Contracts Flashcards

Question

Caldwell v Cline

Answer 1

Under Caldwell v. Cline, if an offer states that it will be open for a certain number of days, the first day is the day the offeree receives the offer. Example: On October 5th, Ideal Image mails to Laura an offer for free cosmetic services stating it will be valid for 5 days. Laura received the promotion on October 7. (In this case, the offer will remain open through October 11th.)

Answer 2

revocation of offer rule: The offeror in a unilateral contract may not revoke the offer for the time stated in the offer or, if no time is stated in the offer, then for a reasonable length of time if the offeree begins performance. Example: Madison tells Chloe, “I will pay you $20 if you eat that entire bowl of worms.” Chloe begins to eat the worms (Madison may not revoke the offer because Chloe has already begun the performance.)

Answer 3

A rejection is an outward manifestation by the offeree that he or she does not intend to accept the offer nor give it further consideration. Example: Two men are haggling over the price of a car. After hearing the final price for the car Man1 walks away from Man2 while shaking his head. (Even though Man1 did not specifically state in words that he would reject his offer, his actions indicated he did not accept, nor give Man2’s offer further consideration.)

Answer 4

A counter offer is an implied rejection and is in effect, a new offer made by the original offoree regarding the same transaction, but contains terms differing from those proposed in the original offer made by the original offeror. Example: Man1 tells Man2, he is selling his truck for $9,500. Man2 responds, “Your truck is nice, but has previous damage. I will only give you $8,800 for it.” (Buyer’s response is the counter offer.)

Answer 5

A counteroffer functions as both a rejection of an offer to enter into a contract, as well as a new offer that materially changes the terms of the original offer. Because a counteroffer serves as a rejection, it completely voids the original offer. This means that the original offer can no longer be accepted. Example: A potential home buyer makes an offer on a house for $10,000 under asking. The seller then counters with $3,000 under asking, implying that the offer was rejected.

Answer 6

A battle of the forms may occur when parties use standardized forms to make offers and acceptances. Such forms contain fixed contractual language (boilerplate) which often conflicts with the terms included in the other party’s forms. Thus, although a contract may be formed through the exchange of such forms, the parties may disagree as to which the terms govern the contract. Example: The seller receives the buyer’s form and responds by sending back its acknowledgment form that promises to ship the product referenced in the purchase order. But on the back of that form are the seller’s own preprinted, standardized terms and conditions, which are very different from the buyer’s. Among other things, the seller’s terms exclude consequential and incidental damages, disclaim implied warranties, set forth a limited 90-day warranty. The buyer’s purchase order was silent on each of these terms. Even though the parties have not signed off on a single document, the seller ships, and the buyer accepts the goods. Nobody bothers to read the other party’s standardized terms, much less tries to figure whose boilerplate governs the transaction—until there’s a problem with the product.

Answer 7

A bilateral contract results from an offered promise that is accepted by the giving of a return promise. Example: The neighbor’s son asks Mr. Anderson if he can shovel his driveway for $20. However, the neighbor’s son says he has homework to complete and it is getting late. He then promises to shovel it tomorrow but would still like to get paid today. Mr. Anderson agrees. (Promise of $50 today for a promise of service tomorrow.)

Answer 8

A unilateral contract results from an offered promise that must be accepted by giving the performance specified. A mere promise to perform does not constitute acceptance in such a case. Example: Mr. Anderson has a hurt back and asks the neighbor’s son to shovel his driveway and Mr. Anderson will pay him $20. (Here, Mr. Anderson is not asking for the neighbor’s son to promise to shovel his driveway, but for his neighbor’s son’s actual performance of shoveling his driveway)

Answer 9

A contract that has been fully performed by all parties is called an executed contract. Example: Buyer contracts with seller to buy their house for the price of $200,000. The closing date is June 1st and it is to be paid in cash. Buyer pays the seller $200,000 in cash on June 1st.

Answer 10

A contract that remains to be completed by at least one of the contracting parties is called an executory contract. Example: Builder contracts with Customer to build a house at the price of $200,000 no later than June 1st, to be paid for in advance. On April 1st, Customer pays Builder $200,000. On May 1st, the house is only halfway finished and a dispute arises regarding the workmanship of Builder.

Answer 11

A contract manifested in words, whether written or oral, is called an express contract. Example: Bill and Ted sign a written contract that states Bill will pay Ted $6,000 to add an extra bathroom in his garage workshop.

