Contracts Final Review Outline

Question 1

Term

Answer 1

Definition

Question 2

Applicable Law

Answer 2

Common law applies to contracts for services or real estate.
UCC Article 2 applies to contracts for the sale of goods, regardless of dollar amount.
Apply the common law unless a UCC rule applies, and pay special attention to UCC rules that apply only to merchants.

Question 3

Offer - Definition and Requirements

Answer 3

An offer is an objective manifestation of the offeror’s willingness to enter into a contract that creates a power of acceptance in the offeree.
To be an offer, a statement must be:
– Reasonably interpretable as an offer
– Express a present intent to be bound

Offer Requirements:
– Intent to contract
– Knowledge of the offer
– Essential terms that are certain and definite
– Words of promise, undertaking, or commitment targeted to a number of people who could actually accept

Question 4

Essential Terms

Answer 4

Common law essential terms: parties, subject matter, price, and quantity
UCC requires: quantity only (other terms may be filled by gap fillers)

Question 5

Termination of Offer

Answer 5

An offer may terminate by:
- Death or mental incapacity: terminates prior to acceptance, even if the offeree sends an acceptance before learning of the offeror’s condition
- Destruction or illegality: if the subject matter is destroyed or becomes illegal
- Lapse of time: terminates when the offer says it does or after a reasonable amount of time
- Rejection: occurs when the offeree clearly conveys intent not to accept or takes action absolutely inconsistent with a continuing ability to contract
- Revocation: terminates if revoked prior to acceptance, even if the offeror promised to keep it open

Question 6

Irrevocable Offers

Answer 6

Irrevocable Offers:
- UCC Firm Offer: merchant gives written and signed assurance that offer will remain open (no consideration required)
- Option Contract (common law): offeror promises to keep offer open in exchange for consideration
- Partial performance: for unilateral contracts, offeror invites acceptance only by performance and offeree begins to perform
- Promissory estoppel: offeror could reasonably foresee reliance, and offeree reasonably and detrimentally relies on it

Question 7

Acceptance

Answer 7

Acceptance is an objective manifestation by the offeree to be bound by the terms of the offer.
The offeree must know about the offer to have the power to accept it.

Question 8

Means of Acceptance

Answer 8

Acceptance mailed within the allotted response time is effective when sent, unless the offer provides otherwise.

• Silence is not acceptance unless the offeree has reason to believe it is, or prior dealings make it reasonable
• Shipping goods: a seller may accept by a promise to ship or prompt shipment. Nonconforming goods = acceptance + breach unless labeled an accommodation
• Actions (e.g., sitting for a haircut) can also constitute acceptance

Question 9

Mailbox Rule

Answer 9

• If acceptance is sent before rejection: acceptance controls, unless the offeror receives the rejection first and detrimentally relies on it
• If rejection is sent before acceptance: the first received by offeror controls
• Offers and revocations are effective upon receipt

Question 10

Bilateral vs. Unilateral Contracts

Answer 10

Bilateral Contract: a promise by one party is exchanged for a promise by the other. Acceptance may be by return promise or starting performance.
Unilateral Contract: one party promises something in return for an act by the other. Acceptance requires complete performance. Once begun, the offer is irrevocable for a reasonable time.

Question 11

Notice of Acceptance

Answer 11

For unilateral contracts, the offeree need not give notice after completing performance unless:
(1) the offeree has reason to know the offeror would not learn of performance within a reasonable time, or
(2) the offer requires notice.
If notice is warranted but not given, the offeror’s duty to perform is discharged unless:
– The offeree exercised reasonable diligence to give notice
– The offeror learned about the performance within a reasonable time, or
– The offer specifically stated that notification was not required.

For bilateral contracts, notice of acceptance is required. Under the mailbox rule, acceptance is effective when sent. Under the UCC, if acceptance is made by starting performance, then notice must be given within a reasonable time or the offer will lapse.

