MBE Fundamentals of Contracts
|Define "offer."||An objective manifestation by the offeror of a willingness to enter into a bargain creating the power of acceptance in the offeree.|
|Define "acceptance."||An objective manifestation by the offeree to be bound by the terms of the offer.|
|How long does an offer that states no time limit for acceptance last?||A reasonable time. The factors determining a reasonable time are:|
1. Subject matter of the offer;
2. Rate of price fluctuation.
3. The period within which the offeror's known purpose in inducing the contract can be effectuated, and
4. the mode of communication of the offer.
Certain offers, such as those involving stock purchases, have a short life expectancy due to ever-changing market fluctuations. Stock bids create a power of acceptance lasting only a few minutes.
Under the face-to-face conversation rule, an offer expires at the end of a face-to-face conversation unless there is an acceptance.
|What are the events that mark the termination of an offer?|| -Death of the offeror;|
-Lapse of time
|What three elements do all offers contain?|| 1. Expression of intent to enter a present contract;|
2. A sufficient articulation of the essential terms of the proposed bargain; and
3. Communication of intent and the terms of teh proposed bargain to the offeree (a person with the capacity to form a contract by a timely and conforming acceptance).
|After a rejection or counteroffer, the offeror remanifests an intention to trade on the terms of the original offer. What result?||The offer is once again open to an acceptance by the offeree.|
|When may an offeror revoke his offer?||Prior to offeree's rejection, accceptance or counteroffer.|
|When is a revocation of an offer effective?||Upon its communication.|
|After an offer has been communicated to an offeree, what are the offeree's options?||Accept, reject, make counteroffer, make inquiry.|
|What is the difference between an offeree's counteroffer and an offeror's inquiry?||Counteroffer: "You wanna buy this for $300?" "No, I'll buy it for $250, though." Rejection of original offer, followed by a bid that is more acceptable to the offeree. Terminates power of acceptance.|
Inquiry. Does not terminate the offeree's power of acceptance. Example: "Boy, I'd really like to buy that, but money's a little tight right now, so I don't know if I can come up with $500, but I'd like to have it for $450 if that's OK with you." Telltale is that it's more wishy-washy, more whiny. Not "no," but "can I get a better deal?".
|How is an order or other offer to by goods for prompt or current shipment normally accepted?||An order of other offer to buy goods for prompt or current shipment normally invites acceptance either by a prompt promise to ship or by prompt or current shipment.|
|An offeror orders goods on the condition that they be promptly shipped. The offeree sends him nonconforming goods. What result?||Under UCC 2-206(1)(b), if nonconforming goods are shipped, the shipment is an acceptance and at the same time a breach.|
|An offeror orders goods on the condition that they be promptly shipped. The offeree sends him nonconforming goods, promptly notifying the offeror that the non-conforming goods are offered only as an accommodation to him. What result?||There is no acceptance, as the notification of accommodation is a communication indicating that no acceptance is intended. Note that, if there had been no such communication, the sending of the nonconforming goods would have constituted both an acceptance and a breach. May also be seen as conditional acceptance.|
|Carl inquires to machine shop as to the price of getting cylinder heads prepped. The shop takes its sweet time and eventually mails Carl a letter stating "we will prep your cylinder heads for $50 per head." Before Carl gets the letter he gets impatient and mails the two heads to the shop with a letter stating: "will purchase your cylinder head prep services for these heads for $100." Before either Carl or the Machine Shop get each other's correspondence, what is the nature of the relationship?||These are "cross offers." The first requirement of a contract is that the parties manifest tehir mutual acknowledgement of the same terms. Knowledge of the offer by the offeree is essential to acceptance. |
With cross offers, neither offer accepts the other. Neither party has expressed a willingness to be bound by the other's terms. No contract exists.
|Distinction between unilateral and bilateral contract?||Unilateral: |
-Offeror makes an offer that calls for performance.
-Looking for action. Acceptance is by performance.
-Example: "Lost kitten: $300 reward for return"
-Becomes irrevocable as soon as the offeree has started to perform the act
1. Part of the actual performance requested
must have been given in order to render the offer
irrevocable. Mere preparation for performance,
no matter how detrimental to the offeree, will not
affect the offeror's power of revocation. The ).
2. The offeree must complete performance to
accept the contract and therefore
expect payment of consideration. (e.g., man
in pink speedo had to complete the swimming
assignment to accept the contract and thus
get payment from his sadist neighbor.)
