Contracts

Question 1

Implied Warranty of Title

Answer 1

Implied warranty that there is:
1. Good title to the goods;
2. A rightful transfer of the goods;
3. No liens or security interests attached to the goods.

Implied warranty of title can only be disclaimed by specific language (“no warranties”), or circumstances which give the buyer reason to expect that the seller does not claim unencumbered title (i.e., an estate sale).

Question 2

Face-to-Face Conversation Rule

Answer 2

An offer made at common law in a face to face conversation generally lapses at the end of the conversation.

Question 3

Warranty of Fitness for a Particular Purpose

Answer 3

Warranty that the goods are being sold for the particular purpose intended by the buyer.

Only applies when:
1. The seller knew about the particular purpose, AND
2. The buyer relied on the seller’s expertise.

Negated when:
1. A disclaimer is written/clear/conspicuous, OR
2. The goods have a patent defect.

Question 4

Four Ways to Terminate Acceptance

Answer 4

1. Lapse of time.
2. Death/incapacity of either party.
3. Revocation by the offeror.
4. Rejection by the offeree.

Question 5

Offers for a Reward

Answer 5

Offers for a reward are unilateral offers because they are communications that promise a reward in exchange for performance of a specific task. A person can accept the offer by performing that task (but beware of the pre-existing duty rule).

Question 6

Commercial Advertisements as Offers

Answer 6

American Rule: Ads/catalogs/price lists are invitations for offers, since the responses may exceed available supply of goods or services.

Exception — Language that identifies who gets the limited supply, such as “first come, first served,” or “first 10 customers”.

Question 7

Elements of an Offer

Answer 7

1. Outward manifestation (oral, written, or by conduct) of
2. A signal that acceptance will conclude the deal.

Question 8

Warranty of Merchantability

Answer 8

Warranty that the goods are fit for the ordinary purpose for which they are used. Only applies when the seller is a merchant.

Disclaimed by:
1. Specific use of the word “merchantability” conspicuously, and
2. Any other language or circumstances. (“As is”, or patent defects)

Question 9

Express Warranties

Answer 9

Any affirmation of promise or fact, description of goods, or sample/model.

Do not have to include the words “warrant” or “guarantee”.

Exception — When the affirmation is too vague, or constitutes “sales talk”/”puffing”.

Question 10

Missing Terms (UCC)

Answer 10

Under the UCC, where there are pertinent missing terms, the UCC default rules will apply.

Question 11

Missing Price Term (UCC)

Answer 11

Replaced with the reasonable market price at the time of delivery.

Question 12

Missing Time Term (UCC)

Answer 12

Replaced with a “reasonable time”.

Question 13

Missing Place of Delivery Term (UCC)

Answer 13

Replaced with the seller’s place of business.

Question 14

Common Law Default for Missing Price

Answer 14

When no price is discussed for a service contract, the common law default is the “reasonable value for services rendered”.

Question 15

Indirect Revocation

Answer 15

Occurs when:
1. The offeror takes action that is inconsistent with the intent to go through with the offer, AND
2. The offeree learns of such actions from a reliable source.

Question 16

Irrevocable Offers

Answer 16

American Rule: An offeror can revoke even if they gave a specific time to accept.

Option Contracts: A promise to keep the option open with consideration is irrevocable.

Reliance/Construction Contracts: An offer is irrevocable when the offeree detrimentally relies.

Question 17

UCC “Firm Offer” Rule

Answer 17

A “firm offer” is irrevocable under the UCC. A firm offer is created when the seller is a merchant and promises in signed writing to keep an offer open in exchange for consideration.

A firm offer will only last for the period of time stated in the offer. If no time period is stated, the offer will stay open for a max. of 3 months.

Question 18

Mirror Image Rule

Answer 18

At common law, acceptance of an offer must mirror the terms of the offer exactly, and any variation is a counter offer (and thus a rejection).

Question 19

Bilateral Contract

Answer 19

A promise exchanged for a promise. Once promises are exchanged, BOTH parties are bound.

Question 20

Unilateral Contract

Answer 20

An offer seeking performance in return. The offeror is not bound until the offeree completes performances. An offeree is NEVER bound.

