Contracts - Bar Review

Question 1

Applicable law

Answer 1

Article 2 of the Uniform Commercial Code (UCC) governs contracts for the sale of goods. Goods are defined as movable things at the time of contracting. Otherwise, common law dictates, unless it is a mixed contract, where the predominant purpose of the contract will determine the appropriate governing law.

Question 2

Formation

Answer 2

Contract formation requires: 1) an offer; 2) acceptance; 3) consideration; and 4) absence of defenses to formation.

Question 3

Offer

Answer 3

An outward manifestation of present contractual intent, made with definite and certain terms, creating the power of acceptance in a specified offeree.

Question 4

Advertisement

Answer 4

An advertisement is not generally considered an offer, but an invitation to deal.

Question 5

Merchant’s offer

Answer 5

Under the UCC, an offer between two merchants is not required to have all pertinent terms listed, but is required to list the quantity of goods being contracted.

Question 6

Offer termination by death

Answer 6

If either party to the offer dies or is adjudicated insane prior to acceptance, the offer is terminated. It is not necessary that the death or insanity be communicated to the other party.

Question 7

Acceptance

Answer 7

Acceptance requires an unconditional and unequivocal assent to the terms of the offer. Under the UCC, acceptance can be in any manner and by any medium reasonable under the circumstances.

Question 8

Acceptance – Lapse in time

Answer 8

The offeree must accept the offer within the time period specified or, if no period is specified, within a reasonable time. If the offeree does not do so, the offer will terminate by lapse of time.

Question 9

Mailbox rule

Answer 9

Acceptance by mail or similar means creates a contract at the moment of dispatch, provided the mail is properly addressed and stamped, unless the offer stipulates that acceptance is not effective until received or an option contract is involved.

Question 10

Unilateral contracts

Answer 10

A unilateral contract is a contract where a party states a requirement without an identified offeree (e.g., I will pay $100 to the writer of the best essay). The start of performance renders a unilateral contract irrevocable, where acceptance exists only when performance is complete. If beginning performance, an offeree must inform the offeror of completion within a reasonable time of completing performance.

Rs 2d. §45 - Irrevocable Option contract once performance begins.

Acceptance when performance is completed.

Question 11

Bilateral contracts

Answer 11

The start of performance manifests acceptance, where the contract may not be revoked.

Question 12

Retraction of a unilateral offer

Answer 12

A unilateral offer may be retracted either by lapse of a reasonable time or earlier by effective revocation.

Question 13

Counter-offer

Answer 13

A counter-offer is a response made by the offeree to the offeror that contains the same subject-matter as the original offer but differing in terms. It operates as a rejection of the original offer as well as a new offer.

Question 14

Consideration

Answer 14

Consideration is the bargained-for exchange of legal detriment. Consideration can also include enjoining someone from doing something they are legally allowed to do. Courts generally will not question the adequacy of consideration, as “a mere peppercorn” can suffice. A promise to refrain is consideration.

Question 15

Past consideration

Answer 15

If something was already given or performed before the promise was made, it will not satisfy the bargain requirement because it was not given in exchange for the promise made. Modernly, some courts will enforce a promise if it is made on a material benefit that was previously conferred by the promisor and the promisee did not intend to confer the benefit as a gift.

Question 16

Implied-in-fact contract

Answer 16

A contract based on a tacit promise, inferred when conduct creates a contract, a benefit was received that could have been refused, and it would be fair to presume payment was expected. (e.g., person who watches contractor pave their driveway instead of the neighbors and does not object).

Question 17

Requirement contract

Answer 17

A contract where a purchaser will fill their entire requirement for a particular good from the contracted seller.

Question 18

Output contract

Answer 18

A contract where a seller of goods will contract with a buyer to sell them all of the goods produced by the seller.

Question 19

Option contract

Answer 19

An offer is not revocable if the offeree gives consideration for a promise by the offeror for the contract to refrain from revoking an offer for either a stated period of time, or a reasonable time if none is specified. Option contracts are an exception to the mailbox rule, and are accepted upon receipt, not upon mailing.

Question 20

Mutual mistake

Answer 20

A contract is voidable when both parties are mistaken as to a basic assumption on which the contract which is material to the contract and the party claiming mistake did not bear the risk of such mistake.

Voidable means the court would grant recission, but they could also grant reformation, meaning it isn’t automatically voided, but voidable.