Answer 12

A contract that is inferred by law because the acts or conduct of the parties and the surrounding circumstances make it reasonable to assume that a contract exists between them even though the contract was never manifested by words is called an implied in fact contract. Example: Scarlett’s pet dog is sick so she calls a mobile veterinarian and schedules an appointment for later in the afternoon. (Although there is no verbal agreement, it is implied that the veterinarian will treat the animal and that Scarlett will pay for the treatment provided.)

Answer 13

An implied-in-law contract is a remedy that is imposed by operation of law to do justice even though it is clear that no promise was ever manifested by words or ever intended. The creation of an implied-in-law contract will be recognized when one party accepts or retains benefits that have been conferred upon him by another party who expected to be paid and who was not a volunteer. Example: Carrie is in a car accident and is unconscious when emergency medical services arrive. Carrie is then transported to the hospital by Acme Ambulance Company where he remained in a coma for two days. After the third day, she awakens. (Although Carrie was unresponsive at the time of treatment and didn’t request the medical services she received, the court will likely rule that a quasi-contract in this case exists because she retained valuable benefits from Acme Ambulance Company and Hospital for which they expected to be paid

Answer 14

Quantum Meruit (Latin for “as much as he deserved”), refers to the reasonable value deserved for one's labor, and is awarded in a quasi-contract claim. Example: Carrie wakes up from her coma and states that she will not pay the hospital or the ambulance company. As a result, the hospital and ambulance company bring suit against Carrie. The court rules in favor of the hospital and the ambulance service, awarding an amount that is reasonable for the services Carrie received from each.

Answer 15

Quantum Valebant (Latin for as much as it is worth) refers to the reasonable value that is deserved as payment for goods, and is awarded in a quasi-contract claim. Example: An air conditioning company is hired to install a new ac system. The contract does not specify what thermostat the tech is to install. The technician installs the most expensive top of the line thermostat. The air conditioner tech was able to stay within contracted budget. However, after the job is complete the home owner objects to the thermostat and argues that she never agreed to the most expensive model and refuses to pay the difference in price between the least expensive thermostat and the most expensive one.

Answer 16

A requirements contract is a contract in which the seller agrees to supply all of the goods or services that the buyer needs over a specified period of time. As consideration for the seller's promise, the buyer agrees to obtain the goods or services exclusively from the seller. Example: American Baseball Equipment Supply contracts with Tykes Little League to supply all the uniforms Tykes Little League needs for the 2015 season.

Answer 17

An output contract is a contract in which the buyer agrees to buy all of the goods or services a seller can produce over a specified period of time. Example: A grocery store chain contracts with Bud’s Tomato Farm to purchase the entire crop of tomatoes during the 2022 growing season.

Answer 18

An option contract is a contract, which includes an option; that is, an agreement between parties, supported by consideration and involves a promise to hold an offer open for a specified period of time. Example: A woman buys a puppy for her daughter’s birthday. The price of the puppy is $1500. The puppy is only three weeks old and not yet old enough to be weaned off her mother’s milk. The woman then leaves a deposit of $500 to hold her puppy and will pay the remaining balance once the puppy is eight weeks and ready to leave its mother.

Answer 19

A void contract is a contract, which cannot be enforced by either of the parties. Example: A woman hires a man to rob her ex-husband’s house. The contract is void because it is illegal to rob someone’s residence.

Answer 20

A voidable contract is a contract that can be disaffirmed by one or more of the parties for reasons related to legal immaturity or mental incapacity. Example: A 17-year-old girl is attempting to marry and has lied about her age to do so. Her future husband unaware of her actual age has her sign a prenuptial agreement. The contract may be disaffirmed due to her age, making the contract void.

Answer 21

A contract made by a minor is voidable at the minor’s option, although she may enforce the contract against the adult. In general, a minor is not liable for the value of benefits she received under the contract, although if she disaffirms the contract, she must return anything that she received and still retains at the time the contract was disaffirmed except for “necessaries” such as food, shelter, clothing, healthcare, etc. Example: A 17-year-old girl has signed a prenuptial agreement. The contract may be disaffirmed due to her age if she so wishes.

Answer 22

Under the UCC, an installment contract is one which required or authorizes the delivery of goods in separate lots to be separately accepted or rejected. Example: A woman unable to afford all her Christmas presents at once decides to put her items on lay way. She will pay 25% of the total cost of her presents to the store now. She will then pay her balance in installments. Her contract stipulates she should pay the remaining balance in its entirety within six

Answer 23

An exculpatory clause is a provision in a contract that is intended to remove liability from one or more of the contracting parties that may result from certain acts or events. Example: The court house provides parking services but the parking stub states they are not liable for any damage to customer’s vehicle while it is parked on the lot

Answer 24

A guaranty is a promise to answer for the debt, default, or miscarriage of another and must be in writing unless the guaranty was given in order to benefit the guarantor. Example: A daughter would like to begin her cell phone service contract. However, she does not have sufficient credit and the cell phone company requires a guaranty from someone with more established credit.