Question 21

Revoking a Unilateral Contract

Answer 21

Unilateral contracts can only be accepted via completion of performance (and the acceptance does not have to be communicated).

Therefore, once an offeree beings performance an offeror may not revoke. However, mere preparations do not count.

Question 22

Common Law Mailbox Rule

Answer 22

ACCEPTANCE by mail is effective upon dispatch. Applies only to acceptances, not revocations or rejections.

But, if the rejection is mailed before the acceptance — whichever arrives first will be effective.

Question 23

Mailbox Rule Re: Option Contracts

Answer 23

Restatement/Majority Rule: The mailbox rule does not apply to option contracts. Acceptance of option contracts are only effective upon receipt.

Question 24

UCC Acceptance by Shipment

Answer 24

Under the UCC, a seller of goods can accept a buyer’s offer to buy goods in three ways:
1. A promise to ship goods;
2. Shipping the conforming goods; or
3. Shipping nonconforming goods, unless the shipment is an accommodation/counteroffer.

Question 25

Additional/Different Terms (UCC)

Answer 25

Between merchants, additional terms in an acceptance become a part of the contract.

Except when —
1. The offer expressly limits the acceptance to its own terms;
2. If the offeror objects to the additional terms within a reasonable time.
3. If the additional terms would materially alter the contract.

Terms that materially alter the contract are those that would result in surprise or hardship if incorporated, such as the disclaimer of warranties or shortening a deadline.

Question 26

Knockout Rule

Answer 26

Majority Rule: Different terms in the two writings (the offer and acceptance) dealing with the same topic knock each other out.

Minority Rule: Different terms are treated as mere proposals which the offeror is free to accept or reject (treated like a consumer).

Example — Offer has a choice of law provisions for NY, acceptance has a choice of law provisions for CA; the choice of law provisions is considered excluded from the contract altogether.

Question 27

Bargain Theory

Answer 27

A promise is supported by consideration if it was based on a “bargained-for” exchange — a quid pro quo for making the promise.

Question 28

Benefit/Detriment Test

Answer 28

Consideration based on whether there is a benefit to the promisor and/or a detriment to the promisee.

Whether the promisee is:
1. Doing something he had a legal right NOT to do; or
2. Foregoing something that he HAD a legal right to do.

Question 29

Illusory Promise

Answer 29

Illusory promises are a promise of performance that leaves the performance to the unlimited discretion of the promising party. Illusory promises are not supported by consideration.

Example — “You paint my portrait, and I will pay you $1,000 if I decide I want to buy it.”

However, so long as the right to cancel is limited in some manner (usually with a requirement of notice), it will not render an agreement illusory/invalid.

Example — The right to cancel a contract if a “suitable alternative becomes available.”

Question 30

Past/Moral Consideration

Answer 30

General Rule: A promise in exchange for something already given or performed is not supported by consideration.

Minority Rule: “Material Benefit Test”. A promise made for past performance is enforceable if the promisee conferred a benefit on the promisor (not a 3rd party), and the benefit was material.

Question 31

Material Benefit Test Re: Past Consideration

Answer 31

MINORITY rule! A promise made for past performance is enforceable if the promisee conferred a material benefit on the promisor (not a 3rd party), and the benefit was material.

Question 32

Promissory Estoppel

Answer 32

When a promisee reasonably relies to their detriment on a gratuitous promise, they may be able to enforce the promise even without consideration.

Elements —
1. A promise;
2. With foreseeable reliance;
3. And actual reliance, as induced by the promise; and
4. Injustice without enforcement.

Question 33

Statute of Frauds

Answer 33

If a contract falls under the SoF, it must be in writing and signed by the party against whom enforcement is sought.

Question 34

Contracts Subject to the Statute of Frauds

Answer 34

MY LEGS!

Marriage contracts.
Year or more contracts.
Land sale contracts.
Executor/Administrator.
Guarantee/suretyship.
Sale of goods for $500 or more.

Question 35

Year+ Contracts under the Statute of Frauds

Answer 35

Performance of the contract is measured from when the contract was made, not from the date of performance.

If it is theoretically possible to complete the performance within a year, the Statute of Frauds will not apply.