Question 21

Misrepresentation

Answer 21

A defendant makes a misrepresentation of a material fact for the purpose of inducing the plaintiff to reasonably and justifiably rely on the misrepresentation to their detriment. Nominal damages are not available.

Question 22

Mental incapacity

Answer 22

Individuals in certain protected classes are legally incapable of incurring binding contractual obligations, making a contract voidable. Persons whose mental capacity is so deficient that they are incapable of understanding the nature and significance of a contract may disaffirm when lucid, or the contract may be disaffirmed by a legal representative.

Question 23

Unilateral mistake

Answer 23

A mistake by one party that is unknown to the other party, concerning a basic assumption that is material to the contract. A unilateral mistake may be a defense to formation of one party knew or had reason to believe that the other party was mistaken.

Question 24

Conditions

Answer 24

A condition makes performance obligatory only when the condition occurs. Concurrent conditions must occur simultaneously, but each function as a condition precedent to the other.

Question 25

Breach

Answer 25

TPD - Time Precedent Discharged A contract breach occurs when a party fails to perform when:1) conditions precedent are satisfied; 2) time to perform arrives; and 3) performance has not been discharged. (Or, failure to perform an absolute duty under the contract, giving rise to remedies for the nonbreaching party.)

Question 26

Minor or material breach

Answer 26

If a party does not receive the substantial benefit of their bargain, the breach is material, and they are no longer obligated to continue performance under the terms of the contract. The nonbreaching party will have an immediate right to all remedies available. A breach of a contract is minor if a party gains the substantial benefit of their bargain despite defective performance. A minor breach does not relieve the aggrieved party of performance under the contract, but merely gives them a right to damages for the minor breach.

Question 27

“Time is of the essence.”

Answer 27

Contract performance is required within a reasonable time as specified in the contract. However, if the contract contains a “time is of the essence” clause, failure to perform by that date results in a material breach of contract. To qualify, the precise term, “time is of the essence,” must be included.

Question 28

Statute of frauds

Answer 28

MOUSER - Marriage One year UCC >$500 Suretyships Executor Realty The following contracts are generally not enforceable unless they are in writing: in consideration of Marriage, cannot be performed in One year, UCC goods > $500, Suretyships, Executor guarantees to pay, and Realty. Writings must be signed by the party to be charged, reasonably identify the subject matter, indicate there is a contract, and state the essential terms. Where there is part performance which unequivocally signals acceptance, a party will be estopped from claiming there is no contract based on lack of a writing.

Question 29

Statute of frauds exceptions

Answer 29

1) Estoppel; 2) Part or full performance; 3) Merchant's confirmatory memo; 4) Merchant's firm offier; 5) Suretyship for benefit of surety; 6) Judicial acknowledgement. Even if the contract is not in writing, contracts that a full performed, if there is judicial acknowledgement of the agreement, or where there has been a foreseeable, detrimental reliance of the contract, will still be enforced. Further, the promise will not fall under the statute of frauds when the purpose of making the guarantee was to benefit the person making the promise.

Question 30

Merchant’s confirmatory memo

Answer 30

A contract will be enforced despite the lack of a writing where a party has received a merchant’s confirmatory memorandum and the receiving party does not object within a 10 days, if the goods in question have been received and paid-for, or if the goods in question where custom-made.

Question 31

Modifications

Answer 31

Under common law, contract modifications required new consideration. Exceptions exist where Voluntary, Unanticipated circumstances, Executory, and Fair and equitable (**VUEF**). Under the UCC, new consideration is not required where the modification is made in good faith.

Question 32

Duress

Answer 32

Duress is a wrongful pressure exerted upon a person in order to coerce them into a contract that he ordinarily would not enter.

Question 33

Impracticability

Answer 33

The defense of impracticability is available where some unanticipated event which was a basic assumption material to the contract renders performance **unreasonably difficult** to perform under the contract.

Question 34

Unconscionability

Answer 34

A contact may be void where the provisions are so **one-sided** and **unfair** that they are unconscionable at the **time of formation**. Applies where one party has **unequal bargaining power**.

Question 35

Frustration of purpose

Answer 35

A defense to contract enforcement that relieves the buyer from performance when an unforeseen event makes **worthless** the buyer’s purpose for entering the contract. For this defense to apply, the **seller must have known the buyer’s purpose** at the time of contract formation.

