Contracts (Main Deck)* Flashcards

Question

WHO BEARS THE RISK OF MISTAKE IN THE COMMUNICATION OF AN OFFER?

Answer 1

**Rule:** The Offeror bears the risk of mistakes made in the communication of an offer. Upon acceptance by the Offeree, the terms as received by the Offeree will control. **Exception:** If the Offeree knew or should have known that the terms of the offer were inconsistent with the terms intended by the Offeror (i.e., the communicated terms were obviously and undeniably the result of a mistake), the Offeree's acceptance will not form a contract based on those terms. **Note:** A minor mistake in the communication of an offer is often referred to as a Scribner's Error.

Answer 2

**Rule**: If the parties fail to create a contract but begin performance as though a valid contract exists, the UCC recognizes a valid contract consisting of all terms on which their writings agree. Supplementary terms are supplied by the UCC where needed.

Answer 3

**Rule**: Acceptance is judged by an objective standard (i.e., "Would a reasonable person in the Offeror's position believe that her offer was accepted by the Offeree?").

Answer 4

**Rule:** Acceptance may be communicated by any reasonable method, unless the Offeror expressly limits acceptance to a particular method. The acceptance must provide the Offeror with notice that his offer has been accepted.

Answer 5

**Rule**: An Offeree's silence will not result in acceptance of the offer, unless the offer specifically states that silence will mean acceptance. An Offeree's silence for more than a reasonable time will result in termination of the offer.

Answer 6

**Rule**: Under UCC § 2-206, an offer that fails to specify the method of acceptance may be accepted by: 1) A prompt promise to ship the goods, 2) Prompt shipment of conforming goods, OR 3) Prompt shipment of non-conforming goods. a) **Note**: The Offeree's shipment of non-conforming goods is considered a simultaneous acceptance and breach unless the Offeree notes that the shipment is an accomodation, in which case the shipment is treated as a counter-offer and no contract is formed.

Answer 7

**Rule:** Generally, acceptance is effective at the moment the communication is sent. **Exception**: Acceptance will not be effective at the moment sent in the following circumstances: 1) If the offer stipulates acceptance will not be effective until received, the terms of the offer control. 2) In the case of an option contract, acceptance will not be effective until receipt by the Offeror. 3) If the Offeree sends a rejection before sending an acceptance, whichever the Offeror receives first is effective.

Answer 8

**Rule**: Under the Mail Box Rule, an acceptance is effective when sent. **Exception**: If the Offeree sends both an acceptance and a rejection: 1) And the acceptance is sent first: The acceptance is effective at dispatch and the later-sent rejection is ineffective, regardless of the order in which the acceptance and rejection are received, unless the Offeror received the rejection first and detrimentally relied it. 2) And the rejection is sent first: The Mailbox Rule does not apply, and whichever arrives first is effective. If the rejection is received first, the acceptance acts as a new offer. **Note:** If the contract is an option contract, acceptance is effective only upon receipt by the Offeror.

Answer 9

**Improperly Addressed**: If the acceptance is sent to the wrong address, the acceptance will be valid upon dispatch if the acceptance is received within the time it would have taken a properly addressed acceptance to be delivered. **Lost in Transit**: If the acceptance is sent to the correct address but lost in transit, the acceptance remains valid upon dispatch. However, Courts may discharge the Offeror's contractual duties if justice so requires.

Answer 10

**Definition:** Consideration is a bargained-for exchange between parties in which each party incurs a legal detriment (i.e., gives up something of value). **Rule**: To be enforceable, a promise must be supported by consideration. The consideration required depends upon the type of contract: 1) **Bilateral Contract:** The parties' exchange of promises fulfills the bargained-for exchange requirement. 2) **Unilateral contract**: The exchange of an act for a promise fulfills the bargained-for exchange requirement. **Note:** 1) The exchange need not result in an economic benefit to either party. 2) Promissory estoppel may apply in the case of a party's detrimental reliance on a promise made without consideration.

Answer 11

**Common Law**: Additional consideration is required to modify a contract. **UCC**: No additional consideration is required if the modification was made in good faith.

Answer 12

**Rule:** A promise given in exchange for an act already completed will not satisfy the bargained-for exchange requirement. **Exception:** A new promise to pay will satisfy the bargained-for exchange requirement if the completed act was performed at the Promisor's request. **Note:** If a past obligation is no longer enforceable, a new promise made in writing will revive the past obligation and render it enforceable. The obligation is enforceable according to its new terms, as stated in the writing.

Answer 13

**Rule:** A legal detriment has been incurred when a party: 1) Engages in an act that the party had no previous obligation to perform, OR 2) Refrains from engaging in an act the party may legally engage in. **Note**: Generally, courts will not inquire into the adequacy or fairness of consideration. Only if something is completely devoid of value or a sham will courts find it insufficient. If there is a possibility of value, consideration will be found even if the value never materializes.

Answer 14

**Rule**: Generally, performing or promising to perform an act one has a preexisting duty to perform does not constitute legal detriment.

Answer 15

**Rule**: Both parties must be bound to perform by the terms of the contract. If only one party is bound, the promise will be deemed illusory and not enforced. An illusory promise will not satisfy the consideration requirement. **Note:** An illusory promise may be found if: 1) A promise is subject to a condition entirely within the control of the Promisor, OR 2) The Promisor, at the time the promise is made, knows that a condition upon which the promise is based cannot possibly occur.

Answer 16

**Rule:** Under the common law, a promise made without consideration may nonetheless be enforceable if: 1) The promise induced the Promisee to detrimentally rely on the promise (promissory estoppel), 2) A new promise is made in writing to pay a past debt (even if the Promisor no longer has a legal obligation to pay), 3) A new promise is made after an original promise that was voidable due to mistake, misrepresentation, or undue influence, OR 4) The original promise is voidable due to the Promisor's incapacity, and a new promise is made by the Promisor after gaining capacity.

Answer 17

**Rule**: Under the UCC, a promise made regarding the sale of goods unsupported by consideration may nonetheless be enforceable if the promise: 1) Is a contract modification, 2) Is the release of a claim in a signed writing, OR 3) Is a written promise by a merchant not to revoke an offer.

