Contracts

Question 1

implied terms

Answer 1

when the contract doesn’t specify gap fillers are used

Question 2

What is the gap filler when no specific amount of time is in the contract

Answer 2

reasonable amount time

Question 3

Can either party terminate the contract whenever they want?

Answer 3

UNLESS the contract specifies otherwise, yes

Question 4

Is notice required to terminate a contract?

Answer 4

Yes, reasonable notice is required UNLESS on the happening of an agreed upon event

Question 5

Is there a required amount of effort a party must give when performing a contract?

Answer 5

best efforts to supply goods/promote sales

Question 6

If an agreement dispensing notification for termination is unconscionable, is the clause valid?

Answer 6

If it is unconscionable it is invalid

Question 7

What is the obligation of good faith and fair dealing?

Answer 7

honesty in fact, observance of reasonable commercial standards of fair dealing, consistent with the parties expectations and the purpose of the contract

Question 8

What is needed for a breach of good faith and fair dealing?

Answer 8

no business efficacy, pretext termination, or abuse discretion AND bad faith = breach

Question 9

What are the “satisfaction” abuse of discretion types?

Answer 9

objective: practicable to determine when a reasonable person would be satisfied (at issue are: commercial quality, operative fitness, mechanical utility)
honest: contract has a non-standard clause and requires good faith and honesty (personal fancy or aesthetics are at issue)

Question 10

What is a warranty?

Answer 10

promise guaranteed by one of the parties (usually regarding the quality of a product)

Question 11

Express Warranty

Answer 11

promise of goods that becomes part of the basis of the bargain. (shall conform to the description and sample/model; does not need specific words; mere puffery not a warranty)

Question 12

Implied Warranty of Merchantability

Answer 12

implied in contract that goods shall be merchantable if the seller is a merchant of goods of that kind UNLESS EXCLUDED OR MODIFIED

Question 13

Requirements for Implied Warranty of Merchantability

Answer 13

(a) pass w/ out obj. in the trade under the contract description; (b) fungible goods-fair average quality w/ in the description; (c) fit for the ordinary purpose which the goods are used; (d) run w/ in variations permitted by agreement, of even kind, quality, quantity w/ in each unit and among all units involved; (e) adequately contained, packaged, labeled as agreement may require; and (f) conform to promises or affirmations of fact made on contained/label

Question 14

Implied Warranty of Fitness for a Particular Purpose

Answer 14

when buyers purpose for the goods is different than the average purchase. It is implied when (a) the seller has reason to know the buyer is relying on the particular purchase; and (b) buyer is relying on seller’s skill or judgment

Question 15

What are the defenses to enforcement of a contract?

Answer 15

Incapacity, Duress, Undue Influence, Misrepresentation, Unconscionability, Public Policy

Question 16

Traditional minor incapacity defense

Answer 16

unfair contract=void
fair contract=valid
unclear=voidable

Question 17

Evolved minor incapacity defense

Answer 17

reaching age of majority, can affirm or disaffirm contract & return remaining consideration w/ in a reasonable time

Question 18

Benefit minor incapacity defense

Answer 18

(minority) value returned to the minor should be reduced by the value of use received by the minor

Question 19

Oregon (depreciation) minor incapacity defense

Answer 19

(minority) value returned to minor is reduced by deduction for use, depreciation and willful or neglectful damage to the property while in the hands of the minor

Question 20

Traditional/cognitive test for mental incapacity

Answer 20

when a person is incapable of understanding the transaction/contract

Question 21

Modern/volitional test for mental incapacity

Answer 21

when a person is unable to act reasonably AND the other party knows of the condition/inability (controlling consideration is whether the transaction is one which reasonably competent person might have made)

Question 22

Duress defense

Answer 22

improper threat (voidable) or physical threat (void): (a) assent induced by improper threat; (b) leaves victim w/ no reasonable alternative (if induced by 3d party and other party to contract gives value or relies materially on transaction in good faith and w/ out reason to know of duress=not voidable)

Question 23

When is a threat improper?

