BarBri Contracts MBE Questions

A builder contracted to build a house for a newly married couple. Terms of the contract provided that the builder would receive the contract price when the building was fully completed. Just when the builder had completed one-half of the structure, a tornado struck the area and demolished the building. What is the builder entitled to recover from the couple under the contract? (A) Nothing. (B) One-half of the contract price. (C) One-half of the fair market value of what remains of the house. (D) Cost of materials and reasonable labor costs.

(A) The builder will not be able to recover anything from the couple under the contract because he has not performed his duty. Under the parties' contract, the builder's completion of the house was a condition precedent to the couple's duty to pay. The condition precedent was not discharged by the destruction of the work in progress because construction has not been made impossible, but rather merely more costly—the builder can rebuild. Thus, he is not entitled to any recovery. Note, however, that a number of courts will excuse timely performance because the destruction was not the builder's fault. (B) is incorrect because the contract is not divisible (i.e., it is not divided into an equal number of parts for each side, each part being the quid pro quo of the other); thus, completion of one-half of the house did not entitle the builder to one-half of the price. (C) is incorrect because it is not a correct measure of recovery. As stated above, the builder cannot recover under the contract. However, he could recover restitution if he determined that he could not perform under the contract by rebuilding. Restitution is a remedy that prevents unjust enrichment by imposing on a recipient of requested goods or services a duty to pay for the benefit received when there is a failed contract or no contractual relationship between the parties. The measure of recovery here would be the fair market value of what remains of the house because that is the benefit conferred—it would not be cut in half merely because the house was only half completed. (D) is an incorrect contract recovery because the builder has not fulfilled the condition precedent to the couple's duty to pay. The only way the builder could recover anything would be in an action for restitution. Sometimes, in cases where there is little or no benefit to the other party, the measure of restitutionary recovery is the detriment suffered by the plaintiff. However, when the plaintiff is in breach, the courts that permit recovery limit it to the contract price less damages caused by the breach. Because the builder only did half of the work, he is in breach by not rebuilding the house. Hence, the couple's damages, which involve building an entirely new house, outweigh any possible restitution to the builder.

On June 1, an uncle whose niece was looking to buy a car wrote a letter to a car dealership, stating that he would guarantee payment of the purchase price for any car that it sold to his niece costing less than $10,000. On June 3, after receiving this letter, the dealership sold a $9,500 car to the niece for $2,000 down, with the balance to be paid by the end of the year. The uncle died unexpectedly on June 17. The dealership was unaware of the uncle's death when it mailed the uncle a letter on June 19 accepting his offer. The letter also stated that the niece was a good customer in the past and that it had, in fact, planned to extend her credit for the purchase before receiving the uncle's letter. In August, the niece was killed and her estate is bankrupt. Can the dealership succeed in an action against the uncle's estate for the balance of the price of the car when it becomes due? (A) Yes, because the dealership had accepted the uncle's offer before the uncle died. (B) Yes, because the dealership reasonably, justifiably, and foreseeably relied on the uncle's promise. (C) No, because the dealership would have sold the car to the niece even without the uncle's promise. (D) No, because the uncle died before the dealership mailed the letter notifying him that it had accepted his offer.

(A) The car dealership will succeed. The uncle made an offer, which was accepted by the car dealership by doing the requested act. The uncle's offer was to guarantee the purchase price, up to $10,000, of a car in exchange for the car dealership's selling a car to the niece. This offer traditionally could be accepted by an act (the sale of the car), but could also be accepted by a promise to sell the car to the niece. When a bilateral contract is accepted by performance, the offeree must give the offeror notice within a reasonable time or the offeror may be discharged. Here, the car dealership accepted the offer by selling the car, and a contract was formed at that time. Although an acceptance must be communicated to the offeror, it is not always necessary for the offeree to be the party to communicate it. It would be reasonable to assume that the niece would communicate the fact of the sale to the uncle. The dealership would have no obligation to do more unless it had reason to know that the uncle (the offeror) had no adequate means of learning of the performance with reasonable promptness. Here, the dealership went beyond that by sending notice within a reasonable time. Therefore, when the niece did not pay for the car, the dealership could collect from the uncle or his estate. (B) is wrong because it relies on a promissory estoppel theory, but here the uncle's promise is supported by a bargained-for exchange (his promise in exchange for the car dealership's sale); thus, there is no need to rely on promissory estoppel. (C) is wrong because the car dealership's motive in selling the car to the niece is not relevant. The car dealership did something it was not under a duty to do (sell the car to the niece) and that is sufficient consideration to support the uncle's promise to guarantee payment. (D) is wrong because the offer was accepted when the car dealership did the act, and the uncle was alive at that time.

A wholesale seller of widgets telephoned a retail seller of widgets and told him that he had 5,000 pounds of widgets ready for delivery at $5,000. The retailer agreed to purchase the widgets, but stated that he wanted the wholesaler to deliver 2,000 pounds now and 3,000 pounds next month. There were no further communications between the parties. Assuming that the retailer's request is not a material change of terms, what is the most likely result of the conversation between the wholesaler and the retailer? (A) A contract was formed to deliver 2,000 pounds now and 3,000 pounds next month. (B) A contract was formed to deliver 5,000 pounds now. (C) No contract was formed, because the retailer's response was merely a counteroffer and a rejection. (D) No contract was formed, unless the wholesaler notified the retailer within a reasonable time of his assent to the proposed schedule of delivery

(A) The conversation created a contract for 2,000 pounds of widgets now and 3,000 pounds next month. Because the contract is for the sale of goods, the UCC governs. Under the UCC, a contract is formed whenever it appears from the parties' communications that they intended to enter into a contract. Here, it is clear that the parties intended to enter into a contract, but the acceptance contained terms additional to the offer terms. When this occurs, the UCC provides for which terms govern: If the contract is between merchants, the additional terms in the acceptance are included in the contract, unless (i) the additional terms materially alter the contract, (ii) the offer expressly limits acceptance to the terms of the offer, or (iii) the offeror objects within a reasonable time. Here, both parties are merchants, and we were told to assume that the delivery terms do not materially alter the contract. There is no indication that the offer limited acceptance to the terms of the offer or that the wholesaler objected to the terms; thus, there is a contract containing the additional terms. (B) would be correct if one of the parties were not a merchant, because under the UCC, when an acceptance proposes additional terms, a contract would be formed under the terms of the offer unless both parties are merchants. (C) would be correct if the UCC did not apply, because under the common law, an acceptance must mirror the offer (the "mirror image" rule); if new terms are added in the acceptance, it is treated as a counteroffer. (D) is incorrect because, under the UCC, no notice was necessary to form the contract. Notice would be required, however, if the wholesaler did not want to be bound by the additional terms. Note that the fact that this was an oral conversation does not prevent formation of the contract. To be enforceable, any contract for the sale of goods priced at $500 or more must be evidenced by a writing signed by the party to be charged. This affects enforceablility, not formation. For this contract to be enforceable, some form of signed writing (e.g., a merchant's confirmatory memo) would be necessary.

In March, a homeowner contracted with a buyer to sell his house for $280,000, with the purchase price to be paid and the deed to be delivered on July 1. On May 1, the buyer wrote the homeowner a letter, stating that she decided to buy another house instead. Which of the following is true? (A) The homeowner may sue the buyer upon receipt of the letter. (B) The homeowner must wait until July 1 to sue the buyer, the date on which the purchase price is to be paid. (C) The homeowner must make a written demand to the buyer seeking adequate assurance of performance and wait a reasonable time for a response prior to filing suit. (D) The homeowner cannot sue the buyer because the parties' promises are executory at this stage.

(A) The homeowner may sue the buyer when he receives the letter because an anticipatory breach situation exists. Anticipatory repudiation occurs where a promisor, prior to the time set for performance of her promise, indicates that she will not perform when the time comes. Anticipatory repudiation serves to excuse conditions if: (i) there is an executory bilateral contract with executory duties on both sides; and (ii) the words or conduct of the promisor unequivocally indicates that she cannot or will not perform when the time comes. The requirements for anticipatory repudiation are met here because the homeowner's duty to deliver the deed and the buyer's duty to pay have yet to be performed, and the buyer's writing unequivocally states that she will not pay unless the homeowner performs extra tasks. In the case of anticipatory repudiation, the nonrepudiating party has the option to treat the contract as being breached and sue immediately. Therefore, the homeowner may sue the buyer upon receipt of the letter. (B) is incorrect because, as stated above, the homeowner need not wait until July 1 to sue because the buyer's letter amounts to anticipatory repudiation. The nonrepudiating party may treat this as a total repudiation and 12. Contracts Answers sue immediately. The doctrine of anticipatory repudiation would not apply if both sides did not have executory duties to perform. In such a case, the nonrepudiator must wait to sue until the time originally set for performance by the repudiating party. However, as discussed above, the homeowner's duty was still executory at the moment of the buyer's repudiation. Therefore, the homeowner does not have to wait until July 1 to sue the buyer for breach. (C) is incorrect because seeking adequate assurances of the buyer's intent to perform is not necessary when the repudiating party has stated unequivocally that she will not perform. A party may in writing demand adequate assurance of due performance if "reasonable grounds for insecurity arise with respect to the performance of" the other party, after which the nonrepudiating party can treat the contract as repudiated if those assurances are not given within a reasonable time. However, here, it is clear from the buyer's writing that she is unwilling to perform and, therefore, the homeowner need not seek assurances of an intent to perform. (D) is incorrect because the homeowner can sue the buyer immediately because their promises are still executory. As discussed above, the doctrine of anticipatory repudiation is applicable only if there are executory duties on both sides. Here, the homeowner's duty to deliver a deed and the buyer's duty to pay are both executory, so the doctrine applies and the homeowner can sue the buyer now.

A recent nursing school graduate mailed a letter to a classmate on July 1 telling her that she was moving to take a nursing position in another city and asking her whether she wanted "the stuff in my house" for $2,500. The classmate received the letter on July 2, and on July 3 she sent the newly minted nurse a letter accepting the offer. The next day the classmate changed her mind, called the nurse, and told her to forget the deal. Later that same day, the nurse received the letter that her classmate had sent on July 3. Is there a contract between the nurse and her classmate? (A) Yes, because the contract is for the sale of goods for more than $500 and the classmate's attempted rejection is oral. (B) Yes, because the classmate's letter of acceptance was effective when she mailed it. (C) No, because the classmate's rejection was communicated to the nurse before her letter of acceptance was received. (D) No, because the description of the subject matter as "the stuff in my house" is not sufficiently definite and certain.

(B) The classmate accepted the nurse's offer when she mailed the letter on July 3; thus, a contract was formed. Under the mailbox rule, acceptance of an offer by mail creates a contract at the moment the acceptance is posted, properly stamped, and addressed. If the offeree sends both an acceptance and a rejection, whether the mailbox rule will apply depends on which the offeree sent first, the acceptance or the rejection. If the offeree first sends an acceptance and later sends her rejection, the mailbox rule does apply. Thus, even if the rejection arrives first, the acceptance is effective upon mailing (and so a contract is formed) unless the offeror changes his position in reliance on the rejection. Here, the classmate first sent an acceptance, then called with her rejection. The mailbox rule applies, and because there is nothing in the facts to show that the nurse relied on the rejection, a contract was formed. (A) is wrong because it implies that a rejection must be in writing. There is no such requirement. Also, the rejection (absent detrimental reliance) has no effect on the contract because the offer had already been accepted and the contract formed. (C) is wrong because, as stated above, under the mailbox rule the fact that the rejection was received before the acceptance is irrelevant (unless there has been detrimental reliance on the rejection, which was not the case here). The contract was formed when the classmate sent her acceptance. (D) is wrong because the description, although somewhat ambiguous, can be made reasonably certain by evidence of the subjective understanding of the parties and extrinsic evidence of what was in the house, which a court will consider to clarify an ambiguous term.

On November 5, an electronics store owner realized that his stock of 15 copies of the most popular video game of the holiday shopping season would not last until the first of the next month. Seeing an advertisement from the manufacturer of the game in a trade journal listing its price at $3,000 per hundred, with delivery one week from order, the store owner e-mailed to the manufacturer an order for 100 copies of the game at $3,000 per hundred. There were no further communications between the store owner and the manufacturer. By November 25, the store owner realized that the manufacturer was not going to deliver any of the video games. He thus was forced to obtain additional stock by purchasing from a middleman at a cost of $4,000 per hundred. The store owner brings an action for breach of contract against the manufacturer. Who will prevail? (A) The manufacturer, because the communications between the parties were not definite or certain enough to form a contract. (B) The manufacturer, because it never accepted the offer contained in the store owner's e-mail. (C) The store owner, because his e-mail was an acceptance of the manufacturer's offer. (D) The store owner, because he changed his position in reliance on the manufacturer's promise to deliver the video games within one week.

(B) The manufacturer will prevail because it never accepted the offer. For a communication to be an offer, it must contain a promise, undertaking, or commitment to enter into a contract, rather than a mere invitation to begin negotiations. The broader the communicating media, e.g., publications, the more likely it is that the courts will view the communication as merely the solicitation of an offer. An advertisement in a trade journal generally is construed as an invitation to submit offers, not an offer itself. It is an announcement of the price at which the seller is willing to receive offers. Thus, the store owner's e-mail was an offer that was never accepted by the manufacturer. (A) is wrong because the communications were definite and certain enough to form a contract. Under the UCC, only the quantity term must be definite and certain (or capable of being made so). Here, the quantity term, 100, was clear; the problem is that the offer containing it was not accepted. (C) is wrong because, as discussed above, the ad is not an offer. (D) is wrong because 2. Contracts Answers the ad in the trade journal was not a promise; hence, the store owner cannot rely on promissory estoppel or detrimental reliance to recover.

A steel mill contracted with an appliance manufacturer to sell the manufacturer a 10-ton coil of steel. The written contract specified the quality of the steel to be delivered and also contained a clause that made the agreement contingent upon the appliance manufacturer obtaining a letter of credit from a federally insured bank at an interest rate of no more than 2.5%. The appliance manufacturer subsequently received a letter of credit from a federally insured bank at 3% interest. Upon hearing of this, the mill refused to ship the steel to the appliance manufacturer. If the appliance manufacturer sues the mill for breach, is the appliance manufacturer likely to prevail? (A) No, because the condition was not satisfied. (B) No, because the appliance manufacturer breached its duty of good faith. (C) Yes, because the interest-rate term was included in the contract for the appliance manufacturer's benefit. (D) Yes, because the .5% differential between the interest rate stated in the contract and the rate actually obtained is not material.

(C) The appliance manufacturer will prevail because the limitation on the interest rate was placed in the contract for his protection and he was free to waive it. The terms of the contract made the contract contingent upon the appliance manufacturer obtaining a letter of credit from a federally insured bank. Thus, the letter of credit was a condition precedent to the contract. The limit on interest was clearly for the appliance manufacturer—he would not have to enter into the contract unless he could find a satisfactory loan. One having the benefit of a condition may by words or conduct indicate that he will not insist upon the condition, and the courts will enforce such a waiver. (A) is incorrect because while the 2.5% condition was not met, it was placed in the contract for the appliance manufacturer's benefit, and he was free to waive it. (B) is incorrect because, while the UCC (which governs here because we have a contract for the sale of goods) places a duty of good faith on all parties, it is not a breach of the duty for a party to waive a condition that was placed in the contract for that party's benefit. The appliance manufacturer sought and obtained a loan; so it acted in good faith. (D) is incorrect because while the extra .5% may be immaterial, it would be sufficient as a condition to prevent the contract if the term were not for the manufacturer's benefit. The court would give the condition a literal meaning, and the fact that the variance was small would not alter the fact that the condition precedent was not met.

The owner of a summer house entered into a written agreement with a plumber. The contract contained a clause requiring all plumbing work to be completed by noon on June 1 and provided that the homeowner would pay the plumber $1,200 for his work. The plumber began working on the job on May 28. When he quit working for the day on the afternoon of May 29, half of the job was completed. Shortly thereafter, a heavy rain began, which caused a flash flood. The house was swept away in the flood waters. Which of the following best describes the obligations of the plumber and the homeowner after the flood? (A) Neither the plumber nor the homeowner is discharged from their obligations under the contract. (B) The homeowner is obliged to pay the plumber $1,200. (C) The plumber is discharged from his obligation but is entitled to recover from the homeowner the fair value of the work he performed prior to the flood. (D) Neither the plumber nor the homeowner has any further obligations.

(C) The destruction of the house discharges the plumber's duties due to impossibility, but the plumber has a right to recover for the reasonable value of the work he performed. Contractual duties are discharged where it has become impossible to perform them. The occurrence of an unanticipated or extraordinary event may make contractual duties impossible to perform. If the nonoccurrence of the event was a basic assumption of the parties in making the contract, and neither party has assumed the risk of the event's occurrence, duties under the contract may be discharged. If there is impossibility, each party is excused from duties that are yet to be performed. If either party has partially performed prior to the existence of facts resulting in impossibility, that party has a Contracts Answers 9. right to recover in quasi-contract for the reasonable value of his performance. While that value is usually based on the benefit received by the defendant (unjust enrichment), it also may be measured by the detriment suffered by the plaintiff (the reasonable value of the work performed). Here, the house on which the plumber was to perform plumbing repairs was totally destroyed in a flood. The facts indicate that this flood was of such an unexpected nature that its nonoccurrence was a basic assumption of the parties, and neither party was likely to have assumed the risk of its occurrence. Thus, it has become objectively impossible for the plumber (or anyone else) to complete the job. This impossibility will discharge both the homeowner and the plumber from performing any contractual duties still to be fulfilled. Therefore, the plumber need not finish the repair work, and the homeowner is not obligated to pay the entire amount of $1,200. However, the plumber can recover under quasi-contract. (A) is incorrect because both parties are discharged. (B) is incorrect because, as discussed above, the homeowner is obligated to pay for the value of the plumber's services to date, not the full contract price. (D) is incorrect because it fails to account for the fact that the homeowner will have to pay the plumber for the value of the work already performed.

A doll collector knew that an acquaintance from her doll collectors' club coveted one particular doll that she owned. The doll collector mailed a letter to the acquaintance on May 3 offering to sell the doll to her for $750. Her letter arrived on May 4. On May 5, the doll collector changed her mind and immediately mailed a revocation to the acquaintance. This revocation arrived on May 7. As the mail carrier handed it to her, the acquaintance simultaneously handed to the mail carrier her own letter to the doll collector, unequivocally accepting her offer. What is the result of the actions here? (A) The revocation was effective upon mailing, and the acceptance would be treated as a counteroffer. (B) The acceptance was effective, as long as the acquaintance had no knowledge of the contents of the doll collector's letter when she handed her letter to the mail carrier. (C) The outcome would turn on the court's determination as to whether the doll collector's letter had been received by the acquaintance before she had entrusted the letter of acceptance to the mail carrier. (D) Handing a letter to a mail carrier is not a proper posting of the acceptance, and hence the acquaintance's purported acceptance is not timely.

