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MBE general concepts > Contracts MBE > Flashcards

Contracts MBE Flashcards

1
Q

Revocation of an offer: An offer can be revoked
before acceptance unless it is falls into one of the
FOUR categories: also Mnemonic: FOUR

A

Firm Offer
Option Contracts
Unilateral Contracts
Reasonably foreseeable reliance on the offer

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2
Q

Creation of an offer

A

There must be intent to enter into a contract plus specific terms (e.g., price, quantity, and identity of the parties). And, it must be communicated to the offeree creating the power of acceptance

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3
Q

Note: A requirement or output contract will not fail for lack of _________. otherwise what is required?

A

quantity

The amount sold or requested must be in good faith and not unreasonably disproportionate to a stated estimate or prior comparable output.

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4
Q

Termination of an offer

There are four ways to terminate an offer:

A

(1) Lapse of time: an offer lapses after a reasonable time.
(2) Rejection (including counteroffer, which is a rejection and a new offer)
(3) Revocation of an offer: An offer can be revoked
before acceptance unless it is falls into one of the (FOUR) categories:
(4) Death or incapacity of offeror

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5
Q

Bilateral contracts are accepted by

A

a promise to perform or beginning performance.

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6
Q

Unilateral contracts (rewards, prizes, or offers that specify they are unilateral) can only be accepted by

A

full performance.

Tip: most contracts are bilateral.

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7
Q

Article 2: An offer for the sale of goods is accepted by

A

promising to ship or shipping the goods.

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8
Q

If the seller ships defective goods with an accommodation letter, that constitutes a __________

If there is no letter, it is both an _________ and a _______.

A

counter offer

both an acceptance and a breach

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9
Q

Acceptance under the Mailbox rule is effective: acceptance is effective when

A

sent or dispatched (the mailbox rule).

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10
Q

As an exception to the mailbox rule, in an option contract acceptance effective upon ________.

or if a rejection then an acceptance is mailed, the one

A

receipt.

the one received first controls

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11
Q

The mirror image rule

A

Common law: the acceptance must be the “mirror image” of the offer.

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12
Q

UCC: An acceptance does not need to mirror the offer and may have additional or different terms. Between merchants, an additional term will be a part of the contract unless:

Knock out rule majority

A

it materially alters it, the offeror objects within a reasonable time, or the offer limits acceptance to the terms of the offer.

Under the majority rule, a different term is knocked out and replaced with gap fillers.

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13
Q

The following are not consideration:

A

NOT consideration:

a promise to make a gift,
a moral obligation,
past consideration, or
an illusory promise.

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14
Q

Reliance is a substitute for__________. if there is a promise and foreseeable and justifiable reliance, enforcement will be granted as necessary to avoid injustice.

A

consideration

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15
Q

Under the common law, Consideration is needed to modify a contract. The performance of a preexisting legal duty is not consideration unless it falls into an exception. eg of exceptions

Under the UCC: only good faith is needed to modify a contract.

A

(e.g., unforeseen difficulty,
a good faith settlement of a lawsuit,
a good faith payment in full of a due and disputed debt,
a written promise to pay a time-barred debt, or
if the duty was owed to a third person).

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16
Q

performance under the common law:

• Exception: Express condition (e.g., “I will buy it if I like it” or “I will buy it if I can get a 10% interest rate”). These must be complied with exactly. Tip: courts find that most conditions are “constructive” and substantial performance is enough.

A

Common law: one has to substantially perform one’s duties in order for the other party’s duty to arise.

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17
Q

UCC: The seller must provide perfect tender of the goods (or the buyer can reject the goods).

If the seller does not provide perfect tender and the buyer rejects the goods, the seller only has an automatic right to cure if

A

(1) there is time left to perform under the contract, or
(2) the seller reasonably believed that the buyer would accept the nonconforming goods with or without a money allowance such as a discount (e.g., the seller sent better goods than contracted for).

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18
Q

Installment contract: The buyer may reject an installment if there is a

A

“substantial impairment” and

the seller cannot cure the installment.

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19
Q

Note on revocation: If the buyer accepts goods, he may not reject them. However, he may later revoke his acceptance. However, Revocation is a higher standard than rejection as it requires showing that the defect:

A

defect substantially impairs the value of the goods to him, among other things.