Question 12

Counteroffers – Effect of Additional or Different Terms

Answer 12

Common Law (Mirror-Image Rule):
- Offer is rejected and reply is treated as a counteroffer.

UCC Battle of the Forms:
- One party is not a merchant: offer is accepted unless reply expressly requires assent; additional terms are proposals.
- Both parties are merchants: offer is accepted unless:
– The offer required assent to new terms
– New terms materially alter the contract
– Offeror objects within reasonable time
- Different terms cancel each other out under the knockout rule.

Question 13

Consideration – Bargained-for Exchange

Answer 13

Consideration exists when there is a legal detriment to the promisee that is bargained for by the promisor.
The promise must induce the detriment, and the detriment must induce the promise.
Forms include:
- A return promise to do something
- A return promise to refrain from doing something legally permitted
- Actual performance of an act
- Forbearance from performing an act

Question 14

Adequacy of Consideration

Answer 14

• Consideration need not have economic value.
• Even a voidable or unenforceable promise may be valid consideration.
• Exceptions include:
  • Settlement of a claim not made in good faith or that is clearly invalid
  • Preexisting duty (unless varied or additional value given)
  • Past consideration (generally inadequate unless material-benefit rule applies)
  • Illusory promise (vague or within promisor’s discretion)

Question 15

Requirements and Output Contracts

Answer 15

These contracts are enforceable under UCC.
- Requirements contract: Buyer agrees to buy all the buyer requires.
- Output contract: Seller agrees to sell all the seller produces.
- Quantities must be made in good faith and cannot be unreasonably disproportionate to any stated estimate.

Question 16

Modification of Existing Contracts

Answer 16

Common Law: Requires new consideration, unless:
- The contract is rescinded and replaced
- There are unforeseen difficulties and the change is fair and equitable
- New obligations are on both sides

UCC: Requires only good faith; applies to both merchants and nonmerchants.

Question 17

Accord and Satisfaction

Answer 17

An accord is an agreement to accept different performance.
Satisfaction is the performance, which discharges both the original duty and the accord.
- The original contract is not discharged until satisfaction is complete.
- An unliquidated or disputed claim can be discharged by a negotiable instrument marked “payment in full.”

Question 18

Promises Binding Without Consideration

Answer 18

• A new promise to pay a barred debt (e.g., after statute of limitations) is enforceable.
• A new promise to perform a voidable duty is enforceable if not voidable for a similar reason.
• Under the material-benefit rule, a promise is binding for unrequested services if:
  • The promisor received a material benefit, and
  • Enforcement is necessary to prevent injustice.
• Promissory estoppel: A promise is binding if:
  • The promisor should expect it to induce action
  • The promise does induce such action
  • Injustice can be avoided only by enforcement

Question 19

Enforceability Classifications

Answer 19

• Void: Treated as if no contract existed; entire transaction is a nullity.
• Voidable: A valid contract exists but may be avoided by one party.
• Unenforceable: A valid contract exists but cannot be enforced by a court.

Question 20

Mutual Mistake

Answer 20

A mutual mistake occurs when both parties are wrong about an essential element.
The contract is voidable by the mistaken party who did not bear the risk of the mistake.
Reformation may be available if the writing does not reflect the prior agreement, unless it harms third parties who relied on the writing.

Question 21

Unilateral Mistake

Answer 21

A unilateral mistake occurs when one party is wrong about an essential term.
The contract is voidable by the mistaken party if:
- The mistake is material, and
- The nonmistaken party knew or had reason to know of the mistake, or
- Enforcing the contract would be unconscionable.

Question 22

Misunderstanding

Answer 22

A misunderstanding occurs when both parties believe they are agreeing to the same terms, but they are not.
No contract is formed unless:
- One party knew or had reason to know of the misunderstanding: contract is based on the other party’s interpretation.
- Neither or both parties knew: no contract unless they intended the same meaning.
A party may waive the misunderstanding and enforce the contract as understood by the other party.