(C) The outcome would turn on the court's determination as to whether the doll collector's letter had been received by the acquaintance before she had entrusted the letter of acceptance to the mail carrier. At common law, an acceptance is effective upon dispatch (e.g., upon mailing a properly addressed and stamped letter) under the mailbox rule. The mailbox rule does not apply to revocations, however—revocations are effective only upon receipt. Receipt does not require knowledge of the revocation, but merely possession of it. The communication need not be read by the recipient to be effective. [See Restatement (Second) of Contracts §68] The facts here present a close question as to whether there has been a dispatch of the acceptance before the receipt of the revocation. The outcome of this question will depend on the court's determination as to what came first (the posting of the acceptance or receipt of the revocation). This will decide the existence or nonexistence of the contract. (A) is incorrect because, as indicated above, revocation is effective only upon receipt, not mailing. (B) is incorrect because whether the acceptance is effective depends on whether the revocation was received before the acceptance was dispatched, and whether the revocation was received first is not dependent on whether the acquaintance had knowledge of its contents, but rather it depends on whether she had possession of it. (D) is incorrect because the mailbox rule makes an acceptance effective upon posting, and there is no reason to hold that handing a properly addressed, stamped letter to a mail carrier is not a valid posting.

A wholesaler persuaded a retailer to order a line of dolls for the Christmas season, even though the retailer was skeptical of the dolls' marketability. The contract provided that the retailer would pay $1,500 for its order of 100 dolls if they sold during the Christmas season. Some dolls did sell, but on February 12, the retailer had 80 of them in inventory. He sent the wholesaler notice that he would be returning the 80 dolls. The wholesaler replied that it did not want the dolls back, that the retailer should continue to try to sell them. Despite this reply, the retailer sent the wholesaler a check for $300 and shipped the dolls to the wholesaler, who refused to accept them but did accept the check. Thereafter, the retailer held the dolls at his warehouse. The wholesaler brought an action to recover the $1,200 balance. Will the wholesaler likely recover? (A) Yes, because the retailer still has the dolls in his possession. (B) Yes, because it was not a condition precedent that the dolls be sold during the Christmas season, but merely a convenient time for payment. (C) No, because sale during the Christmas season was a condition precedent to payment. (D) No, because accepting the $300 constituted a waiver of any rights that the wholesaler may have had to enforce the contract.

(C) The wholesaler will not recover the $1,200 because sale during the Christmas season was a condition precedent. A condition precedent is one that must occur before an absolute duty of immediate performance arises in the other party. Based on the facts here, the intent of the parties was that the retailer would have to pay for the dolls only if they sold during the Christmas season. Sale during that time was a condition precedent to payment. Thus, the retailer had no obligation to pay for the 80 dolls that had not sold by February 12 (well after the Christmas season). Thus, (C) is correct, and (B) is wrong. (A) is wrong because the wholesaler refused the retailer's tender of the dolls, and the retailer is just holding them awaiting the wholesaler's instructions. (D) is wrong because accepting the check did not result in a waiver of any rights the wholesaler may have had. If a monetary claim is uncertain or subject to a bona fide dispute, an accord and satisfaction can be accomplished by a good faith tender and acceptance of a check when that check (or an accompanying document) conspicuously states that the check is tendered in full satisfaction of the debt. Here, there is no indication that the retailer stated that the check was payment in full.

A woman lost her dog. She posted signs on many trees and poles throughout her neighborhood for a $500 reward to whomever would find and return her pet. Months later, believing she would never find the dog, the woman adopted a new dog and published an ad in the local newspaper stating that she repealed her previous reward offer. The ad was printed once daily for a week. After the ad had run, a dogcatcher had found the woman's dog, and, because it had no tags, he sent it to the local pound. A volunteer at the pound recognized the woman's dog from one of her reward postings and suggested that the dogcatcher claim the woman's $500 reward. The dogcatcher took the dog to the woman, who refused to pay the reward. If the dogcatcher sues the woman to recover the $500 reward, which of the following, if true, would be the LEAST helpful to the woman's defense? (A) The consideration furnished by the dogcatcher, if any, for the woman's reward promise was legally insufficient under the preexisting duty rule. (B) The dogcatcher was already compensated by the pound for his capturing services. (C) The woman's offer had effectively been revoked prior to the dogcatcher's attempted acceptance. (D) The dogcatcher failed to communicate his acceptance of the offer to the woman.

(D) Noncommunication of acceptance would be least helpful because the contract with the woman was unilateral and did not require a notice of acceptance; rather, performance was sufficient. (A) is helpful because the fact that the dogcatcher was already under contract might have impact with respect to the preexisting duty rule. (B) is helpful because the fact that the dogcatcher had been compensated already would not have a bearing on a contract theory but might on a quasi-contractual theory. (C) is helpful because the publication of the revocation in the local newspaper may have effectively revoked the woman's offer.

An art collector was interested in buying a painting from his neighbor. The neighbor told the collector that he could have the painting for $30,000. The collector wanted to think the purchase over. Therefore, the two agreed in writing that the neighbor would keep the offer open for 30 days in exchange for $500, which the collector paid. The terms of the written agreement provided that the offer would expire at 11:59 p.m. on September 30 if the collector failed to accept by that time. On September 20, the collector telephoned his neighbor and told him, "The more I think about it, the less I think that I want your painting." The neighbor responded, "That's your decision to make." On September 26, one of the neighbor's friends was visiting him, saw the painting, and offered his friend (the neighbor) $35,000 for it. On September 27, the neighbor mailed a $50 check to the collector with a letter stating that he was terminating his offer to the collector regarding the painting and refunding 10% of the money that the collector paid him to keep the offer open. He mailed the letter at 11:59 p.m. on September 27. The collector received the letter at 11:30 a.m. on September 29. On September 28, at 9:30 a.m., the collector mailed a letter to his neighbor stating that he had decided to purchase the painting and a certified check in the amount of $30,000 was enclosed. Two hours later, the neighbor sold the painting to his friend for $35,000. The neighbor received the collector's letter on October 1 and immediately mailed the check back to the collector. Can the collector maintain a successful legal action against his neighbor? (A) Yes, because the neighbor sold the painting after the collector's effective acceptance, and before the neighbor's revocation became effective. (B) Yes, because in his revocation the neighbor did not refund the full $500 to the collector. (C) No, because the neighbor effectively revoked his offer before the collector accepted. (D) No, because the collector's power to accept lapsed before he effectively accepted.

(D) The collector's power to accept lapsed because the option contract specified that the offer would expire at 11:59 p.m. on September 30. Hence, the power had to be exercised prior to that time and it was not. The mailbox rule does not apply to the exercise of options. In such cases, acceptance is effective when received by the offeror, here on October 1. Thus, (D) is correct. (A) is wrong because, for the reasons discussed above, the collector did not effectively accept before his option expired. (C) is wrong for two reasons: (i) a revocation is not effective until received; and (ii) because the contract is an option, the offeror's power to terminate the offer through revocation is Contracts Answers 7. limited. Even if the revocation had arrived earlier, the neighbor lacked the power to revoke. (B) is irrelevant. Returning the consideration, in and of itself, would not give the offeror the power to revoke in an option situation.

On February 1, the owner of a bowling alley read in a magazine an ad from a major manufacturer of bowling balls offering sets of 40 balls in various weights and drilled in various sizes for $10 per ball. The owner immediately filled out the order form included in the ad for the 40 balls and deposited it, properly stamped and addressed, into the mail. On February 2, the bowling alley owner received in the mail a letter from the manufacturer, sent out as part of its advertising campaign, stating in relevant part that it will sell the bowling alley owner 40 bowling balls at $10 per ball. A day later, on February 3, the manufacturer received the bowling alley owner's order. On February 4, the balls were shipped. On what day did an enforceable contract arise? (A) February 1, the day the bowling alley owner deposited his order in the mail. (B) February 2, the day the bowling alley owner received the letter from the manufacturer. (C) February 3, the day the manufacturer received the bowling alley owner's letter. (D) February 4, the day the balls were shipped.

(D) The contract arose when the balls were shipped. The general rule is that an offer can be accepted by performance or a promise to perform unless the offer clearly limits the method of acceptance. Here, the offer would be the bowling alley owner's order, because a magazine ad is usually held to be merely solicitation to accept offers rather than an offer. Thus, the manufacturer accepted and the contract was formed when it shipped the balls. (A) is wrong because the bowling alley owner's order was an offer to buy, and no contract could be formed until that offer was accepted. (B) is wrong because this is a case of crossing offers; even though both offers contain the same terms, they do not form a contract. (C) is wrong because no contract will be formed until there has been an acceptance, and, as stated, the bowling alley owner's letter was merely an offer.

A man borrowed $5,000 from his colleague to purchase stock and agreed in writing to repay the loan on or before August 1. On August 1, the man notified his colleague that he would be unable to pay back the $5,000. He told her that he could send her a check for $2,500 and that, in addition, he could give her an antique diamond ring that had been recently appraised at $2,200. The colleague liked the ring and agreed to accept it plus $2,500 in cash as payment for the loan. On August 2, a courier delivered the ring and a certified check for $2,500 to the colleague. She took the check but told the courier to return the ring to the man. The man received the ring back the same afternoon. Meanwhile, the colleague deposited the check in her bank, and the next day filed suit against the man for $2,500. The man consulted an attorney as to whether he has a valid defense against his colleague's suit. Assuming there are no Statute of Frauds issues, what advice should the attorney give the man? (A) The man has no defense against his colleague's suit, because the amount of the debt was undisputed. (B) The man has no defense against his colleague's suit, because she properly exercised her right to enforce the original agreement by refusing tender of the ring. (C) The man has no defense at law, but he may successfully defend in equity under a specific performance theory because the ring is unique. (D) The man has the option of defending in equity under a specific performance theory or waiting until his colleague obtains a judgment against him and then suing her for breach.

(D) The man has the option of defending in equity under a specific performance theory or waiting until his colleague obtains a judgment against him and then suing her for breach. He has either option available because his colleague is in breach of their accord agreement. An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party, some other, different performance. The accord must be supported by consideration, but the consideration is sufficient if it is of a different type than called for under the original contract, even if the substituted consideration is of less value. An accord suspends the right to enforce the original agreement. Performance of the accord (i.e., satisfaction) cuts off the parties' rights to enforce the original contract and discharges the accord. Here, the accord was supported by sufficient consideration because the man was giving a ring in lieu of some cash. The man's duties under the accord were discharged when he timely tendered delivery of the ring and cash. By refusing the ring and filing suit for the part of the original debt that has not been paid, the colleague has breached the accord agreement. If a creditor breaches an accord agreement, the debtor has the option of either raising the accord agreement as an equitable defense in the creditor's action and asking that it be dismissed, or waiting until he is damaged (i.e., until the creditor is successful in an action on the original contract) and then bringing an action at law for damages for breach of the accord contract. (A) is incorrect because the amount of the debt does not have to be in dispute to have an enforceable accord, as long as there was some alteration in the debtor's consideration, as discussed above. (B) is incorrect because the colleague would have the right to enforce the original contract only if the man had breached the accord agreement. Here, the man's tender of the ring discharged his duty under the accord agreement, precluding his colleague from suing on the original contract. (C) is incorrect because the man has both a breach of contract remedy and an equitable defense option available to him. Also, whether the ring is unique does not affect his right to specific performance of the accord agreement; he is simply raising the agreement as an equitable defense to prevent the colleague from continuing with her suit on the original contract.

The owner of an apartment building contracted with a painter to paint the porches of the apartments for $5,000. The contract was specifically made subject to the owner's good faith approval of the work. The painter finished painting the porches. The owner inspected the porches and believed in good faith that the painter had done a bad job. The painter demanded payment, but the owner told him that the paint job was poor and refused to pay. The painter pleaded that he was desperately in need of money. The owner told the painter that she would pay him $4,500, provided he repainted the porches. The painter reluctantly agreed, and the owner gave the painter a check in the amount of $4,500. The painter went to his bank, indorsed the check "under protest" and signed his name, then deposited the check in his account. He never returned to repaint the porches. The painter sues the owner for $500, which he believes is still owed to him on his contract to paint the porches. Will he prevail? (A) Yes, because he indorsed the check "under protest." (B) Yes, but only if he repaints the porches. (C) Yes, because he performed the contract by painting the porches the first time. (D) No, even if he repaints the porches.

(D) The painter will be unable to recover the $500 because he did not satisfy the condition precedent to payment under the contract. A party does not have a duty to perform if a condition precedent to that performance has not been met. Here, the parties made the owner's satisfaction with the painter's paint job a condition precedent to the owner's duty to pay the $5,000. Because the owner was not satisfied with the paint job, her duty to pay the painter never arose. The fact that the owner offered to give the painter $4,500 if he repainted the porches has no effect on this analysis, because the offer constituted a new contract, the owner having been excused from the old one. (A) is wrong because it does not matter whether the painter indorsed under protest. The indorsement will not change the result here because the new contract did not seek to discharge any contractual duty—the owner was already excused from her duties because the condition precedent was never met. (B) is wrong because the old contract, which provided for payment of $5,000, is considered to be at an end. Under the terms of the new contract, the painter is entitled to only $4,500, provided he repaints the porches. (C) is wrong because the condition precedent to the payment of $5,000, the owner's satisfaction, was not met. The courts have held such conditions to be valid—not illusory promises—because of the promisor's duty to exercise good faith in 8. Contracts Answers assessing satisfaction. Here, the facts state that the owner believed in good faith that the painter had done a bad job; thus, the painter is not entitled to payment under the original contract. Note that since he has not performed under the new contract, he is in breach and not entitled to the $4,500 already paid.

Which one of the following contracts involving an interest in land does not come within the Statute of Frauds? AA contract to buy and sell real estate and divide the profits BA mortgage contract CA contract forming an easement of more than one year DA contract for a lease of real property for more than one year

A A contract to buy and sell real estate and divide the profits does not come within the Statute of Frauds even though the end result may be an interest in land. A contract creating an easement of more than one year is an interest in land covered by the Statute of Frauds. A mortgage contract is an interest in land covered by the Statute of Frauds. A contract for a lease of real property for more than one year is an interest in land covered by the Statute of Frauds.

A promise to choose among one of several alternative means of performance, only one of which involves an actual legal detriment, will be deemed __________. AValuable consideration if the choice of performance rests with the promisee BValuable consideration if the choice of performance rests with the promisor CIllusory, no matter where the choice of performance rests

A A promise to choose among one of several alternative means of performance, only one of which involves an actual legal detriment, will be deemed valuable consideration so long as the power to choose rests with the promisee or some third party not under the control of the promisor. If the promisee (or the third party) chooses the one alternative that involves a legal detriment, the promisor is bound to perform; thus, his promise is not illusory. If the power to choose rests with the promisor, such a promise will be deemed illusory. An illusory promise is one in which the promisor is not actually bound to perform. The promisor could simply choose the alternative with no legal detriment. Consideration fails in such instances because the agreement lacks mutuality. Mutuality requires that consideration exists on both sides of the contract.

A writing is __________. AUsually not required for an effective assignment BRequired for an effective assignment only if the assignment is gratuitous CAlways required for an effective assignment DRequired for an effective assignment only if the assignment is backed by valid consideration

A A writing is usually not required to have an effective assignment; an oral assignment is generally effective. Whether an oral assignment is effective is not determined by whether the assignment is gratuitous or backed by valid consideration. There are certain situations where an assignment must be in writing. These include: wage assignments; assignments of an interest in land; assignments of choses in action worth more than $5,000; and assignments intended as security interests under Article 9 of the U.C.C. Consideration is not required for an effective assignment; a gratuitous assignment is effective. It is important to remember, however, that even though neither a writing nor consideration is generally required, the lack thereof will affect revocability

An assignment for value __________. Ais irrevocable Brequires delivery of a token chose Cis revocable by the death of the assignor Dcannot be taken as payment for a preexisting debt

A An assignment for value is irrevocable. An assignment is for value if it is done for consideration or taken as security for or payment of a preexisting debt. As noted above, an assignment for value can be taken as payment for a preexisting debt. Because an assignment for value is irrevocable, the death of the assignor does not revoke the assignment. The death of the assignor would, however, revoke a gratuitous assignment. Delivery of a token chose (a tangible claim) involving the rights to be assigned will cause a gratuitous assignment to become irrevocable. Assignments for value are irrevocable and there is no need for delivery of a token chose.

An intended beneficiary must be __________. AIdentifiable at the time performance is due BNamed at the time the contract is made CPresent at the time the performance is due DNotified at the time the contract is made

A An intended third-party beneficiary has certain rights under the contract. The best test for determining whether someone is an intended beneficiary is to pose the following question: "To whom is performance to be given according to the language of the contract?" In other words, was the purpose of the promisee, according to the language of the contract, to get the benefit for herself primarily or to confer a right on another directly? If the purpose was to confer a right on another directly, there is a third-party beneficiary situation. The third-party beneficiary must be identifiable at the time performance is due. Although it is true that a court will more likely find that a contract is primarily for the benefit of a third party if that third party is expressly designated in the contract, this is not always the case. It is not necessary that the third-party beneficiary be named, or even identifiable, at the time the contract is made; she need only be identifiable at the time performance is due. There is no requirement that an intended beneficiary be notified at the time the contract is made or be present at the time the performance is due.

As a general rule, all contractual duties may be delegated to a third person. Which of the following is not an exception to this general rule? AA duty that is central to the fulfillment of the contract BA duty involving special trust between the parties CA duty involving personal judgment and skill DA duty restricted from delegation by the terms of the contract

A As a general rule, all contractual duties may be delegated to a third person. There are several exceptions to the general rule. However, simply because a duty is central to the fulfillment of the contract does not mean that such a duty cannot be delegated. If a duty involves personal judgment and skill, it may not be delegated. An actor's performance would be an example of a duty involving personal judgment and skill. A duty involving a special trust between the parties may also not be delegated. For example, the duties of an attorney to her client, or a physician to his patient, may not be delegated. In addition to the above, the parties may agree to a contractual restriction on delegation. A provision that states that any certain duty is restricted from delegation will be given strict effect.

A conditional promise is unenforceable if: AThe condition is entirely within the promisor's control BThe condition is the promisor's satisfaction with the performance CThe condition is entirely within the promisee's control DThe condition is extremely remote

A Conditional promises are enforceable unless the condition is entirely within the promisor's control. Such a promise will be deemed illusory. An illusory promise is one in which the promisor is not actually bound to perform. The promisor could simply choose to assert his control over the condition so that he suffers no legal detriment. Consideration fails in such an instance because the agreement lacks mutuality. Mutuality requires that consideration exists on both sides of the contract. Conditional promises are enforceable no matter how remote the contingency. Promises conditioned on the promisor's satisfaction are enforceable because the party has a duty to act in good faith. If the condition is entirely within the promisee's (or some third party's) control, the promise is enforceable as long as it involves a possibility of legal detriment, no matter how remote. The promisee or the third party could assert control over the condition such that the promisor is obligated to perform; thus the promisor's promise is not illusory.

In judging the validity of consideration, courts of law __________ inquire into the adequacy of the consideration. AWill not BWill CMay or may not

A Courts of law normally will not inquire into the adequacy of consideration, such as when one party wishes to contract to sell an item of high market value for a relatively low price. In contrast, courts of equity may consider the relative values of the consideration and deny an equitable remedy if they find a contract to be unconscionable.

In a contract in which the seller is in Michigan and the buyer is in Texas, which of the following terms is interpreted as creating a destination contract? AF.O.B. the buyer's place of business BF.A.S. Texas CF.O.B. Michigan DF.A.S. the buyer's place of business

A F.O.B. the buyer's place of business is a destination contract. Under an F.O.B. (free on board) contract, the seller has the risk of loss until the goods reach the location specified. An F.O.B. buyer's place of business is a destination contract, so the seller has the risk of loss until the goods reach the buyer's place of business. F.A.S. stands for "free alongside." The term is generally used only when goods are to be shipped by boat. The risk of loss passes to the buyer once the goods are delivered to the dock. Because the risk of loss shifts when the goods are delivered to the carrier at the dock, these are shipment contracts. F.O.B. Michigan is the same as F.O.B. the seller's location. Because the seller does not bear the risk of loss while the goods are in transit, this is considered a shipment contract.

