Contracts Flashcards

Question

Additional or different terms, UCC 1+ parties are a nonmerchant

Answer 1

Offer is accepted unless the reply expressly required assent to additional/different terms. Additional/diffferent terms are treated as proposed additions to the contract.

Answer 2

Offer is accepted unless the reply expressly required assent to new/revised terms. Additional terms become part of the contract unless 1) the offer expressly required assent to new terms, 2) the new terms materially alter the contract or 3) the offeror objects within a reasonable time.

Answer 3

Offer is accepted unless the reply expressly required assent to new/revised terms ifferent terms cancel each other out under the knockout rule, and the court patches the holes in the contract

Answer 4

then there is a contract that consists of any terms agreed to in writing plus supplementary terms from the UCC.

Answer 5

Consideration exists where there is a legal detriment to the promisee that is bargained for by the promisor. The promise must induce the detriment, and the detriment must induce the promise. Consideration can take the form of any of the following: y A return promise to do something y A return promise to refrain from doing something legally permitted y The actual performance of some act y Refraining from doing some act

Answer 6

A party generally cannot challenge a contract on the grounds that the consideration is inadequate. That is because consideration need not have economic value, and even a promise that is voidable or unenforceable by rule of law can qualify as consideration.

Answer 7

A promise not to assert (or to release) a claim or defense that proves to be invalid does not qualify as consideration unless the claim or defense was doubtful (e.g., due to uncertain law or facts) or the promising party believed in good faith that the claim or defense was valid.

Answer 8

A promise to perform a preexisting duty is not consideration. However, courts often find consideration if the promisor gave something in addition to what was already owed or varied the preexisting duty in some way.

Answer 9

While historically viewed as inadequate, the modern trend is to enforce certain promises involving past consideration under the material-benefit rule.

Answer 10

A promise that essentially pledges nothing—either because it is vague or because the promisor can choose whether to honor it—is not legally binding.

Answer 11

There is consideration for requirements and output contracts because the promisor suffers a legal detriment. Under a requirements contract, the buyer agrees to buy all that the buyer will require of a product from the seller. And under an output contract, the seller agrees to sell all that the seller manufactures of a product to the buyer. However, quantities must be bought or sold in good faith and cannot be unreasonably disproportionate to any estimated amounts.

Answer 12

Under common law, a modification requires new consideration. However, new consideration is not required when: The existing contract is rescinded, and a new contract is made There are unanticipated difficulties, and modification is fair and equitable or There are new obligations on both sides.

Answer 13

Under common law, a modification requires new consideration. However, new consideration is not required when: The existing contract is rescinded, and a new contract is made There are unanticipated difficulties, and modification is fair and equitable or There are new obligations on both sides.

Answer 14

An “accord” is an agreement by which a contracting party agrees to accept different performance from another party to satisfy that other party’s existing duty. “Satisfaction” is performance of the accord, which discharges the original contract and the accord contract. The original contract is not discharged until satisfaction is complete

Answer 15

a negotiable instrument (e.g., a check with the note “payment in full”).

Answer 16

enforceable without any new consideration

Answer 17

enforceable without consideration, provided that the new promise is not void for a similar reason

Answer 18

to apply the material-benefit rule. This rule allows the performing party to enforce the promise of payment for material benefits received—but only to the extent necessary to prevent injustice.

Answer 19

Promissory estoppel (i.e., detrimental reliance) is a consideration substitute. Under this doctrine, a promise is binding if: ○ The promisor should reasonably expect it to induce action by the promisee (or a third person) ○ The promise does induce the action and ○ Enforcing the promise is the only way to avoid injustice.

Answer 20

y Void – The entire transaction is regarded as a nullity, as if no contract existed. y Voidable – A valid contract that exists unless and until one party takes affirmative steps to avoid it. y Unenforceable – A valid contract that cannot be enforced against a party who refuses to perform.

Answer 21

A mutual mistake is made when both parties are wrong about an essential element of the contract. A unilateral mistake is made when only one party is wrong about an essential element of the contract. Either party can attempt to enforce a mistaken contract on its terms, but the contract may be voidable if certain conditions are met.

Answer 22

voidable if it would be unconscionable or other party caused or knew of the mistake.

Answer 23

Reformation available: Not voidable Reformation available: Voidable by adversely affected party who did not bear the risk of mistake

Answer 24

When a mutual mistake is made, a party may request the court to reform a written contract if the parties agreed to put a prior agreement into writing and, as a result of a mistake, there is a difference between the prior agreement and the writing. When reformation is available to cure a mistake, neither party can avoid the contract. But this remedy is not available to the extent that it would unfairly affect the rights of third parties who relied on the contract.