Answer 23

(1)(a) what is threatened is crime/tort; (b) threat is crim. prosecution; (c) bad faith threat of use of civil service; (d) threaten breach of duty of good faith/fair dealing; (2) if resulting exchange is not on fair terms and threatened act would harm recipient and not significantly benefit party making the threat; OR effectiveness of threat inducing manifestation of assent is significantly increased by prior unfair dealing; OR what is threatened is a use of power for illegitimate ends

Question 24

Undue Influence defense

Answer 24

unfair persuasion of party w/ less power than persuader and is justified in assuming person persuading will not act in manner inconsistent w/ welfare
(a) if manifestation of assent induced by undue influence=voidable
(b) if manifestation of assent induced by 3d party but other party gave value or relied and acted in good faith and w/ out reason to know, not voidable

Question 25

Undue susceptibility/weakness

Answer 25

excessive pressure; discussion of the transaction at an unusual or inappropriate time; transaction in an unusual place; demand that the business be finished at once; extreme emphasis on consequences of delay; multiple persuaders against single servient party; absence of third-party advisers; “no time to consult financial advisers/atty”

Question 26

Concealment

Answer 26

intended or know to be likely to prevent another from learning a fac

Question 27

Nondisclosure

Answer 27

only if: (a) knows that disclosure of fact is necessary to prevent previous assertion from being misrep. or fraudulent or material; OR (b) knows that disclosure would correct mistake of other party as to basic assumption which party is making the contract and non-disclosure amounts to failure to act in good faith/in accordance w/ fair dealing; OR (c) knows that disclosure of fact would correct mistake of party as to contents or effect of a writing; OR (d) other party is entitled to know of the fact b/c of relationship of trust and confidence between them

Question 28

Fraud in execution

Answer 28

misrepresentation of character or essential terms = void

Question 29

Fraud in inducement

Answer 29

induced by fraudulent or material misrepresentation that recipient is justified in relying on = voidable

Question 30

When disclosure is fradulent

Answer 30

maker intends his assertion to induce party to manifest assent; AND knows or believes assertion is not in accord w/ the facts; OR does not have confidence that her states/implies in truth of assertion; OR knows he does not have basis he states or implied for assertion

Question 31

When disclosure is material

Answer 31

likely to induce reasonable person to manifest assent OR knows that it would be likely to induce the recipients intent

Question 32

Unconscionability in process

Answer 32

(1) lack of choice by one party or (2) defect in bargaining process @ time contract was made

Question 33

Unconscionability in substance

Answer 33

relates to fairness of terms of resulting bargain

Question 34

How does the court remedy unconscionability?

Answer 34

Court may refuse enforcement of contract OR enforce contract w/ out unconscionable term OR limit application of unconscionable clause

Question 35

What is a contract of adhesion?

Answer 35

drafter has superior bargaining strength

Question 36

Public Policy defense

Answer 36

contract unenforceable if legislation says so OR interest in the public is clearly outweighed by the parties interest in freedom to contract

Question 37

What is considered when weighing the freedom to contract?

Answer 37

parties justified expectations; forfeiture that would result if enforcement were denied; special pub. Interest in enforcement of term

Question 38

What is considered when weighing the public's interest

Answer 38

strength of policy as manifested by legislation/judicial decisions; likelihood that refusal to enforce the term will further the policy; seriousness of misconduct involved and extent to which it was deliberate; and directness of connection between misconduct and termination

Question 39

What is a restriction of free trade?

Answer 39

if promise would limit competition or restrict promiser in exercise of gainful occupation

Question 40

When is a promise ancillary to a valid transaction unenforceable?

Answer 40

if restraint is greater than needed (type, place, time) to protect promisee’s legitimate interests OR promisee’s need is outweighed by hardship to promisor and injury to public

Question 41

What are ancillary promises?

Answer 41

promise by seller to not compete w/ buyer in a way to injure the value of the business sold; promise by employee not to compete w/ employer; promise by partner not to compete w/ partnership

Question 42

What are the justifications for none performance?

Answer 42

Mistake, Impossibility, Impracticability, Frustration of Purpose, and Modification

Question 43

What justifications fall w/ in an issue at the time of the contract?

Answer 43

Mistake

Question 44

What justifications fall w/ in issue at the time for performance?

Answer 44

impossibility, impracticability, and frustration

Question 45

What are the prerequisites of issue at the time for performance?

Answer 45

(1) supervening event arises after formation; (2) supervening event occurs without the fault of the party seeking relief; (3) non-occurrence of supervening event was a basic assumption on which contract was made; (4) party seeking relief does not bear the risk of the supervening event

Question 46

What justifications fall w/ in issue at the time for or during performance?

Answer 46

modification

Question 47

What is a mistake?