Which of the following best describes the elements required for an effective assignment? AAn adequate description of the right being assigned and present words of assignment BA writing containing an adequate description of the right being assigned and present words of assignment CConsideration and a writing containing an adequate description of the right being assigned and present words of assignment DAn adequate description of the right being assigned, consideration, and present words of assignment

A For an assignment to be effective, there must be an adequate description of the right being assigned. In addition, there is a requirement that the assignment is expressed in present words of assignment. This means that the assignor must manifest an intent to transfer his rights under the contract completely and immediately to the assignee. Whether such intent is present will be determined by looking to the terms of the transfer itself; i.e., the test is objective, not subjective. It is not necessary to use the word "assign"; any generally accepted words of transfer will suffice (e.g., "convey," "sell," "transfer," etc.). A writing is usually not required to have an effective assignment; an oral assignment is generally effective. Situations where an assignment must be in writing include wage assignments; assignments of an interest in land; assignments of choses in action worth more than $5,000; and assignments intended as security interests under Article 9 of the U.C.C. Consideration is not required; a gratuitous assignment is effective.

Which of the following is not a requirement for the implied warranty of fitness for a particular purpose? AThe seller is a merchant who deals in goods of the kind sold BThe buyer relies on the seller's skill and judgment CThe seller has reason to know that the buyer is relying on the seller's skill and judgment DThe seller has reason to know of the particular purpose for which the goods are intended

A For an implied warranty of fitness for a particular purpose, the seller need not be a merchant. The implied warranty of fitness for a particular purpose arises whenever (i) any seller has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller's skill or judgment to select suitable goods, and (ii) the buyer in fact relies on the seller's skill or judgment.

If an assignor takes payment or performance directly from the obligor, __________. Aa gratuitous assignment is revoked, but an assignment for value is not Bboth a gratuitous assignee and an assignee for value may recover from the assignor Cboth a gratuitous assignment and an assignment for value are revoked Dneither a gratuitous assignment nor an assignment for value are revoked

A If an assignor takes payment or performance directly from the obligor, a gratuitous assignment is revoked, but an assignment for value is not. Gratuitous assignments are generally revocable, whereas assignments for value are irrevocable. One method for revoking an assignment is for the assignor to accept performance directly from the obligor. Such an action manifests the assignor's intent to revoke. A gratuitous assignee cannot recover from either the obligor or the assignor. An assignee for value may enforce her rights against the obligor directly if the obligor has notice of the assignment. Also, an assignee for value may bring an action against the assignor on any underlying obligation or for breach of assignment warranties.

In a construction contract, if the property owner breaches the contract after construction has started but before it is completed, the builder is entitled to: AThe profits he would have derived from the contract, plus any costs he has incurred BThe contract price CThe contract price plus any costs he has incurred DThe profits he would have derived from the contract

A If the property owner breaches a construction contract during construction, the builder is entitled to any profit he would have derived from the contract plus any costs he has incurred to date by starting construction. The formula is also stated as the contract price minus the cost of completion. Either formula will give the same result.The builder is not entitled to the contract price because the contract price includes costs that the builder has not yet incurred. The profits measure puts him where he would have been had the promise been performed

A 17-year-old contracts to buy his neighbor's car. The neighbor is 25 years old. The agreement between the two parties is: AVoidable by the minor but not by the neighbor BBinding as to both parties CVoidable by the neighbor but not by the minor DVoidable by both parties

A In a contract between a minor and an adult, the contract is binding as to the adult and voidable as to the minor. Minors under the age of 18 (also called infants) lack capacity to enter into a contract binding on themselves. Adults have the capacity to bind themselves under a contract. Thus, a contract entered into between a minor and an adult is voidable by the minor but binding on the adult.

In every assignment for value, the assignor implied warrants that: he has a right to make the assignment; the right exists and is not subject to any undisclosed limitations or defenses; and _________. AHe will do nothing to defeat or impair the assigned right BHe will be strictly liable to the assignee if for any reason the obligor does not perform CThe obligor will honor the assignment by performance DHe will be a surety for the obligor's performance

A In every assignment for value, the assignor impliedly warrants that: (i) He has the right to make the assignment; i.e., the assignor has made no prior assignment of the right; (ii) The right exists and is not subject to limitations or defenses other than those stated or apparent at the time of the assignment; and (iii) He will do nothing to defeat or impair the assigned right; e.g., he will not attempt a subsequent assignment. Breach of any of these warranties gives rise to a cause of action. For example, if the assignor wrongfully exercises his power to revoke the irrevocable assignment, the assignee may proceed against him. Also, the assignee may seek to recover against the assignor if the obligor successfully asserts a defense she had against the assignor in an action by the assignee, thereby defeating the assigned right—provided the assignee had no notice of the defense at the time of the assignment. An assignor does not make any warranty guaranteeing the performance of the obligor. In fact, the assignor will not be liable to the assignee if the obligor is later incapable of performance, e.g., if the obligor becomes insolvent. Thus, it is incorrect to say that the assignor warrants that the obligor will honor the assignment by performance. Similarly, the assignor does not impliedly warrant that he will be a surety for the obligor's performance or agree that he will be strictly liable to the assignee if for any reason the obligor does not perform.

A pedestrian shoved a child out of the path of a speeding car and in doing so sustained significant injuries. The child's grateful parents promised to pay the pedestrian's medical bills but then later refused to pay. Which one of the following offers the pedestrian's best hope of recovery against the child's parents for the cost of the medical bills? AThe material benefit rule BThe preexisting legal duty rule CThe moral consideration rule

A Out of these choices, the pedestrian's best hope of recovery is found in the material benefit rule. Under a modern trend, some courts will enforce a promise if: (i) it is based on a material benefit that was previously conferred by the promisee on the promisor, and (ii) the promisee did not intend to confer the benefit as a gift. This includes situations, such as this one, in which the promisee performed an unrequested act during an emergency. The pedestrian will not be able to recover based on moral consideration. The general rule is that if an act was performed before the promise was made, it will not satisfy the bargain requirement. The preexisting legal duty rule is not applicable to these facts. That rule states that a promise to perform, or the performance of, an existing legal duty is not consideration. There was no preexisting duty here.

If a plaintiff's expectation damages will be too speculative to measure, the plaintiff may elect to recover __________ instead, to put the plaintiff in the position she would have been in had the contract never been formed. Areliance damages Bliquidated damages Cpunitive damages Dconsequential damages

A Reliance damages put the plaintiff in the position she would have been in had the contract never been formed. If the plaintiff's expectation damages will be too speculative to measure, the plaintiff may elect to recover reliance damages instead. Liquidated damages are the damages stipulated to by the parties to a contract. Parties to a contract may stipulate what damages are to be paid in the event of a breach, provided the amount is reasonable in view of the actual or anticipated harm caused by a breach. Consequential damages are special damages and reflect losses over and above standard expectation damages. These damages result from the nonbreaching party's particular circumstances. Usually, consequential damages are lost profits resulting from the breach. Punitive damages, the purpose of which is to punish a defendant for wrongful conduct, are generally not awarded in contract cases.

Which of the following promises is commonly considered to be illusory? AA promise with an unqualified right to cancel or withdraw at any time BA promise conditioned on the promisor's satisfaction CA promise to purchase all that one requires DA promise to sell all that one decides to make

A Reservation of an unqualified right to cancel or withdraw at any time would be considered an illusory promise. "Requirements" contracts (i.e., promises to purchase all that one requires) and "output" contracts (i.e., promises to sell all that one decides to make) are enforceable, as the promisor has parted with the legal right to buy (or sell) the goods he may need (or make) from (or to) another source. A promise conditioned on the promisor's satisfaction is not illusory because the promisor is constrained by good faith (for contracts involving personal taste) and a reasonable person standard (for contracts involving mechanical fitness, utility, or marketability).

Owen owes Arthur $1,000 for a painting he bought from him. Arthur assigns his right to payment to Annie and notifies Owen of the assignment. Owen later performs work on Arthur's home and bills Arthur $500. Arthur tells Owen to deduct it from the $1,000 he owes, which Owen does. When Annie sues Owen for the remaining $500, which of the following is not a valid defense? AThe $500 was a valid setoff from the amount owed under the contract BOwen was 17 years old when he entered into the contract with Arthur CThe painting was a forgery DThe contract between Owen and Arthur was oral

A The $500 setoff is not a valid defense against Annie. An assignee's rights against the obligor may be subject to any defenses the obligor had against the assignor. However, if the obligor's defense is unrelated to the contract itself (e.g., a setoff or counterclaim), the defense is not available against the assignee if it arose after the obligor had notice of the assignment. The fact that the contract between Owen and Arthur was oral is a valid defense to Annie's suit. Owen may raise any defenses he had against Arthur. The contract for the painting was a contract for the sale of goods priced at $500 or more. Thus, to be enforceable, that contract must be evidenced by a signed writing. Since Owen could raise the Statute of Frauds defense against Arthur, he may raise it against Annie. The fact that the painting is a forgery is also a valid defense that Owen could have raised against Arthur, and thus can raise against Annie. If the painting is a forgery, it is a material misrepresentation and the contract is voidable, by the innocent party. The fact that Owen was 17 years old when he entered into the contract is a valid defense that could have been raised by Owen against Arthur. If Owen was under age 18 when he entered into the contract, he would be considered an infant. Infants lack capacity to enter into contracts binding on themselves. Thus, the contract is voidable by Owen.

A service contract that by its terms __________ is subject to the Statute of Frauds. ACannot be performed within one year BMight extend to longer than one year CIs for the lifetime of one of the parties

A The Statute of Frauds requires that certain contracts be evidenced by a writing signed by the parties sought to be bound. A service contract that by its terms cannot be performed within one year is subject to the Statute of Frauds. The date runs from the date of the agreement and not from the date of performance. If the contract might extend to longer than one year, but it is still possible to complete within one year, it is not within the one-year prong of the Statute of Frauds, even though actual performance may extend beyond the one-year period. A contract for the lifetime of one of the parties is not within the Statute because it is capable of performance within a year, since a person can die at any time. A. INTRODUCTIONEven if an agreement is supported by valuable consideration or a recognized substitute, contract rights may still be unenforceable because there is a defense to formation of the contract, because there is a defect in capacity (making the obligations voidable by one of the parties), or because a defense to enforcement of certain terms exists.B. ABSENCE OF MUTUAL ASSENT 1. Mutual Mistake as to Existing FactsIf both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract may be voidable by the adversely affected party if:(i) The mistake concerns a basic assumption on which the contract is made (e.g., the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia));(ii) The mistake has a material effect on the agreed-upon exchange (e.g., the cubic zirconia is worth only a hundredth of what a diamond is worth)); and(iii) The party seeking avoidance did not assume the risk of the mistake. a. Not a Defense If Party Bore the RiskMutual mistake is not a defense if the party asserting mistake as a defense bore the risk that the assumption was mistaken. This commonly occurs when one party is in a position to better know the risks than the other party (e.g., contractor vs. homeowner) or where the parties knew that their assumption was doubtful (i.e., when the parties were consciously aware of their ignorance). 1) Mistake in Value Generally Not a DefenseIf the parties to a contract make assumptions as to the value of the subject matter, mistakes in those assumptions will generally not be remedied - even though the value of the subject matter is generally a basic assumption and the mistake creates a material imbalance - because both parties usually assume the risk that their assumption as to value is wrong. 2. Compare - Unilateral MistakeIf only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a contract. However, if the nonmistaken party knew or had reason to know of the mistake made by the other party, the contract is voidable by the mistaken party. As with mutual mistake, the mistake must have a material effect on the agreed-upon exchange and the mistaken party must not have borne the risk of the mistake.EXAM TIP:Unilateral mistakes arise most commonly when one party makes a mechanical error in computation. Whenever you see facts in which a subcontractor's bid was wrong or acreage in a land sale contract was miscalculated, consider whether the contract may be avoided due to unilateral mistake.3. Mistake by the Intermediary (Transmission)When there is a mistake in the transmission of an offer or acceptance by an intermediary, the prevailing view is that the message as transmitted is operative unless the other party knew or should have known of the mistake.4. Misunderstanding-Ambiguous Contract LanguageIf the contract includes a term with at least two possible meanings, the result depends on the parties' awareness of the ambiguity: (i) Neither party aware - no contract unless both parties intended the same meaning);(ii) Both parties aware - no contract unless both parties intended the same meaning);(iii) One party aware - binding contract based on what the ignorant party reasonably believed to be the meaning of ambiguous words.Ambiguity is one area where subjective intent is taken into account. 5. Misrepresentation a. Fraudulent Misrepresentation (Fraud in the Inducement)If a party induces another to enter into a contract by using fraudulent misrepresentation (i.e., by asserting information she knows is untrue), the contract is voidable by the innocent party if she justifiably relied on the fraudulent misrepresentation. This is fraud in the inducement.b. Material MisrepresentationWhether or not a misrepresentation is fraudulent, the contract is voidable by the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material. A misrepresentation is material if: (i) it would induce a reasonable person to agree, or (ii) the maker knows that for some special reason it is likely to induce the particular person to agree, even if a reasonable person would not.EXAM TIP:Keep in mind that a fraudulent misrepresentation need not be spoken or written); it can be inferred from conduct. Concealing a fact, frustrating investigation of a fact, or falsely denying knowledge of a fact is the same as asserting the fact does not exist. However, nondisclosure of a fact is not misrepresentation unless it is material or fraudulent (e.g., false denial of knowledge of a material fact).c. Justified RelianceA party is not entitled to relief if the reliance was unreasonable under the circumstances. However, just because a misrepresentation could have been revealed by the exercise of reasonable care does not mean that reliance was unjustified. Failure to read a contract or use care in reading it does not necessarily preclude a party from avoiding a contract for misrepresentation. d. Innocent Party May Rescind Agreement and Recover Damag esNote that the innocent party need not wait until she is sued on the contract, but may take affirmative action in equity to rescind the agreement. In addition, she may pursue all remedies available for breach of contract (see VIII., infra). C. ABSENCE OF CONSIDERATIONIf the promises exchanged at the formation stage lack the elements of bargain or legal detriment, no contract exists. In this situation, one of the promises is always illusory.D. PUBLIC POLICY DEFENSES-ILLEGALITYIf the consideration or subject matter of a contract is illegal (e.g., a contract to commit a murder), the contract is void. Exceptions: (i) the plaintiff is unaware of the illegality while the defendant knows of the illegality); (ii) the parties are not in pari delicto (i.e., one party is not as culpable as the other)); or (iii) the illegality is the failure to obtain a license when the license is for revenue-raising purposes rather than for protection of the public. If only the purpose behind the contract is illegal, the contract is voidable by a party who was (i) unaware of the purpose); or (ii) aware but did not facilitate the purpose and the purpose does not involve serious moral turpitude.E. DEFENSES BASED ON LACK OF CAPACITY 1. Legal Incapacity to Contract a. Contracts of Infants (Minors)Infants (in most jurisdictions, persons under the age of 18) generally lack capacity to enter into a contract binding on themselves. However, contractual promises of an adult made to an infant are binding on the adult. 1) DisaffirmanceAn infant may choose to disaffirm a contract any time before (or shortly after) reaching the age of majority. If an infant chooses to disaffirm, she must return anything that she received under the contract that still remains at the time of disaffirmance. However, there is no obligation to return any part of the consideration that has been squandered, wasted, or negligently destroyed. a) ExceptionsStates have created a few statutory exceptions for student loans, insurance contracts, and agreements not to reveal an employer's proprietary information.b) Necessaries"Necessaries" are items necessary for the minor's subsistence, health, or education (e.g., food, shelter, clothing, medical care). A minor may disaffirm a contract for necessaries but in most states will be liable in restitution for the value of benefits received. 2) Affirmance upon Attaining MajorityAn infant may affirm, i.e., choose to be bound by his contract, upon reaching majority. He affirms either expressly or by conduct (e.g., by failing to disaffirm the contract within a reasonable time after reaching majority). b. Mental IncapacityOne whose mental capacity is so deficient that he is incapable of understanding the nature and significance of a contract may disaffirm when lucid or by his legal representative. He may likewise affirm during a lucid interval or upon complete recovery, even without formal restoration by judicial action. In other words, the contract is voidable. As in the case of infants, mentally incompetent persons are liable in quasi-contract for necessaries furnished to them.c. Intoxicated PersonsOne who is so intoxicated that he does not understand the nature and significance of his promise may be held to have made only a voidable promise if the other party had reason to know of the intoxication. The intoxicated person may affirm the contract upon recovery. Once again, there may be quasi-contractual recovery for necessaries furnished during the period of incapacity. 2. Duress and Undue InfluenceContracts induced by duress or undue influence are voidable and may be rescinded as long as not affirmed. The common type of duress occurs when a party's assent is procured by an improper threat (e.g., "sign the contract or I'll break your legs"). Generally, taking advantage of another person's economic needs is not duress. However, withholding something someone wants or needs will constitute economic duress if: (i) the party threatens to commit a wrongful act that would seriously threaten the other contracting party's property or finances); and (ii) there are no adequate means available to prevent the threatened loss. Elements of undue influence are: (i) undue susceptibility to pressure by one party, and (ii) excessive pressure by the other party. Undue influence concerns often arise when the dominant party is in a confidential or caregiver relationship with the influenced party. F. STATUTE OF FRAUDSIn most instances, an oral contract is valid. However, certain agreements, by statute, must be evidenced by a writing signed by the party sought to be bound. 1. Writing RequirementThe Statute of Frauds does not require a formal written contract. Among other things, the writing can be a receipt, a letter, a check with details in the memo line, or a written offer that was accepted orally. The Statute requires only one or more writings that: (i) reasonably identify the subject matter of the contract, (ii) indicate that a contract has been made between the parties, and (iii) state with reasonable certainty the essential terms. a. Electronic Record Satisfies Writing RequirementIf a law requires a record to be in writing, an electronic record (e.g., an e-mail) satisfies the law.b. Essential or Material TermsThere is no definitive list of essential terms. What is essential depends on the agreement, its context, and the subsequent conduct of the parties, including the dispute that has arisen. There must be enough in the writing to enable a court to enforce the contract. If an essential term is contained in the writing, evidence is admissible to explain the particulars, but evidence will not be admitted to add a missing term. Examples of essential terms include: identity of the parties, description of the subject matter, and the terms necessary to make the contract definite. Writings evidencing land sale contracts must contain a description of the land and the price, and those for employment contracts must state the length of employment. For the sale of goods, the UCC requires only some signed writing indicating that a contract has been made and specifying the quantity term. EXAM TIPRemember, to be sufficient under the Statute of Frauds, the writing need not be a full-fledged contract, nor need it even be one piece of paper. Thus, several pieces of correspondence (including electronic correspondence) between the parties could be sufficient memoranda of the agreement); a fax or a memo written on a napkin also could suffice. The key is that there be something in writing evidencing the essential terms. 2. Signature RequirementThe signature requirement is liberally construed by most courts. A signature is any mark or symbol made with the intention to authenticate the writing as that of the signer. It need not be handwritten); it can be printed or typed. Under the UCC, a party's initials or letterhead may also be sufficient. An electronic signature is also sufficient.EXAM TIPNote that the memorandum need not be signed by both parties. Only the party to be charged (i.e., the person to be sued) must sign. Thus, in a suit by the buyer against the seller, an otherwise sufficient writing that is signed by the seller but not the buyer satisfies the Statute of Frauds. However, if the seller were suing the buyer, the writing would not be sufficient. (Although there is an exception in contracts for the sale of goods in the case of a merchant's confirmatory memo); see 3.f.2), infra.)3. Agreements Covered a. Executor or Administrator Promises Personally to Pay Estate DebtsA promise by an executor or administrator to pay the estate's debts out of his own funds must be evidenced by a writing.b. Promises to Pay Debt of Another (Suretyship Promises)A promise to answer for the debt or default of another must be evidenced by a writing. The promise may arise as a result of a tort or contract, but it must be collateral to another person's promise to pay, and not a primary promise to pay. However, if the main purpose or leading object of the promisor is to serve a pecuniary interest of his own, the contract is not within the Statute of Frauds even though the effect is still to pay the debt of another (e.g., homeowner promises to pay contractor's debt to building supplier if contractor does not pay, so contractor can obtain supplies to work on homeowner's house).c. Promises in Consideration of MarriageA promise the consideration for which is marriage must be evidenced by a writing. This applies to promises that induce marriage by offering something of value (other than a return promise to marry - e.g., "if you marry my son, I will give the two of you a house").d. Interest in LandA promise creating an interest in land must be evidenced by a writing. This includes not only agreements for the sale of real property, but also:(i) Leases for more than one year);(ii) Easements of more than one year);(iii) Mortgages and most other security liens);(iv) Fixtures); and(v) Minerals (or the like) or structures if they are to be severed by the buyer. 1) Items That Do Not Create an Interest in LandContracts to build a building or to find a buyer for a seller (e.g., a broker's contract) do not create an interest in land. 2) Effect of Performance on ContractsFull performance by the seller will take the contract out of the Statute of Frauds. Part performance by the buyer may also remove the contract from the Statute. (See 5.a.1), infra.) e. Performance Not Within One Year from Date of ContractA promise that by its terms cannot be performed within one year is subject to the Statute of Frauds. Part performance does not satisfy the Statute of Frauds in this case. The date runs from the date of the agreement and not from the date of performance. Note that, even if the contract cannot be performed within a year, full performance by one party will remove it from the Statute.EXAM TIPWatch for a contract measured by a lifetime. A promise to "employ until I die" or "work until I die" is not within the Statute because it is capable of performance within a year - a person can die at any time.f. Goods Priced at $500 or MoreA contract for the sale of goods for a price of $500 or more is within the Statute of Frauds and generally must be evidenced by a signed writing to be enforceable. Note that a writing is sufficient even though it omits or incorrectly states a term, but the contract is not enforceable beyond the quantity of goods shown in the writing. 1) When Writing Not RequiredThere are three situations in which contracts are enforceable without the writing described above: a) Specially Manufactured GoodsIf goods are to be specially manufactured for the buyer and are not suitable for sale to others by the seller in the ordinary course of his business, the contract is enforceable if the seller has, under circumstances that reasonably indicate that the goods are for the buyer, made a substantial beginning in their manufacture or commitments for their purchase before notice of repudiation is received.b) Admissions in Pleadings or CourtIf the party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that the contract for sale was made, the contract is enforceable without a writing (but in such a case the contract is not enforced beyond the quantity of goods admitted).c) Payment or Delivery of GoodsIf goods are either received and accepted or paid for, the contract is enforceable. However, the contract is not enforceable beyond the quantity of goods accepted or paid for. Thus, if only some of the goods called for in the oral contract are accepted or paid for, the contract is only partially enforceable. If an indivisible item is partially paid for, most courts hold that the Statute of Frauds is satisfied for the whole item. 2) Merchants - Confirmatory Memo RuleIn contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if: (i) he has reason to know of the confirmation's contents); and (ii) he does not object to it in writing within 10 days of receipt. EXAM TIPTo determine whether the Statute of Frauds is satisfied (and the contract is enforceable), look carefully for a writing signed by the party to be charged (i.e., sued). If only one party signed the writing, first check to see if the signature is of the party being sued. If not, consider whether the merchants' confirmatory memo rule applies. Be sure that the contract is between merchants); if not, that rule does not apply, and the signature of one party cannot bind the other.EXAM TIPA mnemonic for remembering when a writing signed by the party to be charged is not required for a sale of goods, even if for $500 or more, is SWAP: Specially made goods, Written confirmation by a merchant, Admission in court, or Performance. These facts take the contract out of the Statute of Frauds. 4. Effect of Noncompliance with the StatuteNoncompliance with the Statute of Frauds renders the contract unenforceable at the option of the party to be charged (i.e., the party being charged may raise the lack of a sufficient writing as an affirmative defense). If the Statute is not raised as a defense, it is waived. 5. Situations in Which the Contract Is Removed from the Statute of Frauds a. Performance 1) Land Sale ContractsIf a seller conveys to the buyer (i.e., fully performs), he can enforce the buyer's oral promise to pay. Likewise, the buyer may seek to specifically enforce an oral land sale contract under the doctrine of part performance. Part performance that unequivocally indicates that the parties have contracted for the sale of land takes the contract out of the Statute of Frauds. Most jurisdictions require at least two of the following: payment (in whole or in part), possession, and/or valuable improvements. a) Specific Performance OnlyA purchaser of an interest in land may enforce an oral contract in this manner only in equity (i.e., he may sue only for specific performance, not damages).EXAM TIPWatch for a fact pattern where the parties orally agree to an installment land contract. In the absence of other facts, such as a large down payment, possession plus payment does not unequivocally indicate a contract for the sale of land. Those facts are also consistent with a lease); thus, the purchaser cannot enforce the contract. 2) Sale of Goods ContractsPart performance takes a sale of goods contract out of the Statute of Frauds when: (i) the goods have been specially manufactured, or (ii) the goods have been either paid for or accepted. If a sales contract is only partially paid for or accepted, the contract is enforceable only to the extent of the partial payment or acceptance.3) Services Contracts - Full Performance RequiredAs noted above, an oral contract that cannot be completed within one year but has been fully performed by one party is enforceable. b. Equitable and Promissory EstoppelEstoppel may be applied if it would be inequitable to allow the Statute to defeat a meritorious claim (e.g., defendant falsely and intentionally tells plaintiff that the contract is not within the Statute, defendant induces the plaintiff to change position in reliance on an oral agreement).c. Judicial AdmissionIf a party admits in pleadings or testimony that there is an agreement, it is treated the same as though the party signed a writing. 6. Remedies If Contract Is Within StatuteIf a contract violates the Statute of Frauds, in almost all cases a party can sue for the reasonable value of the services or part performance rendered, or the restitution of any other benefit that has been conferred. (See VIII.C., infra, for a detailed discussion.) EXAM TIPIf the part performance rendered takes the contract out of the Statute of Frauds, the performing party has the option of suing on the contract for expectation damages, rather than merely in restitution for the value of the benefit conferred. EXAM TIPStatute of Frauds issues are often raised in MBE questions. Remember that the Statute does not apply to all contracts. You must check the facts to see whether the contract falls within any of the covered areas (above). An easy way to remember agreements covered by the Statute of Frauds is by using the mnemonic MY LEGS: Marriage,(Within one) Year, L and, Executor (or Administrator),Goods (for $500 or more),Surety. G. UNCONSCIONABILITYThe concept of unconscionability allows a court to refuse to enforce a provision or an entire contract (or to modify the contract) to avoid "unfair" terms, usually due to some unfairness in the bargaining process (i.e., procedural unconscionability). Unfair price alone is not a ground for unconscionability. 1. Common Instances of Procedural Unconscionability a. Inconspicuous Risk-Shifting ProvisionsStandardized printed form contracts often contain a material provision that seeks to shift a risk normally borne by one party to the other. Typically, such clauses are found in the fine print ("boilerplate") in printed form contracts. Courts have invalidated these provisions because they are inconspicuous or incomprehensible to the average person, even if brought to his actual attention.b. Contracts of Adhesion - "Take It or Leave It"Courts will deem a clause unconscionable and unenforceable if the signer is unable to procure necessary goods, such as an automobile, from any seller without agreeing to a similar provision.c. Exculpatory ClausesAn exculpatory clause releasing a contracting party from liability for his own intentional wrongful acts is usually found to be unconscionable because such a clause is against public policy in most states. Exculpatory clauses for negligent acts may be found to be unconscionable if they are inconspicuous (as discussed above), but commonly are upheld if they are in contracts for activities that are known to be hazardous (e.g., a contract releasing a ski hill operator for liability for negligence often will be upheld).d. Limitations on RemediesA contractual clause limiting liability for damages to property generally will not be found to be unconscionable unless it is inconspicuous. However, if a contract limits a party to a certain remedy and that remedy fails of its essential purpose (e.g., the contract limits remedies to repair and the item cannot be repaired), a court may find the limitation unconscionable and ignore it. 2. TimingUnconscionability is determined by the circumstances as they existed at the time the contract was formed.3. Effect If Court Finds Unconscionable ClauseIf a court finds as a matter of law that a contract or any clause of the contract was unconscionable when made, the court may: (i) refuse to enforce the contract); (ii) enforce the remainder of the contract without the unconscionable clause); or (iii) limit the application of any clause so as to avoid an unconscionable result.EXAM TIPUnconscionability is seldom a good defense on the MBE. That a contract turned out badly for one party is insufficient in itself to give rise to unconscionability. Look for great differences in bargaining power (e.g., big company vs. average consumer) before finding a contract or clause is unconscionable.

