Contracts

Question 1

contract

Answer 1

Legally enforceable agreement that contains the rights and responsibilities of the contracting parties.

Question 2

UCC Terms Needed

Answer 2

The UCC “fills the gap” for missing contract terms other than the parties, subject matter, and quantity. The quantity term must specify an amount that is certain or capable of being made certain by reference to objective facts.

Question 3

offer

Answer 3

An offer is an objective manifestation of a present intent to enter into an agreement, which is determined by whether an individual receiving the offeror’s communication would believe that acceptance would create an enforceable contract.

Question 4

Contract not specifying assortment of goods

Answer 4

The UCC imposes a duty on the buyer of assorted goods to specify the assortment unless the contract states otherwise. The seller can treat the buyer’s failure to specify the assortment as a breach only if it materially impacts the seller’s performance.

Question 5

Warranty of mechantability

Answer 5

The implied warranty of merchantability warrants that the goods sold are fit for their ordinary purpose, but this warranty is implied only when the seller is a merchant with respect to the goods sold.

Question 6

Termination of offer before acceptance

Answer 6

Offers can be terminated by revocation, rejection, lapse, or operation of law

Question 7

Offeror’s revocation

Answer 7

Offeror communicates revocation directly to offeree. OR Offeree learns information from reliable source that reasonably indicates offer was revoked (eg, house sold to another buyer)

Question 8

Offeree’s rejection

Answer 8

Offeree communicates rejection directly to offeror. Offeree’s counteroffer serves as rejection & new offer (Counteroffer does not terminate offer if offeree manifests intent to take offer under advisement.)

Question 9

Lapse of offer

Answer 9

Time period specified in offer expires OR After reasonable time if no time period specified in offer

Question 10

Termination of Offer by Law

Answer 10

Either party dies or is adjudicated insane OR Subject matter of offer is destroyed or becomes illegal

Question 11

merger clause

Answer 11

a clause that declares the written contract to be the complete and final agreement between the parties

Question 12

promissory estoppel - a gift can be enforced when:

Answer 12

Under the doctrine of promissory estoppel, a party’s promise to make a gift is enforceable if (1) the promisor should reasonably expect the promisee to rely on the promise, (2) the promisee detrimentally relies on the promise, and (3) injustice can be avoided only by enforcement of the promise.

Question 13

A requirements contract

Answer 13

an exclusive agreement between a buyer and a seller for the sale of as many goods as the buyer requires during a specified period. The buyer’s purchase of the goods from another seller violates the implied duty of good faith and fair dealing and constitutes a breach of contract.

Question 14

An output contract

Answer 14

an exclusive agreement between a seller and a buyer for the sale of as many goods as the seller makes during a specified period. The seller’s sale of the goods to another buyrt violates the implied duty of good faith and fair dealing and constitutes a breach of contract.

Question 15

A contracting party’s duty to perform is discharged by impracticability when

Answer 15

(1) an unanticipated or extraordinary event makes it impracticable for the party to perform, (2) the contract was formed under a basic assumption that the event would not occur, and (3) the party seeking discharge was not at fault in causing the event to occur.

Question 16

unilateral contract

Answer 16

arises when an offeror promises something in return for an offeree’s complete performance of a specified act. Therefore, a unilateral contract is not formed until the offeree’s performance is fully completed.

Question 17

objective theory of contracts

Answer 17

a party’s intent to contract is judged by outward objective facts as interpreted by a reasonable person—not a party’s subjective intent or belief.

Question 18

Bilateral Contract

Answer 18

can be accepted with a return promise or by starting performance

Question 19

Auctions

Answer 19

If goods in an auction sale are offered in lots, each lot represents a separate sale. An auction sale is complete when the auctioneer announces its end, such as by the fall of the auctioneer’s hammer or in any other customary way. When a bid is made contemporaneously with the falling of the hammer, the auctioneer may, at her discretion, treat the bid as continuing the bidding process or declare the sale completed at the fall of the hammer.

In a reserve auction, the auctioneer may withdraw the goods any time before she announces completion of the sale. An auction is with reserve unless specifically announced as a no-reserve auction. In a no-reserve auction, after the auctioneer calls for bids on the goods, the goods cannot be withdrawn unless no bid is received within a reasonable time. In either type of auction, a bidder may retract her bid until the auctioneer announces the completion of the sale. A retraction, however, does not revive any earlier bids.

