Contracts 2

Question 1

What is Implied Warranty of Fitness for a Particular Purpose?

Answer 1

A warranty that the goods are fit for a particular purpose is implied whenever the seller has reason to know that:

i) The buyer has a particular use for the goods; and

ii) The buyer is relying on the seller’s skill to select the goods.

*Seller does not have to be a merchant

Question 2

What is an option contract and what are its requirements? How does the mailbox rule apply?

Answer 2

A contract where an offeror holds an offer open for a reasonable amount of time in exchange for separate consideration from the offeree.

While in effect, the offeree’s power of acceptance cannot be terminated by rejection, counteroffer, revocation, or the offeror’s death or incapacity unless the requirements are met for the discharge of a contractual duty.

Note: The mailbox rule does not apply to option contracts. Instead, the grantor must receive the option holder’s decision to exercise the option within the time period specified in the contract.

Question 3

Bilateral Contract

Answer 3

A contract in which a promise by one party is exchanged for a promise by the other

Note: The exchange of promises is enough to render both promises enforceable. Contact can also be accepted by beginning performance?

Question 4

Unilateral contract

Answer 4

A contract in which one party promises to do something in return for an act of the other party (e.g., a monetary reward for finding a lost dog).

Note: Unlike in a bilateral contract,the offeree’s promise to perform is insufficient to constitute acceptance. Rather, acceptance of a unilateral contract offer requires complete performance.

Question 5

What are the main ways to discharge contractual obligations?

Answer 5

• 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

(Firm Scan)

Question 6

What are compensatory damages?

Answer 6

Compensatory damages are meant to compensate the nonbreaching party for actual economic losses.

Compensatory damages should:
- Put the nonbreaching party in as good a position as performance would have done (i.e.,
expectation damages)
- Plus compensate for consequential and incidental damages
- Less damages that the nonbreaching party could have avoided or mitigated.

Question 7

What are expectation damages?

Answer 7

Expectation damages are meant to put the nonbreaching
party in the same position as if the contract had been performed. (Must be calculated with reasonable certainty).

Calculation is:

• Loss in value (what was promised minus what was received)
• Other loss (including consequential and incidental damages)

MINUS:
- Costs avoided (by discontinuing performance)
- Loss avoided (by mitigating damages)

Question 8

What is the standard for a party to mitigate damages?

Answer 8

Reasonableness: The nonbreaching party must take reasonable
steps (i.e., do not involve undue risk, expense, or inconvenience) to seek replacements/substitutes for goods and/or services.

Note: A failure to take reasonable steps to mitigate damages will reduce the damages recovered by the nonbreaching party.

Question 9

Partial performance damages

Answer 9

A partially performing party can generally recover for work performed (i.e. materials purchased) + expectation damages for work not yet performed (profit they would have made on the job)

Question 10

How to measure construction contract damages

Answer 10

The difference between the contract price and the cost of construction by another builder, + any progress payments made to the breaching builder + compensation for the delay in completing the construction.

Question 11

UCC damages for the nonconformity

Answer 11

Damages for nonconformity are measured by the difference between the value of the goods as warranted and the actual value of the nonconforming goods.

Question 12

Real estate damages (damages for failure to perform)

Answer 12

Damages for failure to perform are measured by the difference between the contract price and the market value.

Question 13

UCC breach-of-warranty damages (from buyer)

Answer 13

Damages are measured by the difference between the value of the goods accepted and the value as warranted.

Question 14

When are consequential damages recoverable? Which parties can recover them under the UCC? Can a contract limit them?

Answer 14

In order to recover consequential damages, there must be a causal link between the breach and the consequential damages.

Note: Either party to a sale-of-goods contract (buyer or seller) can recover consequential damages for breach as long as those damages were foreseeable when the contract was created.

A contract can also limit or disclaim consequential damages unless doing so would be unconscionable

Question 15

What are incidental damages and when may they be awarded?

Answer 15

Incidental damages may be awarded as compensation for commercially reasonably expenses (ex: ?)