Answer 25

A misunderstanding happens when both parties believe that they are agreeing to the same material terms but actually agree to different terms. In evaluating a misunderstanding, it is each party’s knowledge or reason to know about the misunderstanding that controls (a subjective test)—not what a reasonable person would know. The outcome depends on who knows (or has reason to know) about the misunderstanding: y No party = No contract y One party = Contract formed based on the unknowing party’s understanding of the material terms y Both parties = No contract unless the parties intended the same meaning However, one party may waive the misunderstanding and choose to enforce the contract according to the other party’s understanding.

Answer 26

A misrepresentation is an untrue assertion of fact about a present event or past circumstance. Affirmative conduct to conceal a fact, or nondisclosure of a known fact, is tantamount to an assertion that the fact does not exist.

Answer 27

y The misrepresentation was fraudulent (i.e., made knowingly or recklessly with intent to mislead) y The adversely affected party justifiably relied on the misrepresentation and y The misrepresentation induced assent to the contract. Whether the contract is void or voidable depends on whether the misrepresentation caused fraud in the factum (void) or fraud in the inducement (voidable)

Answer 28

In contrast, a nonfraudulent misrepresentation is an innocent or negligent misrepresentation that renders a contract voidable by the adversely affected party if: y The misrepresentation was material y The party justifiably relied on the misrepresentation and y The party was induced to enter the contract because of it.

Answer 29

Preventing party from knowing the contract's character/essential terms. Void.

Answer 30

Induced party to enter the contract (voidable)

Answer 31

Unless it amounts to bad faith, a party’s fault in not knowing or discovering facts before entering into the contract does not make that party’s reliance unjustified.

Answer 32

The contract is not voidable if the misrepresentation is cured before the deceived party has avoided the contract.

Answer 33

: When the content or legal effects of a contract are misrepresented, the deceived party can avoid the contract or ask the court to reform it to express what was represented.

Answer 34

Undue Influence Undue influence is the unfair persuasion of a party to enter into a contract. It can happen when there is a relationship in which one party is dominant and the other is dependent because of a lack of expertise or experience or because of a party’s diminished mental capacity. The victim of undue influence may void the contract and recover restitution damages. When a confidential relationship between contracting parties is established, the dominant party has the burden of proving that the contract is fair. That party may also be held to a higher standard of disclosure. When a nonparty to the contract causes undue influence, the victim may void the contract unless the nonvictim party gave value or materially relied on the contract in good faith and without knowledge of the undue influence.

Answer 35

Duress is an improper threat that deprives a party of meaningful choice. y Improper threats include threats of criminal prosecution, threats of civil action (when made in bad faith), and threats to breach a contract in violation of the duty of good faith and fair dealing. y A person is deprived of meaningful choice when there is no reasonable alternative such that the threat induces the person’s consent. The contract is void when the duress is through physical compulsion and voidable in other instances.

Answer 36

Voidable by the infant, except for the reasonable value of necessities.

Answer 37

Adjudicated = void. Not adjudicated = voidable.

Answer 38

Void, except that a person under guardianship may be liable for the reasonable value of necessities.

Answer 39

voidable by the intoxicated party if the party was unable to understand the nature/consequences of the contract and the other party knew or should have known about the intoxication.

Answer 40

If the consideration or performance under a contract is illegal, then the contract is unenforceable. If a contract contemplates illegal conduct when it is formed, then it is void. If a contract becomes illegal after it is formed, then the duty to perform is discharged. However, there are several exceptions: Ignorance of illegality: A promisee who was justifiably ignorant of the facts making the contract illegal can recover from the promisor if the promisor knew about the illegality. If both parties were excusably ignorant, the promisee may have a claim in restitution. Lack of illegal purpose: If the contract does not involve illegal consideration or the performance of an illegal act and a party has substantially performed, then that party can recover if the party did not: ○ Know about the other party’s illegal purpose or ○ Act to further the other party’s illegal purpose (despite knowing about it) and grave social harm is not involved. Divisible contracts: If it is easy to separate a contract into legal and illegal parts, recovery may be available on the legal parts. Availability of restitution: When the parties were not equally at fault (not in pari delicto), then the less guilty party may be entitled to restitution. Similarly, a party who did not engage in serious misconduct and withdrew from an illegal contract before the improper purpose was achieved may be entitled to restitution.

Answer 41

A contract is unconscionable when it is so unfair to one party that no reasonable person would agree to it (e.g., boilerplate language that is hidden or complex, contracts of adhesion).

Answer 42

Even if a contract is not illegal or unconscionable, it may be unenforceable if it violates a significant public policy (e.g., restraints on marriage, contract to commit a tort).