Answer 18

**Rule:** Promissory estoppel may substitute for consideration and make a contract enforceable if: 1) A Promisor makes a promise, 2) The promise reasonably induces action or forbearance by the Promisee, 3) The action or forbearance worked to the detriment of the Promisee, AND 4) The action or forbearance was reasonably foreseeable by the Promisor. **Note:** Promissory estoppel will be applied to save an otherwise invalid contract only to the extent necessary to prevent injustice.

Answer 19

**Rule:** If an agreement falls within the Statute of Frauds, the agreement must: 1) Be in writing, 2) Be signed by the party against whom enforcement of the contract is sought or his agent, AND a) **Note:** The UCC creates an exception for the sale of goods between merchants. 3) Specify: a) **Non-Goods Contracts (Common Law):** The essential terms of the contract with reasonable certainty, b) **Goods Contracts (UCC)**: The quantity of goods that are the subject of the contract.

Answer 20

**Rule:** Under the common law, a contract that falls within the Statute of Frauds must identify: 1) The name of the contracting parties, 2) The contract's subject matter, 3) The terms and conditions of the agreement, AND 4) The consideration offered.

Answer 21

**Rule**: In a contract for the sale of goods between merchants, an oral agreement may be enforced if: 1) The merchants enter into an oral contract, 2) One merchant sends a signed writing memorializing the agreement, 3) The other merchant receives the writing and knows or should know of the writing's contents, AND 4) The recipient merchant fails to object in writing within 10 days of receipt.

Answer 22

**Rule**: The following contracts must comply with the Statute of Frauds: 1) A service agreement that, by its own terms, cannot be performed by one year from the date of the contract, 2) Contracts for the sale of goods for $500 or more (UCC§ 2-201), 3) Contracts for the lease of goods for $1,000 or more (UCC § 2A-201), 4) Contracts for the sale of personal property for more than $5,000 (UCC § 1-206), 5) Agreements for the sale of land or an interest in land, 6) Agreements for the lease of real property for more than one year, 7) An agreement to answer for the debt of another, AND 8) Agreements made in consideration of marriage.

Answer 23

**Rule:** An agreement for the sale of good for $500 or more does not have to comply with the Statute of Frauds if: 1) The goods are specially manufactured for the buyer and are not suitable for sale to another within the ordinary course of business, 2) Partial payment for the goods has been made, a) **Note**: Only the portion of the goods that have been paid for will be removed from the Statute of Frauds. 3) Part of the goods have been received and accepted, OR a) **Note**: Only the portion of the goods that have been accepted will be removed from the Statute of Frauds. 4) The party claiming the Statute of Frauds defense admits to the contract's existence in a court document.

Answer 24

**Rule**: Partial performance on a contract for the sale of land will remove the contract from the Statute of Frauds if the party claiming contractual rights can show that she: 1) Took possession of the land, AND 2) Made valuable improvements to the land.

Answer 25

**Rule:** Full performance of a service contract by either party removes the contract from the Statute of Frauds.

Answer 26

**Rule**: If strict compliance with the Statute of Frauds would result in injustice, courts may use promissory estoppel to remove the contract from the statute.

Answer 27

**Common Law**: A split of authority exists regarding the validity of an oral rescission of a contract that falls within the Statute of Frauds: 1) **Traditional View**: Traditionally, an oral rescission of a contract that fell within the Statute of Frauds was invalid. 2) **Modern Approach:** Modernly, an oral rescission is valid if one or both parties have relied on the rescission. **UCC**: Under UCC§ 2-209, oral rescissions are valid unless a valid contractual provision forbids oral rescissions. Whether a provision forbidding oral rescissions is valid depends upon the status of the contracting parties: 1) If the contract is between a merchant and a non-merchant: The provision must be separately signed by the non-merchant to be valid. 2) If the contract is between two merchants: The provision need not be separately signed to be valid.

Answer 28

**Rule:** If the contract as changed by an oral modification brings the contract within the Statute of Frauds, the oral modification will not be valid, and the original unmodified contract remains valid. **Note**: If the contract includes a no-oral-modification clause (NOM Clause): 1) **Common Law**: NOM clauses are valid but may be waived by the parties (i.e., if both parties agree to an oral modification, they have waived the NOM clause). 2) **UCC**: Under UCC § 2-209, the validity of a NOM clause depends upon the status of the contracting parties: a) If the contract is between a merchant and a non-merchant: The provision forbidding oral contract modifications must be separately signed by the non-merchant to be valid. b) If the contract is between two merchants: The separate provision need not be separately signed to be valid.

Answer 29

**Definition:** The Equal Dignity Rule requires that a document authorizing an agent to represent a person in a contractual matter be executed with the same formalities required for the contract in which the agent will represent the individual. **Rule:** If an agreement in which an individual is represented by an agent falls within the Statute of Frauds, the contract authorizing the agent's representation must also meet the Statute of Frauds.

Answer 30

**Definition**: The Parol Evidence Rule limits the admissibility of evidence of prior or contemporaneous negotiations or agreements when interpreting the terms of written contracts. **Rule:** Under the Parol Evidence Rule, all previous agreements between contracting parties are considered merged into the final written agreement. Whether extrinsic evidence will be admissible to assist in the interpretation of a contract depends upon the extent to which the contract is intended as the final representation of the parties' agreement: 1) **Complete Integration**: Extrinsic evidence that contradicts or supplements the terms of the contract is not admissible. 2) **Partial Integration**: Extrinsic evidence that contradicts the terms of the contract is not admissible. Evidence that supplements the terms of the contract is admissible. **Note:** The Parol Evidence Rule does not limit the admissibility of extrinsic evidence of negotiations or agreements that are made after the contract has been signed.

Answer 31

**Complete Integration**: A complete integration occurs where the parties to the contract intended the final document to include all ofthe details of their agreement. **Partial Integration**: A partial integration occurs where the parties to the contract intend the final document to include some but not all ofthe details of their agreement. **Note**: A presumption that the contract is a complete integration arises if: 1) The contract includes a boilerplate merger clause, OR 2) The contract appears complete on its face.

Answer 32

**Rule:** Extrinsic evidence of prior or contemporaneous negotiations or agreements may be offered as an exception to the Parol Evidence Rule to: 1) Determine the parties' intent regarding ambiguous terms, 2) Determine whether formation defects exist (i.e., mistake, fraud, lack of consideration), 3) Establish the existence of a condition precedent to a contract, 4) Establish the existence of collateral agreements supported by separate consideration, 5) Establish that integration is partial or complete.

