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Flashcards in Contracts & Sales Deck (174)
1

What is a contract?

A legally enforceable agreement

2

What is an express contract?

What is an implied contract?

Express contract

  • Contract that results from words

Implied contract

  • Contract that results from conduct which a reasonable person would infer a promise to pay

3

What is a quasi-contract?

It is not a contract. It is the remedy granted when the following elements exist:

  • P has conferred a benefit on D
  • P reasonably expected to be paid
  • D would realize unjust enrichment if P is not compensated

4

What is the measure of recovery under quasi-contract?

It may, as justice requires, be measured by either:

  • Reasonable value of the services rendered (i.e., quantum meruit)
  • Extent to which other party's property increased in value or his other interests were advanced

Note: the contract price is not the measure of recovery, but it may be a ceiling

5

Can a breaching party recover under quasi-contract?

Majority view

  • YES, if:
    • Not a willful breach
    • For the party's own convenience and financial advantage

Minority view

  • NO

6

What is a bilateral contract?

Contract formed from an offer that is open as to the method of acceptance (i.e., can return a promise or just perform)

7

What is a unilateral contract?

Contract formed from an offer that requires performance as the method of acceptance

Two examples on bar exam:

  • Offer that expressly requires performance
  • Offer of a reward

8

When does Article 2 of the UCC apply?

Sale of goods

Definitions

  • Sale
    • Passing title from seller to buyer for a price
  • Goods
    • Personal property

9

How do you determine whether the UCC applies in a hybrid contract (i.e., involves goods and services)?

Majority (including Virginia)

  • Predominant purpose test
    • If the contract primarily involves goods, the UCC applies to the entire contract
    • Factors:
      • Price of goods v. services
      • Amount of labor involved
      • Sophistication of labor
      • Does contract contains typical sales language?

10

A contract is more than an agreement. What does that mean?

It must be legally enforceable

11

What is an offer?

Manifestation of the intent to be bound by contract

Objective test:

  • Would a reasonable person believe that his or her assent created a contract?
  • Do not focus on the person's subjective intention

12

Generally, what are the essential elements of an offer?

  1. Identity of the offeree
  2. Subject matter
  3. Price to be paid
  4. Time of payment, delivery, or performance
  5. Quantity involved
  6. Nature of work involved

The more that terms are left open, the more likely it is that courts will view the communication as mere preliminary negotiations

13

When can price be left out of a contract?

When is it required?

Real estate contract

  • Required
    • Because real estate is unique

UCC sale of goods

  • Not required
    • Because goods are fungible

14

Can a court fill in vague or material terms in a contract?

No. Both common law and the UCC this makes the contract insufficiently definite and clear

15

When will the courts imply the quantity for a contract?

Requirements contract

  • Buyer agrees to buy all of its good faith requirements

Output contract

  • Buyer agrees to buy all of the seller's good faith output

Limitations

  • Must be reasonably proportionate to either:
    • Stated estimate
    • Normal or comparable prior requirements/output

16

Is an advertisement an offer?

Generally, no.

Exceptions:

  1. An advertisement is an offer if it:
    • Is specific to quantity
    • Indicates who can accept
  2. An advertisement is an offer it it:
    • Is in the nature of a reward

17

Is a price quotation an offer?

Only if it is sent in response to an inquiry

E.g., catalog sent after purchaser says, "I need ten of these, how much will you sell them for?"

18

What is the offer in an auction?

What is the effect of a reserve price?

The bid, not the auctioneer asking for bids

 

An auction is with reserve unless the terms state otherwise

Auction without reserve

  • Auctioneer obligated to accept highest bid

 

 

19

How does an offer terminate?

  1. Lapse of time
  2. Revocation
  3. Rejection
  4. Death

20

If no time is expressed for acceptance of an offer, after how long will the offer terminate?

After a reasonable time under the circumstances

  • 2 years - yes
  • 2 weeks - probably
  • 2 days - no

21

How does a party revoke an offer?

  1. Statement to the offeree
    • Indicating an unwillingness to contract
  2. Conduct of the offeror
    • That is inconsistent with an intention to contract
    • And the offeror is aware of the conduct
      • Must be reliable

22

How do you revoke a public offer?

Give notice of termination with equal publicity to that given by the offer

23

When does revocation become effective?

When the revocation is received (i.e., mailbox rule does not apply)

24

When can a party revoke?