Answer 43

When a person assent to an offer orally or in writing, the resulting agreement is characterized as an express contract.

Answer 44

When a person’s assent to an offer is inferred solely from the person’s conduct, the resulting agreement is typically labeled an implied-in-fact contract.

Answer 45

When a plaintiff conferred a benefit on a defendant with a reasonable expectation of compensation and the court implies a contract to prevent unjust enrichment, the resulting agreement is called a quasicontract or implied-in-law contract. Restitutionary recovery is available if: y The plaintiff conferred a measurable benefit on the defendant y The plaintiff acted without gratuitous intent and y Allowing the defendant to keep the benefit would be unfair.

Answer 46

An express warranty is any affirmation, promise, description, or sample given by a seller regarding goods that is part of the basis of the bargain, unless it is merely the seller’s opinion. Disclaimer clauses that grossly conflict with the express warranties (e.g., “all warranties, express or implied, are disclaimed”) are ignored.

Answer 47

y Warrants that goods are reasonably fit for their ordinary purpose and pass without objection in the trade under the contract description y Implied if seller is a merchant* (someone who deals in goods of the kind sold, no other type of merchant applies here) Disclaimers: Orally or in a conspicuous writing with the term merchantability, a clear statement that there is no implied warranty, buyer's inspection of the goods, course of dealing or performance, trade usage

Answer 48

Warrants that goods are fit for a particular purpose. Implied if seller has reason to know that buyer is relying on seller's skill or judgement to select goods. Disclaimers: General language in a conspicuous writing, a clear statement that there is no implied warranty, buyer's inspection of the goods, course of dealing or performance, trade usage

Answer 49

The defense of impracticability replaces the common-law doctrine of impossibility. This defense is available if: y Performance becomes illegal after the contract is made y The subject matter of the contract is destroyed y The performing party in a personal-services contract dies or becomes incapacitated or y Performance becomes impracticable. The defense of impracticability requires proof that (1) an unforeseeable event happened, (2) a basic assumption of the contract was that the event would not happen, and (3) the party seeking discharge was not at fault. Note that this defense is not available to a party who assumed the risk of the event happening.

Answer 50

Temporary impracticability suspends the duty to perform. The duty is not actually discharged unless performance is materially more burdensome after the impracticability ends. If the seller can still deliver some of the goods despite the impracticability, the goods must be apportioned among all buyers. However, any buyer may refuse to accept and cancel the contract.

Answer 51

This defense applies when an unexpected event destroys one party’s purpose for making the contract. The event need not be completely unforeseeable, but the frustration must be severe enough to fall outside the assumed risks of the contract. The frustrated party can then cancel the contract without paying damages.

Answer 52

A release is a writing that discharges another party from an existing duty. For common-law contracts, the release must be supported by consideration. But under the UCC, a written waiver or renunciation that is signed and delivered by the aggrieved party is effective without consideration.

Answer 53

Rescission refers to cancelling a contract and placing the parties as close as possible to their precontract positions. When rescission occurs by a mutual agreement, the surrender of rights under the original contract by each party is consideration for the rescission. However, contracts with third-party beneficiaries cannot be rescinded by mutual agreement if the beneficiaries’ rights have already vested.

Answer 54

When goods identified at the time the contract is made are destroyed through no fault of either party and before the risk of loss passes to the buyer, the contract is avoided. There is no need to perform and no breach for nonperformance. And even if the goods are only damaged, the contract is avoided unless the buyer chooses to take the goods at a reduced price without any other claim against the seller. If the risk of loss has passed to the buyer, then the contract is not avoided and the seller may demand performance.

Answer 55

Intended: a) Creditor: Nonparty who is owed an obligation or debt by the promisee, which the contracting parties intended to satisfy through the contract (can sue either party) b) Donee: Nonparty upon whom the contracting parties intended to confer a gift (can sue promissor) Incidental beneficiary: Nonparty whom the contracting parties did not intend to directly benefit from the contract (cannot enforce the contract) An intended beneficiary’s rights vest when the beneficiary (1) detrimentally relies on the rights created, (2) manifests consent to the contract at one party’s request, or (3) files a lawsuit to enforce the contract. However, the promisor can raise any defenses against the third party that the promisor had against the original promisee.