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20
Q

Carrier cases: Most contracts are shipment contracts (e.g., the contract is silent or has shipping terms such as “FOB Seller’s Place of Business,” “CIF,” “C&F,” or “FAS”). The seller only has to get the goods to the shipper and the risk of loss (ROL)

For destination contracts (e.g., contracts that state, “FOB Buyer’s Place of Business” or “Ex-Ship”), the seller has to get the goods to the destination.

A

passes to the buyer at that point.

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21
Q

• Non-carrier cases: If the seller is a merchant, the seller what must the seller do for the ROL to pass to the buyer?

If the seller is not a merchant, the seller must tender delivery (make the goods available) for the ROL to pass.

A

seller must actually: deliver the goods to the buyer for the ROL to pass.

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22
Q

• Breach: if the seller is in breach, who bears the ROL and until when?

A

Breach: if the seller is in breach, the ROL is on the seller until the defective goods are cured by the seller or accepted by the buyer.

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23
Q

Excusing performance and conditions: A party is excused from performing if

A

the other party breaches.

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24
Q

An anticipatory repudiation occurs when a party unequivocally breaches. If this occurs, the other party can?

A

sue immediately, suspend performance and wait to sue, treat the contract as discharged, or urge the other party to perform.

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25
Q

A prospective inability to perform is when a party has reasonable grounds for insecurity that the other will not perform. The insecure party can

A

demand adequate assurances that performance will take place.

Note that conditions can also be waived.

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26
Q

Discharging duties: A duty can be discharged by:

A

Occurrence of a condition subsequent

Agreement

Frustration of purpose

impossibility

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27
Q

Discharging a duty:

Occurrence of a condition subsequent

A

• Occurrence of a condition subsequent: This is a condition that cuts off a duty. (E.g., “I will paint the house until it starts to rain.” The rain is a condition subsequent that cuts off the duty to
paint the house.)

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28
Q

Discharging a duty:

Agreement

A

• Agreement: examples include novation (a new party steps into the shoes of an existing party), modification, release, accord and satisfaction (the parties agree to new or different consideration), and rescission (the contract is undone).

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29
Q

Discharging duty:

Frustration of purpose

A

• Frustration of purpose: the primary purpose of the contract known by both parties at the time of contracting is substantially frustrated by an unforeseeable event that occurred
after the contract was entered into.

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30
Q

Discharging duty:

Impossibility

A

• Impossibility: an event that renders performance impossible occurs after the contract was made, it was not reasonably foreseeable at the time of the contract, the nonoccurrence was a basic assumption of the parties, neither party is at fault, and neither party bears the risk.

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31
Q

Express warranties

A

Express warranties are affirmations of fact about the goods or a sample of the goods. These cannot be disclaimed. Mere “puffery” does not create an express warranty.

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32
Q

The implied warranty of merchantability

A

The implied warranty of merchantability is made by a merchant and warrants that goods are fit for their ordinary purpose. This warranty can be disclaimed (e.g., by express language such as a conspicuous “as is” clause or through conduct).

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33
Q

The implied warranty of fitness for a particular purpose

A

The implied warranty of fitness for a particular purpose can be made by any seller who knows of the buyer’s specific purpose and the buyer relies on the seller. It can be disclaimed.

Tip: the seller does not have to be a merchant.

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34
Q

A limitation of remedies clause:

The clause is unconscionable if it attempts to?

A

A limitation of remedies clause is a contractual provision that limits or controls the remedies. It is enforceable unless it is unconscionable or it “fails of its essential purpose.”

The clause is unconscionable if it attempts to limit or avoid paying consequential damages for a personal injury due to a consumer product.

35
Q

• General rule: Express terms control. Then courts look to

A

course of performance, course of dealing, and trade usage.

36
Q

Gap Fillers

A

Gap fillers: the UCC has default rules for terms that govern contracts for the sale of goods if no term is stated in the contract (e.g., if nothing is said as to price, the price is a reasonable price at the time of delivery).

37
Q

Keeping terms out with the parol evidence rule (PER): The PER applies when a party wants to add a term from

A

preliminary negotiations to a final written agreement.

38
Q

• If there is a complete integration,

A

no terms will be admitted into evidence.

Tip: look for a merger or integration clause in the contract; e.g., one that states, “this is the full and final agreement.”

39
Q

If there is a partial integration,

A

consistent additional terms are admitted.

40
Q

The Parol Evidence Rule (PER) does not apply to (FICCL)

A 
Formation defenses, 
Interpretation of a term, 
a Clerical error, 
failure of a Condition precedent, or a 
Later modification.
41
Q

Intended TPBs have rights under a contract once their rights vest. Rights vest when there is

A

assent, reliance, or when the third party brings a lawsuit.