Anytime before acceptance, unless:

  1. Option contract
    • Promise to keep offer open
    • Supported by consideration
  2. UCC firm offer
    • Contract for the sale of goods
    • Written promise to keep offer open
    • Made by a merchant
  3. Reliance
    • Must be reasonably foreseeable 
  4. Performance
    • ​Must be on a unilateral contract only
    • Must be more than mere preparation

25

Who is a merchant?

A person who either:

  • Deals in good of the kind
  • Holds himself out as having knowledge/skill particular to the goods

26

For how long does the UCC firm offer rule keep an offer open?

What if the promise doesn't state a time period?

No more than 3 months, in the absence of additional consideration

If the promise doesn't state a time period, it is a reasonable time less than or equal to 3 months

27

How does a party reject an offer?

  1. Expressly
  2. Counteroffer (but not mere bargaining)
  3. Conditional acceptance
  4. Acceptance with additional terms (but not under UCC)
  5. Acceptance with conflicting terms (but not under UCC)

28

Under the UCC, when do additional terms become part of the contracts?

When:

  1. Both parties are merchants
  2. Additional terms do not materially alter the contract
  3. Offeror does not object within reasonable time

Otherwise:

  • Agreed terms become part of the contract
  • Disagreed terms are left out

29

Does adding an arbitration clause materially alter a contract?

Majority

  • YES

Minority

  • Depending on industry standard, maybe not

30

Under the UCC, what happens when conflicting terms are added to a contract?

Majority (including Virginia)

  • Knock out doctrine
    • The conflicting terms cancel eachother out, and the UCC filles in the gaps

Minority

  • Offeror's terms control and offeree's conflicting terms drop out

31

When does the death of a party not terminate the offer?

  1. Option contract
  2. Part performance of unilateral contract

32

Who can accept an offer?

Only the person to whom the offer was made, and they must be aware of it

So, the power to accept cannot be assigned

But, an option can be assigned unless it says otherwise

33

How can you accept an offer?

  1. Performance
    • Unilateral contract - performance must be complete
    • Bilateral contract - performance must begin
  2. Promise to perform

34

When can acceptance be done by mail?

When is it effective?

Acceptance by mail is reasonable if:

  • Offer is by mail
  • Customary in similar transactions at time and place

Mailbox rule

  • Acceptance by mail is effective when posted (i.e., dropped in mailbox)

35

What is the difference in terms of the effectiveness of acceptance and revocation?

Revocation - effective when received

Acceptance - effective when posted

36

What are the exceptions to the mailbox rule?

  1. Rejection mailed first, rejection received first
    • Acceptance is a counteroffer
  2. Acceptance mailed first, rejection received first
    • If offeror relied on rejection, estoppel may apply
  3. Option deadline
    • Acceptance must be received by deadline (i.e., mailbox rule does not apply)

37

If a party sends the wrong goods in response to an offer, do they accept?

Generally, yes

  • Noncomforming goods is an acceptance and a breach

Exception:

  • Accomodation
    • If shipper makes it clear that the noncomforming goods are an accomodation, that is a counteroffer

38

Can silence be acceptance?

Generally, no.

Exception:

  • When reasonable to interpret silence as acceptance based on prior course of conduct/past dealings

39

What are the elements of consideration?

  1. Promisee must suffer legal detriment
  2. Detriment must induce promise
  3. Promise must induce detriment

40

What are the different forms of legal detriment?

  1. Performance
    • Doing something not legally obligated to do
  2. Forbearance
    • Not doing something legally obligated to do
  3. Promise to perform
  4. Promise to forbear

41

What is a conditional gift?

Does it constitute consideration?

When promisor intends to make a gift that is conditioned on promisee doing something that doesn't benefit promisor

It does not satisfy consideration because it is not a bargained-for-exchange

42

What is the rule regarding past consideration?

This is not valid consideration

It results in an unenforceable gratuitious promise

43

What is the rule regarding moral obligations and consideration?

Modern approach (not in Virginia)

  • A moral obligation is not a substitute for consideration unless:
    • The promisor requested the act
    • The promisee expected to be paid

Traditional approach (Virginia)

  • A moral obligation is not a substitute for consideration

44

When is consideration adequate?

Courts generally do not inquire to th eadequacy of consideration

If the consideration is grossly inadequate, there may be some flaw in the bargaining process, such as:

  • Fraud
  • Duress
  • Incapacity

 

45

What is the rule regarding pre-existing duties and consideration?