Answer 25

This requires that certain types of contracts be evidenced by a writing signed by the party to be charged, (the defendant), in a civil action. Those contracts which are customarily within the Statute of Frauds are: 1) a contract, which, by its terms, cannot be performed within one year from the making thereof, 2) a promise to answer for the debt or default of another, 3) a promise in consideration of marriage, 4) a contract involving an interest in real property, and 5) under the UCC, a contract for the sale of goods priced $500 or more. Example: A couple agrees to buy the seller’s house for $500,000. The buyer’s agent submits a contract is in writing to the sellers.

Answer 26

The Parole Evidence Rule provides that where the parties have entered into an agreement that has been reduced to writing with the intent being to make that writing a final and complete expression of their contract, no evidence of a prior or contemporaneous agreement can be introduced to change the terms of that written contract. Even though the term "parole" is generally used to mean the same thing as "oral," the Parole Evidence Rule, as traditionally applied, prohibits introduction of any evidence, whether written or oral, where such evidence relates to a prior or contemporaneous agreement and is being introduced to change the terms of the written agreement. Therefore, the purpose of the rule is to lend certainty to the terms of written contracts by making it such that the parties to the contract are prevented from later contending that the contract did not really represent the full understanding of the parties. Example: For example, in a dispute over the sale of a home, if the buyer and seller have signed a written contract for the sale of a home and have written down that the sales price is $500,000, the buyer will be barred from introducing evidence of a discussion that he had with the seller where she agreed to sell it to him for $400,000 or that she agreed to throw in a car as part of the purchase price.

Answer 27

One or more writings constituting a final expression of one or more terms of an agreement. Also termed integrated agreement. Example: A corn farmer enters into a contract with a restaurant owner to supply the owner with corn for the duration of the growing season. If the extent of our duties comes into question, the court will look to see if the document demonstrates an intent to include all of the terms in the agreement. Including a clause in the contract stating that this is the full and complete understanding of the parties. This will generally make the document a complete integration. As such, the court will not consider any communications prior to or contemporaneous with the execution of the contract.

Answer 28

A sequence of previous performance by either party after an agreement has been entered into, when a contract involves repeated occasions for performance and both parties know the nature of the performance and have an opportunity to object to it. A course performance accepted in without objection is relevant to determining the meaning of the agreement. Example: A construction worker has secured a contract with a developer to frame multiple residential units being built in a new subdivision. You perform the work over an extended period of time, during which time the developer observes it.

Answer 29

Course of dealing refers to a pattern of previous conduct between the partied which can be fairly regarded as establishing a common basis of understanding for interpreting their current expressions and conduct. Example: A corn farmer has a contract with a local grocery owner to sell their crop to that store owner exclusively. The terms of the contract have been in effect for the last ten years. The terms in their contract have not changed significantly in that time. However, now the corn farmer would like to sell to other local grocers and a dispute over their contract has escalated. If a dispute arises the parties’ course of dealing can be used as evidence of how they intended to carry out the transaction.

Answer 30

Usage of trade refers to a customarily observed practice or method within a trade, vocation, or locale. Where a trade usage exists, it may be offered as evidence to justify an expectation that the practice or method would be observed with respect to the transaction in question. The existence and scope of such a usage are questions of fact that must be proved. If such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of the law. Example: For example, in mortgage loan transactions it is customary for the borrower to pay for an appraisal of the value of the property.

Answer 31

An adhesion contract is a contract drafted by the stronger of two parties, with terms favoring the stronger party, and offered to the weaker party with little or no negotiation as to the already-drafted terms. Example: Bill signs a contract with Academy, his employer with terms that state any and all disputes that may arise between Employee and Employer must be settled via arbitration

Answer 32

An unconscionable contract is a contract with a provision that no fair an honest person would make and no person in his or her right mind would accept. Such contracts are usually agreed to through "oppression" in that the promisee knows that he or she is giving up his or her rights but is forced to if he or she wishes to purchase the subject product. Or, he or she is not aware of the rights that are being given up but through "unfair surprise" (such as small print or vagueness in terms) signs the contract anyway. Example: For example, if a car loan had a $10,000 late fee for missing payment, that would likely be unconscionable.

