracts.

Question 2

Offer - Termination

Answer 2

An offer can terminate by lapse of time, revocation, rejection, or operation of law.

Question 3

Offer - Termination - Lapse of time

Answer 3

An offer must be accepted within a specified time period or, if none, within a reasonable time.

Question 4

Offer - Termination - Revocation

Answer 4

Revocation is made by words or conduct of the offeror terminating the offer. Offers are effective on receipt. Irrevocable offers include options contracts, merchants firm offer under the UCC, and detrimental reliance.

Question 5

Offer - Termination - Rejection

Answer 5

A rejection is made by words or conduct of the offeree rejecting the offer and is effective when received. At common law, additional terms are treated as a rejection and counter offer. Under the UCC, addition terms will become part of the contract unless one part is not a merchant, the offer is limited to its terms, the other party objects within a reasonable time, the term materially alters the obligation.

Question 6

Offer - Termination - Operation of law

Answer 6

A contract terminates by operation of law when either party suffers death or insanity, the subject matter of the contract is destroyed, or if the subject matter becomes illegal before acceptance.

Question 7

Acceptance

Answer 7

Mode, method, mailbox
Acceptance is unqualified assent to the terms of the bargain and is effective on dispatch. At common law, an acceptance must mirror each and every term of the offer. Under the UCC, acceptance with addition or different terms is valid. Additional terms are included in the deal, unless an exception applies. Different terms are knocked out and replaced with UCC gap fillers.

Question 8

Acceptance - Mode and method of acceptance

Answer 8

Acceptance can be made in the manner specified in the offer, and if none is specified, then in any reasonable manner. Unilateral contracts can be accepted by full performance from an offeree who is aware of the offer. Bilateral contracts under common law can be accepted with a promise or by beginning performance. Under the UCC, acceptances of goods can be made by a promise to ship or by the shipment of goods.

Question 9

Consideration

Answer 9

Consideration is a bargained for exchange that is a detriment to the promisee or legal benefit to the promisor, and is required by both parties. One promise can be consideration for another promise. Courts will usually inquire into the adequacy of consideration.

Question 10

Statute of Frauds

Answer 10

The Statute of Frauds requires that certain contracts be in writing. These include contracts for marriage, year, land, executors, goods, and suretyship

Question 11

Statute of Frauds - Writing sufficiency

Answer 11

At common law, the writing must be have some indication of contract, it must contain the essential terms, and it must be signed by the party to be bound.
Under the UCC, there must be some signed writing indicating a contract and specifying a quantity. A merchants confirmatory memo is sufficient to bind if not objected to within 10 days.

Question 12

Mistake

Answer 12

Where there is a unilateral mistake, a contract is avoidable if the non mistaken party knew or should have known of the mistake. Where there is a mutual mistake, a contract is voidable by the adverse affected party if the mistake concerns the basic assumptions of the contract, the mistake has a material affect, and the party seeking avoidance did not assume the risk. Where a contract is ambiguous, if neither party or both parties were aware of the ambiguity, there will be no contract.

Question 13

Defenses to formation

Answer 13

Statute of frauds, mistake, fraud and misrepresentation, illegality, incapacity, unconscionability.

Question 14

General rules of contract construction

Answer 14

Contracts are construed as a whole and words are generally given their ordinary meaning. Written and typed terms will prevail over printed terms; custom an usage in business and location are considered, as is the cause of dealing between the parties. Courts will try and find that a contract is valid, and they will construe ambiguities against the drafter.

Question 15

Modification of terms

Answer 15

A common law, modifications of contract terms required additional consideration. A written contract can be modified even if there is a contrary provision. Under Article 2, no consideration is needed as long as the modification was made in good faith. It must be writing if the modification places the contract within the statute of frauds. Courts will give effect to provisions prohibiting oral modifications.

Question 16

Parole Evidence Rule

Answer 16

A prior oral or written statement, or contemporaneous oral statements, are inadmissible to vary, modify, or contradict a contract where there is an integrated agreement. An integrated agreement is one where the writing is intended to be the complete and final expression of the parties agreement. If an agreement is partially integrated, evidence can be admitted to supplement. A merger clause is evidence of full integration.

Question 17

Parole Evidence Rule - Outside evidence

Answer 17

Evidence outside the scope of the rule may be admitted when it is evidence concerning the validity of the contract, if it is used to interpret the terms of the contract, to show that true consideration was paid, or as evidence of acts of reformation.