Common law

  • Performing a pre-existing duty is not consideration for a new promise unless:
    • Duty owed to a third person (not promisor)
    • Unforeseen difficulty renders performance vitally different than was was originally agreed upon

UCC Article 2

  • Additional consideration not required for modification if:
    • The party modifying acts in good faith

46

When can partial payment be consideration for a promise to forgive the balance of debt?

Only when the debt is either:

  • Not yet due
  • Disputed

E.g., the release of the remaining balance is enforceable if the promisor pays any amount that is either disputed or not due

 

47

When can the promise to pay for a settlement be enforceable?

As long as the party giving up the claim in good faith believes it is a valid claim

48

Is a promise to pay debt barred by the statute of limitations enforceable?

Only if it is written, and only to the extent of the new promise, and not the original balance due

49

What is an illusory promise?

Does it constitute consideration in exchange for another promise?

It is a promise in form, but not in substance

It is not consideration for the other promise

E.g., I will buy your house if I decide I want it

50

What are the elements of promisorry estoppel?

  1. Promise
  2. Reliance that is both:
    • Foreseeable
    • Justifiable
  3. Enforcement is necessary to avoid injustice

 

NOT RECOGNIZED IN VA FOR AFFIRMATIVE RELIEF

51

What is the remedy for promissory estoppel?

The remedy is limited to what justice requires

So, it may be limited to the extent of reliance

 

NOT RECOGNIZED IN VA FOR AFFIRMATIVE RELIEF

52

Who lacks capacity to contract?

  • Infants (minors)
    • Persons under 18 years old
  • Mental incompetents
    • Person who is either:
      • Unable to understand in a reasonable manner nature and consequences of transaction
      • Unable to act in a reasonable manner in relation to the transaction
  • Intoxicated persons
    • Other party has reason to know that:
      • By reason of intoxication
      • The person is unable to either:
        • Understand in a reasonable manner nature and consequences of transaction
        • Act in a reasonable manner in relation to the transaction

53

What are the consequences of incapacity?

The contract is voidable - i.e., incapacitated party can disaffirm

54

Can a contract ever be enforced against a minor?

Yes, under the quasi-contract theory if the contract is for necessaries - i.e., items that the minor needs in order to live

Whether soemthing is a necessary is a question of fact

55

What contracts fall within the statue of frauds?

"MY LEGS"

  • Contract in consideration of marriage
  • Contract that cannot be performed within one year
  • Promise creating interest in land
  • Promise by executor or administrator to pay own funds
  • Contract for the sale of goods $500 or more
  • Promise to act as a surety for the debt of another

56

What makes a marriage contract subject to the statute of frauds?

Must be a promise in consideration of marriage (not just a promise to marry)

57

What makes an executor promise subject to the statute of frauds?

Must be a promise by executor to pay his own funds for an obligation of the estate

58

What makes a surety contract subject to the statute of frauds?

Must be a promise to the creditor

Not a promise to the debtor

Not a novation - i.e., a promise to immediately pay the full debt

59

What is the main purpose rule with respect to the statute of frauds?

If a promise to pay the debt of another is for the main purpose of the promisor, it is not within the statute of frauds

E.g., main shareholder promises to act as a surety on the debt of the corporation

60

Is a contract within the statute of frauds if it is for multi-year employment, but can be terminated anytime?

Majority - yes

Minority - no

61

Is a contract to employ someone for life within the statute of frauds?

No. The person could possibly die within the year

62

Is a contract to grant an easement within the statute of frauds?

Only if the easement will last longer than a year

63

Is a lease contract within the statute of frauds?

Only if the lease is for more than a year

64

What is the equal dignity rule with respect to the statute of frauds?

If a contract is subject to the statute of frauds, and therefore must be in writing, you must have a writing in order to authorize someone else to sign it for you

65

When does the modification of a contract fall within the statute of frauds?

When both:

  • Contract, as modified, falls within the statute of frauds
  • Modified terms are essential to the contract

66

If a contract provides that all modifications have to be in writing, does a modification have to be in writing to satisfy the statute of frauds even if he contract would not fall within the statute of frauds as modified?

Common law

  • Provision requiring written modification is ignored

UCC

  • Provision requiring written modification is valid, unless waived

67

How is the statute of frauds satisfied for contracts other than for the sale of goods?