Question 23

Misrepresentation

Answer 23

A misrepresentation is an untrue assertion of fact about a present or past circumstance.
Fraudulent misrepresentation requires:
- Knowingly or recklessly false statement with intent to mislead
- Justifiable reliance
- Inducement of assent
• Fraud in the factum: contract is void
• Fraud in the inducement: contract is voidable

Nonfraudulent misrepresentation (innocent or negligent):
- Must be material
- Must induce assent with justifiable reliance
- Contract is voidable by the deceived party

Question 24

Undue Influence

Answer 24

Undue influence involves unfair persuasion, often due to a relationship of dominance or dependency.
The victim may void the contract and recover restitution.
If a confidential relationship exists, the dominant party must prove the contract was fair and may be held to a higher standard.
If a third party causes the influence, the contract is voidable unless the nonvictim party gave value in good faith without knowledge of the undue influence.

Question 25

Duress

Answer 25

Duress is an **improper threat** that deprives a party of meaningful choice. Examples include threats of criminal prosecution, bad-faith civil actions, or breach of duty of good faith. - If physical compulsion is used, the contract is **void**. - In all other cases, the contract is **voidable** by the threatened party.

Question 26

Capacity to Contract

Answer 26

Parties must have **legal capacity** to contract. - **Infancy**: voidable by the minor (except for necessities) - **Mental illness**: adjudicated = void; not adjudicated = voidable - **Guardianship**: void, but liable for necessities - **Intoxication**: voidable if the other party knew or should have known the party was unable to understand the contract

Question 27

Illegality

Answer 27

A contract involving illegal consideration or performance is **unenforceable**. - If the contract contemplates illegal conduct from the start, it is **void**. - If the contract becomes illegal later, the duty is **discharged**. Exceptions: - Justified ignorance of illegality - Lack of illegal purpose by performing party - Divisible contracts (legal and illegal parts can be separated) - Restitution allowed for less guilty party or one who withdraws before illegal purpose is carried out

Question 28

Unconscionability and Public Policy

Answer 28

A contract is **unconscionable** if it is so unfair that no reasonable person would agree to it (e.g., hidden boilerplate, adhesion contracts). A contract is **unenforceable** on public policy grounds if it violates a significant public interest (e.g., restraints on marriage, contract to commit a tort).

Question 29

Implied-in-Fact and Quasi-Contracts

Answer 29

**Implied-in-fact contract**: formed by conduct indicating mutual agreement. **Quasi-contract (implied-in-law)**: imposed to prevent unjust enrichment where: - Plaintiff conferred a measurable benefit - Plaintiff had a reasonable expectation of compensation - Defendant’s retention of the benefit would be unfair

Question 30

Warranties in Sale-of-Goods Contracts

Answer 30

**Express warranty**: any affirmation, promise, description, or sample that is part of the basis of the bargain. – Cannot be disclaimed by a general disclaimer clause. **Implied Warranty of Merchantability**: goods are fit for ordinary purpose. – Applies if seller is a merchant. – Can be disclaimed orally or in writing using the term “merchantability.” **Implied Warranty of Fitness for a Particular Purpose**: arises when: – Seller knows buyer relies on seller’s skill or judgment to select goods – Can be disclaimed in writing using general language

Question 31

Contracts: Impracticability – Common Law and UCC

Answer 31

**Impracticability** excuses performance if: 1. **Unforeseeable event occurs** 2. It was a **basic assumption** of the contract that the event would not occur 3. The **party was not at fault** **Common law:** Includes illegality, destruction of subject matter, or personal incapacitation **UCC:** Excuses seller if goods are destroyed before risk of loss passes

Question 32

Contracts: Frustration of Purpose

Answer 32

**Frustration of purpose** occurs when an unexpected event **substantially frustrates a party’s main purpose** in contracting. - Purpose must be known to both parties - Frustration must be **severe and outside the assumed risks**