Answer 47

something not in accord w/ the facts (1) mistake as to basic assumption on which contract was made; (2) had a material effect on agreed exchange of performances; (3) party seeking relief does not bear the risk of loss

Question 48

Mutual Mistake

Answer 48

when both parties are mistaken regarding the facts

Question 49

Unilateral Mistake

Answer 49

(1) one party is mistaken AND (2) enforcement of the contract would be unconscionable OR mistake is known by or the fault of the other party

Question 50

Who bears the risk of loss?

Answer 50

(1) allocated by agreement; (2) knows he has limited knowledge, treats that as sufficient; or (3) allocated to him by the court

Question 51

Impossibility

Answer 51

no one could do it (objective) destruction of a thing or death

Question 52

Impracticability

Answer 52

extremely and unreasonably difficult, expensive or will result in extreme injury or loss; performance is so vitally different from originally understood that it alters the essential nature of performance (market price change not impracticability)

Question 53

Frustration of Purpose

Answer 53

must thwart the parties’ purpose in making the contract to such a degree that one party’s performance becomes virtually worthless to the other

Question 54

Modification

Answer 54

(1) modification was voluntary; (2) promise of modification happens before either side has performed in full; (3) underlying circumstances prompting modification were unanticipated; (4) modification is fair and equitable (*restatement requires new consideration*)

Question 55

Preexisting Duty Doctrine

Answer 55

promising to perform existing obligation not valid consideration for additional compensation from the other party; small or modest addition to or alteration of performance can suffice to satisfy the rule

Question 56

Express Condition

Answer 56

a promise that performance is not due unless and until specified event happens excused before performance

Question 57

What is the effect of the non-occurrence of a condition?

Answer 57

performance of a duty subject to condition cannot be due unless that condition occurs; discharges duty when condition can no longer occur; NOT a breach unless under a duty that the condition occur

Question 58

Can the non-occurrence of a condition be excused?

Answer 58

Yes - (1) waiver (non-occurrence allowed if by word or conduct if not material part of performance and not material part of risk assumed); (2) modification; (3) prevention/bad faith (if obligor wrongfully hinders/prevents condition from occurring); (4) disproportionate forfeiture

Question 59

What is a partial breach?

Answer 59

minor deviation from an obligation; substantial performance has occurred, NBP damages is the loss in value

Question 60

What is a material breach?

Answer 60

a significant deviation from obligation; suspends NBP performance so BP can cure breach; NBP entitled to damages

Question 61

What is a total breach?

Answer 61

a material breach that went uncured; NBP can move on and find new transaction; NBP has no obligations under contract; NBP entitled to damages

Question 62

What is anticipatory repudiation?

Answer 62

unequivocal & direct statement to other party OR conduct rendering inability to perform

Question 63

What can the NBP do if the other party repudiates?

Answer 63

suspend performance; terminate and sue for breach; treat contract as valid, see if other party performs, then bring suit

Question 64

Is the repudiating party able to retract their repudiation?

Answer 64

Yes UNLESS NBP accepts repudiation and will treat the contract as terminated; NBP treats as anticipatory repudiation by bringing a breach of contract claim; NBP materially changes their position in reliance on repudiation

Question 65

If a party believes there will be breach, are they entitled to do anything?

Answer 65

Yes - if reasonable grounds arise to believe obligor will commit a breach, party may demand adequate assurance and, if reasonable, suspend performance until receipt of assurance (failure to provide assurance w/ in reasonable time=repudiation)

Question 66

Expectation Damages (Restatement)

Answer 66

puts the NBP in the position they would have been if the contract was fully performed (loss in value + other losses - costs avoided - loss avoided = total damages)

Question 67

What is loss in value?

Answer 67

difference between what NBP has received and was supposed to receive

Question 68

What are other losses?

Answer 68

incidental: reasonable costs incurred in effort to mitigate losses associated with breach consequential: reasonable and natural consequence of the breach (3d party contract)

Question 69

What are costs avoided?

Answer 69

only for total breach: did NBP avoid costs as a result of being excused from performance?

Question 70

What are losses avoided?

Answer 70

only for total breach; was NBP able to recover any losses

Question 71

How do you determine loss in value?

Answer 71

cost of obtaining replacement services; difference between contract price and value of property on date of breach; cost to complete promised performance; diminution in value based on breach; when payment is the only duty of defendant, whatever payment was not made (specific performance)

Question 72

What are the limitations on damages?