When an auctioneer knowingly accepts a bid by the seller or on her behalf, or procures such a bid to drive up the price of the goods, the winning bidder may avoid the sale or, at her option, take the goods at the price of the last good-faith bid prior to the end of the auction. There are two exceptions to this rule, which are that (i) a seller may bid at a forced sale and (ii) a seller may bid if she specifically gives notice that she reserves the right to bid. Debtors and foreclosing creditors are both treated as “sellers” under the forced-sale exception to auction sales.

Question 20

Accord

Answer 20

Under an accord agreement, a party to a contract agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other party’s existing duty. An accord requires consideration to be valid. That consideration can be worth less than what was agreed to in the original contract only if (1) there is a good-faith dispute as to the amount owed or (2) the new consideration is of a different type than what was owed under the original contract.

Question 21

Satisfaction

Answer 21

A “satisfaction” is the performance of the accord agreement; it will discharge both the original contract and the accord contract. However, there is no satisfaction until performance, and the original contract is not discharged until satisfaction is complete. Therefore, if an accord is breached by the party who has promised a different performance, the other party can sue either on the original contract or under the accord agreement.

Question 22

Accord and Satisfaction with negotiable instrument (i.e. check)

Answer 22

1) the obligation is unliquidated (i.e., uncertain in amount) or otherwise in dispute

2) the obligor, in good faith, tenders the negotiable instrument with a conspicuous statement that the instrument is tendered as full satisfaction of the obligation and

3) the obligee obtains payment of the instrument (e.g., by cashing the check).

Question 23

third-party beneficiary

Answer 23

a nonparty to a contract who receives some advantage or benefit from that contract. There are two types of third-party beneficiaries: intended and incidental

Question 24

incidental third-party beneficiary

Answer 24

those who receive some indirect benefit from the contract even though there was no contractual intent to benefit them (i.e., all third-party beneficiaries who are not intended beneficiaries). Does not have contractual rights and cannot sue.

Question 25

Ways to discharge (excuse) contractual obligations

Answer 25

FIRM SCAN Full performance of contractual obligations Impossibility, impracticability, or frustration of purpose Release (in writing only) Mutual rescission Substituted contract Contract or covenant not to sue Accord & satisfaction Novation

Question 26

Promise to Pay a Debt Barred by the Statute of Limitations or Bankruptcy

Answer 26

A new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration. When the new promise is an express promise, most states require that the new promise be in writing and signed by the debtor. In addition, a new promise may be implied when the obligor (i) voluntarily transfers of something of value (e.g., money, negotiable note) to the obligee as interest on, part payment of, or collateral security for the prior debt, (ii) voluntarily acknowledges to the obligee the present existence of the prior indebtedness, OR (iii) states to the obligee that the statute of limitations will not be pled as a defense.

Question 27

Effect of new terms in reply to offer (UCC) - nonmerchants

Answer 27

When the contract is for the sale of goods between nonmerchants or between a merchant and a nonmerchant, a definite and seasonable expression of acceptance or written confirmation that is sent within a reasonable time operates as an acceptance of the original offer. This is true even if it states terms that are additional to or different from the offer, unless the acceptance is made expressly conditional on the offeror’s consent to the additional or different terms. The additional terms are treated as a proposal for addition to the contract that must be separately accepted by the offeror to become a part of the contract.

Question 28

Effect of new terms in reply to offer (UCC) - merchants

Answer 28

battle of the forms. In this situation, remember that a contract exists under the terms of the acceptance, unless (i) the terms materially alter the agreement, (ii) the offer expressly limits the terms, or (iii) the offeror objects to the new terms within a reasonable time after notice of the new terms is received. UCC 2-207 (its too long for a flash card)

Question 29

Merchants

Answer 29

A merchant is one who regularly deals in the type of goods involved in the transaction or has specialized knowledge of the goods subject to the contract.

Question 30

Vesting of Intended Beneficiaries Rights

Answer 30

Once an intended beneficiary's rights have vested, the contracting parties cannot modify or rescind the contract without the beneficiary's consent. Vesting occurs when the beneficiary (1) materially changes position in justifiable reliance on the rights created, (2) manifests assent to the contract at a party's request, or (3) files a lawsuit.