Answer 56

Assignment is the transfer of rights under a contract. The assignee takes all the assignor’s rights as the contract stands at the time of the assignment, subject to any defenses that could be raised against the assignor. Almost all contractual rights can be assigned, but assignment is not allowed if: y It materially increases the obligor’s duty or risk y It materially reduces the obligor’s chance of obtaining performance or y A contract provision limits or prohibits a party’s right to assign the contract. Note that contractual language stating that “any assignment of rights under this contract is void” will render an otherwise allowable assignment void. But a prohibition on the assignment of a contract (e.g., “this contract may not be assigned”) bars only the delegation of duties. Although no consideration is required, the presence of consideration makes an assignment irrevocable.

Answer 57

Delegation is the transfer of duties and obligations under a contract. Although most duties and obligations under a contract can be delegated, delegation is not allowed when a party to the contract has a substantial interest in having the delegating party perform (e.g., a personal-services contract involving a special skill). Accepting a delegation amounts to a promise by the delegatee to perform the delegated duties, which is enforceable if the delegatee received consideration or there is a consideration substitute. However, the delegator is not released from liability unless the other party to the contract agrees to release the delegator and substitute a new party (i.e., a novation). Any delegation in a sale-of-goods contract may be treated by the other contracting party as creating reasonable grounds for insecurity, so the other party may demand assurances. But if the contract allows delegation, then the other party must accept the conforming performance of the delegatee.

Answer 58

Contracts that fall within the Statute of Frauds are unenforceable unless they are evidenced by a writing that is signed by the party to be charged and contains the essential elements of the deal. The following contracts typically fall within the Statute of Frauds (mnemonic: Mr. SOUR): y Marriage: Any agreement in consideration of marriage y Suretyship: A contract to answer for someone else’s debt or duty y One year: A contract that cannot be performed within one year from its making y UCC: A contract for the sale of goods for $500 or more The UCC requires a memorandum that (1) indicates that a contract has been made, (2) identifies the parties, (3) contains a quantity term, and (4) is signed by the party to be charged. ○ Exceptions: No writing is required for (1) specially manufactured goods, (2) partial payment made, (3) receipt and acceptance of goods, or (4) failure to object to a memo within 10 days (when both parties are merchants). y Real property: Contracts to transfer any interest in real property ○ But part performance of a real estate contract may make an oral contract enforceable when any two of the following three elements are met: possession, payment, or improvements to the land. There are two major exceptions to the Statute of Frauds: promissory estoppel (i.e., detrimental reliance) and judicial admission (i.e., an admission through discovery or by testimony at trial).

Answer 59

The parol evidence rule generally prevents a party to a written contract from presenting extrinsic evidence that contradicts the terms of the contract as written. For this rule to apply, the writing must be integrated— meaning that the parties intended it to be their final agreement (in full or in part). The intent of the parties determines whether there is total, partial, or no integration. y Common law: The court may look only to the writing (“four corners”) for evidence of intent y Second Restatement: If a term would “naturally be omitted” and is not contradictory, it can be introduced y UCC: Assumes that a contract is a partial integration and allows most outside terms The parol evidence rule does NOT apply to communications made after execution of the written contract when a party is: Raising a defense to contract formation or enforcement y Proving a condition precedent to the existence of the contract y Interpreting or clarifying an ambiguity in the contract or y Under the UCC, explaining or supplementing even apparently unambiguous terms with evidence of trade usage or course of dealing or performance. Express terms have the highest priority, followed by course of performance, then course of dealing, and then trade usage

Answer 60

A condition is a future event that must take place before contractual rights or obligations are created, destroyed, or enlarged.

Answer 61

Express: Set forth in contract, must be complied with fully (not merely substantially) Implied-in-law: supplied by the court if reasonable under the circumstances (constructive condition) Implied-in-fact: The nature of the agreement suggests that the parties intended the condition but failed to expressly include it. (substantial performance is sufficient for last two).

Answer 62

A condition precedent precedes the obligation to perform, while a condition subsequent excuses the duty to perform after a particular event happens. A concurrent condition requires both parties to perform at the same time because each party’s duty to perform is conditioned on the other party’s duty to perform.

Answer 63

The reasonable-person standard is generally used to determine whether a condition is satisfied. But if aesthetic taste is involved, a subjective standard is used (i.e., a claim of dissatisfaction must be honest and made in good faith, but it need not be reasonable).

Answer 64

the contract price minus any amount that it will cost the other party to obtain complete performance as promised.

Answer 65

Under the UCC, a seller has two main obligations: transferring ownership to the buyer and tendering goods conforming to warranty obligations. The UCC requires perfect tender except for installment agreements or when the parties agree otherwise. y Transferring ownership: There is an automatic warranty that the seller is conveying good title, the transfer is rightful, and the goods are free of any security interest the buyer does not know about. y Tendering goods: The seller must tender the goods in accordance with contract provisions or—if the contract is silent on tender—the UCC. The UCC recognizes the following methods of tender: ○ Seller’s place of business – Make goods available ○ Shipment contract (FOB seller’s place of business) – Deliver to carrier ○ Destination contract (FOB buyer’s place of business) – Deliver to buyer The buyer has the right to inspect goods that are tendered, delivered, or identified in the contract for sale (unless the contract says otherwise). And after a conforming tender, the buyer is generally obligated to accept and pay for the goods. Rejection amounts to a breach.