Question 33

Contracts: Release and Mutual Rescission

Answer 33

**Release:** Writing that discharges a duty - **Common law:** Must be supported by **consideration** - **UCC:** No consideration required if in **signed writing** **Mutual rescission:** Cancels contract by **mutual agreement** - Not allowed once **third-party rights vest**

Question 34

Contracts: Destruction of Identified Goods – UCC

Answer 34

**If identified goods are destroyed before risk of loss passes:** - Contract is **avoided** - No performance or breach **If damaged:** Buyer may take at reduced price or cancel **If risk of loss already passed to buyer:** Seller may enforce contract

Question 35

Contracts: Third-Party Beneficiaries

Answer 35

**Creditor beneficiary:** Enforces contract to satisfy a debt **Donee beneficiary:** Enforces contract to receive a gift **Incidental beneficiary:** Cannot enforce the contract **Rights vest when:** 1. **Reasonable reliance** 2. **Consent at request** 3. **Lawsuit is filed**

Question 36

Contracts: Assignment of Rights and Delegation of Duties

Answer 36

**Assignment = Transfer of contract rights** - No consideration required (but consideration makes it irrevocable) - Assignments not allowed if they **materially increase obligor’s risk** or are **prohibited by contract** - Assignee takes all rights **subject to defenses** against assignor **Delegation = Transfer of contractual duties** - Allowed unless duty involves **special skill or trust** - Delegator **remains liable** unless there is a **novation** - Delegatee liable if there is **consideration** or **reliance** - In UCC contracts, delegation may justify demand for **adequate assurances**

Question 37

Contracts: Statute of Frauds

Answer 37

**Statute of Frauds** requires certain contracts to be in a **signed writing** with essential terms. **Covered contracts (Mr. SOUR):** - **Marriage** (in consideration of marriage) - **Suretyship** (to pay another’s debt) - **One year** (cannot be performed within 1 year) - **UCC** (goods ≥ $500) - **Real property** (any interest transfer) **Common law exceptions:** promissory estoppel, judicial admission, part performance (real estate: 2 of 3—possession, payment, improvements) **UCC exceptions:** specially manufactured goods, payment or acceptance, failure to object between merchants

Question 38

Contracts: Parol Evidence Rule

Answer 38

**Parol evidence** is barred if it contradicts a written, integrated agreement. **Integration levels:** - **Complete**: No contradiction or supplementation - **Partial**: May supplement with consistent terms **Exceptions – evidence allowed to:** - Prove **defenses to formation** - Establish a **condition precedent** - Clarify **ambiguity** - Supplement UCC contracts (course of performance, dealing, trade usage)

Question 39

Contracts: Types of Conditions

Answer 39

**Conditions** are future events that affect performance duties. - **Express**: Stated in contract → requires full compliance - **Implied-in-fact**: Inferred from intent - **Constructive** (implied-in-law): Imposed by court → substantial performance is enough

Question 40

Contracts: Performance Standards

Answer 40

**Common law:** - Express conditions require **full performance** - Implied conditions may be satisfied by **substantial performance** - Party may recover contract price minus cost to cure **UCC:** - **Perfect tender** required for single deliveries - No substantial performance; buyer may reject nonconforming goods

Question 41

Contracts: Perfect Tender Rule (UCC)

Answer 41

**Seller obligations:** - Transfer **good title**, free from liens - Tender goods by: - Making available (seller’s location) - Delivery to carrier (shipment contract) - Delivery to buyer (destination contract) **Buyer rights:** - Right to **inspect** goods before acceptance - May **reject any nonconforming goods**

Question 42

Contracts: Divisible & Installment Contracts

Answer 42

**Divisible contracts (common law):** - Each unit is separately enforceable - Party can recover for performed portions **Installment contracts (UCC):** - Delivery in multiple shipments - Rejection only if **nonconformity substantially impairs** value - Buyer may cancel if whole contract is impaired