Answer 33

**Rule**: To interpret the terms of a contract, courts look to (in order of decreasing significance): 1) The express terms of the contract, 2) Course of performance, a) **Definition**: The conduct the parties engaged in after formation of the contract. 3) Course of dealing, AND a) **Definition**: The pattern of conduct between the parties prior to formation of the contract. 4) Custom and usage (Trade Usage), a) **Definition:** Common business practices in the field in which the parties are engaged (i.e., industry custom).

Answer 34

**Common Law**: Where a term is missing, a reasonable term may be supplied by the court if the term is consistent with the parties' intent. Courts will often look to industry practice to provide a reasonable term. **UCC:** The UCC provides gap-fillers if the contract fails to specify: 1) Price terms, 2) Time for performance, 3) Terms of delivery, OR 4) Place of delivery.

Answer 35

**Rule**: If a place of delivery is not agreed upon in the contract, the place of delivery will be provided by the UCC (§ 2-308): 1) Generally, the place of delivery is the seller's place of business (or residence, if no place of business). 2) If the goods are held by a third party, the place of delivery is the location of the goods. 3) If the parties have agreed to the shipment of the goods to the buyer, the place of delivery is the address at which the buyer will receive the goods.

Answer 36

**Rule**: By operation of law, contracts for the sale of goods by a merchant include an implied term that ensures the goods are fit to be used for the purpose for which such goods are ordinarily used. To determine if goods are fit for ordinary use, courts will look to whether the goods: 1) Are consistent in quality within each unit and among all units, 2) Conform to any promises or affirmations made on the container or label, 3) Are adequately packaged and labeled, AND 4) Are commonly accepted in the market to which they were introduced. **Note**: The implied warranty of merchantability applies only to merchants who regularly deal in goods ofthe kind that are the subject ofthe contract.

Answer 37

**Rule**: Under UCC § 2-315, a sale of goods includes an implied warranty that the goods will be fit for a particular purpose if: 1) The buyer, at the time ofthe sale, has a particular purpose for which he seeks to purchase the goods, 2) The seller, at the time ofthe sale, knows or should know ofthe buyer's purpose, AND 3) The buyer relies on the seller's skill or judgment to select goods suitable for such purpose.

Answer 38

**Rule:** A seller creates an express warranty that goods will conform to the seller's representations if the seller: 1) Makes a statement of fact relating to the goods, 2) Makes a promise relating to the goods, 3) Provides a description of the goods, OR 4) Provides a sample or model of the goods to be delivered. **Note**: An express warranty will not be created by a seller's opinion ofthe value ofthe goods.

Answer 39

**Rule**: Under UCC §2-316, implied warranties of fitness can be excluded with language that reasonably calls the buyer's attention to the exclusion of warranties and makes plain that there are no implied warranties.

Answer 40

A third party may have or assume a right or duty in four situations: 1) Third-Party Beneficiary Contracts 2) Assignments 3) Delegations 4) Novations

Answer 41

**Third-Party Beneficiary:** The person who is not a party to the contract, but receives a benefit from the agreement. **Promisor:** The person who makes the promise that benefits the third party. **Promisee:** The person who provides consideration in return for the promise that benefits the third party.

Answer 42

**Rule**: For a third-party beneficiary to have the right of enforcement, the beneficiary must be an intended beneficiary. The Promisor and Promisee must have intended through words or acts to create legally enforceable rights in the third party.

Answer 43

**Intended Beneficiary:** **Definition**: A person who is intended to receive a benefit from a contract. Intended beneficiaries are classified as: 1) **Creditor Beneficiary**: A person to whom the Promisee owes a legal debt. 2) **Donee Beneficiary**: A person intended to benefit gratuitously from the original contract. **Rule:** An intended beneficiary has contractual rights and may sue. **Note**: The status of an intended beneficiary as a creditor or donee is relevant when determining what remedies are available to the beneficiary. **Incidental Beneficiary**: **Definition**: A person who receives a benefit from the contract, but in whom the parties to the contract did not intend to create contractual rights. **Rule:** An incidental beneficiary may not sue and does not have contractual rights.

Answer 44

**Rule**: A third-party beneficiary acquires contractual rights when her rights have vested. A third-party beneficiary's rights vest when the beneficiary: 1) Accepts the benefits from the contract, 2) Brings suit to enforce the promise made in the contract, OR 3) Alters her position in justifiable reliance on the promise. **Note:** 1) Acquiring contractual rights means the third party can enforce a contract, and the contract cannot be cancelled or modified to the beneficiary's detriment without the beneficiary's consent. 2) Prior to the vesting of the third party's rights, the original parties to the contract are free to modify or discharge a contract (unless the original parties have agreed not to allow contract modifications).

Answer 45

**Rule:** If a Promisor fails to perform a promise to an intended third-party beneficiary, the recourse available depends upon the beneficiary's status: 1) Creditor Beneficiary: a) The beneficiary may bring suit against the Promisor, b) The beneficiary may bring suit against the Promisee, AND c) The Promisee may bring suit against the Promisor. 2) Donee Beneficiary: a) The beneficiary may bring suit against the Promisor, b) The beneficiary may not bring suit against the Promisee unless the suit is based upon detrimental reliance, AND c) The Promisee may bring suit against the Promisor for specific performance. **Note**: Because the rights under the contract are determined by the oriqinal contract, the Promisor can raise any defense against beneficiary that the Promisor could have raised against the Promisee.

Answer 46

**Assignee:** The person, not a party to the original contract, to whom contract rights are assigned. **Assignor:** A party to the original contract who transfers his rights under the contract. **Obligor**: A party to the original contract who did not transfer his rights under the contract.

Answer 47

**Definition**: An assignment is a transfer of rights or benefits under a contract from one party to another. **Rule**: Contract rights are assigned when: 1) A contract is created by two parties, AND 2) One of the parties later transfers her rights under the contract to a third party.

Answer 48

**Rule**: To make a valid assignment, the assignor must manifest an intent to immediately and completely transfer his rights. **Note: ** 1) Consideration is not required. Thus, an assignment may be gratuitous or for value. 2) In the absence of a statute to the contrary, a writing is not required to make an assignment. However, the majority rule requires a writing for an assignment of interest in real estate contracts.

Answer 49

* *Rule**: An assignment for value (i.e., assignment for consideration) is irrevocable. A gratuitous assignment (i.e., an assignment made without consideration) is generally revocable.