Question 36

Main Purpose Doctrine (Guarantee/Suretyship Agreements)

Answer 36

Guarantee contracts are generally subject to the Statute of Frauds, however, under the Main Purpose Doctrine, where the main purpose is for the guarantor’s own economic interest, the agreement is not governed by the SoF.

Question 37

Part Performance of a Land Sale Contract

Answer 37

To establish a valid contract under the Statute of Frauds via part performance, a showing of any combination of the following three are required:

1. Payment of all or part of the contract price;
2. Taking possession of the land; and/or
3. Making substantial improvement to the property.

If you’ve paid for the land, taken possession of the land, or have already made substantial improvements to the land, a signed writing is NOT REQUIRED.

Question 38

5 Ways to Satisfy the UCC Statute of Frauds

Answer 38

1. A signed writing.
2. Merchant’s confirmation.
3. Judicial admission.
4. Partial performance.
5. Specially manufactured goods.

Question 39

Satisfying the Statute of Frauds with Merchant Confirmation

Answer 39

When two merchants enter into an oral agreement in which one merchant sends the other a confirmation of the agreement, the Statute of Frauds is satisfies against the recipient merchant if:

1. Both the recipient and the sender are merchants;
2. The writing is in confirmation of an oral contract and contains a quantity; and
3. The recipient does not send a written objection within 10 days.

Question 40

UCC Default Provisions

Answer 40

“Gap Fillers”. When a contract does not address the matter, the UCC default provisions are used to fill in the gaps. Parties are always free to contract otherwise.

Question 41

Implied Warranties for the Sale of Goods

Answer 41

Warranty of Title;
Warranty of Merchantability;
Warranty of Fitness for a Particular Purpose;
Obligation of Good Faith and Fair Dealing.

Question 42

Interpreting Ambiguous Language

Answer 42

Objective meaning trumps subjective meaning, except when one party knows about the other party’s subjective meaning.

Question 43

Contra Proferentem

Answer 43

Ambiguous terms are construed against the drafter.

Question 44

Extrinsic Evidence Re: Gap Fillers/Resolving Ambiguity

Answer 44

To resolve ambiguity or fill gaps, extrinsic evidence can be admitted to establish:

1. Course of Performance;
2. Course of Dealing; and
3. Usage of Trade;

If they conflict, course of performance trumps course of dealing and usage of trade, and course of dealing trumps usage of trade.

Question 45

Complete Integration

Answer 45

Contracts intended to represent a complete and totally exclusive statement of ALL terms are a complete integration.

Merger clauses (“everything we’ve ever said before now is merged into this contract”) will create a complete integration.

Question 46

Parol Evidence Rule for Complete Integrations

Answer 46

Parol evidence is not admissible to supplement or replace terms, but it IS admissible to explain or interpret terms.

Question 47

Partial Integration

Answer 47

Terms within a contract are intended to be a final expression as to only those specific terms.

Parol evidence is admissible to explain or interpret terms, AND to supplement and add terms.

Question 48

UCC Difference in the Parol Evidence Rule for Complete Integrations

Answer 48

Trade Usage/Course of Dealing/Course of Performance are still admissible to supplement a completely integrated contract, even with a merger clause.

However, parol evidence is still not otherwise admissible to supplement, explain, or interpret terms.

Question 49

Parol Evidence Rule

Answer 49

Governs the admissibility of oral/documentary evidence of negotiations and other communications between parties that took place prior to or contemporaneously with the execution of a contract.

Parol evidence is never admissible to contradict, is always admissible to explain or interpret, and is sometimes admissible to supplement terms of the contract ,depending on if it was a complete or partial integration.

Question 50

When the Parol Evidence Rule Does Not Apply

Answer 50

The PER does not apply to:
1. Subsequent agreements;
2. Collateral agreements (agreements that are entirely distinct from the agreement at issue); or
3. Attacks on the validity of the agreement via mistake/duress, fraud, reformation, or
4. Failure of an oral condition precedent to the agreement.

Question 51

Carrier vs. Non-Carrier Cases

Answer 51

Carrier: Parties agree to use a common carrier. The risk of loss will depend on whether it was a Shipment or Destination contract.