In the case of a breach of an employment contract by the employee, the employer may recover: AThe cost to replace the employee regardless of whether the breach was intentional BThe fair market value of the employee's services for the contract term if the breach was intentional, and the costs to replace the employee if the breach was unintentional CThe cost to replace the employee if the breach was intentional, and nothing if the breach was unintentional

A The employer is entitled to recover what it costs to replace the employee (i.e., the wages the employer must pay to a replacement employee minus the breaching employee's wages) regardless of whether the breach was intentional. The breaching employee may offset money owed for work done to date. The fair market value of the employee's services is not an appropriate measure of damages for breach of an employment contract.

Unless a contrary intention appears elsewhere, if a party to a contract assigns "all my rights under the contract" to a third party, that assignment __________. AWill be construed to include an assumption of all duties as well BWill only transfer the assignor's rights under the contract and not the assignor's duties CWill serve as a novation DWill be deemed void for vagueness

A The majority of courts, the Restatement, and the U.C.C. hold that unless a contrary intention appears, words assigning "the contract" or "all my rights under the contract" are to be construed as including an assumption of the duties as well. Such language implies a promise by the assignee to assume the duties of performance, and thus does not limit the transfer to only the assignor's rights under the contract and not the assignor's duties. Such an assignment would not serve as a novation without the assent of the other party to the contract. A novation substitutes a new party for the original party to the contract and completely releases the original party. One party could not release himself from a contract by merely his own words, without the other party's consent. This type of expression is not uncommon and will not be deemed void for vagueness.

The __________ is a possible exception to the general rule against the use of "past" consideration as the basis for a contract. AMaterial benefit rule BPreexisting legal duty rule CParol evidence rule

A The material benefit rule is a possible exception to the general rule against the use of past consideration as the basis for a contract. Under the rule, some courts will enforce a promise if: (i) it is based on a material benefit that was previously conferred by the promisee on the promisor, and (ii) the promisee did not intend to confer the benefit as a gift. This includes situations in which the promisee performed an act at the promisor's request or performed an unrequested act during an emergency. The preexisting legal duty rule provides that a promise to perform, or the performance of, an existing legal duty is not consideration. The parol evidence rule is not an exception to the rule regarding past consideration. It states that where the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, any other expressions—written or oral—made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing

Buyer and Seller enter into a written agreement for the sale of a painting for $550. Prior to the time for delivery and payment, Buyer telephones Seller and states that he can only pay $495. Seller agrees to take that price. Which of the following statements is true? AThe oral modification is effective because the new price is $495 BThe oral modification is ineffective because there was no new consideration CThe oral modification is ineffective because the original contract was in writing DThe oral modification is effective because parties may orally modify any contract unless the contract expressly provides otherwise

A The oral modification is effective because the new price is $495. A written contract may be modified orally. However, if the contract is for a sale of goods, the modification must be in writing if the contract as modified is for $500 or more. If the contract as modified is for less than $500, no writing is necessary. Under the U.C.C., modifications are valid without consideration; thus, the modification is effective even without new consideration. As noted above, not all contracts may be orally modified. Under the U.C.C., if the contract as modified is within the Statute of Frauds, the modification must be in writing.

Extrinsic evidence of a condition precedent to a fully integrated agreement is admissible, despite the parol evidence rule, because __________. AIt is not altering the written agreement—the agreement comes into being only if the condition is met BParol evidence can be received to aid a fact-finder in reaching a correct interpretation of an agreement COne party is not obligated to perform under the contract upon the happening of the conditioned event

A The parol evidence rule prohibits admissibility of extrinsic evidence that seeks to vary, contradict, or add to a complete integration. Other forms of extrinsic evidence may be admitted when they will not bring about this result; i.e., they will fall outside the scope of the parol evidence rule. When a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of the understanding may be offered and received. This would be a condition precedent to effectiveness. A condition precedent to effectiveness is not altering the written agreement because the agreement comes into being only if the condition is met. This should be distinguished from a condition subsequent or a condition precedent to performance under an existing contract. Parol evidence is inadmissible as to those conditions because they limit or modifies a duty under an existing or formed contract. It is true that parol evidence can be received to aid a fact-finder in reaching a correct interpretation of an agreement in the case of uncertainty or ambiguity in the agreement's terms, but this is not the reason why conditions precedent are outside the scope of the parol evidence rule. A condition precedent is outside the rule because the contract is not yet formed.

A buyer fraudulently induces a seller to sell his yacht to the buyer. The buyer then uses the yacht as collateral for a loan from a bank, which had no knowledge of Buyer's fraud. What are the seller's rights with respect to the yacht? AThe seller can recover the yacht, but it will be subject to the bank's security interest BThe seller can recover the yacht free of the bank's claims CThe seller has no rights to the yacht because the bank is a good faith purchaser for value

A The seller can recover the yacht, but it will be subject to the bank's security interest. If a sale is induced by fraud, the seller can rescind the sale and recover the goods from the fraudulent buyer. However, the defrauded seller may not recover the goods from a good faith purchaser for value who bought from the fraudulent buyer. For this purpose, one who takes a security interest in the goods can be a good faith purchaser for value. Therefore, the bank's rights in the yacht are superior to the defrauded seller's. The seller does have ownership rights to the yacht. Despite the bank's security interest, the seller may still recover the yacht from the buyer. However, if the buyer fails to pay the loan, the bank may still foreclose on the yacht. As noted above, the seller does not take free of the bank's claims. The bank is a good faith purchaser for value; thus, its rights are superior to the seller's.

Which of the following is not an implied warranty given by an assignor to an assignee for value? AWarranty against infringement BWarranty that the assignor has the right to assign CWarranty that right is not subject to defenses DWarranty not to defeat an assigned right

A The warranty against infringement is a warranty that arises automatically in certain sale of goods contracts; it is not an assignment warranty. Under a warranty against infringement, a merchant seller regularly dealing in goods of the kind sold warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims. The assignor warrants that he will do nothing in the future to defeat the assigned right; i.e., he will not wrongfully exercise his power to revoke. The assignor also warrants that the assigned right is not subject to any valid defenses of the obligor against the assignor. The assignor warrants that the assignor has the right to assign the right; i.e., that he has made no prior assignment of the same right.

Under Article 2's version of the parol evidence rule, a party may offer evidence of __________ to explain or supplement a fully integrated written contract's terms. AA prior course of dealing, usage of trade, or course performance BA contemporaneous oral agreement CA subsequent written agreement

A Under Article 2, a party may offer evidence of course of dealing, usage of trade, or course of performance to explain or supplement a written contract's terms. A course of dealing is a sequence of conduct concerning previous transactions between the parties that may be regarded as establishing a common basis of their understanding. A usage of trade is a practice or method of dealing, regularly observed in a particular business setting, and it may also be used to explain a contract because it justifies an expectation that it will be followed in this transaction. If a contract involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance, any course of performance accepted or acquiesced to is admissible in determining the meaning of the contract. Any subsequent agreements of the parties are not relevant to explain or supplement the terms of a prior written contract. The parties may have changed their positions for any number of reasons. Under the parol evidence rule, if a writing is deemed to be an integration of an agreement, any other expressions, written or oral, made prior to the writing, as well as any contemporaneous oral agreements, are inadmissible to vary the terms of the writing.

o be enforceable under the Statute of Frauds, which of the following must be in a writing signed by the parties sought to be bound? AAll leases of real estate for more than one year BAll leases of real estate COnly agreements for the sale of real estate, not leases DAll leases of real estate for more than six months

A Under the Statute of Frauds, a promise creating an interest in land must be evidenced by a writing. This includes not only agreements for the sale of real property, but also other agreements pertaining to land, such as leases for more than one year. It is not necessary that all leases, such as a six-month lease, be in writing. Only those leases of real estate for more than one year are covered by the Statute.

Under the confirmatory memo rule, in contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if: AThe recipient has reason to know of the confirmation's contents and does not object to it in writing within 10 days of receipt BThe recipient has knowledge of the confirmation's contents and confirms the contents in a signed writing within 10 days of receipt CThe recipient knows or has reason to know of the confirmation's contents and admits orally to the substance of the memo in court testimony

A Under the confirmatory memo rule, in contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if the recipient has reason to know of the confirmation's contents and does not object to it in writing within 10 days of receipt. If the recipient were to confirm the contents in a signed writing, the confirmatory memo rule would no longer be necessary because that writing could be used to satisfy the Statute of Frauds. Similarly, if the recipient admits orally to the substance of the memo in court testimony, the contract is enforceable without use of the confirmatory memo rule. When a party admits in pleadings, testimony, or otherwise in court that an oral contract was made, the contract is enforceable without a writing, but only up to the quantity of goods admitted.

When a delegate assumes the duty to perform, the most important consequence is: AThe obligee can compel performance or bring suit against the delegate for nonperformance BThe delegate replaces the delegator as the real party in interest CThe delegate becomes secondarily liable on the contract

A When a delegate assumes the duty to perform, this creates a third-party beneficiary situation in which the obligee can compel performance or bring suit for nonperformance. A delegate assumes the duty to perform if she promises to perform the duty and the promise is supported by consideration. The delegate does not replace the obligor as the real party in interest. In an assignment, privity between the obligor and the assignor is extinguished, and the assignee replaces the assignor as the real party in interest (one with the legal right to enforce the claim). The same is not true for a delegation of duties. The delegate becomes primarily liable on the contract. Thus, the delegate is not secondarily liable and it is not a consequence of her assumption of the duties

When an owner of goods entrusts those goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all of the owner's rights in the goods to __________. AA buyer in the ordinary course of business BA buyer in the ordinary course of business or a person who takes a valid security interest in the goods CThe owner's creditors DNo one, except the owner

A When an owner of goods entrusts those goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all of the owner's rights in the goods to a buyer in the ordinary course of business. Buying in the ordinary course means buying in good faith from a person who deals in goods of the kind without knowledge that the sale is in violation of the ownership rights of third parties. Note that the merchant has only the power, not the right, to transfer the entrusted goods, and thus the owner may seek damages from the merchant for transferring the goods to a buyer. If this question had instead asked who the merchant has a right to transfer the goods to, then the correct answer would have been no one, except the owner. While it is true that the rights of a defrauded seller are cut off both by a good faith buyer and by a person who takes a valid security interest in the goods, this question deals with an entrustment situation, not a fraudulent sale. Entrusting goods to a merchant does not give the merchant the power to transfer the owner's rights in the goods to the owner's creditors

When both parties entering into a contract are mistaken about an existing fact relating to the agreement, __________. Athe contract is voidable if the mistake concerns a basic assumption on which the contract is made Bthe contract is voidable if the mistake concerns the value of the subject matter of the contract Cthe contract is void if the mistake concerns a basic assumption on which the contract is made Dthe contract is void if the mistake concerns the value of the subject matter of the contract

A When both parties entering into a contract are mistaken about an existing fact relating to the agreement, the contract is voidable by the adversely affected party if the mistake concerns a basic assumption on which the contract is made. A mistake concerning a basic assumption on which the contract is made makes the contract voidable, not void. If the parties to a contract make a mistaken assumption as to the value of the subject matter, that mistake generally will not be remedied. Thus, in that case, the contract is neither voidable nor void.