Question 18

Warranties

Answer 18

Warranties can be for title, against infringement, merchantability, fitness, or express.
An implied warranty of merchantability, that the goods are fit for their ordinary purpose, is implied in every contract by a merchant of goods of the kind sold.
An implied warranty of fitness for a particular purpose is implied whenever any seller has reasonable to know the particular purpose for which goods are to be used and that buyer is relying on the seller’s skill and judgement to select goods, and the buyer does rely on that judgement.
Damages for breach of warranty is usually the difference between the goods tendered and what they would have been warranted.

Question 19

Disclaimers

Answer 19

Disclaimers for title must have specific language or circumstances that put the buyer on notice that the seller is not claiming title.
Disclaimers for merchantability require a specific disclaimer that mentions merchantability and, if in writing, must be conspicuous. Merchantability can also be disclaimed by “as is” language, refusal to examine, or based on course of dealing.
Disclaimers of fitness for a particular purpose can only be made by a conspicuous writing or general disclaimer, meaning as is language, a refusal to inspect, or based on course of dealings.
Generally, disclaimers for express warranties are not allowed.

Question 20

Performance due

Answer 20

Under the common law, a contract will be valid so long as there is substantial performance. The UCC requires perfect tender.

Question 21

Conditions

Answer 21

Conditions can be express or constructive, and can be precedent or subsequent.
An express condition is one in the contract providing that either a party does not have to perform unless an event occurs or fails to occur, or their duty is suspended upon the happening or not happening of an event.
A condition precedent is an event that must occur before an absolute duty of performance arises. The condition must occur before a there is a duty to perform.
A condition subsequent an event that occurs after the formation of a contract that excuses performance.

Question 22

Excuses of conditions

Answer 22

Conditions can be excused for the following reasons. Anticipatory repudiation, doubt as to ability to perform, hinderance or failure to cooperate, divisibility of the contract, waiver, breach of contract, or because of substantial performance.

Question 23

Anticipatory repudiation

Answer 23

Where there is an executory bilateral contract, an unequivocal statement of non performance prior to time performance is due is an anticipatory repudiation. The non repudiating party may sue immediately, suspend performance and sue when performance comes due, treat the repudiation as a rescission, or urge performance. Repudiation can be retracted unless accepted or relied upon.

Question 24

Discharge - unforseen events

Answer 24

Discharge for unforeseen events is allowed for impossibility, impracticability, or frustration of purpose. Impossibility is an objective test and requires death or physical incapacity, illegality, or destruction of the subject matter. Impracticability is a subjective test and requires extreme or unreasonable difficulty and or expense, the non occurrence of which was a basic assumption of the parties. Frustration of purpose requires an unforeseeable supervening event that destroys the purpose or value of the contract, and the purpose was understood by both parties when the contract was made.

Question 25

Discharge - by the parties

Answer 25

A contract can be discharged by the parties upon modification, rescission of the contract, novation, or accord and satisfaction. Novation is a new contract that replaces the parties. It releases the original party and extinguishes the contract. An accord is an agreement to accept a different performance and requires consideration or an actual dispute. Satisfaction is the performance of the accord, and it discharges the accord and original contract.

Question 26

Breach

Answer 26

Where a promisor is under a duty to perform, failure to perform in accordance with the terms of the contract is a breach. At common law, a breach can be minor or material. Where there is a minor breach, the obligee gains a substantial benefit of the bargain so they must perform, but they have a right to damages. Where a breach is material, the obligee does not gain a substantial benefit of the bargain so performance is excused and there is an immediate right to damages and other remedies.
The UCC requires perfect tender. If goods or delivery fails to conform to the contract in any way, a buyer may generally reject all, accept all, or accept any units and reject the rest.

Question 27

Remedies - damages - compensatory

Answer 27

Compensatory damages consist of expectation damages, reliance damages, and consequential damages where they are reasonably foreseeable. Liquidated damages are available if it would be difficult to calculate at the time of contracting and the amount is a reasonable forecast of likely damages. A non breaching party has the duty to mitigate damages.

Question 28

Remedies - damages - UCC

Answer 28

Under the UCC, a buyers damages consist of the cost to cover, the difference between contract price and market price, warranty damages if non conforming goods are accepted, and consequential damages where reasonably foreseeable.
The sellers damages are the difference between contract price and resale price, the difference between contract price and market price, and lost profits.