Answer 66

At common law, a divisible contract is one in which the various units of performance are divisible into distinct parts. Recovery is limited to the amount promised for the part performed. Damages may be recoverable for breach of other parts of the contract. Under the UCC, an installment contract is one in which the goods are delivered in multiple shipments, each to be separately accepted. The perfect-tender rule does not apply. Instead, the right to reject is determined by a “substantial conformity” standard, under which the buyer may: y Reject the shipment if the nonconformity substantially impairs the value of that shipment to the buyer and cannot be cured or y Cancel the contract if the nonconformity substantially impairs the value of the entire contract.

Answer 67

A duty of good faith and fair dealing is imposed on each party to any contract. Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing.

Answer 68

The party receiving the protection of a condition may waive the condition by words or conduct. For example, a party who chooses to continue with a contract after a condition fails effectively waives the condition. However, a condition that is material to the party’s primary purpose may be reinstated by the party. In contrast, a nonmaterial condition may be reinstated only if: y The waiving party communicates a retraction of the waiver before the condition is due and y The other party has not detrimentally relied And a party who waives a condition may be estopped from using that condition as a defense if the other party reasonably relied on that waiver.

Answer 69

If the party whose duty is subject to a condition wrongfully prevents the condition or interferes with its occurrence, then the condition is excused and the interfering party has an absolute duty to perform.

Answer 70

Once a duty to perform exists, nonperformance is a breach of contract unless the duty is discharged. Material breach: One that deprives the nonbreaching party of the substantial benefit of the bargain. The nonbreaching party can withhold the performance and pursue remedies Minor breach: One that arises after the breaching party has substantially performed. The nonbreaching party can pursue remedies but must still perform.

Answer 71

Anticipatory repudiation applies to bilateral (not unilateral) contracts when a promisor repudiates a promise before the time for performance is due. The repudiation can be made by words or conduct and must be clear and unequivocal. A nonbreaching promisee may then: y Treat the repudiation as a breach y Ignore the repudiation and demand performance (but the promisee must suspend its performance when continuing would increase the promisor’s damages) or y If the date of performance has not passed and the only performance left is payment, wait for actual breach before filing suit. Retraction of a repudiation is allowed only if the other party has not cancelled the contract or materially changed its position.

Answer 72

A party’s expectation of performance may be diminished by an event occurring after contract formation. A party can demand assurances of performance if there are reasonable grounds for insecurity about the other party’s ability or willingness to perform. Under such circumstances, performance may be suspended until assurances are provided. Failure to give assurances within a reasonable time can be treated as a repudiation. Under the UCC, the demand for assurance must be in writing, and a reasonable time for giving assurance is limited to 30 days.

Answer 73

Expectation damages (also called benefit-of-the-bargain damages) are meant to put the nonbreaching party in the same position as if the contract had been performed. They must be calculated with reasonable certainty. If expectation damages are too speculative, the plaintiff may instead seek reliance damages. loss in value (what was promised minus what was received + other loss (including consequential and incidental damages - costs avoided (by discontinuing performance) - loss avoided (by mitigating damages)

Answer 74

the difference between the value of the goods as warranted and the actual value of the nonconforming goods.

Answer 75

the cost of correcting the defect.

Answer 76

difference between the contract price and the market value. Damages for late delivery are equal to the fair market rental value.

Answer 77

the difference between the value of the goods accepted and the value as warranted. Repair costs are often used to determine this difference in value.

Answer 78

Direct damages are the necessary and usual result of the defendant’s wrongful act, while consequential damages arise out of special circumstances unique to the parties to the contract. Consequential damages must be reasonably foreseeable, but they do not need to be the usual result of the defendant’s act. Damages are foreseeable if they were: y The natural and probable consequences of breach y Contemplated by the parties at contract formation or y Otherwise foreseeable. However, consequential damages cannot be speculative. Instead, their dollar amount must be proven with reasonable certainty. When lost profits are considered too speculative, recovery is often limited to reliance damages (i.e., reasonable expenditures related to the contract). Courts are hesitant to award damages for lost profits and lost opportunities, but such damages are still recoverable for breach-of-contract claims. Under the UCC, only buyers can collect consequential damages. However, sellers can seek such damages based on common law or other statutes.