Which of the following would serve as sufficient consideration for a promise by a creditor to discharge an existing debt? AAn alternative method of payment BUnforeseen difficulty in performance by the debtor CPartial payment of the debt DAcknowledgement of the existence of the debt

A When the proposed consideration is in any way new or different (e.g., an alternative method of payment), there is usually sufficient consideration to change a preexisting duty, such as discharging an existing debt. Mere acknowledgement of a preexisting duty is not sufficient consideration to change the preexisting duty.Partial payment of the amount due on an existing debt is not sufficient consideration for a promise by the creditor to discharge the debt. Neither a legal detriment nor benefit is present. Under the majority view, mere unforeseen difficulty in performance is not a substitute for consideration. Although the modern view permits modification without consideration if the modification is fair and equitable in view of circumstances not anticipated when the contract was made, it would not apply to payment of an existing debt. That exception to the consideration requirement applies only if the contract has not been fully performed on either side, and an existing debt suggests that the creditor has already performed. Also, as with impracticability, difficulty in paying money would be unlikely to be considered the type of unforeseen circumstance this view is intended to addre

"Benefit of the bargain" damages are also known as: AReliance Damages BExpectation Damages CConsequential Damages DIncidental Damages

B "Benefit of the bargain" damages is another name for expectation damages, those damages sufficient for the plaintiff to buy a substitute performance. Reliance damages put the plaintiff in the position she would have been in had the contract never been formed. Consequential damages are special damages and reflect losses over and above standard expectation damages. These damages result from the nonbreaching party's particular circumstances. Usually, consequential damages are lost profits resulting from the breach. Incidental damages may be granted for breaches of contracts for the sale of goods for expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller's breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer's breach.

Which of the following statements would not result in both an assignment of rights and a delegation of duties? A"I assign the contract to Y" B"I assign to Y my right to receive payment from X" C"I assign all of my rights under the contract to Y"

B "I assign to Y my right to receive payment from X" would result in an assignment only. There is no express delegation of duties and none would be implied. "I assign all of my rights under the contract to Y" and "I assign the contract to Y" will both result in an assignment and delegation. Both of those statements are construed as including a delegation and an assumption of the duties in addition to the assignment of contract rights.

What does it mean if a term is "collateral" to a written agreement? AThe term deals with another agreement or prior agreement between the same parties, but is unrelated to the current subject matter of the agreement BThe term is related to the subject matter of the agreement but is not part of the primary promise CThe term is an essential term, which must be included for the agreement to be fully integrated DThe term describes the consideration given for the agreement

B A "collateral" term is one that is related to the subject matter of the agreement but is not part of the primary promise. Parol evidence is often said to be admissible if the alleged parol agreement is collateral to the written obligation and does not conflict with it. The "collateral agreement" doctrine is hard to apply because it is conclusory. The Restatements of Contracts include a similar concept with a more definitive approach: the naturally omitted terms doctrine. The doctrine allows evidence of terms that would naturally be omitted from the written agreement. A term would naturally be omitted if it does not conflict with the written integration and it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument. By definition, a collateral term is not an essential term, as it is not part of the primary promise. Thus, a collateral term would not describe the consideration given, because consideration would be an essential term of a contract. While a collateral term might have some relationship to other agreements between the same parties, a collateral term is in some way related to the current subject matter of the agreement at hand.

Which of the following statements is correct under the parol evidence rule? AA completely integrated writing may not be supplemented, but it may be contradicted by proper extrinsic evidence BA completely integrated writing may not be contradicted or supplemented, but a partially integrated writing may be supplemented by proving up consistent additional terms CA completely integrated writing may not be contradicted or supplemented, but a partially integrated writing may be contradicted or supplemented by proper extrinsic evidence DA completely integrated writing may not be contradicted, but it may be supplemented by proving up consistent additional terms

B A completely integrated writing may not be contradicted or supplemented. A partially integrated writing cannot be contradicted, but may be supplemented by proving up consistent additional terms.

A promise to choose one of several alternative means of performance is illusory (lacks consideration) if __________. Athe power to choose the means of performance rests with the promisee Bthe promisor retains the power to select an alternative without legal detriment Cevery alternative involves some legal detriment to the promisor Dsome of the alternatives involve no legal detriment, regardless of who has the power to choose

B A promise to choose one of several alternative means of performance is illusory if the promisor retains the power to select an alternative without legal detriment. Ordinarily, a promise to choose one of several alternative means of performance is illusory unless every alternative involves some legal detriment to the promisor. However, if the power to choose rests with the promisee or some third party not under the control of the promisor, the promise is enforceable even though some alternatives involve no legal detriment, as long as at least one alternative involves some legal detriment.

A suretyship contract is supported by proper consideration: AOnly if the surety is compensated BIf the surety is compensated or makes the suretyship promise before (or at the same time as) the creditor performs or promises to perform CIf the surety is compensated or makes the suretyship promise after the creditor performs or promises to perform

B A suretyship contract must be supported by consideration. Compensation will serve as proper consideration for a surety's promise. In addition, if a gratuitous surety makes his promise to pay before (or at the same time as) the creditor performs or promises to perform, the creditor's performance or promise will serve as proper consideration for the surety's promise, because the creditor has incurred a detriment in exchange for the surety's promise. In contrast, if a gratuitous surety does not make his promise until after the creditor has performed or made an absolute promise to perform, there is no consideration to support the surety's promise because of the preexisting legal duty rule.

Which of the following best states the result when, in a contract between merchants for the sale of goods, the acceptance does not match the terms of the offer? AAdditional terms are never included in the contract, but different terms will be included unless the offer expressly limits acceptance to the terms of the offer. BAdditional terms that do not materially alter the original terms of the offer will be included in the contract, but different terms may be knocked out of the contract. CNeither additional terms nor different terms are ever included in the contract. DAdditional terms may be knocked out of the contract, but different terms will be included unless the offeror has already objected to the particular terms.

B Additional terms that do not materially alter the original terms of the offer will be included in the contract. In a contract between merchants for the sale of goods, additional terms in the acceptance will be included in the contract unless they materially alter the original terms, the offer expressly limits acceptance to the terms of the offer, or the offeror has already objected to the particular terms or objects within a reasonable time. Different terms may be knocked out of the contract. There is a split of authority on different terms. Some states follow the same rules as for additional terms, but others employ the knockout rule. Under the knockout rule, conflicting terms are knocked out of the contract and gaps are filled by the U.C.C. gap-filler provisions. Conflicting terms are subject to the knockout rule; additional terms are never subject to the knockout rule.

In interpreting and enforcing a contract, what does it mean to say that a writing is an "integration"? AThe writing is one of a series of writings that together satisfy the requirements of the Statute of Frauds BThe writing is the final expression of the parties' bargain CThe writing is a signed, written confirmation of an oral agreement sent by one party that is sufficient under the Statute of Frauds to bind both the sender and recipient DThe writing will be used as a source to interpret or clarify any uncertainty or ambiguity in an already existing written contract

B An "integration" occurs when the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain. When there is an integration, the parol evidence rule provides that any other expressions, written or oral, made prior to the writing, as well as any oral expressions made contemporaneous with the writing, are inadmissible to vary the terms of the writing. If there is uncertainty or ambiguity in a written agreement's terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact-finder in reaching a correct interpretation of the agreement. If the meaning of the agreement is plain, parol evidence is inadmissible. The Statute of Frauds requires that certain contracts be evidenced by a writing signed by the parties sought to be bound. It does not require that the contract be in writing, only that there is a writing, or a series of writings, signed by the person sought to be held liable on the contract that reflect the material terms of the contract. For sale of goods contracts, a written confirmation that one party, within a reasonable time after an oral agreement has been made, sends to the other party that is sufficient under the Statute of Frauds to bind the sender is known as a confirmatory memo. A confirmatory memo will also bind the recipient so long as the recipient has reason to know of the confirmation's contents and does not object to it in writing within 10 days of receipt.

Which of the following cannot be assigned? AA bakery's contract with an orchard to purchase all the apples the bakery requires for the year BAn actor's contract with his agent CA right to receive payment under a contract containing a clause prohibiting assignment of the contract DA third-party beneficiary's unvested rights in a contract

B An actor's contract with his agent cannot be assigned because it is a personal services contract that involves unique services. An assignment of rights that would substantially change the obligor's duty is barred. A bakery's contract with an orchard to purchase all of the apples the bakery requires can be assigned. While this was prohibited at common law, Article 2 allows it - provided that the assignee does not disproportionately alter the contemplated quantity. A third-party beneficiary may assign his unvested rights in a contract. Future rights in existing contracts are assignable - even if the right has not yet vested. Assignment of right to receive payment despite a contract clause prohibiting assignment of the contract is valid. A clause prohibiting "assignment of the contract" is construed as barring only the delegation of the assignor's duties, not the assignment of the assignor's rights. Compare: Assignment of a right to receive payment under a contract containing a clause that prohibits the assignment of "contractual rights" would also be valid, but would give rise to a breach of contract action.

Which of the following would not be an appropriate response to a breach of a service contract? AAn injunction enjoining the breaching party from working for a competitor for the length of the contract BAn order for specific performance CAn order for monetary damages

B An order for specific performance is not available for breach of a service contract, even if the services are rare or unique. This is because of problems of enforcement (it would be difficult for the court to supervise the performance) and because the courts feel it is tantamount to involuntary servitude, which is prohibited by the Constitution. In contrast, a court may enjoin the breaching employee from working for a competitor for the length of the contract if the services contracted for are rare or unique. This is allowed because less court supervision is required for a negative injunction than for a specific performance decree, and the prohibition against working (as opposed to the requirement of working) does not run afoul of the Constitution. The rationale for this approach is that an employee providing rare or unique services expressly or impliedly covenants that she will not work for a competitor during the contract term. A typical remedy for breach of a service contract would be monetary damages.

Which of the following is a true statement about express warranties? AThe buyer must have relied on the statement or affirmation when the buyer entered into the contract BA sample or model can create an express warranty CThe seller must intend that the statement, affirmation of fact, or description create a warranty DThe statement or affirmation may relate to the value of the goods

B Any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, sample, or model is part of the basis of the bargain. The buyer does not have to prove that she actually relied on the statement or affirmation, only that it came at such a time that she could have relied on it when she entered into the contract. It is not necessary that the seller intended the affirmation of fact, description, model, or sample to create a warranty. A statement relating to the value of the goods does not create an express warranty.

As a general rule, if the promisor fails to perform under a contract, a donee third-party beneficiary whose rights have vested can sue: AThe promisee and the promisor BThe promisor CThe promisee or the promisor DThe promisee

B As a general rule, if a promisor fails to perform under a contract, a donee third-party beneficiary whose rights have vested can sue the promisor to enforce the contract. Absent detrimental reliance, a donee beneficiary cannot sue the promisee because generally there is no right to sue for nondelivery of a gift.

What are consequential damages? ADamages designed to buy a substitute performance for the nonbreaching party BLosses resulting from the nonbreaching party's particular circumstances that are a foreseeable result of breach CDamages designed to put the nonbreaching party in the position she would have been in had the breached contract never been formed DExpenses reasonably incurred by a buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller's breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer's breach

B Compensatory damages attempt to put the nonbreaching party where she would have been had the promise been performed, so far as money can do this. Expectation, consequential, incidental, and reliance damages are all forms of compensatory damages. Consequential damages consist of foreseeable losses resulting from the nonbreaching party's particular circumstances. Note that in contracts for the sale of goods, only a buyer may recover consequential damages. Expectation damages are the standard measure of compensatory damages. Expectation damages are based on an "expectation" measure or what is sufficient for the nonbreaching party to buy a substitute performance. This type of damages is also known as "benefit of the bargain" damages. Reliance damages award the plaintiff the cost of her performance. They are designed to put the nonbreaching party in the position she would have been in had the contract never been formed. A plaintiff may elect to recover damages based on a reliance measure rather than an expectation measure when expectation damages will be too speculative to measure. Incidental damages include those expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller's breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer's breach.

Conditional promises are enforceable even if __________, but not if __________. AThe condition is entirely within the promisor's control; the contingency is extremely remote BThe contingency is extremely remote; the condition is entirely within the promisor's control CThe condition is entirely within the promisee's control; the contingency is extremely remote DThe contingency is extremely remote; the condition is entirely within the promisee's control

B Conditional promises are enforceable, no matter how remote the contingency, unless the "condition" is entirely within the promisor's control. Such a promise will be deemed illusory. An illusory promise is one in which the promisor is not actually bound to perform. The promisor could simply choose to assert his control over the condition so that he suffers no legal detriment. Consideration fails in such an instance because the agreement lacks mutuality. Mutuality requires that consideration exists on both sides of the contract. If the condition is entirely within the promisee's (or some third party's) control, the promise is enforceable as long as it involves a possibility of legal detriment, no matter how remote. The promisee or the third party could assert control over the condition such that the promisor is obligated to perform, thus the promisor's promise is not illusory.

Which of the following is sufficient to establish bargained-for consideration? AA benefit that is not intended to induce a detriment BA benefit that provides peace of mind CA detriment involving a prior legal obligation

B For valid consideration, the benefit need not be economic. A benefit of peace of mind or the gratification of influencing the mind of another is sufficient to establish bargained-for consideration, provided that the promisee is not already legally obligated to perform the requested act. Prior legal obligations, sometimes called "past consideration," generally are not sufficient consideration. If something was already given or performed before the promise was made, it was not given in "exchange" for the promise when made. To constitute bargained-for consideration, the detriment must be the price of the exchange. If the promisor's motive was to induce the detriment, it is consideration. However, if the motive was a condition of a promise for a gift (e.g., "come to my house, and I will give you my old stereo"), there is no consideration.

A gratuitous surety contract will be considered unenforceable for lack of consideration if the surety makes his promise to pay __________. Abefore the creditor has performed or made an absolute promise to perform Bafter the creditor has performed or made an absolute promise to perform Cas a response to a condition precedent to the creditor's performance Din exchange for payment from the creditor

B If a gratuitous surety (i.e., one who is not paid for his services) does not make his promise until after the creditor has performed or made an absolute promise to perform, there is no consideration to support the surety's promise because of the preexisting legal duty rule—the creditor has not incurred any new detriment in exchange for the surety's promise. Thus, the surety's promise is unenforceable. If the gratuitous surety makes his promise to pay before the creditor performs or promises to perform, the creditor's performance or promise will serve as consideration for the surety's promise. If the contract between the debtor and the creditor makes obtaining a surety a condition precedent to the creditor's performance, so that the creditor would be justified in refusing to perform the contract until a surety is obtained, the surety's promise is binding if the creditor performs in reliance on the surety's promise. As with other contracts, if the creditor gives additional consideration such as payment in exchange for the surety's promise, the surety will be bound.

Seller offers in writing to sell 1,000 widgets to Buyer for $10 per widget. Buyer replies in writing, "I accept. Please ship 1,000 widgets for $10 per widget, including shipping charges." Which of the following statements is true? AIf both Seller and Buyer are merchants, the shipping charges term is knocked out and replaced by a gap-filler BIf both Seller and Buyer are merchants, the contract includes the shipping charges term unless Seller objects within a reasonable time CIf Seller is a merchant and Buyer is a nonmerchant, the contract includes the shipping charges term unless it is considered a material alteration DIf both Seller and Buyer are nonmerchants, there is no contract

B If both the buyer and seller are merchants, an additional term in an acceptance is included in the contract unless it materially alters the original offer terms, the offer expressly limited the acceptance to its terms, or the offeror objects within a reasonable time. (The shipping charge does not materially alter the original offer.) If both Seller and Buyer are merchants, different (not additional) terms in an acceptance may be knocked out and replaced by a gap-filler. (The shipping charge is an additional term.) Under the U.C.C., a contract is formed even if terms of the acceptance do no match the terms of the offer. However, if either party is a nonmerchant, an additional term in an acceptance does not become part of the contract unless the offeror expressly agrees to it. Here, if both Buyer and Seller are nonmerchants, there is a contract, but the shipping charges term will not be included unless Seller expressly agrees to it.

An important difference between the rights of a donee beneficiary and a creditor beneficiary is that __________. Aa creditor beneficiary's rights are automatically vested, but a donee beneficiary's rights are not automatically vested Ba creditor beneficiary can sue the promisee on the underlying obligation, but a donee beneficiary cannot Ca creditor beneficiary can sue the promisor for failure to perform, but a donee beneficiary cannot Da promisee in a third-party beneficiary contract can sue the promisor for nonperformance if the beneficiary is a creditor beneficiary, but not if the beneficiary is a donee beneficiary

B If the purpose in extracting the commitment from the promisor was to discharge an obligation owed to the third party, the third party is a creditor beneficiary. If the promisee's purpose in extracting the promise was to confer a gift on the third party, the third party is a donee beneficiary. An important difference between the two types of beneficiary is that a creditor beneficiary can sue the promisee on the underlying obligation, but a donee beneficiary cannot. A donee beneficiary generally may not sue the promisee because generally there is no right to sue for nondelivery of a gift. A creditor beneficiary can sue the promisee on the underlying obligation that the promisor's performance was meant to discharge. Neither a creditor beneficiary's nor a donee beneficiary's rights are automatically vested. Any third-party beneficiary must manifest assent, bring suit, or materially change his position to vest his rights. Both a creditor and donee beneficiary can sue the promisor for failure to perform. Similarly, a promisee in a third-party beneficiary contract can sue the promisor for nonperformance regardless of whether the third-party is a creditor or donee beneficiary.

In a shipment contract, when goods are destroyed en route from the seller to the buyer, the risk of loss is borne by: AThe buyer because the risk of loss passed to the buyer at the time of the contract because of the doctrine of equitable conversion BThe buyer because the risk of loss passed to the buyer when the goods were delivered to the carrier CThe seller because the risk of loss does not pass to the buyer until the shipment is tendered to the buyer DThe seller because it was the seller's responsibility to contract with the carrier

B In a shipment contract, the risk of loss passes to the buyer when the goods are delivered to the carrier. Any loss incurred en route is borne by the buyer. Equitable conversion is a doctrine that applies only to the sale of land, not goods. The risk of loss does not pass to the buyer until the goods are tendered to the buyer under a destination contract. This is a shipment contract, which means the risk of loss passes to the buyer when the goods are delivered to the carrier. While it is the seller's responsibility to contract with the carrier, that does not affect the risk of loss rules.