Answer 33

A third party beneficiary contract is a contract wherein performance by one party, the promisor, will confer a benefit upon a third-party beneficiary, that is, a person or entity other than the promisee. Example: Owner and Contractor enter into a valid contract for Contractor to build a garden shed for $500. Contractor owes Joe Subcontractor $500 from another job so he tells Owner to pay Joe instead. Owner agrees and Contractor notifies Joe that Owner will be paying him $500 when the garden shed is completed.

Answer 34

The case that held that a third-party beneficiary has the right to enforce the contract, which will confer a benefit upon said third party. Example: A woman takes out a payday loan in the amount $1500. Her contracts stipulates she must pay back the loan in its entirety by Friday. The woman’s mother has stated she would pay back the loan for the woman because she still lacks the funds to pay her loan back. The woman’s mother then informs the payday loan company that she will be paying the loan in her daughter’s stead on Friday. Friday comes around, the mother does not pay off the loan for the woman. Here the payday loan company is the third-party beneficiary and has the right to sue for their money promised by the mother.

Answer 35

An intended beneficiary is one in whose favor the original parties to the contract purposefully created an obligation. A third party must be an intended beneficiary in order to have standing to sue to enforce the provisions of the contract. Example: Brandon planned to propose to his girlfriend, Laura. Brandon sees a jeweler to pick out and buy an engagement ring. He sees one he thinks Laura will love. Brandon then buys the ring. Laura is the intended beneficiary.

Answer 36

A Creditor Beneficiary is a recipient of the benefit due to a satisfaction of a debt owed. Example: If John owes Sally $100, he might enter a contract to mow his neighbor's lawn four times and have the neighbor pay Sally $25 after every mowing.

Answer 37

A Donee Beneficiary is a recipient of the benefit as a gift. Example: If one person, for example, promises to give somebody a gold watch, the person offering the watch is the donor and the person receiving it is the donee.

Answer 38

An incidental beneficiary is one who may receive the benefit of the performance of the contractual provisions only incidentally and was not intended to receive the performance as a gift nor in satisfaction of a debt. An incidental beneficiary does not have standing to sue to enforce the contract. Example: Jerry a home owner, has contracted A-Best fencing company to install a fence between Jerry’s yard and his neighbor. However, midway through the job A-Best defaults and leaves Jerry’s fence incomplete. The neighbor would be considered the incidental beneficiary

Answer 39

A third party donee beneficiary has no rights against the promisee by reason of the promisor's failure to perform the contract. The "creditor" beneficiary, however, can sue the promisee on the original obligation since it remains unaffected by the third-party beneficiary contract. Example: Misty's grandfather wants to do something special for her 30th birthday. He can name a star after Misty. Milo contracted with Star Gazers International to have a star named after Misty. He sent the payment of $30 to the company and waited patiently for the paperwork to be sent to Misty. Weeks passed since the promised arrival of the paperwork. Misty called the company to inquire where in the sky her star is located. The company denied owing her a star.

Answer 40

An assignment is a transfer of a contractual right. A contractual right is an intangible property and is called a "chose in action." When a valid assignment has been made, the person receiving the transfer (the assignee) steps into the shoes of the person making the transfer (the assignor) and is now the proper party to enforce the contract. Example: A homeowner has mortgaged his home to Acme Mortgage. Acme Mortgage sold Owner’s mortgage to 123 Bank, creating a valid Assignment. Owner must now make his monthly payments to 123 Bank instead of ABC Mortgage.

Answer 41

A delegation and assumption of duties is a transfer of a contractual obligation. It involves a situation in which the assignor transfers his or duty of performance to another. The person transferring the duty of performance is known as the delegator and the person who assumes the duty is known as the delegate. Example: Ryeleigh and Madison enter a valid written contract for the sale of Ryeleigh’s car in the amount of $5,000. After the contract is created Madison arranges for Chloe to pay for the car. Madison is the obligor of the $5,000 owed to Ryeleigh (Madison already has the obligation to pay). Madison has delegated her duty to Chloe, a third party who is now called the delegatee

Answer 42

A condition is an act or event, which affects a duty to render performance. A condition may be express or implied, and may be a condition precedent, a condition concurrent, or a condition subsequent. Example: home seller and buyer have come to an agreement for the sale of a house in the amount of $550,000. This agreement is contingent on the buyer being able to sell their home and secure a loan.

Answer 43

A condition precedent is related to an event, other than the lapse of time, which must occur before a duty on the part of the defendant will arise. It may arise out of an express or implied term of the contract, or by operation of law under the Doctrine of Constructive Conditions. Example: A home buyer agrees to purchase a seller’s home for $550,000 on the condition that the home passes inspection and VA loan requirements.