Answer 79

Incidental damages may be awarded as compensation for commercially reasonably expenses incurred because of the other party’s breach. y Seller’s breach: Damages include (1) expenses the buyer incurred in inspection, receipt, transportation, care, and custody of goods rightfully rejected, (2) cover expenses, and (3) any other reasonable expenses. y Buyer’s breach: Damages include expenses the seller incurred (1) in stopping delivery, (2) in the transportation, care, and custody of goods after the buyer’s breach, (3) in connection with the return or resale of the goods, or (4) otherwise resulting from the breach.

Answer 80

Liquidated damages are stipulated in advance and are meant to reflect a reasonable estimate of the actual damages that would flow from a breach. A liquidated damages clause is enforceable if: y The parties intended to agree in advance to damages that might arise from a breach y The stipulated amount was reasonable at the time of contracting and bore some relation to the damages that might be sustained and y Actual damages were uncertain in amount and would be difficult to prove

Answer 81

Punitive damages are rarely available in contract actions, but they may be allowed if the breaching conduct is also a tort for which punitive damages are recoverable.

Answer 82

If no damages are alleged or proved, the plaintiff is still entitled to a judgment for nominal damages.

Answer 83

Attorney’s fees are generally not recoverable in contract actions unless the parties’ agreement or a specific law stated otherwise.

Answer 84

A nonbreaching party must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience. The nonbreaching party is therefore held to a standard of reasonable conduct in preventing loss. In the context of a services contract, this means that a nonbreaching party need not accept any type of employment to mitigate—only the same type of employment as the party was contracted to perform. Failure to mitigate reduces the damages that the nonbreaching party may recover.

Answer 85

Restitution seeks to restore to a plaintiff a benefit conferred on the defendant. This benefit is measured by either the reasonable value of the defendant obtaining that benefit from another source or the increase in the defendant’s wealth from having received it. Recovery by nonbreaching party y The nonbreaching party may seek restitution for any benefit conferred on the breaching party through part performance or reliance. y Restitution is not available if the nonbreaching party has fully performed and the breaching party’s only remaining performance obligation is to pay a definite sum of money. Recovery by breaching party y A plaintiff who has not substantially performed and is in breach of the contract cannot recover under the contract. But the plaintiff can recover in restitution for any benefit conferred, less the defendant’s damages for breach. y The breaching party cannot recover if the breach was willful or if the contract provides that the nonbreaching party may retain the value of performance as liquidated damages.

Answer 86

Reliance damages are recoverable if the nonbreaching party incurred expenses in reasonable reliance on the breaching party’s promise to perform. The nonbreaching party can pursue reliance damages instead of expectation damages but cannot recover both.

Answer 87

Specific performance is an equitable remedy that is available when damages are inadequate. Whether damages are an adequate remedy depends on a variety of factors, including: y The difficulty of proving damages with reasonable certainty y Hardship to the defendant y Balance of the equities y The wishes and understandings of the parties y Practicality of enforcement y The mutuality of the agreement Specific performance of real property contracts may be granted because every parcel of real property is considered unique. And under the UCC, specific performance may be granted to the buyer when the goods are rare or unique.

Answer 88

Note that equitable defenses such as laches (prejudicial delay in bringing the action) or unclean hands (nonbreaching party committed some wrongdoing in the transaction) may be raised by the breaching party.

Answer 89

Cancel an installment contract if the breach goes to the entire contract y Recover expectation, incidental, and/or consequential damages y Purchase similar goods elsewhere (i.e., cover), and recover the replacement price minus the contract price y Demand specific performance for unique goods y Pursue replevin (if buyer has made partial payments or cannot cover)

Answer 90

y Inspect and then accept or reject all or part of the goods ○ Buyer must pay for accepted goods minus any damages ○ Seller can cure breach by tendering goods if time remains to perform y A rightful rejection entitles buyer to the remedies listed below Cancel an installment contract if the breach goes to the entire contract y Recover expectation, incidental, and/or consequential damages y Purchase similar goods elsewhere (i.e., cover), and recover the replacement price minus the contract price y Demand specific performance for unique goods y Pursue replevin (if buyer has made partial payments or cannot cover)

Answer 91

Right to price: The seller may recover the full contract price if (1) the buyer has accepted the goods, (2) conforming goods are destroyed or lost after the risk of loss has shifted to the buyer, or (3) the seller cannot reasonably sell identified goods. y Right to reclaim goods: The seller may reclaim goods from an insolvent buyer, provided that a demand is made within 10 days after the buyer receives the goods. y Stoppage of goods in transit: The seller may stop the goods in transit if the buyer breaches or is insolvent. y Wrongful rejection by buyer: The seller may collect damages, resell the goods, or recover the price. The seller is also entitled to recover incidental damages and, if the seller is a “lost volume” seller, lost profits

Answer 92

1) follow contract 2) breach? Breaching party usually bears the risk 3) shipment vs delivery Note: When goods held by a bailee are to be transferred without being moved, the risk of loss generally passes to the buyer when the buyer receives a negotiable document of title covering the goods or when the bailee acknowledges the buyer’s right to possession of the goods.