When dealing with a contract for the sale of goods, in which of the following situations is a writing required for the contract to be enforceable? AThe party against whom enforcement is sought admits to the contract in court BThe contract price was originally less than $500, but was later modified to a price of $500 CThe goods were accepted by the buyer DThe goods are to be specially manufactured for the buyer and the seller has made substantial beginning in their manufacture

B In determining whether a contract is for $500 or more, Article 2 gives effect to any modification; thus even if the contract price was originally less than $500, if the contract is later modified to fall within the Statute, it must comply with the Statute's writing requirements to be enforceable. If goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business, a writing is not required once the seller has made a substantial beginning in their manufacture or commitments for their purchase. If the party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that the contract was made, the contract is enforceable without a writing for the quantity of goods admitted. If goods are accepted, the contract is enforceable without a writing to the extent of the quantity of goods accepted.

In general, if there is no evidence of the parties' intention, contracts will be construed ___________, and ambiguities in the contract will be ____________. AAccording to the ordinary meaning of the words; construed against the promisee BAs a whole; construed against the party drafting the contract CAccording to the ordinary meaning of the words; construed against the promisor DAs a whole; knocked out

B In general, contracts are construed as whole; specific clauses are subordinated to the contract's general intent. Also, ambiguities in a contract are construed against the party preparing the contract absent evidence of intention of the parties. Ambiguous terms are not knocked out. Moreover, although the statement that the contract will be construed according to the ordinary meaning of its terms is correct, there are no rules about construing an ambiguity against either the promisor or promisee.

In the case of a contract involving a third-party beneficiary, a __________ makes a promise to a ____________ for the benefit of a __________. AThird party; promisor; promisee BPromisor; promisee; third party CPromisor; third party; promisee DPromisee; promisor; third party

B In the case of a contract involving a third-party beneficiary, a promisor makes a promise to a promisee for the benefit of a third party. The actual parties to the contract are the promisor and the promisee. The promisor is the party who promised to perform and, thus, owes the duty to perform. The promisee is the party to whom that promise was made. The general rule is that a contract operates to confer rights and impose duties only on the parties to the contract and on no other person. However, an exception exists in the case of a contract involving a third-party beneficiary. In that situation, the original contract will confer the rights and duties on the third party. Once the rights of the third-party beneficiary have vested, the third party can enforce the contract.

In the case of breach by the seller in a sale of goods contract, if the buyer ____________, the appropriate measure of damages is the difference in value of the goods as delivered and the value they would have had if they had been according to contract, plus incidental and consequential damages. ARejects nonconforming goods BAccepts nonconforming goods CRevokes acceptance of nonconforming goods

B In the case of breach by the seller in a sale of goods contract, if the buyer accepts nonconforming goods, the appropriate measure of damages is the difference in value of the goods as delivered and the value they would have had if they had been according to contract, plus incidental and consequential damages. If the buyer rejects or revokes acceptance of nonconforming goods (which has the effect of a rejection), the buyer is entitled to the difference between the contract price and either the market price or the cost of buying replacement goods, plus incidental and consequential damages.

Incidental damages ______________. AAre generally not awarded in contract cases BInclude a buyer's reasonable expenses in care of goods rightfully rejected and a seller's expenses of reselling goods as a result of the buyer's breach CAre token damages that might be awarded where a breach is shown but no actual loss is proven DAre the damages stipulated to by the parties to a contract

B Incidental damages include a buyer's reasonable expenses incurred in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller's breach, They also include the seller's reasonable expenses of storing, shipping, returning, and reselling the goods as a result of the buyer's breach. Liquidated damages are the damages stipulated to by the parties to a contract. Parties to a contract may stipulate what damages are to be paid in the event of a breach, provided the amount is reasonable in view of the actual or anticipated harm caused by a breach. Punitive damages are generally not awarded in contract cases. Nominal damages are token damages that might be awarded where a breach is shown but no actual loss is proven

The remedy of restitution is based on ______________ and is measured by ____________. AThe contract agreed to by the parties; the liquidated damages clause BPreventing unjust enrichment; the value of the benefit conferred CThe benefit of the bargain principle; the cost of procuring substitute performance DArticle 2 of the U.C.C.; difference in value of the goods as delivered and their value had they been according to contract

B Restitution is a distinct remedy based on preventing unjust enrichment when a party has conferred a benefit on another without gratuitous intent. The measure of restitution is the value of the benefit conferred. Restitution is not based on Article 2 of the U.C.C., although Article 2 includes restitution as a remedy for unjust enrichment in sale of goods situations. The difference in the value of goods as delivered and their value had they been according to contract is the measure for warranty damages, not restitution. Restitution has nothing to do with the contract agreed to by the parties or liquidated damages. In fact, a party may recover restitution when a contract is unenforceable and, in some cases, when there is no contract at all. Restitution is an alternative to compensatory contract damages. Benefit of the bargain damages and the cost of procuring substitute performance describe traditional expectation contract damages, not restitution

Seller and Buyer enter into a contract for the sale of widgets. The contract states that Buyer will pay the sales price to Seller's child, Son. Seller wishes to give Son the money as a graduation gift. Son learns of the contract from a gossipy aunt. When Buyer pays the money to Seller, Son files a suit against Buyer. Son's rights with respect to the contract are best described as: AVested as of the time he learned of the contract BVested as of the time he brought suit against Buyer CNot vested because he did not assent to the contract DNot vested because he is a donee beneficiary

B Son's rights with respect to the contract vested when he brought suit against Buyer. A third-party beneficiary's rights vest when the beneficiary manifests assent to the promise, brings suit to enforce the promise, or materially changes position in justifiable reliance on the promise. Merely learning of a third-party beneficiary contract will not vest the beneficiary's rights. He must assent, sue, or rely. Thus, Son's rights did not vest at the time he learned of the contract. The characterization of a beneficiary as a donee beneficiary or a creditor beneficiary does not affect vesting. It is true that Son did not assent to the contract, but that is only one method of vesting. Here, Son's rights vested by bringing suit to enforce the promise.

Specific performance is generally available as a remedy for breach of a contract for ___________ but not for breach of a contract for ________. ARare goods; the sale of land BRare goods; unique services CThe sale of land; rare goods DUnique services; rare goods

B Specific performance is generally available to remedy a breach of contract for rare goods but not for breach of a contract for unique services. Specific performance is available when the legal remedy is inadequate. Damages are generally inadequate when the subject matter is rare or unique. Thus, specific performance is available for contracts involving the sale of land or unique or rare goods. Specific performance is not available for breach of service contracts, even if the services are rare or unique. This is because of the difficulty of enforcement and because it could be considered involuntary servitude.

When will a court order specific performance for breach of a service contract? AAlways, because all services are considered unique to the specific service provider BNever, because to do so would be tantamount to involuntary servitude CSometimes, if the services contracted for are rare or unique DRarely, only if it is shown that the breaching party acted with malice

B Specific performance is never available for breach of a contract to provide services. This is because of problems of enforcement (it would be difficult for the court to supervise the performance) and because the courts feel it is tantamount to involuntary servitude, which is prohibited by the Constitution. In other cases, a court may grant specific performance, which is essentially an order from the court to the breaching party to perform or face contempt of court charges, if the legal remedy is inadequate. The legal remedy (damages) generally is inadequate when the subject matter of the contract is rare or unique. The rationale is that if the subject matter is rare or unique, damages will not put the nonbreaching party in as good a position as performance would have, because even with the damages the nonbreaching party would not be able to purchase substitute performance. Nonetheless, for the reasons stated above, courts will not apply specific performance in a service contract, even if the service is unique to the specific service provider. In determining whether to grant specific performance for the breach of a service contract, it is irrelevent whether the breaching party acted with malice.

Which of the following is not a valid measure of a seller's damages? AThe difference between the contract price and the market price BThe amount of loss resulting from the seller's particular circumstances that a reasonable person would have foreseen as a probable result of breach CThe difference between the contract price and the resale price DThe seller's lost profits

B The amount of loss resulting from the seller's particular circumstances that a reasonable person would have foreseen as a result of breach is the measure for consequential damages. Consequential damages cannot be recovered by a seller. The difference between the contract price and the market price at the time and place for delivery is a valid measure of a seller's damages. The difference between the contract price and the resale price is the usual measure of a seller's damages. The seller's lost profits are a valid measure of a seller's damages when the seller is a lost volume seller. If a seller can obtain as many goods as he can sell, he would have made two sales instead of one but for the buyer's breach.

The equitable defense of __________ arises when a party delays in bringing an equitable action and the delay prejudices the defendant. AReplevy BLaches CUnclean hands DSale to a bona fide purchaser

B The equitable defense of laches arises when a party delays in bringing an equitable action and the delay prejudices the defendant. Note that mere delay itself is not a ground for this defense. The unclean hands defense arises when the party seeking specific performance is guilty of some wrongdoing in the transaction being sued upon. Note that the wrongdoing must be related to the transaction being sued upon; it is not sufficient that the plaintiff has defrauded other persons in similar transactions. If the subject matter of a goods or land contract has already been sold to another who purchased for value and in good faith, the right to specific performance is cut off. This is known as the equitable defense of sale to a bona fide purchaser. Replevy is a nonmonetary remedy found in Article 2 of the U.C.C. If a buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the seller has not delivered the goods, the buyer may replevy (or recover) the goods from the seller if the seller becomes insolvent within 10 days after receiving the buyer's first payment or the goods were purchased for personal, family, or household purposes. In either case, the buyer must tender any unpaid portion of the purchase price to the seller.

A liquidated damage clause will be enforceable only if: ACompensatory damages are now difficult to determine and the amount agreed upon at the time the contract was formed was a reasonable forecast of compensatory damages in the case of breach BDamages were difficult to estimate at the time the contract was formed and the amount agreed upon was a reasonable forecast of compensatory damages in the case of breach CCompensatory damages are now difficult to determine, but the amount agreed upon appears to be a reasonable reflection of the compensatory damages at the time of breach

B The parties to a contract may stipulate what damages are to be paid in the event of a breach. These liquidated damages must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach. A liquidated damage clause will be enforceable if damages were difficult to estimate at the time the contract was formed and the amount agreed upon was a reasonable forecast of compensatory damages in the case of breach. If the above requirements are met, the plaintiff will receive the liquidated damages amount. Most courts hold this is so even if no actual money or pecuniary damages have been suffered. Thus there is no requirement that the amount agreed to be a reasonable reflection of the compensatory damages at the time of breach and it is also not necessary that compensatory damages are now difficult to determine.

A liquidated damages clause may be enforced even if: AThe amount agreed upon was arbitrarily decided at the time of the contract formation BNo actual money damages have been suffered CDamages were easy to estimate at the time of the contract formation DThe amount is unreasonable and serves as a penalty

B The parties to a contract may stipulate what damages are to be paid in the event of a breach. These liquidated damages must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach. Most courts will enforce a valid liquidated damages clause even if no actual money (or pecuniary) damages have been suffered. For a liquidated damages clause to be valid, damages for contractual breach must have been difficult to estimate or ascertain at the time the contract was formed, and the amount agreed on must have been a reasonable forecast of compensatory damages in the case of breach. Thus, a court would likely not enforce a liquidated damages clause if damages were easy to estimate at the time of the contract formation or the amount agreed upon was arbitrarily decided at the time of the contract formation. The test for reasonableness is a comparison between the amount of damages prospectively probable at the time of contract formation and the liquidated damages figure. If the liquidated damages amount is unreasonable, the courts will construe this as a penalty and will not enforce the provision.

At common law, the Statute of Frauds requires _____________ signed by ____________. AA formal contract; the party to be held liable BA writing or writings reflecting the material terms of the contract; the party to be held liable CA writing or writings reflecting the material terms of the contract; both parties DA formal contract; both parties

B To satisfy the Statute of Frauds, there must be one or more writings that reflect the material terms of the contract signed by the person sought to be held liable on the contract. The Statute does not require both parties to sign, only the party to be charged. The Statute of Frauds does not require a formal written contract or the signature of both parties. For example, a letter, receipt, or a check containing the material terms (e.g., quantity for sale of goods) and signed by the party to be charged satisfies the Statute of Frauds.

Under U.C.C. Article 2, what standard is applied to allow the modification of a sales contract without additional consideration? ADetrimental reliance BGood faith CHonest dispute

B Under Article 2, all contract modifications sought in good faith are binding without consideration. (In contrast, at common law, a contract modification generally is unenforceable unless it is supported by new consideration.) A compromise based on an honest dispute as to the legal duty owed is adequate new consideration for a contract, not the standard for modification of a sales contract without consideration. Detrimental reliance is a means of enforcing a promise without any consideration under certain circumstances when no actual contract has been formed. It is not the standard for allowing the modification of a sales contract without additional consideration under Article 2.

Which of the following contracts must be evidenced in writing? AA contract between business partners to buy and sell real estate and divide the profits BA mortgage contract CA contract to build a building DA six-month lease of a parcel of land

B Under the Statute of Frauds, a promise creating an interest in land must be evidenced by a writing. This includes not only agreements for the sale of real property, but also other agreements pertaining to land, such as a mortgage contract. Some contracts may have an end result involving an interest in land, but they still do not come within the Statute. For example, a contract to build a building or a contract to buy and sell real estate and divide the profits do not come within the Statute. A lease of a parcel of land for more than one year is also covered by the Statute, but a six-month lease is not.

Which of the following types of evidence is within the scope of the parol evidence rule? AEvidence of a condition precedent to effectiveness to an agreement BEvidence of an oral contemporaneous agreement CEvidence concerning a formation defect DEvidence showing the "true consideration" paid

B Under the parol evidence rule, any other agreements made prior to a fully integrated agreement, as well as any oral agreements made contemporaneous with the writing, are inadmissible to vary the terms of the writing. Formation defects (e.g., fraud, duress, mistake, and illegality) may be shown by extrinsic evidence and are not within the scope of the parol evidence rule. Evidence of a condition precedent to effectiveness to an agreement is also not within the scope of the parol evidence rule because it is not altering a written agreement if the written agreement never came into being. The parol evidence rule will not bar extrinsic evidence showing the "true consideration" paid. Nonpayment of consideration may be admitted as a defense.

Which of the following is the best definition for the term "consideration"? AAn existing legal duty BA bargained-for change in legal position between the parties CAny action that is reasonably expected to induce action or forbearance

B Valuable consideration can be defined as a bargained-for change in legal position between the parties. Under the theory of promissory estoppel, a promise can be enforceable without consideration if necessary to prevent injustice, if the promisor should reasonably expect to induce action or forbearance, of a definite and substantial character, and such action or forbearance is in fact induced. Traditionally the promise to perform, or the performance of, an existing legal duty is not consideration. This is also known as the preexisting legal duty rule.

When the parties to a contract express their agreement in a writing that is deemed an "integration" of their agreement, how will a court deal with evidence of other written or oral expressions relating to the bargain? AAny oral expressions made prior to, or contemporaneous with, the writing are inadmissible to vary the terms of the writing, but any prior or contemporaneous written expressions are admissible to vary the terms of the writing BAny other expressions, written or oral, made prior to the writing, as well as any oral expressions made contemporaneous with the writing, are inadmissible to vary the terms of the writing CAny other expressions, written or oral, made prior to the writing, are inadmissible to vary the terms of the writing, but oral expressions made contemporaneous with the writing will be admissible to vary the terms of the writing

B When the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain (i.e., the writing is an "integration"), any other expressions, written or oral, made prior to the writing, as well as any oral expressions made contemporaneous with the writing, are inadmissible to vary the terms of the writing. Once a writing is deemed an integration, other expressions may not be admitted to vary the terms of the writing; however, if there is uncertainty or ambiguity in the written agreement's terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the court in reaching a correct interpretation of the agreement. If the meaning of the agreement is plain, parol evidence is inadmissible

Under the Statute of Frauds, an oral contract for the sale of goods priced at $500 or more is unenforceable against the buyer. Which of the following scenarios is not an exception to this general rule? AThe goods were specially manufactured for the buyer BThe buyer admits to the oral contract in court pleadings CThe contract price was originally $450 but was later modified to $500 DThe buyer received and accepted the goods in question

C A $450 contract modified to $500 is not within any exception to the Statute of Frauds. The Statute of Frauds requires that certain contracts be evidenced by a writing signed by the parties sought to be bound. This includes contracts for the sale of goods for a price of $500 or more. In determining whether a contract is for $500 or more, Article 2 gives effect to any modification. Thus, even if the contract price was originally less than $500, if the contract is later modifies so as to fall within the Statute, it must comply with the Statute's writing requirements to be enforceable. If the party against whom enforcement is sought, in this case the buyer, admits in pleadings, testimony, or otherwise in court that the contract was made, the contract is enforceable without a writing (but in such a case the contract is not enforced beyond the quantity of goods admitted). If goods are either received and accepted or paid for, the contract is enforceable. However, the contract is not enforceable beyond the quantity of goods accepted or paid for. Thus, if only some of the goods called for in the oral contract are accepted or paid for, the contract is only partially enforceable. A contract for specially manufactured goods (i.e., goods that are to be specially manufactured for the buyer and are not suitable for sale to others by the seller in the ordinary course of his business) can be enforced without a writing when the seller has reasonably indicated that the goods are for the buyer and made a substantial beginning in their manufacture or committed for their purchase before notice of a repudiation was received. In this case, the question indicates that the manufacture of the goods was actually completed (by using the past tense "manufactured"); so the exception would apply.

Under Article 2, when a seller breaches a contract by refusing to deliver identified goods to the buyer, the buyer may replevy the goods if: Aboth parties are merchants. Bthe goods were purchased for business purposes. Cthe buyer, after reasonable effort, is unable to secure adequate substitute goods. Dthe seller is solvent.

C A buyer may replevy undelivered, identified goods from the seller if the buyer, after reasonable effort, is unable to secure adequate substitute goods. The fact that the goods were purchased for business purposes does not aid the buyer in an action for replevin. In fact, it may harm the buyer's ability to replevy the goods, if the action is based on prepayment of the purchase price (rather than on inability to secure substitute goods). A buyer may replevy the goods if the buyer has made at least part payment of the purchase price and the goods were purchased for personal, family, or household purposes, not business purposes. There is no requirement for replevin that both parties be merchants. The fact that the seller is solvent does not aid the buyer in establishing a right to replevin. The seller's solvency only comes into play with respect to replevin based on prepayment of the purchase price. If the buyer made at least part payment of the price, the buyer may replevy the goods if the seller becomes insolvent within 10 days of receiving the buyer's first payment.

Which of the following service contracts must satisfy the Statute of Frauds to be enforceable? AA contract for the client's personal care during an illness of unknown duration BA contract for a specific task that will take approximately 12 months to complete CA contract for one month of service that is to begin 13 months in the future DA contract for the lifetime of the client

C A contract that by its terms cannot be performed within one year is subject to the Statute of Frauds. The date runs from the date of the agreement and not from the date of performance. Thus, a contract for one month of service that is to begin 13 months in the future must satisfy the Statute to be enforceable. If the contract is possible to complete within one year, it is not within the one-year prong of the Statute of Frauds, even though actual performance may extend beyond the one-year period. A specific task that will take approximately 12 months to complete might be completed in less time. Likewise, a contract for the client's personal care during an illness of unknown duration might be completed in less than a year if the client recovers quickly. A contract for the lifetime of the client is not within the Statute because it is capable of performance within a year since the client could die at any time.