  1. Writing that contains:
    • Identity of parties
    • Description of subject matter
    • All essential terms
    • Signature by party to be charged
  2. Part performance of oral real estate agreement
    • Statute of frauds satisfied if 2/3 of the following:
      • Full or part payment
      • Possession
      • Improvements
  3. Estoppel to plead statute of frauds
    • D is estopped from raising statute of frauds if:
      • D told P he would draft agreement
      • P acted in reliance on this
  4. Promissory estoppel
    • Modern trend
      • D estopped from raising statute of frauds if:
        • D makes oral promise to P
        • P acts in reliance on this
    • Virginia
      • NO PROMISSORY ESTOPPEL

68

How is the statute of frauds satisfied for contracts for the sale of goods?

  1. Writing that contains:
    • Quantity (or output/requirements)
    • Indication that contract for sale was made
    • Signature by party to be charged
  2. Writing signed by party seeking enforcement
    • Under UCC 2-201(2), statute of frauds waived if:
      • Both parties are merchants
      • Writing claims there is a contract
      • Writing is signed
      • Writing included quantity
      • Other party fails to object in 10 days of receipt
  3. Part performance of contract for sale of goods
    • Satisfied statute of frauds:
      • To the extent of part performance
  4. ​​Specially manufactured goods
    • Statute of frauds waived if:
      • Seller made substantial beginning of manufacture
  5. Judicial admission
    • Statute of frauds waived if:
      • Party admits there was a contract under oath

69

What happens if a contract fails to satisfy the statute of frauds?

What happens if a party loses the statute of frauds defense?

Contract fails to satisfy statute

  • Contract is unenforceable (but not illegal)

Party loses defense

  • Statute of frauds defense won't work
  • May still argue that contract doesn't exist

70

When does an ambiguity make a contract invalid?

When:

  • Parties use a material term open to at least two reasonable interpretations
  • Each party attaches a different meaning
  • Neither party knows or has reason to know of the other's meaning

E.g., Peerless example

 

71

When does a mutual mistake of fact make a contract invalid?

What if the mistake is just as to value?

When:

  • Both parties are mistaken
  • Regarding a basic assumption of fact
  • That materially affects the agreement
  • And is not a risk their either party bears

No relief if mistkae is just as to value

72

When does a unilateral mistake of fact make a contract voidable?

Generally never, unless:

  • The mistake was obvious (i.e., the other party knew or should have known about it)
  • The mistaken party seeks avoidance before the other party relies on the contract (limited to bid situations)

73

When does duress make a contract voidable?

What are the different types of duress?

When the party was left with no reasonable alternative but to enter into the contract

Types

  1. Personal duress (e.g., gun to head)
  2. Economic duress (e.g., caterer demands more money day before wedding)

74

What is the key difference between entering into a contract based on a pre-exisiting duty, and entering into a contract based on duress?

With duress, the contract is both voidable (shield) and you can get your money back (sword)

With the pre-existing duty, the contract is only voidable (shield)

75

When does undue influence make a contract voidable?

Similar to duress, but it is unfair persuasion rather than cocercion

(often arises in will situations)

76

What is fraud in the inducement?

What is fraud in the factum?

Do they make the contract void or voidable?

Fraud in the inducement

  • One party lies to induce the other party to sign
  • Both parties know they are signing a contract
  • Makes the contract voidable
  • Cannot be raised against a holder in due course

Fraud in the factum (i.e., execution)

  • One party lies about the nature of the document signed
  • Only one party knows they are signing a contract
  • Makes the contract void
  • Can be raised against a holder in due course

 

77

Does a party have to disclose facts that would discourage the other party from entering the contract?

Generally, no

Exceptions:

  • Disclosure required by statute
  • Active concealment of negative fact
  • Partial disclosure would be misleading
  • Changed circumstances make previous assertion false
  • Party becomes aware that other party is operating under mistake as to a material fact
  • Confidential or fiduciary relationship

78

When will a contract be deemed unconscionable?

The judge decides whether at the time of the contracting, there was both:

  • Procedural unconsionability (i.e., unfair bargaining power)
  • Substantive unconscionability (i.e., unfair terms)

79

When will a contract be void due to illegality?

  • Subject matter is illegal (e.g., sale of drugs)
  • Purpose is illegal (e.g., lease of plane to sell drugs)

80

When will a contract be illegal becuase a party does not have a license required by statute?

When the license is required to protect public welfare, the contract is illegal

When the license is required to raise revenue, the contract is not illegal

81

What are sources of contract terms other than the words of the parties?

  • Custom and usage
  • Past dealings
  • UCC (if sale of goods)

82

What does the parole evidence rule do?

What facts trigger it?