Answer 93

Risk of loss passes when deliver to carrier. Risk of loss passes when delivered to the location. Note that if the seller breaches by delivering nonconforming goods, then the risk of loss stays with the seller until the buyer accepts or there is a cure. If the buyer breaches or repudiates after the goods have been identified but before the risk of loss shifts, the risk immediately shifts to the buyer.

Answer 94

Under the UCC, an action for a breach of any sales contract or warranty must be commenced within four years after the cause of action accrues. A cause of action generally accrues when the breach occurs, regardless of whether the aggrieved party knows of the breach. The parties may reduce the limitations period to not less than one year, but they cannot extend it.

Answer 95

Contract modification by the court, usually based on the contract’s failure to reflect the intent of the parties.

Answer 96

The unmaking of an oral or written contract that leaves the parties in the position they would have been in had the contract never existed. Rescission is not allowed when there is only a partial failure of consideration and the defendant has partially performed.

Answer 97

: The negation of a contract under the UCC by either the buyer or the seller upon a breach by the other party. Cancellation does not prevent the injured party from pursuing monetary damages.

Answer 98

These remedies are not available if the contract concerns property that has been transferred to a bona fide purchaser who was unaware of the conduct that would otherwise justify the remedy.

Answer 99

If the parties’ rights are unclear and an actual dispute exists, then either party may bring a declaratoryjudgment action to obtain an adjudication of the parties’ rights and obligations under the contract.

Answer 100

Applicable law, formation, third-party issues, excused or performed, remedies

Answer 101

predominates will dtermine the governing law.

Answer 102

A person who regularly deals in the type of goods involved in the transaction; o A person who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction; and o In some instances, any businessperson when the transaction is of a commercial nature.

Answer 103

Undue influence occurs when a party unfairly persuades the other party to assent to a contract. o This can occur in certain relationships where the innocent party is susceptible to persuasion.

Answer 104

Duress occurs when a party is improperly threatened and feels he has no meaningful choice but to agree to the contract. o When a party’s agreement to enter into a contract is physically compelled by duress (e.g., a threat to inflict physical harm), the contract is void. o When a party is induced to enter into a contract due to other duress (e.g., a threat of pursuing a civil action in bad faith), the contract is voidable.

Answer 105

Infants (in most states, individuals under the age of 18) do not have the capacity to contract. A contract between an infant and a competent party is voidable by the infant but not by the competent party. This means that the infant may either disaffirm (void) the contract and avoid any liability under it or hold the other party to the contract. If the infant disaffirms, it must be done either before the individual reaches the age of majority or within a reasonable time thereafter, or else the contract is deemed ratified. If the contract is disaffirmed, the individual must restore any benefits received under the contract, if possible If an individual is adjudicated mentally incompetent, a purported contract made by the individual is void. However, if there has been no adjudication, a contract is voidable and may be disaffirmed if the individual is unable to: i) Understand the nature and consequences of the transaction; or ii) Act in a reasonable manner regarding the transaction and the other party has reason to know of this fact. If a contract is made during a lucid period, the contract is fully enforceable unless the person has been adjudicated incompetent. A mentally incompetent person may be liable for the reasonable value of necessities furnished by another party. If an individual’s property is under guardianship because of an adjudication (such as for mental illness or defect, habitual intoxication, narcotics addiction), that individual has no capacity to contract, and a purported contract made by the individual is void. A person under guardianship may be liable for the reasonable value of necessities furnished by another party. A contract entered into during alcohol or drug intoxication is voidable by the intoxicated party if he was unable to understand the nature and consequences of the transaction and the other party had reason to know of the intoxication. The intoxicated party must act promptly to disaffirm the contract and is required to return any value received, if possible. Generally, the intoxicated party may be liable in quasi-contract for the fair value of the goods or services furnished.

Answer 106

The writing does not have to be a formal contract. * Multiple writings can be put together to meet the requirements (as long as they reference each other). * The writing does not have to exist at the time of the promise; it can be created after the promises are made. * Sale of goods for $500 or more: The writing need not contain all the terms of the contract, but the contract is not enforceable against the party beyond the quantity of the goods shown in writing. 2) Signature * The writing must be signed by the party against whom the contract is enforced. * A document on company letterhead may be enough to constitute a signed writing.