Answer 44

A condition concurrent is a type of condition precedent, which exists when the parties to a contract are bound to render performance at the same time. Example: Sister makes an oral agreement with brother, as long as he cleans her room every week, she will take out the trash every week. This is a condition concurrent because we are mutually obligated to one another and our obligations are mutually dependent on each other

Answer 45

A condition subsequent is related to an event, which by agreement of the parties, operates to terminate a duty of performance after it has arisen. Example: A new employee signs a contract to work for employer for at least one year provided on the condition he is not accepted into Harvard Law School.

Answer 46

An express condition is stated in the contract and generally will be strictly and literally enforced by the courts. Example: A customer is in the market for a new car. However, there is none in stock. As a result, the client custom ordered a new vehicle. However, as a condition to place an order for vehicle, the customer was required to put half of the vehicle’s cost down. Then would have to pay the remaining balance upon completion.

Answer 47

An implied-in-fact condition is one which is necessary to the performance of the contract between the parties and therefore is deemed to have been intended by the parties, but is not expressly stated. Example: Landlord and Tenant enter into a lease agreement stating that Landlord will maintain and repair the dishwasher furnished in the apartment. (Although the contract does not expressly state the fact, it is implied that Tenant will notify Landlord in the event the dishwasher needs repair. Therefore, if Tenant does not do so, Landlord cannot be held responsible for failing to repair the dishwasher if he was never notified.)

Answer 48

The Doctrine of Conditions holds that the fulfillment of a promise in a bilateral contract can be construed to be a condition of the other party's performance even in the absence of an express provision to that effect. Example: Brandon contracts to provide consulting services for a flat fee of $1,000. After Brandon performs the services, the other party attempts to pay with 1,000 Canadian Dollars. Both Brandon and the client live in Florida, but the written agreement does not specifically state a type of currency. Brandon files suit, asking the judge to impose a constructive condition on their agreement and to order the client to pay in American dollars even though the contract did not specify it.

Answer 49

Under the Doctrine of Substantial Performance, a plaintiff who has failed to perform a constructive condition in a minor or immaterial respect may nevertheless recover on the contract. In order to recover, the plaintiff must prove: 1) The defendant got substantially what he bargained for, 2) the defendant can be reimbursed for what he did not receive, 3) there will be a great hardship on the plaintiff if he is denied recovery under the contract, and 4) the deviation was not willful. Example: Owner and Contractor enter into an agreement that Contractor will build Owner a new house for $650,000 by June 15, 2022. Contractor completes everything except installing light switch plates, electrical outlet covers, and interior doorknobs. Unfortunately, the contractor was not able to complete the job on time. (In this case the Contractor will recover).

Answer 50

An implied condition of cooperation is implied in a contract whenever the cooperation of the promisee is necessary for the performance of the promise. Example: Madison promises to deliver linens to a party supply store warehouse. It is an implied condition to Madison’s duty to deliver the goods that such a party supply store warehouse exists, that the warehouse is reasonably accessible for making a delivery, and that the party supply store owner permits Madison to make the delivery to the party supply store warehouse.

Answer 51

A waiver of condition results when a party to a contract voluntarily relinquishes his or her known right to assert the non-performance of a condition. A waiver can be given by express agreement or by conduct. A waiver may be retracted except where the other party has detrimentally relied on the waiver. A waiver is enforceable if it is given in exchange for separate consideration. It is also enforceable without separate consideration if a) the waived condition was not a material part of the agreed-upon exchange, and b) uncertainty of the occurrence of the condition was not an element of the risk assumed by the party who gave the waiver. Example: Owner and Contractor enter into an agreement that Contractor will build Owner a new house for $650,000 by June 15, 2022. Contractor calls owner on May 15 and explains to Owner that some familial circumstances have occurred and are serious enough to warrant taking some time off to attend to the family. Contractor asks Owner if it is ok to extend the completion deadline by 10 days, thus making the deadline June 25, 2022. Owner agrees and Contractor takes ten-day vacation. (In this case, Owner may not retract the waiver because Contractor detrimentally relied on the Owner’s waiver.)

Answer 52

A divisible or severable contract is a bilateral contract in which the performance is divided into two or more separate units, either as to subject matter or time, and performance of each part by one party is the agreed exchange for a corresponding part by the other party. Some typical examples are construction contracts, contracts for the sale of goods and employment contracts. Example: A homeowner has contracted the services of a contractor in order to remodel master bathroom, kitchen, and refinish hardwoods. The bathroom remodel costs $4,500, the kitchen remodel is $15,000, and the refinish on the floors is $7,000. The total job is estimated at $26,500. This contract is divisible into each of the three separate jobs.

