Contracts

Question 1

What, in essence, is a contract?

Answer 1

A legally enforceable promise

Question 2

What are a promisee and an obligor?

Answer 2

Promisee = has right to receive performance in a contract

Obligor = has duty to perform in a contract

Question 3

What is the difference between a bilateral and unilateral contract?

Answer 3

Bilateral = two parties promise to fulfill duties towards one another (e.g. A performs service for which B pays)

Unilateral = one party promises to fulfill duty in exchange for another party’s act or forbearance, which is not itself promised (e.g. a promise of reward for a missing pet)

Question 4

What is the difference between an executed and executory contract?

Answer 4

Executed = already performed

Executory = not yet performed

A contract can be executed regarding one party’s performance and executory regarding the other

Question 5

What is a quasi-contract?

Answer 5

A legal duty imposed in cases where there is not formally a contract but the law still ought to imply one as a matter of equity and justice

Question 6

What is the difference between void and voidable contracts?

Answer 6

Void = lack an essential element and thus do not impose any legal duties

Voidable = remain binding if not rescinded (e.g. contracts of infants, some contracts acquired via fraud)

Question 7

What are joint obligees/obligors?

Answer 7

Multiple people who are owed performance/who owe performance as a single entity

Question 8

What are several obligees/obligors?

Answer 8

Multiple people who are owed performance/who owe performance as separate individuals

Question 9

What is assignment?

Answer 9

Transferring a contract right (i.e. to the obligor’s performance) to someone else

Question 10

When is assignment forbidden?

Answer 10

If both the obligor does not consent and either:

(a) the right is personal to the promisee or involves a confidential relationship
(b) the obligor’s duties, rights, or risks would be materially impaired

Question 11

Can assignment of a contract be forbidden in the contract itself?

Answer 11

Yes, although the assignment-forbidding clause can be voided in some cases

Question 12

How do the obligor’s counterclaims against an assignee work?

Answer 12

The obligor can assert counterclaims against an assignee only for claims against the assignor that accrued before notice for the assignment was given

Question 13

What happens if an assignor wrongly assigns the same contract right to different assignees?

Answer 13

Two different rules can apply:

(1) Whoever received first assignment has the right
(2) Whoever gave first notice to the obligor has the right

Question 14

What is a gratuitous assignment?

Answer 14

An assignment made without any consideration from the assignee

Question 15

When is an assignor forbidden from revoking a gratuitous assignment?

Answer 15

When:

(a) there is promissory estoppel (i.e. the assignee has already acted to rely on the promise)
(b) the assignor gave a tangible document for the assignment
(c) the assignee has already collected the consideration from the obligor

Question 16

What is delegation?

Answer 16

Transferring a contract duty (i.e. to give consideration to the obligee) to someone else

Not all duties can be delegated

Question 17

Can a delegator still be liable for a contractual duty after having delegated the duty?

Answer 17

Yes, he is liable to the obligee until the duty is performed

Question 18

What are the seven elements of a contract?

Answer 18

Agreement (mutual assent)
Offer
Acceptance
Consideration
Capacity
Legal subject matter
Statute of Frauds

Question 19

What is the mirror acceptance rule?

Answer 19

The acceptance of a contract must contain all the terms and conditions included in the offer

Question 20

What is the general rule behind implied contracts?

Answer 20

The objective rule of contracts: If a party’s conduct would cause a reasonable person to believe the party is assenting to the contract, then the party has implicitly assented to it

Question 21

Are advertisements distributed to large numbers of people usually offers or invitations to make offers?

Answer 21

Usually invitations to make offers, but this is determined by various other factors and circumstances

Question 22

Can contracts be validly made if they have missing terms?

Answer 22

Yes, so long as the parties intend to supply the terms later – this is frequent for many contracts

The Uniform Commercial Code (UCC) requires that only quantities be specified

Question 23

What occurs if an offeree attempts to accept an offer after the offer is terminated?

Answer 23

It is effectively a new offer

Question 24

Is an offeror allowed to revoke an offer if he has said the offer would be open for a given period of time?

Answer 24

Yes, so long as it is truly revoked

Question 25

If an offeror revokes an offer by communicating the revocation to the offeree, when is the revocation effective?

Answer 25

When the offeree receives it (not when the message is sent)

Question 26

What is a contract for the offeror to keep the offer open?

Answer 26

An option contract

Question 27

What are firm offers?