Non-Carrier: No common carrier used. The risk of loss will depend on if the parties are merchants or non-merchants.

Question 52

Risk of Loss for Non-Carrier Cases

Answer 52

If the seller is NOT a merchant — the risk of loss transfers to the buyer as soon as the goods are made available to them.

If the seller IS a merchant — the risk of loss transfers to the buyer once the goods are physically in the buyer’s possession.

Question 53

Remedy for a Seller’s Risk of Loss

Answer 53

Seller must provide a replacement of the goods.

Question 54

Remedy for a Buyer’s Risk of Loss

Answer 54

Buyer must pay the seller regardless.

Question 55

Risk of Loss for Carrier Cases

Answer 55

Shipment Contract — Risk of loss passes to the buyer when the goods are delivered to the carrier. Default rule when the contract is silent. Buyer bears the risk of loss if the goods are damaged in transit.

Destination Contract — Risk of loss passes to the buyer when the goods are tendered at the destination. Seller bears the risk if the goods are damages in transit.

Question 56

Pre-Existing Duty Rule (Common Law)

Answer 56

A promise to increase compensation for duties already owed is unenforceable if there is no additional consideration for the modification.

Exceptions —
- Mutual modifications (satisfies additional consideration), or
- Unforeseeable circumstances.

Question 57

Modifying a UCC Contract

Answer 57

An agreement modifying an existing contract does NOT need additional consideration in order to be enforceable, as long as it was made in good faith.

Question 58

Unilateral Mistake

Answer 58

One party’s mistake generally is not an excuse unless the other party knew or had reason to know of the party’s mistake.

Question 59

Mutual Mistake

Answer 59

Mutual mistake will make a contract voidable when
(1) both parties are mistaken,
(2) the mistake relates to a material fact, and
(3) the party disadvantaged did not bear the risk of mistake under the contract.

Mutual mistake means that there was no meeting of the minds.

Question 60

Impossibility

Answer 60

Both parties are excused from performance if it is rendered impossible after the contract is formed.

The impossibility must be objective.

The contingency that creates the impossibility must not have been known to the parties at the time of making the contract. (Unforeseeable)

Question 61

Frustration of Purpose

Answer 61

3 requirements for the modern test:

1. The principal purpose in entering the contract is frustrated.
2. The frustration was substantial. (NOTE: Not necessarily completely)
3. It was a basic assumption that the event that caused the frustration would not occur. (Completely unforeseeable)

Question 62

Accord

Answer 62

When the obligee promises to accept substitute performance in satisfaction of the obligor’s existing duty.

Permissible when one party has already performed and is waiting on the other to finish performing.

Does not discharge the duty to perform, only suspend it. Once the substitute performance is complete, there is “satisfaction”.

Question 63

Accord and Satisfaction

Answer 63

Refers to the agreement (accord) between two contracting parties to accept alternate performance to discharge a pre-existing duty between them and the subsequent performance (satisfaction) of that agreement.

The new performance is called the accord. The excusal of the initial performance obligation is called the satisfaction.

Differs from a modification in that a modification immediately discharges a pre-existing duty, whereas an accord and satisfaction does not discharge a pre-existing duty until the agreed upon, alternate performance occurs.

Question 64

Quantum Meruit

Answer 64

A doctrine that states there is an inferred promise to pay a fair amount for work and the materials provided, even without a lawful, enforceable agreement between the parties. A breaching party may be able to recover “the reasonable value of the benefits conferred”.

Recovery is reduced by the damages caused by their breach.

Question 65

Perfect Tender Rule

Answer 65

Under the UCC, the seller is in breach if their goods fail in ANY respect to conform with the contract. AKA, the goods must be perfect.

If the goods are NOT perfect, the buyer may:
1. Reject the goods;
2. Accept the goods; or
3. Accept in part and reject in part.

Does not apply to installment contracts.

Question 66

Minors

Answer 66

Anyone under the age of 18 may enter into a contract, but the contract is voidable at the minor’s option.

If the minor voids the contract, they are obligated to return any goods, but they are not liable for the damages under the Power of Avoidance.