Answer 107

1) Contracts that cannot be performed within one year of making If full performance has occurred by either party, court will enforce it. 2) UCC Sale of Goods for $500 or more * If full performance has occurred by the party seeking to enforce the contract (e.g., goods have been fully delivered or fully paid for), the contract will be fully enforceable. * If part performance has occurred (part of the purchase price has been paid), the contract will be enforceable to the extent that the money has been paid. * No writing required if the contract involves specially manufactured goods for the buyer. * Letter or Memorandum of Confirmation (frequently tested): A contract is enforceable against the receiving party if: o Both parties are merchants; o A party sends a confirmatory letter/memo that meets the SOF (writing, signed, essential terms of the deal) to the other party; and o The other party knowingly receives the memo and does not object in writing within 10 days. 3) Sale of Land If the contract involves the sale of land, the contract will be enforced if at least two of the following three acts have occurred: * The purchaser pays part or all of the purchase price; * The purchaser takes possession of the land; or * The purchaser substantially improves the property. Editorial Note 4: Additionally, when a party to an oral contract who has promised to convey real property performs, that party can enforce the other party’s oral promise unless the promise is itself the transfer of a real property interest. 4) Estoppel (applies to all contract types): If a party reasonably and detrimentally relies on a promise, a court may enforce the contract against the other party.

Answer 108

common law: Yes UCC: No, as long as good faith

Answer 109

: A provision prohibiting oral modifications to a sales contract is valid—even if the modification would not otherwise fall within the SOF.

Answer 110

When there is a genuine dispute over the validity of the contract or the amount owed, a party can agree to accept a different performance from what was agreed upon in the contract. * Accord: A new agreement where a party agrees to accept a different performance than what was agreed upon * Satisfaction: Occurs when the different performance is completed by the other party, which discharges the original contract duties and the accord agreement duties

Answer 111

a. Impracticability  A duty may be discharged if: * An unforeseeable event occurs (e.g., natural disaster) making the performance of the contract extremely difficult; and * The nonoccurrence of the event was a basic assumption at the time of the contract.  The party seeking discharge must not be at fault.  Non-extraordinary increases in the cost of performance are not a sufficient basis for this defense. b. Impossibility: An unforeseeable event occurs, making it objectively impossible for the party to perform. c. Frustration of purpose  If an unexpected event arises that destroy the party’s purpose for entering the contract, the party will be entitled to rescind the contract, even if the performance is still possible. Editorial Note 10: The occurrence of the event should be unrealistic and not a realistic prospect, but need not be completely unforeseeable.  Similar to impracticability, the nonoccurrence of the event must have been a basic assumption at the time of the contract and the party seeking discharge was not at fault.

Answer 112

Treat the repudiation as a breach of contract and sue immediately; * Suspend its own performance and demand performance from the promisor; * Cancel the contract; or * Wait for the date of performance, and then sue for breach.

Answer 113

: If the award of expectation damages would result in economic waste, then courts may instead award damages equal to diminution in value. If the breach is willful, and only completion of the contract will give the nonbreaching party the benefit of its bargain, then a court may award expectation damages even if that award would result in economic waste.

Answer 114

If there is no enforceable contract, a court may award restitution damages on the basis of quasi-contract if:  The plaintiff conferred a measurable benefit on the defendant;  The plaintiff acted without gratuitous intent (i.e., he intended to be paid); and  It would be unfair to let the defendant retain the benefit. Editorial Note 11: Courts will find that it is unfair to let the defendant retain a benefit if (i) the defendant had an opportunity to decline the benefit but did not do so, or (ii) the plaintiff had a reasonable excuse for not giving the defendant such an opportunity.

Answer 115

1. There must be a valid contract. 2. The terms of the contract must be certain/clear enough to allow a court to make an order. 3. The nonbreaching party has satisfied any conditions precedent (or the condition has been excused), so the breaching party’s performance is now due. 4. Money damages are inadequate. * This usually means the item(s) involved in the contract are unique (e.g., land, pieces of art, antique cars). 5. It is feasible for the court to enforce and supervise the breaching party’s performance.

Answer 116

The buyer may purchase similar goods elsewhere and recover the replacement price minus the contract price.

Answer 117

"A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice." ⚠️ Limitations: The promise is not binding if: The benefit was not conferred by the promisee, or The promisor received the benefit as a gift, or The value of the promise is disproportionate to the benefit received.

Contracts Flashcards

(142 cards)