A agrees to sell widgets to B for $450. The contract provides that B is to pay the $450 to C. C is A's niece, and the $450 is a birthday gift. Which of the following statements is accurate? AA is the obligee, B is the obligor, C is the delegate BA is the promisor, B is the promisee, and C is the third-party beneficiary CA is the promisee, B is the promisor, and C is a third-party beneficiary DA is the obligor, B is the assignee, and C is a donee beneficiary

C A is the promisee, B is the promisor, and C is a third-party beneficiary. The parties to the contract are the promisee and promisor. A promisor is the party who promised to perform and, thus, owes the duty to perform. The promisee is the party to whom that promise was made. Here, B promised A that he would pay $450 for widgets; so B is the promisor. A is the party to whom B made the promise; thus, A is the promisee. Since the contract expressly provides that B is to pay the money directly to C, C is a third-party beneficiary. Obligee, obligor, and delegate are terms used when, after the contract is made, one of the parties delegates his duties under the contract to another. That was not done here. Obligor and assignee are terms used when, after the contract is made, one of the parties assigns his rights under the contract to another. That was not done here. C is a donee beneficiary, but the other parties are not an obligor and assignee.

To recover full damages when an employer breaches an employment contract, the employee: AMust make a reasonable effort to find a new position of the same kind in any locale BMust make a reasonable effort to find a new position of any kind in the same locale CMust make a reasonable effort to find a new position of the same kind in the same locale

C A nonbreaching party cannot recover avoidable damages. To avoid incurring additional damages, a nonbreaching employee must try to find a comparable position in the same locale. If the breaching employer can prove that a comparable job in the same locale was available, then contract damages against that breaching employer for lost wages will be reduced by the wages that the plaintiff would have received from that comparable job

A promise not to sue on a claim can be considered valuable consideration only if: AThe claim is valid or would appear to be valid under the reasonable person standard BThe claim is valid, in law or in fact CThe claim is valid or the claimant reasonably and in good faith believes the claim is valid

C A promise not to sue on a claim can be considered valuable consideration only if the claim is valid or the claimant reasonably and in good faith believes the claim is valid. The reasonable person standard does not apply; the claimant herself must actually believe the claim is valid.

For a writing to be considered an "integration" of an agreement between two parties, the parties must: ASign the writing BInclude all relevant terms of the contract CIntend that the writing embody the final expression of their bargain DAgree to a merger clause

C A writing is an "integration" when the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain. Under the parol evidence rule, if a writing is deemed to be an integration of an agreement, any other expressions, written or oral, made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing. It is not necessary that an integration include all relevant terms of a contract. In some cases a partial integration may occur. A partial integration may not be contradicted, but may be supplemented by proving up consistent additional terms. Some integrations may contain a merger clause, reciting that the agreement is complete on its face. While this strengthens the presumption that all negotiations were merged in the written document, it is not a necessary component of an integration. The parol evidence rule should not be confused with the Statute of Frauds, which requires certain types of agreements must be evidenced by a writing signed by the parties sought to be bound. Although the signatures of the parties, or lack thereof, may affect the enforceability of the contract under the Statute of Frauds, they are not an element of integration

Which of the following is generally not required for an award of liquidated damages? AThe amount is reasonable in view of the actual or anticipated harm caused by the breach BDifficulty in estimating or ascertaining damages at the time the contract was formed CActual money or pecuniary damages DThe amount agreed on is a reasonable forecast of compensatory damages in the case of breach

C Actual money or pecuniary damages are generally not required to enforce a liquidated damages provision if the other requirements are met. Liquidated damages must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach. Therefore, courts have found liquidated damages clauses are enforceable if: Damages for contractual breach are difficult to estimate or ascertain at the time the contract was formed; and The amount agreed on was a reasonable forecast of compensatory damages in the case of a breach.

An assignor properly assigns his rights under a contract to an assignee. The obligor of the contract is subsequently incapable of performing under the contract due to insolvency. Will the assignor be held liable to the assignee? AYes, an assignor is strictly liable to the assignee for the obligor's failure to perform BYes, an assignor is secondarily liable as a surety of the obligor CNo, an assignor is not liable to the assignee if the obligor is incapable of performing DYes, an assignor is liable to the assignee for breach of warranty

C An assignor is not liable to the assignee if the obligor is incapable of performing, such as in this case where the obligor subsequently becomes insolvent. Thus the assignor is NOT strictly liable for the obligor's failure to perform. In every assignment for value, the assignor impliedly warrants that: (i) He has the right to make the assignment;(ii) The right exists and is not subject to limitations or defenses other than those stated or apparent at the time of the assignment; and (iii) He will do nothing to defeat or impair the assigned right. The assignor does not make a warranty that the obligor will actually perform, and he is not secondarily liable as a surety of the obligor's performance. The assignee can look only to the obligor for his failure to perform.

A court order requiring a breaching party to perform under the contract or face contempt of court charges is also known as: AReplevin BAn injunction CSpecific performance DLaches

C An order for specific performance is essentially an order from the court directing the breaching party to perform as promised under the contract or face contempt of court charges. In contrast, an injunction is usually a court order prohibiting someone from doing a specified act. Although a mandatory injunction may order a party to perform a particular act, an order requiring a party to perform under the contract or face contempt is an order for specific performance, not an injunction. Replevin is a buyer's right to replevy (recover) undelivered, identified goods from a seller under certain circumstances. Replevin will lie only in cases with identified goods. Laches is an equitable defense involving an unreasonable lapse of time in asserting a right that prejudices the defendant. It can be raised to defend an action for specific performance; the breaching party would argue that the other party delayed too long in bringing the specific performance action, and the delay caused prejudice against the breaching party

For which of the following does Article 2 provide gap-filling provisions? APrice, quantity, time for payment BQuantity, time and place of delivery, time for payment CPrice, time and place of delivery, time for payment

C Article 2 has gap-filler provisions to fill in certain missing terms in a contract such as price, time and place of delivery, and time for payment. There is no gap-filling term for quantity. If the price is left open to be agreed upon by the parties and they fail to agree, the price is a reasonable price at the time for delivery. If the place for delivery is not specified, the place is the seller's place of business if he has one; otherwise, it is the seller's house. If the time for delivery/shipment is not specified, delivery/shipment is due within a reasonable time. If the time for payment is not specified, payment is due at the time and place at which the buyer is to receive the goods. If the quantity term is not specified, there is no contract; the quantity term will not be supplied by a gap-filler.

Which of the following statements about a sale of goods contract is true? AIf the time for payment is not specified, payment is due within a reasonable time after the buyer receives the goods BIf the place of delivery is not specified, the place is the buyer's place of business if he has one; otherwise, it is the buyer's home CIf the price is left open to be agreed upon later and the parties fail to agree, the price is a reasonable price at the time of delivery DIf the quantity is not specified, the quantity is a reasonable quantity at the time of delivery

C Article 2 has gap-filler provisions to fill in certain missing terms in a contract. If the price is left open to be agreed upon by the parties and they fail to agree, the price is a reasonable price at the time for delivery. If the place for delivery is not specified, the place is the seller's (not the buyer's) place of business if he has one; otherwise, it is the seller's house. If the time for payment is not specified, payment is due at the time and place at which the buyer is to receive the goods. If the quantity term is not specified, there is no contract; the quantity term will not be supplied by a gap-filler.

Which of the following statements is true regarding the modification of a contract? ABoth the common law rule and U.C.C. Article 2 allow modification without new consideration if the modification is sought in good faith BBoth the common law rule and U.C.C. Article 2 always require new consideration to modify a contract CThe common law rule generally requires new consideration to modify a contract, whereas U.C.C. Article 2 allows modification without new consideration if the modification is sought in good faith DU.C.C. Article 2 requires new consideration to modify a contract, whereas the common law rule allows modification without new consideration if the modification is sought in good faith

C At common law, modification of a contract generally is unenforceable unless it is supported by new consideration. U.C.C. Article 2 does not follow this rule. Under U.C.C. Article 2, contract modifications sought in good faith are binding without consideration

In a contract for the sale of goods, __________ may recover consequential damages. Aonly the seller Beither the buyer or the seller Conly the buyer Dneither party

C Consequential damages are losses over and above standard expectation damages. These damages flow from the nonbreaching party's particular circumstances and may be recovered only if, at the time the contract was made, a reasonable person would have foreseen the damages as a probable result of the breach. In contracts for the sale of goods, only the buyer may recover consequential damages.

How can one avoid the preexisting legal duty rule? ABy full performance of the duty BBy making a brand-new identical promise CBy modifying the original consideration slightly DBy beginning performance

C Courts are anxious to avoid the preexisting duty rule, which states that the promise to perform, or the performance of, an existing legal duty is not consideration. Thus modifying the original consideration, even slightly, is generally enough to avoid the rule. Making a brand-new identical promise is not sufficient because there is no consideration for the new promise. There must be new consideration or the consideration that is different in some way, such as by accelerating performance, to avoid the preexisting duty rule. Beginning performance does not avoid the preexisting legal duty rule.Even full performance of a preexisting legal duty is not sufficient consideration. There must be some new or different obligation.

Under Article 2, which of the following is not a true statement concerning contract terms? AIf the price is not specified, the price is a reasonable price at the time of delivery. BIf the time for payment is not specified, payment is due at the time and place at which the buyer is to receive the goods. CIf a quantity is not specified, the quantity is a reasonable quantity under the circumstances at the time the contract was made. DIf the time for delivery is not specified, delivery is due within a reasonable time.

C If a quantity term is not specified, a reasonable quantity term will NOT be supplied. To form a valid sale of goods contract, there must be a quantity term. A quantity term will not be supplied by the court, and therefore, there is no gap-filling provision with respect to quantity. Under the Article 2 gap-filler provisions, if the price is not specified, the price is the reasonable price at the time of delivery. Similarly, if the time for delivery is not specified, the gap-filler provides that delivery is due within a reasonable time. The gap-filler provisions also provide that payment is due at the time and place at which the buyer is to receive the goods if the time for payment is not specified in the agreement.

If an assignee for value discovers that the assignor had previously assigned the same contract rights to another party for value, the assignee may _________. Arecover from the prior assignee Brecover from the obligor Csue the assignor for breach of warranty Drecover in quasi-contract

C If an assignee for value discovers that the assignor had previously assigned the same contract rights to another party, the assignee may sue the assignor for breach of warranty. The assignor makes several implied warranties to the assignee, the breach of which gives rise to a cause of action. One of those warranties is the warranty that the assignor has the right to assign, which means he has made no prior assignment of that right. The assignee has no cause of action against the prior assignee. Quasi-contract is an action seeking restitution when a contract is unenforceable and unjust enrichment will result. It is not an appropriate remedy in this case. The assignee cannot recover from the obligor because the assignor had no right to assign. Thus, the assignee has no rights against the obligor.

In a suit for restitution, the measure of recovery is __________. Athe amount necessary to buy a substitute performance Bnothing, if the plaintiff is the breaching party Cthe value of the benefit conferred Dthe difference between what the plaintiff would have received if the contract had been properly performed and the value of what the plaintiff actually received

C In a suit for restitution, the measure of recovery is the value of the benefit conferred. Restitution is based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent. The value of the benefit conferred is usually measured by the benefit received by the defendant, but it may also be measured by the reasonable value of the work performed by the plaintiff. The amount necessary to buy a substitute performance is an expression of the measure of expectation damages, not restitution. The measure of recovery is not necessarily nothing if the plaintiff is the breaching party. Under some circumstances, a plaintiff may seek restitution even though the plaintiff is the party who breached. For example, a buyer who has paid part of the purchase price may recover some payments even if he is in breach. The difference between what the plaintiff would have received if the contract had been properly performed and the value of what the plaintiff actually received is also a formulation of compensatory, expectation damages rather than restitution. This measure does not address unjust enrichment

Which of the following statements is correct regarding damages for a breach of a contract for the sale of goods? AEither a nonbreaching buyer or a nonbreaching seller may recover incidental damages, but only a seller may recover consequential damages BEither a nonbreaching buyer or a nonbreaching seller may recover consequential damages, but only a seller can recover incidental damages CEither a nonbreaching buyer or a nonbreaching seller may recover incidental damages, but only a buyer may recover consequential damages DEither a nonbreaching buyer or a nonbreaching seller may recover consequential damages, but only a buyer can recover incidental damages

C In contracts for the sale of goods, compensatory damages may also include incidental damages. Either a nonbreaching buyer or a nonbreaching seller may recover incidental damages for a breach of a contract for the sale of goods. Incidental damages include expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller's breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer's breach. Consequential damages are special damages over and above standard expectation damages. These damages result from the nonbreaching party's particular circumstances and are recoverable only if a reasonable person would have foreseen them as a probable result of breach. Note that in contracts for the sale of goods, only a buyer may recover consequential damages.

What is the Statute of Frauds? AA statute that contains special rules for all contracts involving the sale of goods BA statute that allows a court to enforce a promise without consideration when necessary to prevent injustice CA statute requiring that certain types of agreements must be evidenced by a writing signed by the party sought to be bound

C In most instances, an oral contract is valid. However, under the Statute of Frauds, certain types of agreements must be evidenced by a writing signed by the party sought to be bound. Article 2 of the Uniform Commercial Code contains special rules for all contracts involving the sale of goods. Goods are defined as all thing movable at the time they are identified to be sold under the contract. Using the doctrine of promissory estoppel, a court can enforce a promise without consideration when necessary to prevent injustice when the facts indicate that the promisor should be estopped from not performing.

__________ damages are those damages that, at the time of contract formation, the parties to the contract stipulated would be paid in the event of a breach. AReliance BExpectation CLiquidated DConsequential

C Liquidated damages are those damages that, at the time of contract formation, the parties to the contract stipulated would be paid in the event of a breach. These liquidated damages must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach. Compensatory damages attempt to put the nonbreaching party where she would have been had the promise been performed, so far as money can do this. Expectation, consequential, and reliance damages are all forms of compensatory damages. Consequential damages consist of losses resulting from the breach that any reasonable person would have foreseen would occur from a breach at the time of entry into the contract. Note that in contracts for the sale of goods, only a buyer may recover consequential damages. Expectation damages are the standard measure of compensatory damages. Expectation damages are based on an "expectation" measure or what is sufficient for the nonbreaching party to buy a substitute performance. This type of damages is also known as "benefit of the bargain" damages. Reliance damages award the plaintiff the cost of her performance. They are designed to put the plaintiff in the position she would have been in had the contract never been formed. A plaintiff may elect to recover damages based on a reliance measure rather than an expectation measure when expectation damages will be too speculative to measure.

Which of the following statements is true regarding enforcement of a covenant not to compete? AA court will grant an order of specific performance to enforce any agreed-upon covenant not to compete included in an employment contract BA court will not grant an order of specific performance to enforce a covenant not to compete because specific enforcement is never available for service contracts CA court will grant an order of specific performance to enforce a covenant not to compete if the services to be performed are unique and the covenant is reasonable DA court will not grant an order of specific performance to enforce a covenant not to compete because money damages can easily be determined based on the terms of the employment contract

C Most courts will grant an order of specific performance to enforce a covenant not to compete if the services to be performed are unique and the covenant is reasonable. To be reasonable, the covenant must be reasonably necessary to protect a legitimate interest of the person benefited by the covenant, it must be reasonable as to its geographic scope and duration, and it must not harm the public. Thus, a court will not necessarily enforce any covenant not to compete that the parties agreed to in the employment contract; the services in question must be unique and the covenant must be reasonable, as described above. While it is true that specific enforcement is never available for service contracts, a court will grant an order of specific performance to enforce a covenant not to compete. Specific performance is not available for breach of a contract to provide services, even if the services are rare or unique, because of problems of enforcement (it would be difficult for the court to supervise the performance) and because the courts feel it is tantamount to involuntary servitude. However, less court supervision is required for a covenant not to compete than for a specific performance decree for services, and the prohibition against working (as opposed to the requirement of working) does not run afoul of the Constitution. It is not always the case that money damages can be easily determined when there is breach of an employment contract, especially if the services contracted for are rare or unique. At times a court will grant an order of specific performance to enforce a covenant not to compete because of the unique nature of the services provided.

A remedy whereby a writing setting forth the agreement between the parties is changed by the court so that it conforms to the original intent of the parties is known as: ARescission BModification CReformation DRestitution

C Reformation is a remedy whereby a writing setting forth the agreement between the parties is changed so that it conforms to the original intent of the parties. A reformation action is available to remedy a mistake when there is a variance between the original agreement and the writing. It is also possible to seek reformation in the case of fraudulent misrepresentation. Rescission is a remedy whereby the original contract is considered voidable and rescinded. The parties are left as though a contract had never been made. Restitution is a remedy based on preventing unjust enrichment in cases of breach of contract, unenforceable contracts, and sometimes when there is no contract at all (quasi-contract). Modification is not a remedy ordered by a court. Modification is an agreement between the parties to change an existing contract's terms.

A seller agrees to sell Blueacre to a buyer for $100,000. When the seller's assistant types the contract, it states that it is for the sale of Blackacre, another of the seller's properties. Neither the buyer nor the seller noticed the reference to the different parcel before signing. If the seller refuses to convey Blueacre, the best remedy available to the buyer in this situation is: ARestitution BRescission CReformation

C Reformation is the best remedy available to the buyer in this situation. In reformation, the original contract is valid, but the subsequent writing does not conform to the original contract. In a reformation action, the writing setting forth the agreement between the parties is changed by the court so that it conforms to the original intent of the parties. Rescission is not the appropriate remedy. Rescission is a remedy whereby the original contract is considered voidable and rescinded. The parties are left as though the contract had never been made. It is available in cases of mistake, misrepresentation, duress, etc. Unlike the reformation situation, in a rescission action the original contract is voidable because of misrepresentation, duress, etc. Here, the only problem was a mistake in transcription. In addition, the buyer wishes to continue with the sale, so rescission is not the best remedy even if it were available. Restitution is a remedy based on preventing unjust enrichment in cases of breach of contract, unenforceable contracts, and sometimes when there is no contract at all (quasi-contract). Here, there is an enforceable contract for the purchase of Blueacre. The buyer is entitled to Blueacre, not the return of his money

A writing is not required to enforce a contract that would otherwise be covered by the Statute of Frauds if: ABoth parties are merchants BBoth parties are nonmerchants CThe party against whom enforcement is sought admits to the existence of the contract in court DThe party seeking to enforce the contract offers evidence of prior dealings between the parties

C The Statute of Frauds requires that certain contracts be evidenced by a writing signed by the parties sought to be bound. However, if the party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that the contract was made, the contract is enforceable without a writing (but in such a case the contract is not enforced beyond the quantity of goods admitted). Prior dealings alone are not enough to remove a contract from the requirements of the Statute of Frauds. Just because the parties had an agreement in the past does not mean there is sufficient proof of a current agreement. In some such cases, estoppel could be applied where it would be inequitable to allow the Statute of Frauds to defeat a meritorious claim, but for that to occur the party seeking to enforce the agreement would need to show that enforcement is necessary to prevent injustice. An example of this would be if the other party falsely and intentionally told the plaintiff the contract is not within the Statute of Frauds or said he would reduce the agreement to a writing but failed to do so. The Statute of Frauds applies to both merchants and nonmerchants. There is no general exception to the Statute of Frauds just because both parties are merchants. Note, however, that under the merchant's confirmatory memo rule, in contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if the recipient has reason to know of the confirmation's contents and does not object to it in writing within 10 days of receipt.