Once they turn 18, they may ratify the contract.

Question 67

Fraudulent Misrepresentation

Answer 67

Requires 4 elements:

1. A misrepresentation (an assertion inconsistence with existing facts);
2. The requisite state of mind (either knew that their representation was false, knew that they didn’t know, and/or had an intent to mislead);
3. Misrepresentation must have been material (either subjectively or objectively);
4. There was reasonable reliance on the misrepresentation.

Question 68

Negligent Misrepresentation

Answer 68

Requires 4 elements:

1. A misrepresentation,
2. The misrepresentation was material,
3. There was reasonable reliance on the misrepresentation, and
4. The defendant would have known that the assertion was false if they had asserted reasonable care.

Question 69

Fraudulent Nondisclosure

Answer 69

1. Material nondisclosure,
2. Reasonable reliance on the nondisclosure, and
3. There was a duty to disclose and a failure to fulfill it.

Question 70

When is There a Duty to Disclose

Answer 70

• When there is a relationship of trust/confidence,
• When an assertion was true at the time but later became untrue, and/or
• When the obligation of good faith would require it.

Question 71

Procedural vs. Substantive Unconscionability

Answer 71

Must have both!

Procedural: The bargaining process created an absence of meaningful choice for an aggrieved party.

Substantive: The contract terms are unreasonably favorable to one party over the other.

If there is both substantive or procedural unconscionability, the court may:
1. Refuse to enforce the contract,
2. Take out the offending clause, or
3. Limit the application to avoid unconscionable results.

Question 72

Assignment of Rights

Answer 72

A transfer of a right to receive a contract performance.

For an assignment to be effective, the owner of the right must manifest an intention to make a present transfer of an existing right.

Question 73

Exceptions for Assigning Rights

Answer 73

1. When the assignment would materially change the duties of the other party.
2. When the obligor has a personal interest in performing to the obligee, and not a third party.
3. When it would violate the law or public policy.
4. When the assignment is prohibited by the contract.

Question 74

Delegation of Duties

Answer 74

When a third party agrees to satisfy a performance owed by the delegator.

Without a novation, a delegation does not relieve the delegator from their obligations (aka, the obligee can still sue the delegator).

Generally, all contractual duties are delegable, except for personal services, or when the contract specifically prohibits it.

Question 75

Remedies for Breach of Contract, in General

Answer 75

“The general rule in American contract law is that a remedy for a breach of contract is a payment of expectation damages.”

Question 76

Limitations on the Right to Recover Expectation Damages

Answer 76

Expectation damages must be (1) calculated with reasonable certainty, (2) foreseeable, and (3) mitigated, if possible.

Damages that are not foreseeable are not recoverable.

You can’t recover losses that you could have avoided/mitigated.

Question 77

Expectation Damages

Answer 77

Default damages for breach of contract. “Benefit of the bargain” damages.

Expectation damages are the amount that would restore the aggrieved party to the position that they would be in had the contract been FULLY performed.

Formula —
- The loss of value of the breaching performance,
- Plus any incidental or consequential damages,
- Minus any payment already received,
- Minus any costs saved by not performing.

Question 78

Reliance Damages

Answer 78

Restores the aggrieved party to the position that they were in prior to the contract.

Measured by:
- The expenditures made in preparation of the contract,
- The cost of performance,
- Minus any loss that the plaintiff would have suffered if the contract had been satisfied.

Available when expectation damages are too uncertain or speculative.

Question 79

Restitution Damages

Answer 79

The value of the benefits already conferred upon the other party.

May also be measured by the extent to which the other party’s property has increased in value.

Only available for partial performance, not full performance.

Question 80

Liquidated Damages Analysis

Answer 80

1. Was the LD clause reasonable at the time of contracting, in relation/proportion to the anticipated harm?
2. Was the LD clause reasonable in relation to the harm that actually occured?

Courts will NOT uphold a LD clause that is a penalty or punishment.

Question 81

Seller’s Remedies Under the UCC

Answer 81

If the goods were accepted by the buyer — Seller entitled to the contract price.

If the goods were not accepted by the buyer, but the seller has resold the goods (mitigated the damages) — Seller entitled to the difference between the contract price and the resale price.