Parole evidence rule keeps terms out of the contract

When there is a:

  • Written contract
  • Intended as final agreement (integrated)
  • Agreements that were either:
    • Earlier
    • Contemporaneous
  • Cannot be used to vary the terms of the agreement

83

What is the difference between a partially integrated and a completely integrated contract?

Partially integrated - everything in here is final, but not everything is in here

Completely integrated - everything in here is final, and everything is in here

84

What determination does a judge make when considering the parole evidence rule?

  1. Is the contract integrated (partially or completely)?
  2. Factors
  3. Exceptions

85

What factors does a judge consider when determining the parole evidence rule?

  • Merger or integration clauses
  • How complete it looks
  • How long negotiations were
  • Whether the parties had lawyers

86

What are the exceptions to the parole evidence rule?

Using the earlier agreement to:

  • Explain the writing
  • Establish a defense
  • Show the writing wouldn't be effective until a condition
  • Add to the writing is only parially integrated

87

What is a collateral agreement?

Admissible despite the parole evidence rule

Either:

  • Agreement made for separate consideration
  • Agreement that would naturally be omitted from the writing under the circumstances (i.e., writing is only partially integrated)

88

What is a shipment contract?

What is a destination contract?

Shipment

  • Seller's delivery obligation satisfied when:
    • Good tendered to carrier, and
    • Arrangements made for shipment, and
    • Buyer notified of shipment
  • Parties' words:
    • FOB shipper's location
    • All words not listed below

Destination

  • Seller's delivery obligation satisfied when:
    • Goods tendered to buyer
  • Parties' words:
    • FOB location other than shipper's
    • Ex-ship

89

When contractual language is unclear as to whether it is a shipment or destination contract, what is the presumption?

Shipment contract

90

Assuming no agreement otherwise, no breach, and a common carrier, when does risk of loss shift to the buyer?

When the seller completes his delivery obligations

91

Assuming no agreement otherwise, no breach, and no common carrier, when does risk shift to the buyer?

If the seller is a merchant:

  • When buyer receives the goods (i.e., takes possession)

If the seller is a non-merchant:

  • When seller tenders the goods (i.e., makes available)

92

If a buyer lets three months pass after tender before picking up goods, does the buyer have to pay for the goods?

Under UCC, after a commercially reasonable time the seller is no longer entitled to price (but still has breach of contract claim)

93

What is a sale on approval?

When does risk of loss shift to the buyer?

When a buyer takes possession of goods for a trial period

Risk does not shift until the buyer formally accepts

94

When does risk of loss shift when a buyer takes goods on consignment?

Same rules as normal goods (i.e., merchant - recept; non-merchant - tender)

95

What can give rise to an express warranty?

Must be a basis of the bargain

 

Words

  • Must have natural tendency to induce reliance
  • Not mere puffing

Conduct

  • Use of sample of model

96

What are the implied warranties?

Who gives which?

Merchantability

  • Only by merchants with respect to goods of the kind
  • Goods fit for ordinary purpose for which used

Fitness

  • Any seller
  • Goods fit for particular purpose for which buyer relied

Title

  • Any seller
  • Seller has good title

97

What warranties may be disclaimed?

How do you disclaim them?

Express warranties cannot be disclaimed

 

Implied warranties of merchantability and fitness:

  • Express disclaimer:
    • Must be conspicuous
    • Must mention either:
      • Merchantability
      • General language removing implied warranty
        • E.g., "as is", "with all faults"
  • Course of dealing, cours eof performance, trade usage
  • Defects that should have been revealed by examination that seller demanded buyer undertake

Implied warranty of title:

  • Specific language (i.e., more than "as is")
  • Specific circumstances (e.g., sale by sheriff)

98

When is a limitation of remedies clause valid?

So long as it:

  • Is not unconscionable
    • E.g., limiting consequential damages for personal injury with consumer goods
  • Does not fail of its essential purpose
    • E.g., seller insists on making repairs after consistently failing to fix the problem

99

What is the statute of limitations for breach of warranty?

From when does it start to run?

4 years from tender of delivery, unless:

  • Explicitly extended, in which case:
    • 4 years from when breach is discovered or should have been discovered

 

100

In Virginia, who does a warranty extend to if there is personal injury?

Anyone who might reasonably be expected to:

  • Use
  • Consume
  • Be affected

101

In Virginia, who does a warranty extend to if there is consequential loss?

Only parties in privity

102

What is a true condition?