Question 36

Impossibility

Answer 36

Impossibility discharges performance if it would be objectively impossible to perform due to unforeseen circumstances.

Question 37

Frustration of purpose and impossibility defense

Answer 37

FoP involves the “why” the contract was created, whereas impossibility involves the duties directly listed in the contract. For example, a shopkeeper leases space from a landlord to sell airsoft guns. One year into the five-year lease, the city passes an ordinance prohibiting the sale of airsoft guns within the city. The shopkeeper’s purpose is frustrated, and the **landlord knew the purpose**, so the shopkeeper may be successful in claiming frustration of purpose. A farmer under contract to produce milk may be excused from performance is mad cow disease kills his cows. Since this was beyond the farmer’s control, he may claim impossibility of performance and his duties discharged.

Question 38

Parol evidence rule

Answer 38

1) Prior or contemporaneous; execpt 2) Condition Precedent; 3) Part performance; 4) Unique good 5) Confirmatory memo; 6) Explain ambiguous terms; 7) Supplement partially-integrated K. Evidence of prior or contemporaneous agreements may not be introduced if it contradicts a later integrated writing. Exceptions include proof of a condition, clerical error, defenses to formation, interpretation of vague terms, or supplementing terms of a partially integrated contract. (e.g., If the price is wrong but was agreed upon previously, this is a mistake in integration and is admissible for reformation. If the contract contains no date or time of performance or there is no merger clause, then the contract is likely only partially integrated.)

Question 39

UCC perfect tender rule

Answer 39

A seller must deliver goods that perfectly conform to the contract. In the case of goods that don’t perfectly conform, a buyer may reject all portions of the goods. The **seller may cure** if the **performance date hasn’t yet arrived**. Also, when dealing with installment contracts, if one of the installments does not conform to the contract, that installment must **substantially impair the value of the entire contract** to discharge performance of the nonbreaching party.

Question 40

Free on board (FOB)

Answer 40

1) FOB Seller's City - Buyer pays, ROL at common carrier (Seller's City); 2) FOB Buyer's City - Seller pays, ROL at dropoff (Buyer's City). (So basically, whoever pays the common carrier bears the risk of loss during the journey. And, if it is a shipment K (seller's city), buyer pays and ROL passes when they pick up, but if it is a destination K (buyer's city), seller pays and ROL passes after they drop off). FOB is a shipping condition that passes the risk of loss to the buyer at the named location. The seller bears the risk and expense of delivering the goods to the named location. The contract can be a shipment or destination contract, depending upon the location named. ROL passes at common carrier in shipment K, and delivery location and destination K.

Question 41

Non-conforming goods sale

Answer 41

Upon receiving nonconforming goods, the buyer may sell the goods in a **public or private** sale but must **notify** the seller beforehand.

Question 42

Mirror image rule

Answer 42

Under the common law, an acceptance must exactly match the offer.

Question 43

Merchant

Answer 43

A merchant is someone who regularly deals or has special knowledge or skill of the type of goods involved, or holds themselves out as a merchant.

Question 44

Rejection of goods

Answer 44

A buyer is required to provide **timely notice** to the seller that the goods received are rejected.

Question 45

Battle of the forms (UCC §2-207)

Answer 45

Unlike the common law mirror image rule, UCC Article 2 sometimes allows acceptance of an offer with new or different terms. For these changes to be effective and not be considered a rejection and counter-offer, **both parties must be merchants**. Additionally, the new terms may not materially alter the contract and there may not be a clause in the offer **prohibiting such changes** or additions. In a case where an Article 2 contract is returned, the receiving party must **object to any changes within a reasonable time** or else the changes or additions are considered accepted.

Question 46

Promissory estoppel

Answer 46

A plaintiff can pursue non-contractual damages when they reasonably and foreseeably relied on a promise to their detriment. The promisor must have reasonably expected such an action, and failure to rule for the plaintiff would result in manifest injustice.

Question 47

Adequate assurances

Answer 47

A party to a contract with legitimate concerns that they will not receive their contracted performance may request adequate assurances. An adequate assurance is some form of evidence or confirmation that the contract will be fulfilled. If the other party does not provide these assurances within a reasonable time, the requesting party may treat it as an anticipatory repudiation.