If the goods were not accepted by the buyer ,and the seller hasn’t resold them — Seller is entitled to the difference between the contract price and the market price.

Question 82

Lost Volume Seller

Answer 82

A seller who sells to a buyer after a previous buyer has breached a contract for sale but who would have been able to make a sale to the second buyer even if the first buyer had not breached.

May recover the PROFT that they would have made on the sale, not the full contract price.

Question 83

Buyer’s Remedies Under the UCC

Answer 83

If the buyer covers (buys the goods elsewhere) — the remedy if the difference in the contract price and the cover price.

If the buyer does not cover — the remedy is the difference between the contract price and the market price.

The buyer may also be able to receive the value of the goods contracted for vs. the value of the goods received.

Question 84

Incidental Damages

Answer 84

The expenses incurred in dealing with or storing the goods after breach.

Either buyer or seller can recover.

Question 85

Consequential Damages

Answer 85

Must be reasonably foreseeable at the time that the contract was made, and only the buyer can recover under the UCC.

Question 86

Specific Performance

Answer 86

An extraordinary remedy in which the breaching party is ordered to perform. Only available when monetary damages are inadequate, such as when property is unique. Are not available for personal service or long-term contracts.

Question 87

Specific Performance Under the UCC

Answer 87

Loosens the “uniqueness” requirement, only has to be “unable to recover” after a reasonable search.

Question 88

Negative Injunction

Answer 88

Prohibits a breaching party from acting, most common for employment contracts.

Question 89

Mid-term Relief

Answer 89

When an employee leaves before the employment contract is up, the court can’t force you to work by may prevent a competing employer from hiring you.

Only available when the services are unique or extraordinary.

Question 90

Post-Employment Relief (Covenant Not to Compete)

Answer 90

Valid if:

1. There is a significant business justification;
2. The scope is reasonable in duration and geographical reach;
3. There was an express provision.

Question 91

Bilateral Executory Accord

Answer 91

An agreement that an existing claim will be discharged in the future by the rendition of a substituted performance. If the substitute performance is properly rendered, then there is an accord and satisfaction.

Question 92

UCC Measure of Damages for Nondelivery or Repudiation by Seller

Answer 92

Difference between the market price at the time that the buyer LEARNED of the breach and the contract price, plus incidental or consequential damages.

Question 93

Power of Attorney

Answer 93

A power of attorney is a written document in which one person (the principal) appoints another person to act as an agent on his or her behalf, thus conferring authority on the agent to perform certain acts or functions on behalf of the principal.

Must be in writing! Generally terminated when the principal dies. Principal can revoke the power of attorney at any time.

Question 94

“Durable” Power of Attorney

Answer 94

Differs from a traditional power of attorney in that it continues the agency relationship beyond the incapacity of the principal.

The two types of durable power of attorney are immediate and “springing.”

Immediate — takes effect as soon as the durable power of attorney is executed.

Springing — intended to “spring” into effect when a specific event occurs, such as when the principal becomes disabled/incapacitated.

Question 95

3 Ways to Reject at Common Law

Answer 95

1. Outright/express rejection.
2. Rejection via counteroffer (exception — can’t be a “mere inquiry”)
3. Rejection via non-conforming acceptance (Mirror Image Rule)

Question 96

“Time is of the Essence”

Answer 96

When parties to an agreement for the sale of goods specify a delivery date for the goods and declare that “time is of the essence,” the buyer will be entitled to recover damages resulting from the seller’s failure to timely deliver the goods.

Where such a breach occurs, the buyer may recover the “consequential damages” that reasonably flow from the breach, which include lost profits (but not punitive damages).

Question 97

Employment-at-Will Rule

Answer 97

The default rule for the duration of an employment contract — absent an agreement to the contrary, an employer may dismiss, and an employee may quit, at any time for any reason.

However, in a majority of jurisdictions, oral or written assurances of job security made to an individual employee, as well as assurances contained in policy documents distributed to the workforce, may suffice to take the contract out of the default rule.

Using the word “permanent” or “permanent employment” = employment-at-will

Question 98

Reformation

Answer 98

The parol evidence rule does not apply where a party alleges facts that would entitle him to a reformation of the contract.