Answer 27

Offers that are irrevocable despite having no consideration given to the offeror in exchange for keeping the offer open

Question 28

When does a unilateral contract offer become irrevocable?

Answer 28

If partial performance is given -A minority rule permits revocation but only if the offeror compensates the offeree (in a quasi-contract) "Partial performance" for bilateral contracts occurs if the offeree promises to complete performance (i.e. accepts the contract)

Question 29

When does an offer become revoked if a particular time period for the offer is not specified?

Answer 29

After a reasonable amount of time, given the circumstances

Question 30

If an offeree communicates a rejection of an offer, when does that rejection become effective?

Answer 30

When the offeror receives it

Question 31

What would count as a counteroffer?

Answer 31

If the offeree tries to substitute new terms in the contract If the offeree merely inquires about adding terms, it is not a counteroffer

Question 32

What else can terminate an offer?

Answer 32

Insanity (of offeror or offeree) Bankruptcy or insolvency (of offeror or offeree)

Question 33

How does contract acceptance relate to the objective rule of contracts?

Answer 33

It is an exception to it, since if an event is not clearly an act of acceptance, then the *subjective* intent determines whether acceptance actually occurred

Question 34

When does a communicated acceptance become effective?

Answer 34

When the offeree sends it to the offeror (or his agent) -- NOT when it is received

Question 35

What is the mailbox rule?

Answer 35

Rule that acceptance is effective when sent, even if it is delayed or lost in transit

Question 36

What is the exception to the mailbox rule?

Answer 36

If an offeror keeps an offer open because of a contract (i.e. an option contract), then he must *receive* acceptance for it to be effective

Question 37

Can an offer be accepted if the offeror mistook the offeree for someone else?

Answer 37

Yes, so long as the offeree reasonably believes the offer was intentionally given to him

Question 38

Can silence count as acceptance?

Answer 38

Yes, given the circumstances, though not ordinarily

Question 39

How does the concept of "legal detriment" relate to consideration?

Answer 39

A party offers consideration only if it suffers legal detriment -- i.e. if it voluntarily surrenders a legal right it would otherwise have, such as the right not to give the other party money An act does not count as consideration if one is already legally bound to perform it

Question 40

When do conditional promises count as consideration?

Answer 40

If the condition upon which the promise will be fulfilled is outside the promisor's control

Question 41

If the promisor or promisee can choose among alternative acts, does the promise include consideration?

Answer 41

If the promisor can choose, then it counts as consideration only if all options are legal detriments If the promisee can choose, then it counts as consideration only if at least one option is a legal detriment

Question 42

Can a contract be voided due to unfair considerations?

Answer 42

Not normally, but extremely lopsided contracts could evidence fraud, duress, etc.

Question 43

What are some examples where the consideration is inadequate?

Answer 43

An exchange of unequal amounts of money (or other fungible goods) at the same time Nominal consideration, e.g. only one dollar -- though this works fine for an option contract

Question 44

Can past actions count as consideration for another party's promise?

Answer 44

No, because such actions would not have been done in exchange for the promise

Question 45

How do negotiations for commercial paper relate to consideration?

Answer 45

Consideration is presumed if commercial paper is negotiated

Question 46

When do contracts not require consideration to be enforceable?

Answer 46

When they are under seal This rule is becoming very rare, however

Question 47

What is promissory estoppel?

Answer 47

When a promisee acts substantially while justifiably relying on the promise (and the promisor should have expected him to act that way), so that it would be an injustice -- more than a legal detriment -- if the promise is not enforced Lack of consideration cannot be asserted in such a situation

Question 48

When are contracts with infants/minors not voidable?

Answer 48

When the other party provides the infant with necessities (e.g. food, shelter, clothing) An infant contract is never voidable for the other party

Question 49

When are persons no longer classified as infants/minors?

Answer 49

When they become adults -- 18 in most states, though it can occur by court action, marriage, or other means

Question 50

What are two kinds of incompetent persons?

Answer 50

De jure insane (already judicially declared insane) = all contracts made with them are void, except contracts for necessities De facto insane (not judicially declared even though truly insane) = contracts with them are voidable Drunk people also treated as (de facto) incompetents

Question 51

What are some examples of illegal contracts?

Answer 51

- contracts which interfere with the dispensing of justice - contracts which unreasonably monopolize trade - contracts which exonerate a party from negligence or wrongdoing

Question 52

What does it mean for contracts to fall within the Statute of Frauds?