Answer 53

A modification is a subsequent agreement entered into for consideration for purposes of modifying the prior contract. Since the Parole Evidence Rule only bars evidence related to agreements made prior to or concurrently with the written contract, the rule does not apply to modifications. Under the UCC, consideration is not required for a modification to be binding Example: For example, when a person receives a job offer, the hiring company may require them to sign an employment contract. If the person stays at the company long enough to get a promotion, then they may sign a modified employment contract that includes their new job title and any salary increases.

Answer 54

The Collateral Agreement Doctrine holds that additional terms which were intended by the parties and included in a separate agreement may be enforced even though such terms were not included in the original contract if this collateral agreement is one which 1) does not contradict any express provision of the main contract and 2) might naturally be made as a separate agreement between the parties. Therefore, evidence related to a collateral agreement will not be excluded under the Parole Evidence Rule. Example: In De Lassalle v. Guildford, a collateral contract case in which the latter party rented a home to the former. The landlord promised to fix the drain before the tenant moved in. This promise was considered a collateral contract by the court, allowing the tenant to sue when he found the drains had not been fixed as promised.

Answer 55

Accord takes place when the party in a contract that promised to provide a certain service, perform an obligation, or provide a product promises to fulfill the agreement in a different way than what was originally agreed to, and the receiving party agrees to the new offer. This means that the other party agrees to accept a new provision or performance than what they were originally entitled to by the active contract. Satisfaction refers to the fulfillment of an accord agreement by the promisor of the original contract. If the obligation or service that was agreed upon in the accord is rendered, then the agreement is considered satisfied. Example: For instance, say Bob owes Sally $600 under contract. Bob offers to give Sally an old car of his in place of the $600. If Sally accepts the vehicle as a settlement for the money that was originally owed, she forgoes her right to the cash and now has a right to the vehicle Bob promised. The legal term "accord" refers to the new agreement between Bob and Sally. In this instance, the obligation of Bob to pay Sally $600 was legally discharged. This type of discharge of the contracted terms is called an accord agreement. For instance, in satisfaction, as the case above previously mentioned, if Bob does, in fact, give Sally the vehicle in place of the $600 he owed her, he has satisfied the accord. This action also fulfills the consideration of the contract.

Answer 56

A novation is a new contract that is, an immediate discharge of a pre-existing contractual duty which creates a new duty in its place. It requires the replacement of one of the previously contracting parties with a new party who neither owed the previous duty nor was entitled to its performance. Example: Bill decided to go to Montana for a month getaway. Bill has a 12-month lease with his landlord and is responsible for a monthly lease. As a result, and with Bill’s landlord’s approval, he has sublet his apartment to Earl. However, Bill enjoyed his getaway to Montana so much, that he decided to move there permanently. Bill contacted his landlord and the landlord and agreed to let Bill out of his 12-month lease. In turn, the landlord and Earl entered into a new contract without Bill. Earl replaced Bill on the lease.

Answer 57

A release, at common law, was a complete discharge of existing contractual obligations given by one party to the contract to the other in a written document under seal. Modernly, in those jurisdictions that do not use the formal seal, a release is generally considered valid if supported by consideration. Example: Brandon sold his car to Madison in the amount of $499 but Madison’s check bounces. Brandon never receives his funds. Madison talks to Brandon and offers to her condo in Lake Tahoe for the weekend as payment for the vehicle.

Answer 58

Mutual assent relates to the requirement that the parties agree to enter into a contractual relationship, including terms and conditions. It is usually proved by showing that one party made a valid offer and the other party made a valid acceptance. Example: Bill is looking for a car to buy, and Earl offers to sell him his car. Both parties agree to the amount of $500. They enter into a valid contract to purchase and sell said vehicle.

Answer 59

A party to a contract will be released from an obligation to perform when, neither from his act nor from his neglect, and prior to being in default, it has become impossible for said party to perform. Example: Chloe entered in a contract to sell her car to Ryeleigh for the amount of $5,000. They agreed on a day for the transaction to take place. However, the night before the sale, Chloe’s car was stolen. Through no fault of her own Chloe was unable to follow through with the sale of her vehicle.

Answer 60

Although performance is not totally impossible, a party to a contract will be discharged from an obligation to perform when an unanticipated difficulty has occurred after the formation of the contract, with the result that performance would be vastly different than that intended by the parties. Example: Brandon entered into a contract with a home builder for the sale and construction of a new house. However, due to sudden supply chain issues and the rising cost of lumber, the homebuilder no longer makes a profit and it is not feasible to execute original contract. The homebuilder will be losing money, and the buyer will not agree to a price adjustment.