Question 31

Disclaiming Implied Warranty of Merchantability

Answer 31

The implied warranty of merchantability requires a merchant-seller to provide a buyer with merchantable goods. This warranty may be disclaimed for defects that an examination would have revealed if, before entering the contract, the buyer examined the goods as fully as desired or refused to examine them. Trade usage and conspicuous language waiving it.

Question 32

When a contractual duty cannot be delegated

Answer 32

(1) the other party has a substantial interest in having the delegating party perform or (2) the contract prohibits delegation.

Question 33

UCC Contract Modification

Answer 33

Under the UCC, no consideration is needed to modify a contract. All that is required is good faith—i.e., honesty in fact and fair dealing per reasonable commercial standards.

Question 34

Offer Termination by Lapse

Answer 34

An offer terminates by lapse if it is not accepted by a specified date or, if no date is specified, after a reasonable time. Reasonableness is determined by several factors, including (1) the nature of the contract, (2) the purpose and course of dealing between the parties, and (3) trade usage.

Question 35

Revokable Offer

Answer 35

a revocable offer terminates by revocation if it is revoked by the offeror prior to acceptance.

Question 36

Restitution for contract to perform an illegal act

Answer 36

A contract to perform an illegal act (e.g., fraud) is void and unenforceable. However, restitution damages may be recoverable if the claimant conferred a benefit on the other party and: was justifiably ignorant of the facts that made the contract illegal* was less culpable than the other party (i.e., was not in pari delicto) or withdrew before the contract's illegal purpose was achieved and did not engage in serious misconduct (e.g., shockingly immoral, unethical, or unjust behavior).

Question 37

Reformation

Answer 37

is a modification by a court of a written contract that fails to reflect the contracting parties' intent. A party may seek reformation as an equitable remedy on several grounds, including mutual mistake.

Question 38

Mutual Mistake

Answer 38

A mutual mistake arises when both parties are mistaken as to an essential element of the contract. A court may reform a written contract due to mutual mistake if (1) there was a prior agreement, (2) the parties agreed to put the prior agreement in writing, AND (3) there is a difference between the prior agreement and the writing due to the mistake.

Question 39

Under the UCC, a buyer's request for shipment of goods

Answer 39

Under the UCC, a buyer's request for shipment of goods is construed as an offer that the seller may accept by (1) promising to ship the goods, (2) shipping conforming goods, or (3) shipping nonconforming goods without notice of accommodation. Shipping nonconforming goods without such notice constitutes an immediate breach.

Question 40

PER - Express Terms Supplemented

Answer 40

If the express contract terms are inconsistent with the course of performance, course of dealing, or trade usage, priority is given as follows: (i) express terms prevail over all others, (ii) course of performance prevails over course of dealing and trade usage, and (iii) course of dealing prevails over trade usage.

Question 41

Mailbox rule

Answer 41

An acceptance that is mailed within the allotted response time is effective when sent (not upon receipt), unless the offer provides otherwise. The mailing must be properly addressed and include correct postage.

Question 42

Mailing a rejection

Answer 42

If the offeree sends an acceptance and later sends a communication rejecting the offer, then the acceptance will generally control even if the offeror receives the rejection first. If, however, the offeror receives the rejection first and detrimentally relies on the rejection, then the offeree will be estopped from enforcing the contract. If a communication is sent rejecting the offer, and a later communication is sent accepting the contract, then the mailbox rule will not apply, and the first one to be received by the offeror will prevail. An acceptance or rejection is received when the writing comes into the possession of the offeror or her agent, or when it is deposited in her mailbox. The offeror need not actually read the communication that is received first for it to prevail.

Question 43

Time is of the Essence

Answer 43

In a CL contract, the failure to perform by the time stated in the contract is generally not a material breach if performance is rendered within a reasonable time. However, if the nature of the contract makes timely performance essential, or if the contract expressly provides that time is of the essence, then the failure to perform on time is a material breach.

Question 44

Cure of a misrepresentation

Answer 44

If, following a misrepresentation but before the deceived party has avoided the contract, the facts are cured so as to be in accord with the facts that were previously misrepresented, then the contract will no longer be voidable by the deceived party.

Question 45

material benefit rule

Answer 45

Under the material benefit rule, when a party performs an unrequested service for another party that constitutes a material benefit, the modern trend permits the performing party to enforce a promise of payment made by the other party after the service is rendered, even though, at common law, such a promise would be unenforceable due to lack of consideration. This rule is not enforced when the performing party rendered the services without the expectation of compensation (e.g., as a gift).