Answer 52

Such contracts must be in writing and signed to be valid (even though they can be oral if promissory estoppel applies)

Question 53

Strictly speaking, does a contract within the Statute of Frauds need to be written?

Answer 53

Not necessarily -- there needs to be written evidence of the elements of the contract (which can also exist in separate documents), but the contract itself does not need to be written as an entire contract

Question 54

What qualifies as a signature for contracts within the Statute of Frauds?

Answer 54

Any mark (even an "x"), so long as the signing party verifies it as his own

Question 55

What occurs if only one party signs a contract within the Statute of Frauds?

Answer 55

The contract is still enforceable, but only against the signing party

Question 56

What happens if a contract within the Statute of Frauds fails to comply with the Statute (i.e. is not in written form)?

Answer 56

It is unenforceable -- which is different from being void or voidable Unenforceable contracts cannot be a basis for lawsuits, though they can generate quasi-contracts

Question 57

What contracts are covered by the Statute of Frauds?

Answer 57

(1) Sales of goods for $500 or more (2) Real estate contracts (3) Contracts impossible to perform within one year (4) Contracts to answer for another's debt (surety) (5) Contracts for executors to answer for the debts of decedents' estates (6) Promises in consideration of marriage (e.g. prenuptials)

Question 58

Are all lease contracts under the Statute of Frauds?

Answer 58

No, only contracts for leases longer than one year are

Question 59

Under what circumstance would a real estate contract not be under the Statute of Frauds?

Answer 59

If the buyer has possession of the land and has already made partial payments or improvements

Question 60

Under what circumstance would a promise to pay for another's debt NOT be under the Statute of Frauds?

Answer 60

If the promise is not collateral (i.e. for another's benefit), but primary (i.e. for the surety's benefit)

Question 61

What contracts are similar to, but not the same as, surety contracts?

Answer 61

Any promises to pay a third party for another, without promising to *answer for debts* towards the third party Such situations are not covered by the Statute of Frauds

Question 62

What is the general rule for ambiguous terms in a contract?

Answer 62

They are interpreted against the party who wrote the terms

Question 63

What is the parol evidence rule?

Answer 63

For a contract intended by the parties to represent their whole agreement (i.e. an "integrated" contract), any prior or contemporaneous agreements which alter or contradict it are not relevant Subsequent agreements are still relevant

Question 64

What is a unilateral mistake?

Answer 64

One party makes a mistake in forming the contract If the other party did not know and acted in good faith, usually still enforceable

Question 65

What can occur if there is a bilateral mistake in a contract?

Answer 65

- If there is no real agreement, the contract is void - If one party's duties materially increase, the contract is voidable to that party (unless an innocent third party would be harmed), or the contract can be changed

Question 66

What is a mistake in inducement?

Answer 66

A mistake involving not the actual terms of the agreement, but the reasons to enter into it Not good grounds to void or alter the contract

Question 67

What term denotes the intent to deceive (as in fraud)?

Answer 67

Scienter

Question 68

What are two different types of fraud?

Answer 68

(1) Fraud in inducement -- in causing the party to agree to the terms (2) Fraud in execution -- in causing the party to sign something that brings the contract into existence (1) makes the contract voidable (2) makes the contract void

Question 69

If a fraudulent contract becomes void, can the defrauded party still seek out damages?

Answer 69

Yes, but not on the basis of the contract itself -- only in tort

Question 70

What is duress?

Answer 70

A threat to a person (or a family member of his) which forces him to enter into a contract Causes the contract to become voidable

Question 71

What are examples of duress?

Answer 71

Threat of criminal prosecution (whether guilty or not), threat to destroy or detain another's property Threat of civil suit does NOT count, nor does threat of economic loss

Question 72

What is undue influence?

Answer 72

When someone in a position of trust manipulates someone of a weak mind to enter into a contract Contract is voidable

Question 73

For third-party beneficiary contracts, what is a donee beneficiary?

Answer 73

If a promisee contracts with a promisor to give a third party a gift, that party is the donee beneficiary Donee can sue promisor for breach, but not promisee (since promisee does not owe anything)

Question 74

When there is a donee beneficiary, what can the promisee do if the promisor does not perform?

Answer 74

Either (a) sue to restore original pre-contract conditions or (b) sue for specific performance Promisee cannot sue for damages, because the promisor's nonperformance cannot cause harm in this situation

Question 75

For third-party beneficiary contracts, what is an incidental beneficiary?