-Offeror and offeree exchange mutual promises. -Looking for promise. Acceptance is by return promise.
|What are two ways in which an offer not acted upon by the offeree may be held irrevocable for a given period of time?|| 1. Firm offer.|
2. Option contract.
|What is a "firm offer?" How is it formed, and what is its effect?||Under the UCC (sale of goods only), when a merchant makes an offer to somebody and promises to hold that offer open for a particular period of time.|
Effect: "A signed writing by a merchant which by its terms gives assurances that it will be held open is not revocable for lack of consideration for the stated period of time not to exceed three months."
|What is an "option contract?"||Offeree makes a counter-offer to give consideration in exchange for the original offer to be made irrevocable for a given period of time.|
|Can an offeror revoke his offer without communicating anything to the offeree?||Yes. Revocation takes place when the offeree learns through a third party that the offeror is no longer willing to enter into the proposed contract. Under the Restatement, "[a]n offeree's power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect."|
|What is the mailbox rule?||The date of acceptance of an offer that is accepted by mail is the date of posting of the letter of acceptance.|
|When is the mailbox rule not effective?||When the offeror specifies that acceptance is to take place UPON COMMUNICATION/NOTIFICATION TO HIM of the acceptance.|
|When may a gift promise become binding absent consideration?|| Promises are legally enforceable where the promisee has relied on the promise to his detriment (injury), even though the reliance was not bargained for.|
Substantial and detrimental action induced by a gratuitous promise affords a reason for enforcement of the promise without a bargained-for consideration.
|Define consideration.||Consideration is a bargained-for legal detriment.|
|School system seeks bids from general contractors on a remodeling of one of its schools. General contractor starts seeking bids from subcontractors. Subcontractor plumber offers to do the plumbing part of the renovation for 5K. Based in part on the subcontractor's offer, the general contractor puts in a bid to do the job for $75K. Before the job starts, the plumber drops out. The most reasonable available substitute that the general contractor could find could do the job for $10K. |
Can the general contractor sue the subcontracting plumber for $5K? Why or why not?
|Yes, the general contractor can sue the plumber for $5K. |
Yes, the plumber is bound under the doctrine of promissory estoppel. A promisor who induces substantial change of position by the promisee in reliance on the promise is estopped to deny its enforceability for lack of consideration. Policy reason for this is to avoid an unjust result.
Restatement of Contracts says that "An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice."
|Define "modification."||A modification is a subsequent agreement that alters or changes the parties' duties and obligations under the terms of their original contract.|
|Under the UCC, is additional consideration required to modify a contract? What is required?||No. But contract modifications must be made in good faith.|
|Under the common law, is additional consideration required to modify a contract?||Yes, new consideration is required. This is because of the pre-existing duty rule, under which the performance of a legal duty which is already owed under a contract does not constitute consideration.|
|At what stage of the life of the contract does unconscionability come into play?||Formation.|
|What are the two situations when a contract for services may not be modified or rescinded by oral agreement of the parties?||Where there is an express provision against oral modification or circumstances where the statute of frauds applies.|
|Distinguish mutual mistake and unilateral mistake.||Mutual mistake. Both parties are mistaken as to a material element that goes to the heart or essence of the bargain. The remedy for mutual mistake is recission.|
Unilateral mistake. The contract is enforceable against the mistaken party UNLESS the non-mistaken party knew or should have known of the other's mistake.
|Which contracts are and are not assignable and delegable?|| All assignments are assignable and delegable except for:|
1. Long-term requirements contracts;
2. Personal service contracts.
|What is required to assign a contract?|| The assignor must show an intention to transfer the right to another person without further action or manifestation of intention by the assignor. |
The manifestation may be made orally or in writing.
|What are the two types of assignments of contract rights, and what is the relevant distinction between them?|| Assignments for value and gratuitous assignments.|
Assignments for value are irrevocable. Gratuitous assignments may, however, be revocable.
|What is the effect of a party's violation of a nonassignment clause or provision that prohibits assingments?||The assignment is still valid. The violator will be assessed nominal damages for breach of contract.|
| What does "FOB" mean. What about:|
"FOB seller's place of business"?
"FOB buyer's place of business"?
|It means "this is where the risk of loss in case of damage of goods passes to the buyer."|
"FOB seller's place of business" means that once the seller puts the goods in the hands of the common carrier, the buyer assumes the risk of loss.