Question 43

Contracts: Implied Duty of Good Faith

Answer 43

**Every contract includes a duty of good faith and fair dealing.** - Requires **honesty in fact** - In commercial contracts, also requires **fair dealing** under industry standards

Question 44

Contracts: Waiver or Excuse of Conditions

Answer 44

A condition may be waived or excused if: - The protected party **waives** it by word or conduct - The other party **reasonably relies** on that waiver (estoppel) - The protected party **wrongfully prevents** its occurrence **Reinstatement** is allowed if: - The party retracts the waiver before reliance - The condition is not material

Question 45

Contracts: Material vs. Minor Breach

Answer 45

**Material breach:** A breach that deprives the nonbreaching party of the **substantial benefit** of the bargain. - Nonbreaching party may **withhold performance** and **pursue remedies** **Minor breach:** A breach that occurs after substantial performance. - Nonbreaching party must still **perform** but may **seek damages**

Question 46

Contracts: Anticipatory Repudiation

Answer 46

**Anticipatory repudiation** = Clear and unequivocal refusal to perform **before** performance is due (applies to bilateral contracts). **Nonbreaching party may:** - Treat repudiation as **breach** and sue - **Suspend performance** and demand assurance - Wait until performance is due (if only payment remains) **Retraction** is allowed unless the other party has **cancelled**, **relied**, or **filed suit**

Question 47

Contracts: Prospective Inability to Perform

Answer 47

**Prospective inability** arises when there are **reasonable grounds for insecurity** about performance. - Party may demand **adequate assurance** (must be in writing under UCC) - May suspend performance until assurance received - **Failure to provide assurance within a reasonable time** (≤ 30 days under UCC) = **repudiation**

Question 48

Contracts: Expectation Damages

Answer 48

**Expectation damages** (benefit-of-the-bargain) aim to place the nonbreaching party in the position they would be in if the contract were performed. **Formula:** **Loss in value** + **Other loss** (consequential + incidental) − **Costs avoided** (e.g., unused materials) − **Loss avoided** (mitigation gains) **Applications:** - **Construction**: Cost to complete or correct - **Real estate**: Market value − contract price - **Sale of goods**: Value as warranted − value received - **Partial performance**: Value of work performed + remainder

Question 49

Contracts: Consequential Damages and Foreseeability

Answer 49

**Consequential damages** are losses unique to the party and recoverable only if **reasonably foreseeable** at the time of contracting. **Foreseeability exists if:** - Damages are the **natural and probable result** of breach - **Contemplated** by the parties - Otherwise **reasonably foreseeable** **Limitations:** - Must be proven with **reasonable certainty** - Cannot be speculative - **UCC**: Only **buyers** may recover consequential damages

Question 50

Contracts: Incidental Damages

Answer 50

**Incidental damages** = Reasonable costs incurred dealing with breach (e.g., inspection, storage, transport, resale). - **Buyers**: Cost of inspecting, rejecting, covering - **Sellers**: Cost of stopping delivery, storing, or reselling goods

Question 51

Contracts: Mitigating Damages

Answer 51

**Nonbreaching party must mitigate** damages by taking **reasonable steps** to reduce the harm. **Standards:** - Must avoid undue **risk**, **expense**, or **burden** - For employment: Need only seek **comparable work** - Failure to mitigate **reduces recovery**

Question 52

Contracts: Liquidated Damages and Penalties

Answer 52

**Liquidated damages** clauses are enforceable if: 1. Damages were **difficult to estimate** at the time of contract formation 2. The amount is a **reasonable forecast** of potential loss 3. Clause is **not a penalty** **Penalty clauses** (disproportionately large amounts) are **unenforceable**

Question 53

Contracts: Other Damages (Punitive, Nominal, Attorney’s Fees)

Answer 53

**Punitive damages**: Generally **not available** in contract law unless the breach is also a **tort** justifying punishment **Nominal damages**: Available when a breach occurred but **no actual economic loss** is shown **Attorney’s fees**: Not recoverable unless: - **Provided for in the contract**, or - **Authorized by statute**