Answer 61

A prospective failure of condition occurs when an anticipatory breach is present and will excuse the non-breaching party from his or her performance. Example: George, the owner of Babe’s Baseball Memorabilia, and Mickey, the owner of a signed Ted Williams baseball bat, enter into a contract under which George agrees to buy the bat from Mickey for $5,000. The contract calls for Mickey to bring the bat to George’s store on April 1st, at which point, they will exchange the bat for the contract price. On March 20th, George calls Mickey and tells him that he will not buy the bat from Mickey unless Mickey throws in a signed Ty Cobb baseball as well. In this case, George is insisting on terms that are not part of the original contract.

Answer 62

Although performance is still possible, a party to a contract will be discharged from an obligation to perform when an unanticipated event occurs after the formation of the contract, with a result that the parties’ main purpose in making the contract has become so frustrated that the benefit to be received by one party from the other party is now totally destroyed or materially impaired. Example: A couple rents a room that oversees the Mardi Gra parade. They rented the room in hopes of seeing their favorite jazz singer on the main float. However, it is now reported that the jazz singer they had hoped to see has fallen ill, and will no longer be participating in the parade. The jazz singer’s appearance was the entire reason they had rented a room in the first

Answer 63

A merger is said to have occurred in a contractual situation when one contract supersedes or incorporates another. Example: In 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company.

Answer 64

A breach of contract occurs when one party to a contract fails to perform pursuant to the terms of the contract Example: A house seller has entered into a contract a house from a buyer. They have agreed to the terms of the contract. However, the house seller, unaware of how competitive the housing market was, has changed their mind, and no longer wishes to sell. They are in breach of their contract

Answer 65

An anticipatory breach occurs when one party to a contract makes it clear prior to the time performance is due that he or she will not perform. An anticipatory breach may be expressed in words or by action. The promisee may elect to sue immediately for damages or may wait until after performance has become due to then file suit. Example: An apple farmer is a supplier for a local grocery store. The farmer and the store owner have a contract that states the farmer will supply 50 bushels of apples, and the store owner is to pay $30 a bushel. The farmer has notified the store owner that due to the drought, part of the apple crop has not grown. As a result, the farmer will only be able to supply him with 20 bushels of apples. The store owner is able to anticipate a breach in contract is imminent.

Answer 66

If a breach is minor in nature the plaintiff has a cause of action for damages caused by the breach, but the contract remains in effect. Example: A couple’s contract to buy a home states, that the couple must sign their portion of the contract by 7pm central time. However, due to internet connection difficulties the couple was unable to meet 7pm deadline, and instead submitted the signed contract by 7:05pm. This is a minor breach and the contract is still in effect.

Answer 67

A breach is material if it is so substantial that it defeats the purpose of the parties in making the contract or if it is so significant as to destroy the value of the contract. Whether a breach is material is a question of fact. If a breach is material, the plaintiff is justified in treating the entire transaction as ended and may thereafter sue for damages. Example: Man1 has entered into a contract with Man2, to purchase Man2’s vehicle. Man2 is selling his car in the amount of $1500. Man1 had agreed to the price and both men agreed to meeting on Saturday at 9am central time at Man2’s house. Saturday morning arrives, and Man1 is ready to execute said contract and pay his obligation to Man2. However, after arriving at the meeting point Man2 informs Man1 that he has since sold the vehicle to a third party in the amount of $2,000. There were no terms met on Man2’s side, therefore, a material breach has occurred.

Answer 68

Privity is established when there is a substantive legal relationship between two or more parties. Typically, this relationship involves a mutual interest, such as the same loss, the same measure of damages, or the same or nearly identical issues of fact and law. When two or more parties in a contract are in privity, all parties are bound by the contract and are obligated to each other in some way. For instance, one party may receive remedies for breach of contract or force fulfillment of the contract as a result of privity of contract. Example: Bill went to a local grocery store, and bought a frozen pizza for dinner that night. Immediately after eating the pizza Bill got sick. It is later revealed the pizza had been tainted with bacteria. Bill would like to sue the grocery store and the manufacturer. Then, Bill decides he wants to sue the middleman who delivered the meal to the store. Bill was not in privity of contract with the middleman. The delivery driver did not sell or market the tainted pizza

Answer 69

Liquidated damages are an amount of damages stated in a contract in advance of any breach. If there is a valid liquidated damages clause in a contract, it will be the sole remedy available upon a breach of the contract. In order for such a clause to be found valid, it must be shown that it is based on anticipated damages as opposed to being a mere penalty. This is shown through establishing that damages would have been difficult to ascertain at the time the contract was made, and the amount set as liquidated damages is a reasonable forecast of what damages would be. Example: A couple had a pipe burst in their apartment and were unable to go on their vacation. This occurred 24 hours before check in. However, they had already rented a house through Vrbo. They paid in full and had agreed to the terms of the home owner’s contract. The refund policy was no refunds if cancelled within 72 hours of check in.