Question 48

Anticipatory repudiation

Answer 48

Occurs when a party unambiguously communicates they will not perform before performance is due. The aggrieved party may treat the anticipatory repudiation as a breach and sue immediately, suspend performance and wait to sue when performance is due, treat the repudiation as an offer to rescind or discharge the contract, or ignore the repudiation and urge performance. If P has **grounds for insecurity** and D refuses to give **adequate assurances**, P can treat as anticipatory repudiation.

Question 49

Anticipatory repudiation retraction

Answer 49

A repudiation can be retracted unless the aggrieved party has actively cancelled the contract, **materially changed their position in reliance** on the repudiation, or accepted the repudiation as a final decision not to perform.

Question 50

Compensatory damages

Answer 50

These damages are designed to compensate a plaintiff for their contractual damages and include expectation and consequential damages. They must be foreseeable, causal, certain, and unavoidable, and may not be awarded if the nonbreaching party failed to mitigate their damages.

Question 51

Expectation damages

Answer 51

All expected profits or costs that would have been realized if the contract was fully performed by the nonbreaching party, placing them in the position they would have been in had the contract been fully performed (no breach).

Question 52

Consequential damages (Hadley v. Baxendale)

Answer 52

These damages flow indirectly from the breach but are foreseeable and certain. Foreseeable, causal, certain, unavoidable.

Question 53

Reliance damages

Answer 53

If a plaintiff’s expectation damages are **too speculative to calculate or uncertain**, they may elect to recover based on their reasonable reliance on the contract. Reliance damages award the plaintiff the cost of performance and are designed to put the plaintiff in the position they would have been in had the contract never been made.

Question 54

Liquidated damages

Answer 54

These are damages specified within the written agreement. They must have been **difficult to estimate** and will not be enforced if unreasonable or used as a **penalty** for nonperformance.

Question 55

Incidental damages

Answer 55

Smaller, reasonable damages that stem from directly from the breach. E.g., the cost of advertising a car for sale where the buyer does not perform.

Question 56

Assignment of rights

Answer 56

1) After contract was formed (otherwise 3PB); 2) Assignee steps in the shoes of assignor; 2) Assignor remains liable unless novation; 3) Cannot substantially change obligor's duty or risk beyond what was contemplated by the original parties. A transfer of rights where the obligor contracts with an assignor. The assignor assigns their rights to the obligor’s future performance to the assignee. Generally, all contractual rights may be assigned other than those that would substantially change the obligor’s duty or risk, assign future rights to arise from future contracts, or are prohibited by law.

Question 57

Gratuitous promise

Answer 57

If consideration is provided for past services, the promise is invalid unless estoppel (reasonable and detrimental reliance, and promisor had reason to know promisee would rely).

Question 58

Delegation of duties

Answer 58

A delegation is a transfer of duties. It generally consists of a situation where the obligor/delegator promises to perform for the obligee but then delegates their duty to the delegatee. **Generally, all duties may be delegated** except those that involve **personal judgment and skill**, or the delegation would **alter the rights of the obligee**.

Question 59

Enforcement of expired debt

Answer 59

An exception to the preexisting duty rule, no consideration is required to contract to receive pre-existing defaulted debt.

Question 60

Quasi-contract

Answer 60

BEAR - Benefit Expectation Aware Restitution Benefit - non-gratuitous benefit conferred; Expectation Aware - D is Aware of P's Dxpectation Restitution - to prevent D's unjust enrichment (of a benefit conferred) **Implied in law** - no mutual assent, like **paving wrong driveway** and homeowner looks on. Contrast with implied in fact, there is mutual assent but maybe no agreement on price, such as L doing work for C but no price set. Where there is a failed contract, the defendant is required to make restitution to the plaintiff. Requires: 1) the plaintiff **confers a non-gratuitous benefit** to the defendant; 2) the **defendant knows** the plaintiff’s expectation because they knew of the benefit and did not decline; and 3) the defendant would be **unjustly enriched** if they retain the benefit.

Question 61

Illegal contract - statute to raise revenue

Answer 61

A statute to raise revenue will not typically prevent contract enforcement if they contractor has not obtained a statutorily required license. Typically occurs where a client refuses to pay an unlicensed contractor and then claims the contract was illegal, thus unenforceable.

Question 62

Novation

Answer 62

When all parties to a contract agree to release one of the parties and replace them with a third party.