A condition that is outside the control of either party

103

What is a condition coupled with a covenant?

Condition that is in some way within the control of one party, and therefore creates an obligation on that party to make a good faith effort to cause the event to occur

E.g., obtaining financing

104

Who has the burden to plead:

Condition precedent

Condition subsequent

Precedent - plaintiff

Subsequent - defendant

105

What is a constructive condition?

A condition by operation of law

E.g., each party's substantial performance of the contract

106

If a contract is silent as to what should be done first, what is the presumption?

Sale of goods

  • Each party's performance is a constructive concurrent conditions to the other

Service contract

  • Service is a constructive condition precedent to payment

107

When will a condition be excused?

Look to see if the person protected by the condition (i.e., person who benefits from it) has done or said anything to justify taking it away

  • Failure to make good faith effort to satisfy condition
    • E.g., obtain financing
  • Estoppel
    • Person says something before condition arises
    • Other person changes position in reliance
  • Waiver
    • Person says something after condition arises

108

What is the standard used to determine if a party satisfied a condition?

Express condition

  • Strict compliance

Constructive condition

  • Substantial performance

109

What is the standard used if an express condition involves personal taste?

Subjective good faith (i.e., objective reasonable person irrelevant)

110

What is the standard for the performance of sale of goods contracts under UCC Article 2?

Perfect tender - i.e., seller must deliver perfect goods

If not, buyer can reject whole, accept, whole, or accept part

111

When can a seller cure an imperfect delivery?

  • Limited remedy clause gives contractual right to cure
  • Time for performance not expired
  • Time for performance expired, but reasonable basis for believing improper tender was acceptable

112

How does a buyer reject goods?

Provide notice to the seller that is:

  • Timely (so seller can cure or preserve the goods)
  • Oral or written

113

When rejecting goods, does a buyer have to explain why he is rejecting?

Generally, no but he probably should.

If the buyer doesn't, the buyer cannot rely on an unstated defect to justify rejection to establish breach:

  • If seller could have cured
  • If both parties are merchants and seller requested in writing for a full and final written statement of defects

114

When can a buyer reject goods?

If all of the following is true:

  • Buyer has not accepted
  • Goods are less than perfect
  • Contract is not on installment

115

What is an installment sales contract?

Requires or authorizes:

  • Delivery in separate lots
  • To be separately accepted

116

Why is it necessary to identify installment sales contracts?

Buyer can only reject an installment if there is:

  • Substantial impairment
  • That cannot be cured

117

Does a breach of one installment ever permit the buyer to reject the entire contract?

Only if the breach substantially impairs the value of the entire contract

E.g., one beer delivery has e coli so nobody would drink beer from that supplier

118

When has a buyer accepted goods?

  1. When, after reasonable opportunity for inspection, buyer indicates that either:
    • The goods conform
    • She will keep them even if they don't conform
  2. Buyer fails to make an effective rejection
  3. Buyer acts inconsistent with seller's ownership

119

If a buyer continues using the goods after rejection, is that always an acceptance?

Yes, unless the use was necessary

120

What are the requirements for revocation?

  1. Noncomformity substantially impairs value to buyer
  2. Excusable ignorance of grounds for revocation, or reasonable reliance on seller's assurances
  3. Revocation within reasonable time after discovery of noncomformity
  4. Revocation before substantial change in condition of goods not caused by defect

121

In what form should the buyer make payment?

In the absence of agreement otherwise:

  • Buyer must pay by either:
    • Cash
    • Check
  • Seller can reject check, but must give buyer reasonable time to get cash

122

If buyer has the right to reject, what is the effect on risk of loss?

Risk remains on seller until either:

  • Defect cured
  • Buyer accepts despite defect

123

If buyer rightfully revokes, what is the effect on risk of loss?

Risk is on seller to the extent of deficiency in buyer's insurance coverage

124

If seller hasn't shipped the goods, and buyer breaches, can risk of loss ever fall on buyer?

Only if seller has identified the goods (i.e., segregated them for delivery), risk is on buyer to the extent of deficiency in seller's insurance coverage

125

How do you determine whether a breach is material and therefore excuses the other party's performance?

Did you basically get what you bargained for? If so, breach is only minor.

126

What is anticipatory repudiation?

What is the effect?

When one party manifests before his performance is due that he cannot or will not perform his duty

Effect:

  • Excuses other party's duty to perform
  • Provides an immediate claim to damages for breach
    • Unless non-repudiating party fully performed
      • In which case, must wait until actual breach

 

127

If before performance is due, a party says that he will not perform based on an erroneous belief that the other has breached, what is the result?