Answer 75

Someone who benefits from other parties' contract without their intending him to benefit Has no contractual rights or grounds for lawsuit if the parties do not perform

Question 76

For life insurance third-party contracts, when do the beneficiary's rights come about (i.e. when do rights vest in the beneficiary)?

Answer 76

Immediately, unless the parties reserve the right to change the beneficiary

Question 77

For other third-party contracts, when do the rights vest in the beneficiary?

Answer 77

When he learns of the contract and (a) assents to it, (b) acts to justifiably rely on it, or (c) sues on its basis

Question 78

Why is the timing for beneficiaries' rights-vesting significant?

Answer 78

Before the rights vest, the other parties can change or discharge the contract without the beneficiary's consent

Question 79

What is the difference between complete performance and substantial performance?

Answer 79

Complete = consideration fully given Substantial = still serves as consideration, with compensation for any defects to the nonbreaching party

Question 80

What is the difference between a condition precedent and a condition subsequent?

Answer 80

Both are uncertain future events Condition precedent = must occur to create duty to perform Condition subsequent = if occurs, erases duty to perform

Question 81

What is a condition concurrent?

Answer 81

When two promises are performed simultaneously (or nearly so)

Question 82

What does it mean if time is "of the essence" in a contract?

Answer 82

A failure to perform on time would relieve the other party of its duty This is more than merely saying that failure to perform on time would be a breach of contract

Question 83

What happens if payment for a contract is done with a negotiable instrument?

Answer 83

The contract is not yet discharged -- not until the instrument is itself paid

Question 84

How are partial payments of debts applied towards principal and interest?

Answer 84

The debtor has first say in specifying, but if neither he nor the creditor do so, then these rules obtain: (a) interest before principal (b) older debts before newer (c) unsecured debts before secured

Question 85

What are different ways to end a contract besides performance?

Answer 85

(a) Release = discharging of a right -- ordinarily requires consideration (which can be the other party's release) (b) Waiver = promise to excuse a breach of promise -- does not necessarily require consideration (c) Cancellation = destroying physical document of contract (d) Mutual rescission = restoration of both parties to pre-contract position

Question 86

How does common law bear on clauses in written contracts forbidding future oral modification or rescission?

Answer 86

Common law treats such clauses as unenforceable However, contract modification requires consideration

Question 87

What is accord and satisfaction?

Answer 87

Resolving a disputed claim by agreeing to substituted terms (less than full payment) and performing those instead "Accord" is the new agreement, and "satisfaction" is the discharging of the new terms

Question 88

What is novation?

Answer 88

Substituting a new contract with an old one, discharging the duties of the old one

Question 89

How does accord and satisfaction differ from novation?

Answer 89

In novation, the old contract is discharged ipso facto by the promises of the new contract In accord and satisfaction, it is not; the old contract's duties are discharged when satisfaction is rendered for the substitute contract's duties

Question 90

Does failure to perform still count as a contractual breach if the party was not at fault?

Answer 90

Yes

Question 91

What is renunciation?

Answer 91

Either a promisor's assertion not to perform, or an act he does to make performance impossible Counts as a breach of contract

Question 92

What is an anticipatory breach?

Answer 92

In a bilateral contract, a renunciation before performance is due If renunciation is later withdrawn (before promisee sues), it does not count as a breach -- but if the promisee has materially changed because of the renunciation, then it can't be withdrawn

Question 93

When does a breach discharge the other party's duty?

Answer 93

(a) If it is material, or (b) if performance is, in the contract, a condition for the other party's performance

Question 94

What are two remedies in case of breach?

Answer 94

(a) Rescind the contract, with a lawsuit for restitution | (b) Maintain the contract, with a lawsuit for performance and/or damages

Question 95

When might specific performance be a remedy for breach?

Answer 95

If the remedy for damages does not resolve the situation (e.g. in a contract for the sale of special property) Specific performance is generally not granted if it would involve complex court supervision or overseeing a personal service or relationship (e.g. marriage)

Question 96

What are compensatory, consequential, and special damages?

Answer 96

Compensatory = for losses or forgone profits from the breach Consequential = for harms predictably following the breach Special = for harms due to unusual circumstances (usually not enforced)

Question 97

What are punitive, nominal, and liquidated damages?

Answer 97

Punitive = purely for punishment -- never allowed Nominal = damages in name only -- usually allowed for when there is a breach without any proven loss Liquidated = specific damages already mentioned in the contract in case of breach