Answer 50

**Rule**: A gratuitous assignment may be revoked by: 1) The assignor making a subsequent assignment of the same right, 2) The assignor's death, 3) The assignor's loss of capacity, OR 4) The assignee's or obligor's receipt of notification of revocation.

Answer 51

**Rule**: A gratuitous assignment will become irrevocable if: 1) The assignment is made in a signed writing and delivered by the assignor, 2) The assignment is accompanied by a writing signifying a modicum of ownership over the right assigned, 3) The obligor has performed or begun performance, 4) The assignee obtains a judgment against the obligor, OR 5) The assignee has foreseeably and detrimentally relied on the assignment.

Answer 52

**Rule**: Contractual rights may generally be assigned unless: 1) The assignment would materially alter the obligor's duty, risk, or burden, 2) The assignment would reduce the value or likelihood of performance to the obligor, 3) A non-assignment provision is included in the contract, OR 4) An assignment is prohibited bylaw. **Note**: A non-assignment provision must state that the rights under the contract must not be assigned. If the provision states that the contract may not be assigned, the clause will prohibit only a delegation of duties.

Answer 53

**Rule:** The assignee can sue the obligor, and the obligor may assert any defenses against the assignee that could have been raised against the assignor. Generally, the assignee may sue the assignor only if the assignment was made for consideration.

Answer 54

**Rule:** The ultimate possessor of contractual rights when rights are assigned to a series of successive assignees depends upon the type of assignment: 1) **Gratuitous Assignment**: The last assignee in time holds the rights to the assignment unless a gratuitous assignment to a previous assignee was irrevocable. 2) **Assignment for Value:** The first assignee to whom contract rights are assigned in return for consideration is the rightful owner ofthe assignment rights. a) **Exception**: A subsequent assignee may take priority over an earlier assignee forvalue if the subsequent assignee: i) Provided consideration for the assignment, ii) Did not know ofthe earlier assignment, AND iii) Is the first to obtain payment, a novation, or some indicia of ownership. **Note**: In an assignment for value, the assignor warrants to the purchaser that the rights are assignable and enforceable. Thus, if the assignor re-assigns the rights, the subsequent assignee may bring suit for breach of warranty against the assignor.

Answer 55

**Delegatee:** The person, not a party to the original contract, to whom contractual duties are transferred. **Delegator:** The party to the original contract who transfers her duties to a third party. **Obligee:** The party to the original contract who did not transfer her duties under the contract.

Answer 56

**Definition**: A delegation is a transfer of duties (i.e., obligation to perform) under a contract.

Answer 57

**Rule**: A party may delegate the performance of her contractual duties unless: 1) The contract between the original parties prohibits delegations, 2) The contract between the original parties prohibits assignments, 3) Performance of the contractual duties requires special skill, OR 4) Delegation would change obligee's expectancy or deprive him of the substantial benefit of the contract.

Answer 58

**Rule:** To delegate duties under a contract, the delegator must manifest present intent to make a delegation. A delegation need not be in writing.

Answer 59

**Rule:** Generally, a delegator will not be released from liability to the obligee due to a delegation, and a delegatee is not liable for the performance of contractual duties unless he expressly or implicitly assumes responsibility for such performance.

Answer 60

**Rule**: If the delegatee assumes responsibility for performance and fails to perform the contractual obligations: 1) The delegator may sue the delegatee, 2) The obligee may sue the delegatee, AND 3) The obligee may sue the delegator. **Note:** The obligee's acceptance of full or partial performance by the delegatee will not waive the obligee's rights against the delegator unless: 1) The duty is non-delegable due to its personal nature, AND 2) The obligee accepted the performance knowing it was rendered by a delegatee.

Answer 61

**Rule:** When one party assigns "the contract" or "all rights under the contract," both an assignment ofthe rights and a delegation ofthe duties are presumed, unless contrary language or circumstances exist.

Answer 62

**Definition:** A novation is the replacement of an original party to the contract with a new party, resulting in the creation of a new contract. **Rule:** A novation requires the assent of both parties to the original contract as well as the individual replacing one of the parties. A novation completely releases the replaced party from liability. **Note**: A novation will be implied if: 1) A party to the original contract repudiates his duties, 2) A third party renders performance in the repudiating party's place, AND 3) The obligor accepts performance without expressly reserving her rights against the repudiating party.

Answer 63

**Assignment:** An assignment is the transfer of rights from one party to another. **Delegation:** A delegation is the transfer of obligations from one party to another. **Novation**: A novation is the complete substitution of one party for another, resulting in the creation of a new contract

Answer 64

1) Has a present duty to perform arisen? 2) Has the duty to perform been fulfilled? **Note:** If a duty to perform has arisen and has not been fulfilled, nonperformance will be a contractual breach unless nonperformance is excused.

Answer 65

**Rule**: A duty to perform arises if: 1) An absolute promise has been made, OR 2) All the conditions of a conditional promise have been met or excused.

Answer 66

**Rule:** A duty of performance for one or both parties becomes absolute when conditions are either performed or excused.

Answer 67

**Condition Precedent:** A condition precedent is a condition that must occur before a duty of performance arises in a party. **Conditions Concurrent:** Conditions concurrent are conditions that are mutually dependent and are expected to be performed at the same time. **Condition Subsequent**: A condition subsequent is one that, if it occurs, will terminate an existing duty of performance.

Answer 68

**Rule**: Before either party to a contract can require the other party to perform under the contract, the party must fulfill all conditions precedent that it is obligated to perform and must offer (and be able) to fulfill all conditions concurrent that it is obligated to perform.

Answer 69

**Express Conditions:** Conditions expressly stated in the contract whose validity depends upon the manifestation of mutual assent to the condition. **Implied Conditions:** Conditions that may be inferred from evidence ofthe parties' intentions. **Constructive Conditions:** Conditions that may be interpreted from a contract by the court or imposed by law, without regard to the parties" manifested intentions, to ensure equity is achieved.

Answer 70

1) Actual Breach 2) Substantial Performance (Avoidance of Forfeiture) 3) Divisibility of Contract 4) Wrongful Prevention 5) Waiver 6) Election 7) Impossibility of Performance 8) Estoppel

Answer 71

**Rule:** A material breach by one party excuses the other party's duty to fulfill a condition.

Answer 72

**Rule**: If a party has provided near complete performance of its duty to perform a condition, a minor breach of a condition may be excused to avoid forfeiture.