Question 29

Remedies - damages - types of contract

Answer 29

In a land sale contract, a non breaching party is entitled to the difference between the contract price and the fair market value. In an employment contract, if the employer breaches, damages are the full contract price, if the employee breaches, damages are the cost to replace the employee. In construction contract

Question 30

Remedies - quasi contract - restituion

Answer 30

Restitution prevents unjust enrichment and damages are measured by the value of the benefit conferred. It is available where the plaintiff has conferred a benefit with a reasonable expectation of compensation, the defendant knew or had reason to know of the expectation, and the defendant would be unjustly enriched if she were allowed to keep the benefit without compensating the plaintiff. The general measure of recovery is for the value of the goods conferred or services rendered.

Question 31

Equitable relief

Answer 31

Equitable relief can come in the form of specific performance, rescission, or reformation. The defenses to equitable relief are laches, unclean hands, hardship, mistake and misrepresentation.

Question 32

Third party beneficaries

Answer 32

Third-party beneficiaries exist when a third party has rights created in a contract. Only indented beneficiaries have rights under the contract, and those rights vest when the third party manifests assent, brings suit to enforce the contract, or has materially changed position in justifiable reliance on the contract. The third party may sue the promisor, who can raise the same defenses they would against the promisee. The third party may sue the promisee on an underlying obligation if they are a creditor beneficiary. A donee may only sue of they have detrimentally relied on the promise.
A creditor beneficiary may sue both the promisor and promisee, but may only obtain one satisfaction.

Question 33

Assignment of rights

Answer 33

All contract rights are assignable unless assignment materially alters the obligor’s duty or risk, or it is prohibited by law. Contract provisions that bar assignments only bar delegation of duties, assignments of rights are still valid. An assignment for value is irrevocable. An assignor impliedly warrants that he has made no prior assignment of the right, the right is not subject to limitations or defenses other than those disclosed or apparent, and that he will do nothing to defeat or impair the right. Where there have been successive assignments to the same right, if the assignment was revocable, the subsequent assignee prevails. If the assignment was irrevocable, the first assignee will have priority.

Question 34

Delegation of duites

Answer 34

Duties that cannot be delegated include those involving personal judgement or skill, those involving special trust in the delegator, those restricted by contract. Where there is delegation, the delegator remains liable and the delegate is liable if he assumes the duty. An assignment of contract or rights under contract is construed to include delegation and assumption of duties.

Question 35

Specific performance

Answer 35

A party is entitled to specific performance where there is a valid and enforceable contract that is definite and certain, the party has met all the required conditions, the legal remedy is inadequate, and the remedy is feasible. A party may also seek specific performance where the goods are unique and there is an inability to recover.

Question 36

Misrepresentation

Answer 36

Misrepresentation means a false representation, made intentionally, negligently, or innocently, with the intent to induce the defendant to rely on the representation, and where the defendant did rely on it to their detriment.

Question 37

Promissory estoppel

Answer 37

A promise without consideration is enforceable to avoid injustice if the promisor should have reasonably expected that promise to induce action or forbearance, and such action or forbearance was induced. Most courts limit promissory estoppel damages to reliance damages.

Question 38

Merchants firm offer

Answer 38

Under the UCC, if a merchant offers to buy or sell goods in a signed writing and the writing gives assurances that it will be held open, the offer is not revocable during that time. In any case, a firm offer may be revoked after 3 months.

Question 39

Certainty of damages

Answer 39

To recover, a plaintiff must prove that the losses suffered were certain and not speculative. When the issue is lost profits, it can depend on whether the business is an existing business or a new business.

Question 40

Acceptance - Silence

Answer 40

Silence may be acceptance if the offeror was justified in expecting a negative reply or silence was deceptive under the circumstances. When an offeree knows or has reason to know that services are being rendered with an expectation of compensation, and by a word could prevent the mistake, she is held to acceptance if she fails to speak.

Question 41

Replevin

Answer 41

A buyer can bring an action for replevin if the goods are identified to the contract and the buyer, after a reasonable effort, is unable to secure adequate substitute goods.

Question 42

Mutuality - illusory promises

Answer 42

For bilateral contracts, there must be mutuality of obligations. An illusory promise is an apparent commitment that in fact does not limit the party’s options and is not consideration.

Question 43

Valid offer

Answer 43

For a contract to be valid, there must be an offer, acceptance, consideration, and no defenses. Without meeting these requirements, a party cannot be bound to a contract.

Question 44

Terms of a contract

Answer 44

Construction, modification, parole evidence, warranties

Question 45

Performance of a contract

Answer 45

Performance due
Conditions - Satisfaction, excuse of condition (repudiation, waiver, etc)
Discharge of duties - By events: Impossibility, impracticability, frustration of purpose. By Parties: modification, rescission, novation, accord

Question 46

Damages

Answer 46

Damages, restitution, equitable relief, defenses