42
Q

Do incidental third party beneficiaries have rights under a contract?

A

NO Incidental TPBs do not have rights under a contract.

43
Q

Factors to determine if a TPB is intended:

A

(1) Is the TPB expressly designated in the contract?
(2) Is performance directly to the TPB?
(3) Does the TPB have any rights?
(4) What is the relationship between the TPB and the promisee?

44
Q

Generally, one may delegate duties under a contract unless:

The delegator remains liable on the contract after delegation.

A

the contract prohibits it or if the contract involves special skill, judgment, or trust.

45
Q

Are any requirements needed to be able to delegate a contract duty?

A

NO, Neither consent, nor consideration, nor a writing is needed to delegate a duty.

46
Q

The delegatee is liable if

A

he receives consideration from the delegator.

47
Q

Generally, rights can be assigned unless

A

the assignment substantially changes the obligor’s duties or the contract prohibits it.

48
Q

An assignment may not be revoked if there was

A

consideration given or if it is payment for a preexisting debt.

49
Q

An assignment is revoked if

A

the assignor takes performance directly or makes a subsequent assignment to a different party.

50
Q

Rule: The SOF requires a writing signed by the party to:

A

be charged that evidences a contract.

Tip: the “party to be charged” generally means the defendant.

51
Q

Rule: The SOF requires a writing signed by the party to be charged (generally means the Defendant).

Which contracts fall into the SOF? (MYLEGS) contracts made in consideration of:

A

Marriage
Year, contracts that cannot be performed within a Year
L sale of land contracts
Executor to pay a debt from his own estate, contracts
G- sale of goods over $500, and
Surety contracts.

52
Q

SOF exception: Land: no need for a writing if part performance (when one’s actions evidence a contract; e.g., the buyer does two of the following three things:

A

takes possession of the property,
improves the land significantly, or
pays a substantial amount of the purchase price

53
Q

Sale of goods: the four exceptions are:

A

(1) merchants confirmatory memo exception,
(2) when the seller has made a substantial beginning in manufacture or commitments for specially manufactured goods not suitable for sale to others in the seller’s ordinary course of business,
(3) judicial admissions (one admits in his pleadings, testimony, or in court that there is a contract—it is enforceable up to the quantity admitted), and
(4) part performance (one pays for or accepts a part of a contract).

54
Q

Surety: a promise to pay the debt of another if the other does not pay falls within the SOF unless

A

the main purpose of the surety promise is to serve a pecuniary interest of the person making the promise.

55
Q

SOF exception if Cannot be performed within a year full performance on one side will serve as a

A

substitute for a signed writing.

56
Q

Capacity defenses to Contracts Incapacity:

A

for minors, mentally incompetent, or intoxicated persons. However, they may be liable for “necessities.”

57
Q

Capacity Defenses to contracts: Duress

A

Duress: when a party threatens to commit a wrongful act that would threaten the other party’s finances, property, well-being, or life.

58
Q

Capacity Defenses to contracts: Undue Influence

A

Undue influence: unfair persuasion where a person in a position of trust, confidence, or dominance uses that position to convince another to enter into a contract that is not in that party’s best interest.

59
Q

LACK OF CONTRACT FORMATION DEFENSES

Mutual mistake:

A

if both parties are mistaken about a basic assumption of fact that materially affects the agreed upon exchange and neither bears the risk, the contract is voidable.

60
Q

LACK OF CONTRACT FORMATION DEFENSES

Unilateral mistake:

A

Unilateral mistake: if a party knew or had reason to know of the other party’s mistake, the contract is voidable.

61
Q

LACK OF CONTRACT FORMATION DEFENSES

Mutual misunderstanding:

A

Mutual misunderstanding: there is no contract if both parties have a different understand- ing of a material term that is open to at least two reasonable interpretations and neither party has any reason to know of the meaning attached by the other.

62
Q

LACK OF CONTRACT FORMATION DEFENSES

Illegal subject matter

A

Illegal subject matter (e.g., selling drugs): The contract is void. If it is for an illegal purpose (e.g., leasing a car to transport drugs), it is voidable by the party who didn’t have the illegal purpose (e.g., the car owner) if he didn’t know the purpose or he knew of the purpose but didn’t facilitate it and it doesn’t involve “serious moral turpitude.”