Answer 73

**Common Law:** If a party performs on one unit of a divisible contract but fails to perform on the rest of the units, he is entitled to return performance on the equivalent for the performed unit. **UCC**: Under UCC § 2-612, an installment contract is one that authorizes or requires delivery in separate installments. The buyer may declare a total breach of contract only if performance on an individual unit is defective to such an extent as to substantially impair the value of the entire contract.

Answer 74

**Rule**: If one party wrongfully prevents or hinders the other party's performance, and such performance was a condition of the wrongdoer-party's duty arising, the condition is excused. **Note:** The party requesting excuse of the condition must demonstrate that he was prepared to and would have performed his obligations but for the wrongful prevention.

Answer 75

**Rule:** Impossibility of performance of a material condition excuses performance of the condition.

Answer 76

**Rule**: Waiver of a non-material condition before performance is due will excuse performance of the condition. **Note:** 1) Non-material conditions include the time or manner of delivery. 2) The waiver can be withdrawn and the condition reinstated if the non-waiving party has not detrimentally relied on the waiver. 3) Only the party who receives the sole benefit of a condition may waive the condition.

Answer 77

**Rule**: A party's election to continue performance after a condition has failed acts as a waiver ofthe condition **Note:** 1) An election cannot be withdrawn, even if the other party has not detrimentally relied on it. 2) If the failed condition constitutes a breach, election will not foreclose an action for damages.

Answer 78

**Rule:** Conditions may be excused where equity demands.

Answer 79

**Rule**: A party's obligations under a contract are fulfilled by performing according to the terms and requirements of the contract. Full performance of contractual obligations discharges a party's duties.

Answer 80

**Rule**: Unless the contract specifies otherwise, promises capable of simultaneous performance are due at the same time, and each is constructively conditioned on performance of the other.

Answer 81

**Rule**: Under UCC § 2-503, a seller's obligation to tender delivery of goods requires that: 1) The seller must make conforming goods available to the buyer, 2) The seller must give the buyer reasonable notice to enable the buyer to take delivery, 3) The goods must be tendered for delivery at a reasonable hour and kept available for a reasonable period for the buyer to take possession (unless the parties have agreed otherwise), AND 4) All goods called for in the contract must be tendered in a single delivery, a) **Exception**: If circumstances require, either party can request delivery in separate shipments.

Answer 82

**Rule:** In a contract for the sale of goods, if the goods fail to conform exactly to the description in the contract, the buyer may: 1) Accept the entire shipment, 2) Reject the entire shipment, OR 3) Accept part and reject part ofthe goods. **Note:** 1) The goods must conform in quality, quantity and manner of delivery. 2) The seller may have a right to cure.

Answer 83

**Rule:** A seller may cure a defect in goods after a buyer rejects delivery if: 1) The time for performance has not yet expired, 2) The seller notifies the buyer of the seller's intention to cure, AND 3) The seller repairs, adjusts or replaces the nonconforming goods within the time for performance specified in the contract.

Answer 84

**Definition:** An installment sales contract is a contract that requires or authorizes delivery in two or more separate lots to be accepted and paid for separately. **Rule 1**: The buyer may reject an installment only if the nonconformity substantially impairs the value of the installment and cannot be cured. **Rule 2**: The entire contract is breached only if one or more nonconforming installments substantially impairs the value ofthe entire contract. **Rule 3:** If the buyer subsequently accepts a nonconforming installment, the contract is reinstated.

Answer 85

**Rule:** Upon receipt of goods, the buyer must be given the opportunity to inspect the goods as a condition precedent to the seller's right to enforce payment under the contract. **Note:** 1) Unless otherwise agreed, inspection can take place at any reasonable time and in any reasonable manner. 2) To determine the reasonableness of the time and manner, courts look to the customs of the trade and past practices ofthe parties.

Answer 86

**Rule:** A buyer may accept delivery of goods by: 1) Express acceptance (i.e., expressly accepting delivery bywords or conduct after inspecting the goods), 2) Payment, OR a) **Note:** Payment without any opportunity to inspect does not manifest acceptance. 3) Implied acceptance (i.e., failing to reject the goods within a reasonable time after having the opportunity to inspect them).

Answer 87

**Rule:** Generally, a buyer cannot reject goods after accepting delivery. However, a buyer can revoke his acceptance of noncomforming goods if: 1) The nonconformity substantially impairs the value of the goods, 2) The buyer's ignorance was excusable (i.e., difficult to discover the nonconformity) or the buyer reasonably believed the nonconformity would be cured, AND 3) The buyer notifies the seller within a reasonable time after discovery of the nonconformity. **Note:** The revocation becomes effective when the seller is notified of the buyer's revocation.

Answer 88

**Rule**: If the parties have agreed to shipment of goods as performance of seller's delivery obligation, the seller's fulfillment of her obligation to tender depends upon the type of contract: 1) **Shipment Contracts** ("FOB-[seller's city]"): The seller's delivery obligation is fulfilled when the seller: a) Delivers the goods to a common carrier, b) Makes reasonable arrangements for the transport and delivery of the goods, c) Delivers any documents of title needed for the buyer to take possession ofthe goods from the carrier, AND d) Notifies the buyer that shipment has been made. 2) **Destination Contracts** ("TOB-[buyer's city]"): Seller's delivery obligation is fulfilled when the goods arrive at the agreed upon destination.

Answer 89

**Rule**: If through no fault of either party the agreed-upon manner of delivery becomes impracticable or is unavailable, the seller's use of a commercially reasonable substitute will constitute sufficient tender. **Note**: The seller bears the cost for the substitution of carrier.

Answer 90

**Rule**: If a contract provides for the shipment of goods by the seller, whether the buyer or seller bears the risk of loss depends upon the type of contract: 1) **Shipment Contract** ("FOB-[seller's city]"): The risk of loss passes to the buyer when the seller delivers the goods to the carrier. 2) **Delivery Contract** ("FOB-[buyer's city]"): The risk of loss passes to the buyer when the goods are presented at the destination so that the buyer can take delivery of them.