Anticipatory repudiation, so the other party is excused from performing and can sue for immediate damages

128

Can you retract anticipatory repudiation?

Yes, so long as the other party has not changes its position in reliance

129

What are the ways in which performance can be excused by agreement of the parties?

  1. Modification
    • Changes duties under the contract
    • Original duties are discharged immediately
      • E.g., paint house three days later
  2. Accord and satisfaction
    • Substitution of performance under the contract
    • Original duties remain until new performance
      • E.g., paint house instead of paying cash
  3. Rescission
    • Discharges all duties under the contract
    • Some performance must remain on both sides, otherwise no consideration
  4. Novation
    • Substitution of parties under the contract
    • Original party is excused immediately
    • Requires agreement of:
      • Both parties to original contract
      • New party

130

Do you need a writing to rescind a contract subject to the statute of frauds?

Generally, not unless:

  • Land contract
  • Sales contract

131

When is a party excused by reason of impossibility or impracticability?

  • Post-contract occurence
  • Not reasonably foreseeable at time of contracting
  • Not a risk assumed by either party
  • Renders performance impossible or impracticable
  • Without fault of party seeking to be excused

132

What is a force majeure clause?

Excuses performance on the occurence of specific types of events

133

Is a builder's duty to construct a building discharged by destruction of the work in progress?

No. Builder's have builder's risk insurance

134

What if a farmer contracts to sell wheat, and then his crops are destroyed by a flood?

Farmer won't be excused if the contract did not specifically identify his crops as the source of wheat

135

If a seller's inventory is partially destroyed, how does he decide which orders to fill with the remaining inventory?

What rights do the buyers have?

Allocate remaining inventory in a way that is fair and reasonable

Buyers can refuse to accept partial delivery, but they haven o breach of contract claim

 

136

When will the incapacity of a person be an excuse for nonperformance?

When the person is specific to the contract

E.g., person is necessary to the contract

137

When is a party excused by reason of frustration of purpose?

  • Post-contract occurrence
  • Not reasonable foreseeable at time of contracting
  • Totally or nearly destroys purpose or value of contract
  • Purpose was known to both parties at contracting

138

When are liquidated damages valid?

Liquidated damages are enforceable if:

  • At time of contract, damages difficult to estimate
  • At time of contract, provision reasonable forecast of possible damages

139

Are punitive damages recoverable for breach of contract?

No

140

What is the general measure of damages for ordinary contracts?

Expectation damages - i.e., put the non-breaching party in as good a position as if the contract had been performed

141

What are incidental damages?

Costs incurred in a reasonable effort to avoid loss resulting from the breach

142

What are consequential damages?

Any of the following resulting from the breach:

  • Injury to person
  • Injury to property
  • Lost profits

143

What is the rule regarding mitigation?

A party cannot recover damages that could have reasonably been avoided

However, a party is not required to take steps that involve:

  • Undue burden
  • Risk
  • Humiliation

144

What is the standard for determining the reasonableness of damages?

Damages must be reasonably certain (i.e., mathematical precision not necessary)

145

What if P's expectation damages are too speculative to measure?

Reliance damages may be recovered to return the party to the status quo - i.e., costs spent in preparation for performance

 

E.g., profit that would have been earned had the contract been performed may be very speculative, so reimburse the party for costs incurred

146

What is a lost volume seller?

What are the implications?

Seller whose supply was greater than demand

So, if there is a breach, seller could have sold the original item and another

So, seller gets lost profits

147

When can a buyer get specific performance for the sale of goods?

Either when:

  • Goods are unique
  • Other circumstances apply - e.g., inability to cover

148

What is negative specific performance?

When a court of equity prevents a party from working for someone else because he breached a service contract

149

In a UCC sale of goods contract, what can a party do if they are worried about the other's performance?

  1. In writing demand adequate assurance of performance
  2. Suspend performance until assurance is received
  3. Treat as repudiation if assurance not received in 30 days

150

When can a seller retain rights in goods it sells if it is not paid?

If the seller has either:

  • A security interest
  • A right to reclamation

151

When does an unpaid seller have a right to reclamation?

When:

  • Credit sale
  • Buyer insolvent when received goods
  • Demand for return made either:
    • Within 10 days of buyer's receipt
    • Within reasonable time if buyer lied about solevency

152

In a third-party beneficiary situation, who is the promisor and promisee?