Question 16

Under the UCC, what remedies does a buyer have if a seller breaches a contract for the sale of goods?

Answer 16

1) Expenses the buyer incurred in inspection and receipt of goods rightfully rejected

2) Expenses buyer incurred in transportation, care, and custody of goods rightfully rejected

3) Cover expenses, and

4) Any other reasonable expenses.

Question 17

What are liquidated damages?

Answer 17

A pre-determined amount of compensation payable by one party to another in the event of a breach of contract.

Question 18

What are punitive damages?

Answer 18

Designed to punish wrongdoing and deter future misconduct, are generally not awarded in contract breach cases

Question 19

Nominal damages

Answer 19

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

Question 20

When may the implied warranty of merchantability be disclaimed? (PQ 4)

Answer 20

• Oral or conspicuous written statement disclaiming merchantability
• Expressions like “as is” or “with all faults”
• Course of dealing, course of performance, trade usage
• If the buyer examined the goods as fully as desired before entering the contract or refused to examine the goods before entering the contract (but only for defects that the inspection would reveal)

Question 21

When may the implied warranty of fitness for a particular purpose be disclaimed?

Answer 21

• Expressions like “as is” or “with all faults”
• Course of dealing, course of performance, trade usage
• If the buyer examined the goods as fully as desired before entering the contract or refused to examine the goods before entering the contract (but only for defects that the inspection would reveal)

Question 22

When may express terms of a written contract be explained or supplemented under the UCC? (parol evidence rule exceptions)

Answer 22

In order or priority:

1) Course of performance – sequence of conduct relevant to understanding the current transaction between the parties

2) Course of dealing – sequence of conduct concerning previous transactions between the parties

3) Trade usage – any practice or method of dealing in the parties’ business or industry

However, this parol evidence cannot be used to contradict the express terms of the contract.

Question 23

What is the relationship between consideration and the UCC firm-offer rule?

Answer 23

Under the UCC, a firm offer is irrevocable and cannot be modified for a period not to exceed three months—even if a longer time period is stated or implied—unless the offeree gives consideration to validate it beyond the three-month period.

Question 24

When will a UCC firm-offer terminate by lapse?

Answer 24

An offer will terminate by lapse after a reasonable period of time if no termination date is specified. 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 25

When can a party to an illegal contract recover restitution damages?

Answer 25

A party to an illegal contract may recover restitution damages if that party conferred a benefit on the other party and (1) was justifiably ignorant of the facts that made the contract illegal, (2) was less culpable than the other party, or (3) withdrew before the contract's illegal purpose was achieved and did not engage in serious misconduct.

Question 26

When may a suretyship be enforceable without a writing?

Answer 26

A suretyship is enforceable without a writing if it was made mainly for the surety's economic advantage (not the principal's benefit) or to indemnify the creditor.

Question 27

What are the requirements for a contract reformation due to mutual mistake regarding a prior agreement?

Answer 27

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 28

What is a novation?

Answer 28

A novation is the substitution of a new contract for an old one when the original obligor is released from his promises under the original agreement. Note: Mere consent to a delegation does not create a novation.

Question 29

What limits does the UCC place on a seller at an auction sale?

Answer 29

The UCC allows a winning bidder to avoid the sale or pay the price of the last good-faith bid if the auctioneer (1) knowingly accepted a bid by the seller or on the seller's behalf or (2) procured the seller's bid to drive up the price of the goods. However, the winning bidder may not do so if: 1) the seller bid at a forced sale* (e.g., a foreclosure sale) or; 2) the seller gave notice reserving the right to bid.

Question 30

How can a seller accept a buyer's request to ship goods under the UCC?

Answer 30

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 (which constitutes both an acceptance and breach at the same time, with the seller being liable for damages due to the breach) Note: If however, the seller seasonably notifies the buyer that the nonconforming goods are tendered as an accommodation, no contract is formed and this shipment operates as a counter-offer.

Question 31

What is a charitable subscription and how is it enforceable?