Answer 91

**Common Law:** The nonperformance of a contractual duty that has become due constitutes breach. **UCC**: Under the UCC, a breach occurs if the: 1) Seller offers non-conforming goods, 2) Buyer wrongfully rejects goods, 3) Buyer wrongfully revokes acceptance of goods, OR 4) Buyer fails to make payment when due. **Note:** Anticipatory repudiation is considered a breach under the common law and the UCC.

Answer 92

**Material Breach:** If a party materially breaches the contract and fails to cure, the non-breaching party may: 1) Cancel the contract and sue for damages, OR 2) Continue performance under the contract and sue for partial damages. **Minor Breach**: If the breach is not material, the non-beaching party may sue for partial damages, but may not cancel the contract. **Note**: A minor breach, if coupled with anticipatory repudiation, is treated as a material breach.

Answer 93

**Rule**: To determine if a breach is material or minor, courts look to: 1) The degree to which the non-breaching party has been deprived of a reasonably expected benefit, 2) The likelihood that the breaching party will cure his failure and perform the remainder ofthe contract, 3) The adequacy of compensation for damages to the injured party, 4) The extent of performance by the breaching party, AND a) **Note**: The greater the degree of performance, the less likely a court will find the breach to be material. 5) Whether the breaching party has acted in good faith in trying to perform. **Note:** A good rule of thumb is that the more the breach disrupts the main purpose of the contract, the more likely a court is to find the breach to be material.

Answer 94

**Rule**: If performance is rendered within a reasonable time, failure to perform by the date or time expressed in the contract generally will not constitute a material breach **Exception:** If timely performance is essential and its necessity is expressed in the contract, failure to render timely performance will constitute a material breach.

Answer 95

**Definition:** An anticipatory repudiation is a repudiation of contractual duties before the time when performance is due. A party may repudiate a contractual duty by: 1) Making an affirmative declaration that she will not fulfill her obligations under the contract, OR a) **Note:** An express repudiation must be unequivocal to constitute an anticipatory breach. 2) Engaging in a voluntary affirmative act that makes her unable to perform her contractual duties (implied repudiation). **Note:** Because the repudiation must occur before the time when performance is due, anticipatory breach is not possible in unilateral contracts or in a bilateral contract where performance has already-begun.

Answer 96

**Rule**: An express, unequivocal statement of an intention not to perform gives rise to an immediate action for breach. **Common Law:** Anticipatory repudiation by one party entitles the non-repudiating party to sue for breach and have his remaining obligations discharged. **UCC:** In the case of an anticipatory repudiation that will substantially impair the value ofthe contract, the non-repudiating party may: 1) Provide the repudiating party a reasonable amount of time to perform, 2) Sue for breach (even if he has notified the repudiating party he would wait), AND/OR 3) Suspend his own performance.

Answer 97

**Common Law**: The repudiation of contractual duties may be retracted at any time before the non-repudiating party detrimentally relies on or accepts the repudiation. **UCC**: The repudiation of contractual duties may be retracted at any time before performance is due unless the non-repudiating party detrimentally relies on or accepts the repudiation.

Answer 98

**Void Contract:** A contract that is void from inception and has no legal effect (i.e., the contract was never formed): 1) The contract cannot be enforced against either party. 2) Rights cannot be transferred. **Voidable Contract:** A contract that a party may choose to enforce or not to enforce the terms of the contract: 1) The innocent party may enforce the contract, but the contract cannot be enforced against the innocent party. 2) Rights are transferable. **Unenforceable Contract**: A contract that is unenforceable by a court, though the contract may appear valid on its face. Unlike a void contract, an unenforceable contract may later become enforceable through an act of one ofthe parties.

Answer 99

**Real Defense:** A real defense is a defense that goes to the validity of the contract itself and renders a contract void. **Personal Defense:** A personal defense is a defense that will render voidable the obligations of the party asserting the defense.

Answer 100

1) Illegality 2) Fraud 3) Misrepresentation 4) Duress 5) Undue Influence 6) Lack of Capacity 7) Unconscionability 8) Statute of Frauds 9) Absence of Consideration 10) Mistake 11) Ambiguity

Answer 101

**Rule**: Contracts containing illegalities may be rendered void or unenforceable: 1) If the subject matter of a contract was illegal prior to formation, the contract is void (i.e., revoked by operation of law). 2) If the subject matter of a contract is declared illegal after formation of the contract, the contract is unenforceable and both parties are excused from performance. **Exception**: If the subject matter of the contract is or has become illegal and performance has begun, courts will to allow for recovery in quasi-contract if the illegality is not one involving moral turpitude.

Answer 102

**Definition**: Fraud in the factum occurs when a party is tricked into entering a contract without understanding that she is entering a contract. **Rule:** If fraud in the factum is found, the contract is void.

Answer 103

**Definition:** Misrepresentation exists when one party makes an assertion that is false and the other party justifiably relies upon the false assertion. **Rule:** The non-asserting party may void the contract if the false assertion was: 1) Made intentionally with the goal of inducing the party to rely upon it, OR 2) Made unintentionally but concerned a material issue that was likely to make the non-asserting party agree to enter into a contract. **Note:** 1) The assertion must be one of fact and not a mere opinion. 2) The assertion need not be an affirmative assertion, it may be an act of concealment (i.e., reassembling a broken item and selling it as if it were new).

Answer 104

**Definition:** Duress exists when coercion was used to persuade a party to enter into a contract or to modify an existing contract: 1) **Physical Duress:** The act or threat of physically harming the victim or the victim's loved ones. 2) **Economic Duress:** The act or threat of harming the victim's economic or business interests. **Rule:** If the duress was sufficient to force the hand ofthe coerced party, the aggrieved party may void the contract. **Note:** The gravity ofthe duress is measured by a subjective standard (i.e., based on the victim's age, experience, and sophistication).

Answer 105

**Rule**: A party may void a contract based on undue influence if the wrongdoer-party: 1) Took advantage of the aggrieved party's position of weakness, OR 2) Breached a fiduciary position.

Answer 106

**Rule**: Contracts entered into by a minor can be voided by the underage party, even if the minor misrepresented her age to the contracting party. **Note**: After attaining the age of majority, the minor must disaffirm the contract within a reasonable time period, or else be bound by her contractual obligations.

Answer 107

**Rule**: A party who suffers from a mental illness or defect may void the contract if, at the time of entering the contract, her mental impairment prevented her from understanding the nature and consequences ofthe transaction. **Exception**: The party may not void the contract if: 1) The terms ofthe contract are fair, 2) The other party had no knowledge of the incapacity, AND 3) Enforcing the contract would produce an equitable result. **Note**: Mental incompetents can contract during periods of lucidity.