Promisor - Person who renders performance that benefits TPB

Promisee - Person bargaining with promisor for TPB's benefit

153

What is the difference between intended and incidental beneficiaries?

How can you tell?

Only intended beneficiaries have contract rights as TPB

Look at the intention of the parties, including:

  • Whether TPB is expressly designated in contract
  • Whether performance by promisor is directly to TPB
  • Whether TPB has rights under the contract
  • Relationship between promisee and TPB

154

What if a third party was already a creditor of a promisee when the third-party beneficiary contract was entered?

The third party is a creditor beneficiary

155

What happens when a TPB's rights vest?

The promisor and promisee can no longer terminate the TPB's rights

156

When do a TPB's rights vest?

Either:

  • When the TPB brings suit to enforce the promise
  • When the TPB materially changes its position in justifiable reliance on the promise
  • When the TPB manifests assent to the promise in a way invited or requested by the promisor and promisee

157

In a third-party beneficiary relationship, who can sue whom?

  • TPB can sue promisor
  • Promisee can sue promisor
  • Creditor beneficiary can sue promisee
    • But not regular TPB

158

What can you assign?

What can you delegate?

Assign rights

Delegate duties

159

If delegation allowed if:

  • Contract prohibits delegation?
  • Contract prohibits assignment?

  • Yes
  • Yes - prohibition of assignment is prohibition of both assignment and delegation

160

Under common law, what can you not delegate?

Duties that arise from:

  • Special skills
  • Special reputation

161

What are the requirements for delegation?

(Actually, what is not required)

  1. Consent of obligee not required (unlike novation)
  2. Consideration not required
    • But:
      • No consideration
        • Delegate can't be liable
      • Consideration
        • Delegate can be liable

162

What is the difference between creating a third party beneficiary and assigning your rights?

Assignment substitutes a party, TPB adds someone who can sue

163

What are the limits on assignment?

Assignment cannot substantially change the duties of the obligor

164

Can you assign your rights in a requirements contract?

Yes. This does not substantially change the duties of the obligor because you are inherently required to have reasonably proportionate requirements

165

What is the distinction between prohibition and invalidation of assignments?

If the contract only prohibits assignments, the assignor is in  breach after assigning, but the assignment is still valid

The contract must specifically state that assignments are invalid for that to be the case

166

What are the requirements for assignment?

  • Must have language of present assignment
    • I assign, not I promise to assign
  • Must be in writing if:
    • Wage assignment
    • Assignment of interest in land
    • Assignment of choses in action > $5,000
    • Assignments intended as security interests

167

Can the obligor and assignor modify their contract if there is an assignment?

Yes, until obligor receives notice of the assignment

168

Can an obligor continue to pay the assignor after an assignment?

What if the assignment was gratuitous?

If he does so without notice of the assignment, obligor's debt is discharged

If he does so with notice of the assignment, obligor still owes assignee

If assignment is gratuitous, acceptance of payment by assignor revokes assignment

169

How can a gratuitous assignment be revoked?

Provided no exceptions apply:

  • Directly
  • Death of assignor
  • Bankruptcy of assignor
  • Acceptance of performance by assignor
  • Subsequent assignment by assignor

So, last assignee under gift assignment wins

170

When can a gratuitous assignment not be revoked?

  • Obligor already performed
  • Assignee obtained a judgment against obligor
  • Assignee entered a new contract with obligor by novation
  • Assignee reasonably relied on assignment

171

What is the general rule regarding the priority of assignments for consideration?

First in time, first in right, unless:

  • Subsequent assignee takes assignment without notice of prior assignments and it either:
    • Is first to obtain payment from obligor
    • Is first to obtain judgment against obligor
    • Enters into new contract with obligor by novation
    • Gets a token or writing from obligor, surrender of which is required by obligor's contract
    • It can use estoppel against first assignee

172

What if a subsequent assignee notifies the obligor of his rights first?

Majority (American rule)

  • Does not matter

Minority (English rule)

  • Subsequent assignee gets priority

173

What happens when you give goods to a merchant who deals in goods of that kind, and the merchant sells those goods without your permission?

The merchant has the power to transfer all rights of the entruster to a buyer in due course (i.e., good faith purchaser)

You just sue merchant for conversion

174

What happens when someone without title (i.e., thief) sells or entrusts goods to a merchant, who then sells them to a customer?

The customer does not have good title, and cannot keep the items even if the customer was a buyer in due course