Answer 72

Causation, Certainty, Foreseeability, Mitigation

Question 73

Causation limitation

Answer 73

limited to damages based on his actual loss caused by the breach

Question 74

Certainty limitation

Answer 74

damages not recoverable for loss beyond amount that cannot be established with reasonable certainty

Question 75

Foreseeability limitation

Answer 75

not recoverable for loss the party in breach did not have reason to foresee as a probable result of the breach when the contract was made general: generally foreseeable based on common experience of ordinary people specific: unique circumstances of NBP

Question 76

Mitigation limitation

Answer 76

not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation

Question 77

Reliance Damages (Restatement)

Answer 77

returns NBP to position they were in prior to contract by compensating for expenses incurred by NBP (expenditures made in preparation for, start of performance and in reliance) (when expectations indeterminable, reduced by clear expected loss of NBP)

Question 78

Restitution Damages (Restatement)

Answer 78

returns BP to position they were in prior to the contract by returning benefit conferred (reasonable value of performance) measured by cost to other party of what it would have cost them to obtain the benefit from a 3d party OR increase in value to other party’s property/interests

Question 79

Liquidated Damages (Restatement)

Answer 79

agreed to damages at the time of the contract (1) difficult to determine likely loss @ time of contract; (2) amount has reasonable relationship to potential loss; (3) not intended as penalty

Question 80

Specific Performance (Restatement)

Answer 80

(1) $ damages inadequate (no reasonable certainty, no substitute (unique); (2) contract terms certain & definite; (3) court supervision is feasible; (4) fairness (enforcement unfair b/c of mistake, unreasonable hardship to BP, gross unfairness of contract terms or inconsistency with public policy); unclean hands (party seeking breach acted unfairly); laches (when party seeking relief delayed to the detriment of BP)

Question 81

Negative Injunction

Answer 81

duty of forbearance OR duty to act but specific performance has supervision challenges (harm w/ out injunction is greater than burden, not contrary to public interest)

Question 82

Buyer's Remedies when: seller breaches by repudiating or non-delivery of goods or buyer rejects non-conforming goods

Answer 82

cover, incidental, consequential

Question 83

Buyer's Remedies when: seller breaches by delivering non-conforming goods & buyer accepts

Answer 83

warranty

Question 84

Seller's Remedies when: Buyer refuses to accept conforming goods and then

Answer 84

resale, no re-sale, market differential, OR lost profits, incidental, NO CONSEQUENTIAL

Question 85

Seller's Remedies when: buyer refuses to pay for accepted foods, accepting risk of loss, or when goods cannot be resold w/ reasonable efforts

Answer 85

action for price

Question 86

Cover Damages (UCC)

Answer 86

contract price v. actual price (1) good faith; (2) w/ out reasonable delay; (3) reasonable substitute; no cover/market §2-713 MP v. contract price if no alternative goods received

Question 87

Warranty Damages (UCC)

Answer 87

value of goods accepted v. value they expected (contract price); must notify seller of claim of non-conformance to give seller a chance to fix it (no damages if same value)

Question 88

Resale Damages (UCC)

Answer 88

in good faith, must notify BP of resale (difference between resale price v. contract price)

Question 89

Market Differential Damages if no resale (UCC)

Answer 89

difference between MP v. contract price

Question 90

Lost Profits

Answer 90

seller is lost volume seller, goods partially manufactured, or seller not acquired goods yet (profit seller would have made from full performance + costs reduced by resale proceeds)

Question 91

Action for Price (UCC)

Answer 91

entire contract price, seller may withhold goods; (reduced by expenses saved as consequence of buyer’s breach)

Question 92

Intended Beneficiary

Answer 92

effectuates intent of the parties AND (a) performance satisfies obligation of promise to pay $ to beneficiary (creditor); or (b) promise intends to give beneficiary benefit of promised performance (donee)

Question 93

Incidental Beneficiary

Answer 93

anyone not intended

Question 94

Assignment of Rights

Answer 94

(passing football): transfers right of contract to assignee, extinguishes right in assignor generally acceptable UNLESS prohibited by statute/public policy, materially changes burden or risk to non-transferring party, or precluded by contract terms

Question 95

Delegation of Rights

Answer 95

(passing cold): obligee delegates duties to another while still holding a duty to perform UNLESS oblige releases the delegate from duties (limited by public policy, contract terms, and the degree in which individual performance was called upon by the contract (personal services))