Answer 108

**Rule:** A party who was intoxicated when the contract was made may void the contract if the other party knew or should have known that the intoxicated party was unable to understand the nature and consequences of the transaction.

Answer 109

**Rule**: Under the Necessaries Doctrine, a party that lacks the capacity to enter into a contract will be held liable for the reasonable market value of necessaries (i.e., food, clothing and shelter) provided under the contract.

Answer 110

**Rule**: A contract may be unenforceable if the terms of the contract are so unfair that enforcement would be unconscionable. **Note:** 1) To determine if enforcement of a contract would be unconscionable, courts look to: a) The contract itself (e.g., hidden terms, overuse of legal jargon), b) Personal characteristics of the parties (e.g., illiteracy), c) The relative bargaining power of the parties, d) Contractual provisions that disproportionately benefit or harm one party, AND e) Contractual provisions that deny an adequate remedy for breach. 2) Unconscionability is tested at the time the parties entered into the contract.

Answer 111

**Rule**: Failure to meet the Statute of Frauds requirements renders a contract unenforceable. **Note**: If a contract falls within the Statute of Frauds but fails to satisfy the statute, either party may raise the Statute of Frauds defense.

Answer 112

**Rule:** If the parties to the contract do not engage in a bargained-for exchange, the contract is void.

Answer 113

**Definition**: A mistake is an incorrect belief as to facts that exist at the time the contract is made. Mistakes may be mutual (i.e., both parties are mistaken) or unilateral (i.e., only one party is mistaken).

Answer 114

**Rule:** If both parties are mistaken, the adversely affected party may void a contract if: 1) The mistake concerns a basic assumption on which the contract was made (i.e., the subject matter ofthe contract) , 2) The mistake materially affects the agreement, AND 3) The adversely affected party did not bear the risk under the contract (i.e., the party was not intentionally or consciously ignorant of reasonably apparent facts).

Answer 115

**Rule:** The effect of a unilateral mistake depends on whether the non-mistaken party knew or should have known of the mistake. If one party is mistaken and the other party: 1) Is or should be aware ofthe mistake, the mistaken party may void the contract. 2) Did not know ofthe mistake, the mistaken party may void the contract if: a) Enforcement would be unconscionable, b) The mistake is of a substantial nature. c) The mistake is due to a clerical or computational error. AND d) Voiding the contract will not cause substantial hardship to the non-mistaken party.

Answer 116

**Rule:** Mistake may not be used as a defense to formation if: 1) The mistaken party's gross negligence or failure to act in good faith was the cause of the mistake, 2) The party seeking to void the contract assumed the risk of the mistake, OR 3) The party seeking to void the contract failed to read the contract.

Answer 117

**Rule**: Whether the inclusion of ambiguous material terms in a contract can render the contract void depends upon the parties' subjective intent: 1) If neither or both parties were aware of the ambiguity, a contract will not be formed unless both parties intended the same meaning. 2) If one party was aware ofthe ambiguity, a contract is formed based on the mistaken party's reasonable understanding of the term.

Answer 118

1) Impossibility 2) Impracticability 3) Frustration of Purpose 4) Rescission 5) Substituted Contract 6) Accord & Satisfaction 7) Novation 8) Lapse of Time 9) Release 10) Running ofthe Statute of Limitations

Answer 119

**Rule:** If circumstances arise after a contract is formed that make a party's performance impossible, she is excused from performance of her contractual duties. **Note**: Examples of events that make performance impossible include: 1) Death or incapacity of a necessary party to the contract, 2) Destruction of the contract's subject matter (if the party seeking relief is not at fault), 3) Changed circumstances that would make performance result in extreme injury or loss, 4) Changed circumstances that make performance illegal.

Answer 120

**Rule:** If circumstances arise after a contract is formed that make a party's performance impracticable, he is excused from performing his contractual duties. To prove performance is impracticable, a party must show: 1) An unanticipated event arose that makes performance unreasonably difficult, 2) The party seeking relief is not at fault for the occurrence, AND 3) The party seeking relief did not assume the risk ofthe event occurring. **Note:** Under UCC § 2-615, performance may be excused if an event that renders performance impracticable occurs, and the non-occurrence ofthe event was a basic presumption underlying the parties' willingness to enter into the contract.

Answer 121

**Rule**: If circumstances arise after a contract is formed that substantially frustrate a party's purpose, she is excused from performance of her contractual duties if the supervening event: 1) Was not reasonably foreseeable when the contract was formed, AND 2) Destroys or nearly destroys the purpose of the contract.

Answer 122

**Rule**: Performance will be excused if the parties mutually agree to rescind the contract. A contract may be rescinded if: 1) Both parties have outstanding duties to perform under the contract, AND 2) Vested rights of third-party beneficiaries (if any) will not be affected. **Note:** Because both parties must have outstanding performance duties under the contract to rescind, no consideration is required.

Answer 123

**Common Law:** A rescission may be oral or in writing unless the contract falls within the Statute of Frauds: 1) **Traditional View:** Traditionally, a rescission had to be in writing if the contract itself fell within the Statute of Frauds. 2) **Modern Approach:** Modernly, a rescission can be oral or in writing regardless of whether the contract falls within the Statute of Frauds. **UCC**: Under UCC § 2-209, the rescission must be in writing if the contract expressly requires that rescissions be in writing. **Exception**: If the provision requiring written rescissions is included in a form supplied by a merchant: 1) And the other party is not a merchant, that party must sign the provision for the writing requirement to take effect. 2) And the other party is a merchant, the parties are bound by the requirement regardless of whether the recipient merchant signed the provision.

Answer 124

**Rule**: If the parties to the original contract enter into a subsequent contract that revokes the first contract, all duties under the first contract will be discharged.

Answer 125

**Accord**: An accord is an agreement between parties to a contract in which one party agrees to accept the performance stated in the accord in lieu of the performance stated in the contract. **Satisfaction**: Satisfaction is performance of the accord. **Rule**: The accord suspends the duties created in the original contract until satisfaction, at which point the duties of both the original contract and the accord are discharged. **Note:** 1) Because the accord is a new contract, consideration is required. 2) If the accord is breached, the non-breaching party may bring suit for breach ofthe original contract or the accord.