Answer 31

A charitable subscription is a written promise to contribute money or property to a charitable institution It is enforceable on promissory-estoppel grounds as long as the first prong (reasonably expected to induce reliance) is satisfied Note: Second prongs (proof of detrimental reliance or substantial injustice) not required

Question 32

What is a gratuitous assignment?

Answer 32

An assignment of rights made without consideration

Question 33

What is an illusory promise and when can it become legally binding?

Answer 33

An illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. Such a promise is not legally binding. However, it will become legally binding if (1) circumstances change such that the offer imposes obligations on both parties and (2) the offeree accepts the offer after the change in circumstances.

Question 34

What is a condition subsequent?

Answer 34

An uncertain future event that, upon its occurrence, discharges or excuses a party's existing obligation to perform.

Question 35

When is a breach of an installment contract only a partial breach?

Answer 35

An installment contract is breached when a party fails to perform any installment. But it only constitutes a partial breach when the only remaining duty at the time of the breach (1) is held by the breaching party and (2) is for the payment of money in unrelated installments.

Question 36

Requirements for impossibility/impracticability defense

Answer 36

1) An unforeseeable event has occurred 2) The non-occurrence of the event was a basic assumption on which the contract was made 3) The party seeking discharge is not at fault

Question 37

Defense of laches

Answer 37

An equitable defense allowing a court to deny relief to a plaintiff who has unreasonably delayed in asserting their rights

Question 38

Defense of unclean hands

Answer 38

An equitable defense brought when the nonbreaching party is guilty of some wrongdoing in the transaction at issue

Question 39

What are the primary defenses to formation?

Answer 39

1) Mistake (mutual or unilateral); 2) Fraudulent misrepresentation; 3) Undue influence 4) Duress 5) Capacity (MUD FC)

Question 40

Key Parol Evidence Rule exceptions

Answer 40

1) To correct a clerical error or typo 2) To establish a defense against formation 3) To interpret vague or ambiguous terms 4) To supplement a partially integrated writing 5) To provide evidence of a subsequent agreement 6) To provide evidence of a collateral/separate deal 7) To provide evidence of a condition precedent to the existence of a contract

Question 41

What is the definition of foreseeable damages? (as applied to expectation and consequential damages)

Answer 41

Damages are foreseeable if they were 1) A natural and probable consequence of breach, 2) In the contemplation of the parties at the time the contract was made, or 3) Otherwise foreseeable.

Question 42

A unilateral mistake is not ground to avoid a contract unless:

Answer 42

1) the mistake would make enforcement of the contract unconscionable or 2) the non-mistaken party caused, knew, or had reason to know of the mistake

Question 43

What is a misunderstanding?

Answer 43

A misunderstanding occurs when both parties believe that they are agreeing to the same material terms but they in fact agree to different terms.

Question 44

How is a confirmation with additional/different terms treated under the UCC?

Answer 44

A confirmation that contains additional or different terms is treated as an acceptance unless the acceptance is expressly conditioned on assent to the additional or different terms, in which case the confirmation is a counteroffer.

Question 45

How can a seller recover conversion?

Answer 45

If a buyer wrongfully disposes of rejected goods, the seller may sue the buyer for conversion to recover the fair market value of the converted property at the time of conversion

Question 46

Under the UCC, what remedies does a seller have if a buyer breaches a contract for the sale of goods? What notice is required?

Answer 46

Under the UCC, a seller may resell the goods and sue for the contract price minus the resale price. But the resale must: 1) be only of goods identified in the contract (good faith) and; 2) must be commercially reasonable. Additionally, the seller is entitled to recover incidental damages, which include storage and shipping costs. Note: A seller intending to resell the goods in a private sale must first give the buyer reasonable notice of his intent to resell.

Question 47

Defenses to land sales contracts under the statute of frauds include

Answer 47

Detrimental reliance (i.e., promissory estoppel) and part performance are both defenses to the statute of frauds,

Question 48

What does promissory estoppel allow for?

Answer 48

Enforcement of promise when no valid contract exists