"FOB buyer's place of business" means that once the seller delivers the goods to the buyer, the buyer assumes the risk of loss.
|Describe the UCC's gap-filling provisions.|| If the price term is left out of a contract, a fair market value is assumed.|
If risk of loss is left out, FOB seller's place of business is assumed.
|Explain a non-delegable personal services contract.||A non-delegable personal services contract is a contract made for the unique skills of a particular person. A contract with a doctor, lawyer, other professional, or even a particularly skilled and famous artist to paint one's portrait are examples of personal services contracts. In the case of the artist, this is because a portrait by any other artist will not have the same quality or value.|
|What is an implied-in-fact contract?||It is a contract created not by the words of the parties, but by their conduct.|
|What is the difference between the damages awarded when an implied-in-fact contract is found and when quasi-contractual relief is ordered?||In a quasi-contract the parties do not have a contract and the court constructs one to avoid unjust enrichment. In an implied-in-fact contract, the parties have entered into a contract by their conduct.|
|What are the remedies available for contract breach at law, and what are those available under equity?|| Remedies at law: Money damages.|
Remedies in equity: Injunction, specific performance, recission, reformation, quiet title actions, partition proceedings.
|When are equitable remedies for breach of contract appropriate?||Equitable relief will be denied unless the matter is one in which the plaintiff's remedy at law is inadequate. Though there si no general formula for determining when a legal remedy is inadequate, equitable relief will be granted in teh following situations:|
1. Plaintiff is deprived of something to which he is entitled and cannot obtain in the market
2. Defendant acts in such a way that the plaintiff may be required to bring more than one suit to effectuate her legal remedy;
3. Plaintiff is entitled either to money or certain performance by the defendant but the defendant is insolvent and it is not collectible
4. Plaintiff is entitled to damages at law but under the facts damages are so speculative that any award is likely to be ianadequate.
|Where there is a breach of an employment contract or a breach of a personal services contract, what is the applicable remedy?||Money damages.|
|Where real property is at stake, what is the applicable remedy?||specific performance.|
|Son contracts with a home healthcare worker to care for his aged mother for a year. Six months into the contract, the worker finds a better deal and decides to leave her job working for the son. The son sues for specific performance. Should the son prevail?|| No. Employers may not force an employee to work by means of specific performacne. The rationale behind this rule is twofold.|
1. Money damages are generally available;
2. It is impossible for courts to properly suprvise employment contracts.
|For contract suits in which the plaintiff was promised a very rare and/or unique items, what remedy is appropriate?||When, in a contract dispute, there is an item at stake, specific performance becomes a more appropriate remedy as the item becomes more rare and/or unique.|
|What is the result when a party to a contract knowingly prevents, hinders or makes more costly the other party's performance?||Such conduct is a breach of contract because it is the breach of an implied promise against prevention.|
|Define "condition precedent."||An act or an event (other than lapse of time) that must occur first before a party is under a duty to perform.|
|What is the general rule regarding the validity of a contract with a minor? What is the exception to this?|| Contracts with a minor are voidable at the minor's option.|
The exception to this is for necessaries, for which parents are responsible for the FAIR MARKET VALUE.
|What is the Statute of Frauds.|| Remember the mnemonic MYLEGS. The Statute of Frauds holds that, in order to be enforceable, a contract must be in writing if it is for:|
Year (contract cannot be performed in less than
Land (any interest in land must be in writing)
Guarantee (guarantees to pay the debt of another)
Sale of Goods ($500+)
|When is an oral contract for the sale of land valid?|| 1. Buyer has paid part of the purchase price.|
2. Buyer has taken possession.
|A debtor absconds and his creditor tries to track him down, but is unsuccessful. After the statute of limitations for collecting on debts tolls, the debtor returns to the jurisdiction. After returning, the debtor runs into the creditor and orally promises to pay the creditor back, plus interest, within the week. The week passes and the creditor sues the debtor. Will the creditor be successful?||No, but only because it was not written. A subsequent WRITTEN promise to pay a debt barred by the statute of limitations is enforceable WITHOUT new consideration and is binding to the extent of the new promise.|
|Describe the "main purpose rule."||The main purpose rule is an exception to the "surety" clause of the statute of frauds which states that an oral promise to answer for the debt of another is enforceable if the promisor's purpose is to further his own economic advantage.|
|Explain the Parol Evidence Rule.||Once the parties have reduced their agreement to writing, evidence of any prior oral or written agreements, or of any contemporaneous oral agreements is inadmissible to alter, vary or contradict the terms of the writing.|
More formally: "when the parties to a contract have put in writing the full and final expression of their agreement, evidence of any other prior or contemporaneous oral or written agreements are inadmissible to vary or contradict the terms of the writing."
|What is the big exception to the parol evidence rule? What are the less tricky ones?||Oral conditions-precedent. |
Where the parties agree that a condition precedent must occur before the contract is effective, it is generally agreed that--despite the parol evidence rule--a party may show failure of the condition to occur, despite what otherwise would be deemed a total integration. Even if there is a merger clause, it may be shown that the instrument was handed over to another with an oral condition attached to performance.