Answer 126

**Rule:** When a party to the original contract properly relinquishes her rights and duties under the contract through novation, the new party is bound by the terms of the contract and the former party's duties are extinguished.

Answer 127

**Rule:** Both parties' duties of performance may be discharged by lapse of time if each party's duty is a condition precedent to the other party's duty to perform and neither party performs.

Answer 128

**Rule:** A party's duty of performance may be discharged by a release: 1) **Common Law**: A release a) Must be in writing, b) Requires consideration, AND c) May be given before or after breach of the duty to perform. 2) **UCC:** Under UCC § 1-306, a release: a) Must be in writing, b) Does not require consideration, AND c) May be given only after the duty to perform has been breached.

Answer 129

**Rule:** If the statute of limitations on an action for breach of contract has run, enforcement of the duty to perform is barred.

Answer 130

**Rule:** A Plaintiff may sue for breach of a valid contract or in quasi-contract.

Answer 131

**Definition**: Quasi-contracts are implied-in-law contracts that are created by an order ofthe court to avoid the unjust enrichment of a party to a transaction. **Rule**: If a contract fails oris nonexistent, quasi-contractual relief may be available if the failure or absence of a contract would result in the unjust enrichment of one of the parties. **Note**: If the parties did not attempt to create or enter into a contract, courts will allow a party to recover in quasi-contract if the requesting party can prove: 1) The benefit conferred was not intended as a gift by the requesting party, 2) The other party agreed to receive the benefit, AND 3) The requesting party had a reasonable expectation of being compensated.

Answer 132

1) Legal Remedies a) Compensatory Damages b) Liquidated Damages 2) Equitable Remedies a) Reformation b) Specific Performance c) Injunctive Relief d) Rescission & Restitution

Answer 133

**Rule:** Compensatory damages are awarded to compensate the Plaintiff for losses suffered due to the Defendant's failure to perform. **Note:** Non-compensatory damages (i.e., nominal or punitive damages) are almost never awarded in contract cases.

Answer 134

**Expectation Interest:** The expectation interest provides the non-breaching party with the profits it would have received had the contract been performed. **Reliance Interest:** The reliance interest seeks to place the non-breaching party in the position it would have been had the contract never been created. **Restitution Interest:** The restitution interest seeks to compensate the non-breaching party for the benefit it conferred upon the breaching party.

Answer 135

**Rule:** In contract cases, compensatory damages are usually awarded based on the expectation interest. **Note:** 1) The reliance interest will be used if expectation damages cannot be accurately calculated (e.g., overly speculative). 2) Restitution damages will be awarded if one party partially performed before the other party breached. 3) Restitution damages also are used in most quasi-contract claims.

Answer 136

**Definition:** A liquidated damages clause is a contractual clause that provides for the amount of damages to be recovered in the event of breach by either party. **Rule:** A liquidated damages provision will be enforced if: 1) Damages were difficult to ascertain at the time of contract formation, AND 2) The amount agreed upon was a reasonable estimate of the amount required to compensate for the loss. **Note:** The Plaintiff will receive the amount stated in the liquidated damages clause upon breach by the other party, even if actual damages have not been suffered.

Answer 137

**Rule**: Under UCC §2-718, a court can also consider actual damages incurred when determining whether a liquidated damages clause is valid.

Answer 138

**Rule**: If the buyer is the breaching party, the seller may: 1) Withhold delivery. 2) Sell the goods to another party and recover the difference in profit. OR 3) Recover compensatory damages. **Note**: If the buyer has accepted goods and refuses to pay, the seller may recover the contract price ofthe goods.

Answer 139

**Rule**: If the seller is the breaching party, the buyer may: 1) Reject the nonconforming goods. 2) Cancel her order. OR 3) Recover compensatory damages. **Note**: If the buyer accepts nonconforming goods, the buyer may recover the difference between the value of the nonconforming goods and the value of the goods that should have been received.

Answer 140

**Rule**: The non-breaching party has a duty to mitigate damages. If the non-breaching party does not attempt to mitigate the harm, damages will be reduced by the amount that could have been avoided through reasonable efforts to mitigate.

Answer 141

**Rule**: Equitable relief will be granted if the party seeking relief can show: 1) Money damages are inadequate, 2) The terms of the contract are specific enough to allow a court to make an order, AND 3) Enforcement ofthe courts order will not be overly difficult or require significant supervision. **Note**: Money damages will be inadequate when the item bargained for is unique (e.g.. a custom-made widget, land) or damages are difficult to calculate.

Answer 142

**Rule**: If a contract fails to reflect the parties' agreement, the court may modify the contract to reflect their agreement or the innocent party's understanding of the agreement.

Answer 143

**Rule:** If a legal remedy would be inadequate to compensate for losses caused by breach, the non-breaching party may obtain specific performance by proving: 1) The contract between the parties is valid, a) **Note**: Contract terms must be demonstrated with certainty and definiteness. 2) The requesting party has performed (or is prepared to perform) according to the contract's conditions, AND 3) The contract is enforceable against both parties.

Answer 144

**Unclean Hands:** Specific performance will be denied if the party seeking specific performance is himself guilty of wrongdoing in the transaction underlying the suit. **Laches**: A Plaintiff's otherwise valid action for specific performance may be denied if the Plaintiff's unreasonable delay in bringing suit prejudiced the Defendant. **Sale to a Bona Fide Purchaser**: If the disputed property or subject matter of the contract has been sold to a person who purchased for value and in good faith, an action for specific performance will be denied.

Answer 145

**Rule:** If legal remedies are inadequate and specific performance is not possible, a court may order injunctive relief to prevent the breaching party from performing on any contract other than the original contract.

Answer 146

**Rule:** In the case of a material breach the non-breaching party may cancel (rescind) the contract and sue for damages. **Note:** If the non-breaching party has conferred a benefit on the breaching party through partial or full performance of her duties, the non-breaching party will be entitled to restitution.

Answer 147

**Rule:** If a party confers a benefit on another party with the belief that a binding contract exists between the parties, she may bring suit for restitution of the value of the benefit conferred. To be awarded restitution, the Plaintiff must show that: 1) The Defendant received a benefit, 2) The benefit enriched the Defendant at the Plaintiff's expense, AND 3) Allowing the Defendant to retain the benefit would be unjust.