Answer 70

Compensatory Damages include both general and special damages, and are awarded to the non-breaching party to place that the party in the same position that he or she would have been in, had the contract been performed as agreed. Example: A man is buying a car on Craigslist. He believes he is buying an SUV worth $50,000. The man enters in a contract with the seller to buy said SUV. However, after meeting with the seller, the man sees that the car is in far worse condition than described in the ad. The SUV the seller actually sold the man is only worth $5,000. The man decides to sue, and the judgement against the sell is $45,000. This is the difference owed to the man after buying a car only worth $5,000 for the full price of $50,000. This would be an example of expectation damages, which is considered special damages.

Answer 71

Consequences damages are special damages. However, this term reflects the “foreseeability” requirement that arose out of the case of Hadley v. Baxendale years ago in England. It was held in this case that compensation in a breach of contract case should be given only for those injuries that the defendant, at the time the contract was made, had reason to foresee as the probable result of his or her breach. Damages that are unforeseeable will be held too remote and, therefore, uncollectible. Example: David got hit by a car driven by an uninsured motorist. His hospital bills, and physical therapy bills are direct damages. However, David was consequently unable to work for a period of six months. In that time David lost wages, and had bills he was still obligated to pay. Those lost wages, and bills are the consequential damages.

Answer 72

Where possible, the court will award compensatory damages according to the calculation of what he plaintiff expected to receive from performance of the contract. Example: Bill ordered 100 bushels, which according to current market value is worth $1,000. Bill’s supplier later informs him that he was unable to fulfill the order because he couldn’t harvest all the produce in time to meet his deadline. He was however, able to harvest half of the order. Bill then paid $500 for the oranges he was able to get. The court would calculate the expectation damages by subtracting the price paid – $500 – from the value expected, $1,000 resulting in $500 of damages.

Answer 73

When the expectancy cannot be calculated to a reasonable certainty, then the court may award damages according to the calculation of what the plaintiff expended in reliance on the contract. Essential reliance damages are expenses incurred in the performance or preparation for performance of a contract and need not be foreseeable. Incidental reliance damages are foreseeable expenses incurred because of the contract. Example: A restaurant is planning for their opening night for Friday night. They have entered into a valid contract with a food supplier. The terms in the contract specify the restaurant was to pay $12,000 and receive meat, fruits, vegetables, cheeses, and other kitchen staples. The food supplier agreed to supply them with enough food for opening night and the rest of the weekend. However, Friday morning the food supplier notified the restaurant owner, that they would not be able to supply the food due to an unforeseen circumstance. The restaurant had to cancel their opening night. They lost the revenue from opening night, they lost the money they paid for food, they lost the money they had to spend on advertisement for opening night, they lost money for the entertainment they booked for opening night. The restaurant owner is not able to put an exact figure on their losses because they have never had revenue from the restaurant. Under reliance damages, the court will make the non-breaching party whole again, as if they had never entered in the contract in the first place.

Answer 74

The court gives nominal damages to a non-breaching party who has suffered no damages or who has been unable to prove damages at trial, but who nevertheless has been wronged and is entitled to a judgment for technical breach of contract. Example: Bill was injured after slipping on a wet floor at a grocery store. He was able to prove that the store's actions caused the injury but failed to submit medical records to show the extent of his injury. Under those circumstances he may be awarded only nominal damages.

Answer 75

Mitigation of damages refers to efforts of the non-breaching party to use ordinary care to mitigate, or limit, the damages caused by the other party's breach. Example: After receiving a cancelation for a house rented through AirbandB, a home owner failed to open the availability of the dates from his previous reservation back on the website. The home owner never tried to mitigate his damages by attempting to rent house again, but instead kept the plaintiff’s reservation and rental fees in their entirety.

Answer 76

Punitive damages, which are also called Exemplary Damages, are damages that are granted to a plaintiff to punish the defendant for malicious, wanton, or willful conduct and are awarded to make an "example" of the defendant's conduct; so that such conduct will not be repeated again. Punitive or exemplary damages are not typically allowable for breach of contract. Example: An insurance company was ordered to pay punitive damages after finding in favor of the plaintiffs in a class action suit. The insurance company was accused of denying ALL claims, regardless of their circumstances or validity.