The theory is that the agreement is not to take effect until the condition occurs and thus there is no contract to be added to or contradicted until that time.
The less-tricky exceptions to the parol evidence rule are: Fraud, Mistake, Illegality, Duress, Partial Integration, and Conditions Precedent.
|Define "requirements contract."||A "requirements contract" is a contract where quantity is measured by the buyer's needs.|
|If a supplier and a buyer enter into a requirements contract, and the buyer's previously-substantial needs significantly decrease over a relatively short period of time, can the supplier sue the buyer for failing to meet previously-met levels of consumption?||No. Where the needs of a buyer in a requirements contract significantly decrease over a relatively short period of time, the court will view the good faith of the buyer. Under UCC 2-306(1), "good faith" reductions (and even abandonment) are allowed, such as where the buyer's business needs have actually fallen off, provided the reductions are not "unreasonably disproportionate to...any normal or otherwise comparable prior requirements."|
|What is the buyer's appropriate remedy when a seller breaches a requirements contract?||Under UCC Article 2-712, the buyer may recover from the seller the difference between the cover price and the contract price plus any incidental and consequential damages.|
|Define impracticability of performance and its effect.||UCC 6-215. Delay in delivery or non-delivery...by a seller is not a breach if the seller's performance is made impracticable by a contingency whose non-occurrence was a basic assumption on which the contract was made.|
|Define impossibility of performance and its effect.|| Two types of impossibility of performance:|
Subjective impossibility (performance has become prohibitive for the promisor). Will not excuse duties of performance under a contract.
Objective impossibility (performance has become illegal or physically impossible for everyone, not just the promisor). Will excuse duties of performance under contract.
|How to identify a third-party contract.||Two parties are contracting, and there is mention, or intent regarding, a third party.|
|If a third-party contract is identified in a hypo, what questions must be then asked and what is their significance?||1. Is the third party an intended beneficiary, or is he incidental?|
-Incidental beneficiary. Third party has no rights
under the contract.
-Intended beneficiary. Move to next question.
2. Has the intended third party beneficiary's interest vested? Vesting can have taken place only if the third-party beneficiary has:
-learned of the contract and assented to it, or
-changed positions in reliance on the contract (this creates an assumption of assent to the contract).
|define "donee beneficiary."||If a promisee intends the promised performance as a gift to a third party, the third party is a donee beneficairy. Such intention is clear where performance of the promise will result solely in benefit to the thrid party and not to the promisee.|
|When do a donee beneficiary's rights vest, and what is the significance of the vesting?|| The rights of a donee beneficiary vest when the third party has knowledge of the promise and assents to the promise.|
Before the vesting, a donee beneficiary cannot prevent modification or recission of the contract by the promisee and the promisor.
|When a buyer receives nonconforming goods, what are the buyer's options?|| Three options:|
1. Accept the whole shipment.
2. Reject the whole shipment.
-Must be within a reasonable time after delivery or tender (time is shorter if the goods are perishable).
-Can do this even if the shipment is of several items, only one of which is nonconforming.
3. Accept any commercial unit or units (paying the contract rate for them) and reject the rest.
|Describe the lost volume seller situation.||A seller has an unlimited supply of a fungible good. A prospective buyer contracts to purchase one of the items. The prospective buyer reneges, but the seller sells the item to someone else who would have bought an identical item anyway. The seller can still sue the prospective buyer for the lost profit.|
This is an exception to the traditional rule of calculating damages where the damages are calculated as the difference between the contract price and the market price at the time and place for tender, less expenses saved in consequence of the buyer's breach.
|When a defendant's breach of contract results in loss of profits for the plaintiff, which (if any) lost profits can the plaintiff recover?||Profits that could have been fairly and reasonably contemplated by the defendant.|
|Anticipatory repudiation.|| UCC 2-609: Right to adequate assurances.|
1. When reasonable grounds for insecurity arise, one party may (in writing) demand adequate assurances from the other that performance will occur.
2. Assurances must be provided within a reasonable time (no more than thirty days).
3. Failure to provide assurances is a repudiation of the contract.