Reformation permits the court to exercise equitable powers to “reform” (rewrite to correct the mistake) a contract due to a drafting error resulting in a failure to capture the true intent of the parties.

To obtain reformation, a party must show that:
(1) there was an valid agreement;
(2) that is incorrectly reflected in the writing; and
(3) proof of these elements is established by clear and convincing evidence.

Question 99

Owner Breach of a Contruction Contract

Answer 99

Construction company will be able to recover the expected profit of the contract, + anything they have already expended at the time of breach.

Question 100

Anticipatory Repudiation

Answer 100

Occurs when a party announces their intention not to perform prior to the time that performance is due.

Aggrieved party may choose to treat the anticipatory breach as a breach of contract, and either cancel the contract or bring an action for damages or specific performance.

A party who has repudiated a contract may RETRACT the repudiation, unless and until:
(1) The other party acts in reliance on the repudiation;
(2) Positively accepts the repudiation; or (3) Commences a suit for damages or specific performance.

Question 101

Allocation of Risk in Construction Contracts

Answer 101

General rule states that a builder who promises to erect a building is still bound to do so, even though the nearly completed structure is destroyed by forces beyond the builder’s control.

Partially/Newly Constructed Structure — When destroyed by fire or act of God, the risk of loss is on the builder.

Existing Building — When destroyed by fire or act of God, the risk of loss is on the property owner.

Question 102

Past Consideration Rule Exceptions

Answer 102

Traditionally, a promise that has been made as a result of past consideration cannot be enforced. However, two exceptions apply —

• If you owe someone a debt and the statute of limitations is expired, your debt can be enforced if you promised them you would pay it anyway.
• If you owe someone a debt and then declare bankruptcy, your debt can be enforced if you promised you would pay it anyways.
• If a promise is made at at a time where there is a voidable obligation, like if a party is a minor, then it can be enforced when the defect is cured.

Question 103

Shipment Contract

Answer 103

Requires that the seller place the goods into possession of the common carrier.

Risk of loss passes to the buyer when the goods are delivered to the carrier.

Question 104

Destination Contract

Answer 104

Requires that the seller deliver the goods to the buyer at a certain location.

Risk of loss passes to the buyer when the goods arrive at the buyer’s location.

Question 105

Right of Inspection

Answer 105

Under the UCC, a buyer’s right to inspect and reject is not affected by a provision in the contract requiring payment on delivery. A buyer still retains the right to inspect the goods and reject even after payment.

Advance payment does not “impair the buyer’s right to inspect or any of his remedies.” Even if there is a contract clause requiring prepayment, any buyer retains a right to inspect the goods purchased.

Question 106

Special Rule for Construction Contracts Re: Revocation

Answer 106

Where a general contractor uses a particular subcontractor’s bid/”offer” to formulate their own bid, an implied option contract is created via promissory estoppel.

Question 107

“Merchant”

Answer 107

A person with special knowledge or skill with respect to the practices or goods involved in the transaction.

Question 108

Revival

Answer 108

The maker is the master of the offer. An offeror has the power to revive an offer that the offeree has rejected by communicating the revival, which can be accomplished by restating the offer or giving the offeree more time.

Question 109

Substantial Performance vs. Material Breach

Answer 109

Substantial performance is present when a party completes its contractual obligations with “no uncured material failure.”

Whether a failure to perform is material depends on several factors, including
(1) If the aggrieved party will be deprived of the benefit they expected under the K;
(2) If the aggrieved party can adequately be compensated via damages for the defective performance;
(3) If the breaching party will suffer forfeiture if a material breach is found;
(4) If the breach was willful/in bad faith, rather than merely negligent or innocent; and
(5) The likelihood that the breaching party will cure his failure within a reasonable time.

The likelihood that the failure will be cured is a significant circumstance in determining whether the breach is material or nonmaterial.

Question 110

Divisibility of a Contract

Answer 110

A contract is said to be divisible if the performances to be exchanged can be divided into corresponding pairs of part performances, in such a way that a court will treat the elements of each pair as if the parties had agreed they were equivalents.