63
Q

LACK OF CONTRACT FORMATION DEFENSES

Unconscionability: 2 necessary elements

A

Unconscionability:

There are two necessary elements:

procedural unconscionability (an unfair bargaining process—e.g., hidden or incomprehensible terms) and

substantive unconscionability (grossly unfair terms). This is voidable.

64
Q

Lack of Contract formation: other defenses

A

Other defenses: fraud, misrepresentation, nondisclosure, and public policy.

65
Q

General rule: The damaged party recovers expectation damages. This is the:

A

This is the loss of value of the breaching party’s performance plus incidental damages plus consequential damages minus any expenses saved as a result of the breach. Mitigation of damages is required.

66
Q

Incidental damages

A

Incidental damages are those related to avoiding the loss from the breach (e.g., storing goods after a breach).

67
Q

Consequential damages

A

Consequential damages are those that are foreseen at the time the contract is entered into.

68
Q

Remedies UCC formulas

• SELLER breaches and BUYER has goods:

A

buyer gets the value of the goods as contracted for (minus) - the value of the goods as delivered
+ (plus) incidental and consequential damages.

69
Q

Remedies UCC formulas

SELLER breaches and SELLER has goods:

A

buyer gets the difference between the market price (or replacement price) and contract price
(plus) + incidental and consequential damages (minus) - expenses saved.

70
Q

Remedies UCC formulas

BUYER breaches and BUYER has goods:

A

seller gets the contract price.

71
Q

Remedies UCC formulas

BUYER breaches and SELLER has goods:

A

seller gets the difference between the contract price
and market price (or resale price)
(plus) + incidental damages (minus) - expenses saved.

72
Q

Remedies UCC formulas

Lost volume seller:

A

The seller gets lost profits (plus) + incidentals.

Tip: A seller is a lost volume seller when there is an unlimited amount of the product available.
The MBE fact pattern will make this very clear.

73
Q

Equitable remedies

Specific Performance

A

• Specific performance is not usually available unless the goods are unique or if it is a land contract.

74
Q

Equitable remedies

Injunction

A

• An injunction is an equitable remedy that tells a party to do or not do something. An injunction for a noncompete clause will be granted so long as the covenant is reasonable in time, scope, and geography.

75
Q

Equitable remedies

Rescission

A

• Rescission is undoing the contract when the contract is void or voidable or because it is impossible to perform.

76
Q

Equitable remedies

Reformation: either party may seek when:

A

• Reformation is a remedy either party may seek when the contract does not reflect the terms that the parties agreed to.

77
Q

Equitable Remedies

Liquidated Damages

A

Liquidated damages clauses are enforced if the damages are difficult to estimate at the time the contract was made and a reasonable forecast of damages. Penalties are not permitted under contract law.

78
Q

Equitable Remedies

Restitution

when may restitution be granted?

A

Restitution means the plaintiff recovers the value of the benefit conferred.
This remedy may be sought when the contract is breached, when it is unenforceable, or when there is no contract.

Restitution is granted in contracts that are implied in law (i.e., quasi-contracts), which arises when the plaintiff has conferred a benefit on the defendant, the plaintiff reasonably expected to be paid, and the defendant would be unjustly enriched otherwise.

79
Q

In the absence of an enforceable contract, a party may still be able to recover the value of the benefit she conferred on the other party in “quasi-contract.” For a party to be entitled to restitution (the reasonable value of the benefit conferred) under a quasi-contract theory, certain requirements must be met:

A

First, the party seeking recovery must have conferred a benefit on the other party with a reasonable expectation of being compensated;

second, the other party must have expressly or implicitly requested the benefit; and third,

the other party would be unjustly enriched if not required to compensate the party seeking recovery

80
Q

T or F Specific performance of a contract for personal services will virtually never be ordered by a court.

A

True

81
Q

Where parties have a contract on which to sue and collect damages, they do not need equitable remedies nor are they entitled to them. Reliance damages are a form of equitable remedy, available when

A

there is no contract on which to sue.

82
Q

T or F An anti-assignment clause does not completely bar assignment, but rather, an assignment made in violation of the anti-assignment clause is still valid; it simply means that the party has a cause of action against the other party for damages for violating the provision.

A

True

83
Q

Under the common law, for contracts for new construction who bears the risk the builder or the buyer?

A

Under the common law, for contracts for new construction, the builder bears the risk of loss until completion of the project.

84
Q

under the doctrine of impossibility of performance. Impossibility of performance excuses a contractual obligation only when an

A

unforeseen event vitiates the ability of the parties to perform.

MBE general concepts (10 decks)

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