Question 54

Contracts: Restitution

Answer 54

**Restitution** restores the benefit conferred on the breaching or unjustly enriched party. **Available when:** - **Nonbreaching party** conferred a measurable benefit in partial performance or reliance - **Breaching party** may recover value conferred, less damages, if not willful and contract doesn't bar recovery **Measure:** - Reasonable value of services or increase in defendant’s wealth

Question 55

Contracts: Reliance Damages

Answer 55

**Reliance damages** reimburse the nonbreaching party for **expenses incurred** in reliance on the contract. **Use when:** - Expectation damages are too speculative - Party prefers compensation for wasted effort **Limitation:** Cannot recover both **expectation** and **reliance** damages

Question 56

Contracts: Specific Performance

Answer 56

**Specific performance** is an equitable remedy available when monetary damages are **inadequate**. **Factors considered:** - Difficulty of proving damages - Uniqueness of subject matter (e.g., **real estate** or unique goods) - Balance of hardships - Mutuality and feasibility of enforcement **Defenses:** Laches, unclean hands, impracticability

Question 57

Contracts: Buyer’s Remedies under the UCC

Answer 57

**If seller breaches:** Buyer may: - **Cancel** contract (if breach affects entire agreement) - Recover **expectation**, **incidental**, and **consequential damages** - **Cover** and recover difference between cover price and contract price - Seek **specific performance** (for unique goods) - **Replevin** if goods paid for and not delivered

Question 58

Contracts: Seller’s Remedies under the UCC

Answer 58

**If buyer breaches:** Seller may: - Recover **contract price** if buyer accepted goods or goods lost after risk passed - **Reclaim** goods if buyer is insolvent (within 10 days) - **Stop delivery** in transit upon breach or insolvency - **Resell goods** and recover damages (including **lost volume** profits if applicable) - Collect **incidental damages**

Question 59

Contracts: Risk of Loss (UCC)

Answer 59

**Risk of loss rules:** - **Agreement controls**, if present - **Breach**: Breaching party bears risk, even if unrelated - **Shipment contract (FOB seller):** Risk passes on delivery to carrier - **Destination contract (FOB buyer):** Risk passes on delivery to buyer - If seller is a **merchant**: Risk passes on buyer's **receipt** - If seller is **not a merchant**: Risk passes on **tender of delivery**

Question 60

Contracts: UCC Statute of Limitations – Sales/Warranty Breach

Answer 60

**Under the UCC**, a claim for breach of a **sales contract or warranty** must be brought within **4 years** of accrual. **Key rules:** - Accrual begins when **breach occurs**, not when party discovers it - Parties may **shorten** the limitations period (but **not below 1 year**) - Parties **cannot extend** it beyond 4 years

Question 61

Contracts: Reformation

Answer 61

**Reformation** is an equitable remedy to **modify a written contract** to reflect the parties’ true intent. **Available when:** - Contract **fails to express** prior agreement due to mistake or misrepresentation - Not available if reformation would **prejudice a bona fide purchaser**

Question 62

Contracts: Rescission

Answer 62

**Rescission** cancels a contract and restores the parties to their pre-contract positions. **Available when:** - Mutual mistake - Fraud or misrepresentation - Lack of capacity or duress **Limitations:** - Not allowed if contract is partially performed and consideration is not fully failed

Question 63

Contracts: Cancellation (UCC)

Answer 63

**Cancellation** under the UCC = termination of a contract due to breach. - Either party may cancel after breach - Cancellation **does not bar** pursuit of **damages**

Question 64

Contracts: Declaratory Judgment

Answer 64

**Declaratory judgment** is a remedy used to **clarify the parties’ rights and duties** under a contract. - Requires an **actual controversy** - Does **not require breach** or request for damages - Can be brought by **either party** to prevent future uncertainty