When a court refuses to enforce a provision of a contract to avoid "unfair" terms, it is applying the concept of: Apari delicto Bpromissory estoppel Cunconscionability Ddisaffirmance

C The concept of unconscionability allows a court to refuse to enforce a provision of a contract to avoid unfair terms. There are two types of unconscionability: substantive unconscionability based on lopsided terms, and procedural unconscionability based on unfair surprise or unequal bargaining power. A party might be able to successfully seek relief from a contract based on a defense of illegality, if the party is not in pari delicto, i.e., as culpable as the other party to the illegal contract. An infant might apply the concept of disaffirmance by choosing to disaffirm a contract he entered into before reaching the age of majority. Promissory estoppel allows a promise, unenforceable due to a lack of consideration, to be enforced if necessary to prevent injustice.

Under the U.C.C., a good faith purchaser for value can be _________ or ____________. AA buyer with or without knowledge of any fraud; a person with or without knowledge of any fraud who takes a security interest in the goods BA buyer without knowledge of any fraud; a charity without knowledge of any fraud that receives the goods as a donation CA buyer without knowledge of any fraud; a person without knowledge of any fraud who takes a security interest in the goods

C Under the U.C.C., a good faith purchaser for value can be either a buyer without knowledge of any fraud or a person without knowledge of any fraud who takes a security interest in the goods. A party cannot be acting in good faith if he has knowledge of the fraud; thus, a party with knowledge of the fraud cannot be a good faith purchaser for value. A good faith purchaser for value cannot be a charity that receives the goods as a donation because the charity did not give value.

When an obligor delegates his duties, the obligor is __________. Ano longer liable on the contract if the delegate promises to perform the duty delegated and that promise is supported by consideration Bliable on the contract only if the delegate does not assume the duties delegated Csecondarily liable as a surety on the contract Dno longer liable on the contract because the delegation extinguishes the privity between the obligor and obligee

C When an obligor delegates his duties, he is secondarily liable as a surety on the contract. After a delegation, the delegator remains liable to perform, but the delegation places the primary responsibility to perform on the delegate. The obligor/delegator becomes secondarily liable. The obligor remains liable after the delegation, and the delegation does not extinguish the privity between the obligor and the obligee. If the delegate promises to perform the duty delegated and that promise is supported by consideration, an assumption of duties occurs. This does not relieve the obligor of liability; it merely creates a third-party beneficiary situation in which the obligee can bring an action against the delegate to enforce the promise. Hence, the obligor remains liable even if the delegate assumes the duties delegated.

Which of the following is not a factor a court considers in determining whether a party is an intended third-party beneficiary? AWhether the third party was designated in the contract BWhether performance is to be made directly to the third party CWhether the third party materially changed his position in justifiable reliance on the promise DWhether the third party has any rights under the contract

C Whether a third party materially changed his position in justifiable reliance on the promise is not a factor a court considers in determining whether a party is an intended third-party beneficiary. Rather this type of change of position is a method of vesting the beneficiary's rights. The issue is whether the primary purpose of the promisee was to get the benefit for himself or to confer a right on another directly. If the purpose was to confer a right on another directly, that person is an intended third-party beneficiary The court looks at the following factors in resolving the question of intention: Whether the third party is expressly designated in the contract;Whether performance is to be made directly to the third party;Whether the third party has any rights under the contract; andWhether the third party stands in such a relationship to the promisee that one could infer that the promisee wished to make an agreement for the third party's benefit.

Expectation damages are also known as: AConsequential damages BReliance damages CIncidental damages DBenefit of the bargain damages

D "Benefit of the bargain" damages is another name for expectation damages, i.e., those damages sufficient for the plaintiff to buy a substitute performance. Reliance damages put the plaintiff in the position she would have been in had the contract never been formed. Consequential damages consist of losses resulting from the breach that any reasonable person would have foreseen would occur from a breach at the time of entry into the contract. Incidental damages may be granted in an action for breach of contract for the sale of goods for expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected, and other expenses reasonably incident to the seller's breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer's breach.

Which of the following duties can be delegated? AA contract for medical services. BA contract to perform in a play. CA contract for legal services. DA contract to manufacture and deliver limited edition plates.

D A contract to manufacture and deliver limited edition plates can be delegated. All contractual duties can be delegated unless they fall within a recognized exception. The manufacture of plates does not fall within any exception—even if they are limited edition plates. Exceptions to the general rule that all duties may be delegated are: Duties involving personal judgment and skill;Duties in which a special trust has been placed in the delegator;Duties for which delegation will materially change the obligee's expectancy; andDuties the delegation of which is restricted in the contract. A contract for legal services and a contract for medical services involve duties in which a special trust has been reposed in the delegator. The obligee has a substantial interest in having his lawyer and doctor perform their duties personally. Thus, those contractual duties cannot be delegated. A contract to perform in a play concerns a duty involving personal skill. Thus, it cannot be delegated

A agrees to purchase widgets from B for $300. The contract provides that A is to pay the $300 to C. B owes C $300. Which of the following statements is accurate? AA is the assignor, B is the obligor, and C is the assignee BA is the promisee, B is the promisor, and C is a creditor beneficiary CA is the obligor, B is the assignor, and C is the assignee DA is the promisor, B is the promisee, and C is a third-party beneficiary

D A is the promisor, B is the promisee, and C is a third-party beneficiary. The parties to the contract are the promisor and promisee. A promisor is the party who promised to perform and, thus, owes the duty to perform. The promisee is the party to whom that promise was made. Here A promised to pay $300 to B for widgets, so A is the promisor. B is the party to whom A made the promise; thus, B is the promisee. Since the contract expressly provides that A is to pay the money directly to C, C is a third-party beneficiary. While it is true that C is a creditor beneficiary, A is the promisor, not the promisee, and B is the promisee. Obligor, assignor, and assignee are terms used when an assignment of rights under a contract is made. The facts here do not involve an assignment or rights; this is a third-party beneficiary situation

A legal detriment can best be defined as __________. Anegotiating a bargained-for exchange Bmaking a promise to perform, or the actual performance of, an existing legal duty Csuffering an actual loss in exchange for some perceived benefit Ddoing something you are under no legal obligation to do, or refraining from doing something that you have a legal right to do

D A legal detriment will result if the promisee does something he is under no legal obligation to do or refrains from doing something that he has a legal right to do. Legal detriment need not involve any actual loss to the promisee or benefit to the promisor. For example, a party suffers legal detriment if he agrees to refrain from doing something that he had no intention of ever doing. As long as he had a right to do the act he promised to refrain from, he suffers legal detriment. A legal detriment is not a negotiation. It is also not the same thing as a bargained-for exchange, although it may be an element of such an exchange. A legal detriment is not a promise to perform, or the actual performance of, an existing legal duty. Legal detriment does not require performance; it can consist of refraining from doing something. Also, if a party has an existing legal duty to do something, he does not suffer a detriment by agreeing to do it.

An implied warranty of merchantability may be disclaimed __________. Aonly if the buyer has an opportunity to inspect the goods before entering into the contract Bonly by a written, conspicuous disclaimer that specifically mentions merchantability Cat any time before the goods are used Deither by a specific disclaimer mentioning merchantability or by general language such as "as is"

D An implied warranty of merchantability may be disclaimed either by a specific disclaimer mentioning merchantability or by general language, such as "as is." Under Article 2, the warranty of merchantability can be specifically disclaimed or modified only by mentioning merchantability. However, unless the circumstances indicate otherwise, an implied warranty of merchantability can be disclaimed by expressions, such as "as is," "with all faults," or other expressions that call the buyer's attention to the fact that there are no implied warranties. To be effective, the disclaimer need not be in writing. A written, conspicuous disclaimer is necessary only if the sales contract is in writing. Also, a specific disclaimer is not the only way to disclaim the implied warranty of merchantability. General disclaimer language is also effective. An implied warranty of merchantability cannot be disclaimed at any time before the goods are used. To be effective, a warranty disclaimer must be agreed to during the bargaining process. A thorough inspection or refusal to inspect by the buyer can create a general disclaimer of warranties, but an opportunity to inspect the goods is not a precondition to disclaiming the implied warranty of merchantability

In most states, when forming a contract, which of the following is not a necessary element of consideration? AA bargain for something of legal value. BA bargained-for exchange between the parties. CA benefit to the promisor or a detriment to the promisee. DAn economic benefit to the promisor.

D Basically, two elements are necessary to constitute consideration: (i) there must be a bargained-for exchange between the parties; and (ii) that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee. The benefit to the promisor need not have economic value; for example, peace of mind may be sufficient for consideration

B owes A $100. A assigns his right to payment of the $100 to C and notifies B. B pays the $100 to A. If C sues B for the $100: AC will not prevail regardless of whether she gave value because the assignment was revoked BC will not prevail regardless of whether she gave value because B owed the money to A CC will prevail regardless of whether she gave value because A notified B of the assignment DC will prevail if she gave value to A for the assignment because assignments for value are irrevocable

D C will prevail if she gave value to A for the assignment. An assignment for value is irrevocable. Thus, C may recover from B. If C did not give value, the assignment is revocable and is in fact revoked by A accepting performance from B. Whether C will prevail depends on whether she gave value. The fact that A notified B of the assignment does not affect the revocability of a gratuitous assignment. Note, however, that if the assignment is irrevocable (or has not been revoked), once the obligor has knowledge of the assignment, he must render performance to the assignee. If, as here, the obligor renders performance to the assignor, he does so at his own risk. The fact that B owed the money to A has no effect on the enforceability of the assignment. The suit depends on whether C gave value. If C did not, the assignment is revoked by A taking payment from B. The assignment was not revoked if C gave value because, in that case, the assignment would be irrevocable. The assignor accepting performance from the obligor cannot revoke an irrevocable assignment

Which of the following is not a requirement for an enforceable covenant not to compete? AThe covenant must be reasonably necessary to protect a legitimate interest of the person benefited by the covenant. BThe covenant must be reasonable as to its geographic scope and duration. CThe covenant must not harm the public. DThe services must be delegable.

D If the services are delegable, generally the court will not enforce a covenant not to compete. A covenant not to compete will be enforceable if the services to be performed are rare or unique and the covenant is reasonable. To be reasonable, a covenant: Must be reasonably necessary to protect a legitimate interest of the person benefited by the covenant, Must be reasonable as to its geographic scope and duration, and Must not harm the public.

The right to specific performance in a land sale contract is cut off if the subject matter of the contract has already been sold to another who purchased for value and in good faith. This is known as the equitable defense of: ALaches BUnclean Hands CReplevy DSale to a bona fide purchaser

D If the subject matter of a goods or land contract has already been sold to another who purchased for value and in good faith, the right to specific performance is cut off. This is known as the equitable defense of sale to a bona fide purchaser. The equitable defense of laches arises when a party delays in bringing an equitable action and the delay prejudices the defendant. Note that mere delay itself is not a ground for this defense. The unclean hands defense arises when the party seeking specific performance is guilty of some wrongdoing in the transaction being sued upon. Note that the wrongdoing must be related to the transaction being sued upon; it is not sufficient that the plaintiff has defrauded other persons in similar transactions. Replevy is a nonmonetary remedy found in Article 2 of the U.C.C. If a buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the seller has not delivered the goods, the buyer may replevy (or recover) the goods from the seller if the seller becomes insolvent within 10 days after receiving the buyer's first payment or the goods were purchased for personal, family, or household purposes. In either case, the buyer must tender any unpaid portion of the purchase price to the seller.

With respect to a completely integrated written agreement, parol evidence can be received to aid a fact-finder when there is a dispute as to __________. Athe intent of the parties to the agreement Ba clause supplementing the agreement Cthe inclusion of an additional term to the agreement Dthe meaning of an ambiguous term within the agreement

D If there is uncertainty or ambiguity in the written agreement's terms or a dispute as to the meaning of ambiguous terms, parol evidence can be received to aid the fact-finder. Under the parol evidence rule, written or oral expressions made prior to the writing, as well as any oral expression contemporaneous with the writing, are inadmissible to vary the terms of the writing. Those expressions barred include those concerning additional, supplementing terms and those concerning the parties' intent. If a writing is a complete integration, it may not be contradicted or supplemented. If the integration is only partial, it may be supplemented by proof of consistent additional terms.

In a construction contract, if the property owner breaches the contract __________. Aafter construction is completed, the builder is entitled to the profit he would have derived from the contract, plus interest Bbefore construction has started, the builder is entitled to the contract price Cduring construction, the builder is entitled to the profits he would have derived from the contract, minus the costs of completion Dbefore construction has started, the builder is entitled to the profits he would have derived from the contract

D In a construction contract, if the property owner breaches the contract before construction has started, the builder is entitled to the profits he would have derived from the contract. He is not entitled to the contract price, because the contract price includes costs that he has not yet incurred. The profits measure puts him where he would have been had the promise been performed. If the owner breaches the contract during construction, the builder's damages are not measured by profits he would have derived from the contract minus the costs of completion. That statement mixes two ways of stating the builder's damages in this situation. If the breach occurs during construction, the builder is entitled to the profits he would have derived from the contract plus any costs he has incurred to date, or the contract price minus the cost of completion. If the owner breaches the contract after completion, the damages measure is not profits he would have derived from the contract plus interest. In this case, the builder has already incurred all of the costs of construction, so the appropriate remedy is the contract price, plus interest.

Which of the following normally would not be an exception to the preexisting legal duty rule? AA compromise based on an honest dispute as to duty. BA minor's ratification of a contract upon reaching the age of majority. CAn acceleration of the performance of the duty. DPayment of a smaller sum to settle an existing debt.

D In the case of an existing debt, payment by the debtor of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt. However, because courts are anxious to avoid the preexisting duty rule, payment of a smaller debt may be sufficient consideration if the payment is in any way different (e.g., stock instead of cash) or if the debt was honestly disputed. Almost any variation, such as accelerating performance, is considered adequate consideration. A promise to perform a voidable obligation (e.g., a minor's ratification of a contract upon reaching the age of majority) is also enforceable despite the absence of new consideration. If the scope of the legal duty owed is the subject of honest dispute, then a modifying agreement relating to it will ordinarily be given effect

Once an obligor delegates his duties under a contract to a delegate, the obligee __________. AMay refuse performance from the delegate and demand performance from the delegator if she did not expressly consent to the delegation BMust look only to the delegate for performance of the duties, as the delegator is no longer liable CMay look to either the delegate or the delegator for performance at her discretion DMust look first to the delegate for performance of the duties, but if he fails to perform, then may look to the delegator as a surety for the delegate's performance

D Once an obligor delegates his duties under a contract to a delegate, the obligee must look first to the delegate for performance of the duties, but if he fails to perform, then may look to the delegator as a surety for the delegate's performance. It is incorrect to state that the obligee must look only to the delegate for performance of the duties because the delegator is no longer liable. The delegator will remain liable on his contract, even if the delegate expressly assumes the duties. However, as between the delegator and the delegate, the delegation places the primary responsibility to perform on the delegate. The delegator becomes secondarily liable, as a surety, for performance of the duty. Thus, it is not within the obligee's discretion to look to either party for performance. The obligee must accept performance from the delegate of all duties that may be delegated. She need not accept performance from the delegate of those duties that may not be delegated. If the duty is one that may be delegated, the obligee does not have the right to refuse performance from the delegate because she did not expressly consent to the delegation. Note that if the obligee has expressly consented to the transfer of duties, it could be construed as an offer of novation rather than a delegation

__________ can serve as a substitute for consideration. AA suretyship promise BA bargained-for exchange CAn option DPromissory estoppel

D Promissory estoppel is considered a substitute for consideration. Under the doctrine of promissory estoppel, a promise is enforceable even without consideration if necessary to prevent injustice if the promisor should reasonably expect to induce action or forbearance, and such action or forbearance is in fact induced. A bargained-for exchange is a necessary element of consideration, not a substitute for consideration. A suretyship promise is a promise to pay the debt of another. Suretyship contracts require proper consideration to be enforceable. An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an offer. An option is not a substitute for consideration.

Which of the following statements is true regarding a specific performance remedy for breach of a contract to provide services? ASpecific performance can be granted for a breach of a contract to provide services only if the services are shown to be rare or unique BSpecific performance can be granted for a breach of a contract to provide services only if a legal remedy would be inadequate CSpecific performance can always be granted for a breach of a contract to provide services because services are personal and thus always considered to be rare or unique DSpecific performance is not available as a remedy for a breach of a contract to provide services

D Specific performance is not available for breach of a contract to provide services, even if the services are rare or unique and a legal remedy would be inadequate. This is because of problems of enforcement (it would be difficult for the court to supervise the performance) and because the courts feel it is tantamount to involuntary servitude, which is prohibited by the Constitution. Generally a court may grant specific performance, which is essentially an order from the court to the breaching party to perform or face contempt of court charges, if the legal remedy is inadequate. The legal remedy (damages) generally is inadequate when the subject matter of the contract is rare or unique. The rationale is that if the subject matter is rare or unique, damages will not put the nonbreaching party in as good a position as performance would have, because even with the damages the nonbreaching party would not be able to purchase substitute performance. A contract to provide services is an exception to this general rule for the reasons stated above

The confirmatory memo rule applies __________. ATo all sales contracts covered by Article 2, whether or not the parties are merchants BAs long as the sender of the confirmatory memo is a merchant CAs long as the recipient of the confirmatory memo is a merchant DOnly if both parties to the agreement are merchants

D The Statute of Frauds requires that contracts for the sale of goods for a price of $500 or more be evidenced by a writing signed by the parties sought to be bound. The confirmatory memo rule is an exception, which allows a contract to be enforceable without a writing signed by the party to be bound, in this case the recipient of the confirmatory memo. Under the confirmatory memo rule, in contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if he has reason to know of the confirmation's contents and does not object to it in writing within 10 days of receipt.

Despite the parol evidence rule, a party to a fully integrated written contract can always offer evidence __________. AContradicting a term of the agreement by way of a prior valid written contract BSupplementing the terms of the agreement with proof of a contemporaneous oral agreement CExplaining the meaning of a term in the agreement DAttacking the agreement's validity at the time of formation

D The parol evidence rule prohibits admissibility of extrinsic evidence that seeks to vary, contradict, or add to a complete integration. Other forms of extrinsic evidence may be admitted when they will not bring about this result; i.e., they will fall outside the scope of the parol evidence rule. A party to a written contract can always attack the agreement's validity. For example, the party might acknowledge that the writing accurately reflects the agreement but assert that the agreement never came into being because of a formation defect or an unfulfilled condition precedent. Once a writing is fully integrated, any other expressions about that content of the contract, written or oral, made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing. Thus the parol evidence rule expressly prohibits both supplementing the terms of the agreement with proof of a contemporaneous oral agreement and contradicting a term of the agreement by way of a prior valid written contract. Only if there is uncertainty or ambiguity in the written agreement's terms, or a dispute as to the meaning of those terms, can a party offer evidence explaining the meaning of the term to aid the fact-finder in reaching a correct interpretation of the agreement. If the meaning of the agreement is plain, parol evidence is inadmissible.

The rights of a third-party beneficiary vest when he: AReceives notice of the existence of the contract; is a creditor of the promisee; or is an intended, not incidental, beneficiary BSigns the contract; makes an enforceable promise in the contract; or provides consideration for the promise in the contract CIs named in the contract; is identifiable by the terms of the contract; or is identifiable at the time of performance DManifests assent to the promise; brings suit to enforce the promise; or materially changes position in justifiable reliance on the promise

D The promisor and promisee are generally free to modify the contract, without consulting the third-party beneficiary, unless his rights have vested. Once the third-party beneficiary's rights have vested, the promisor and promisee cannot vary his rights without his consent. A third-party beneficiary's rights vest when the beneficiary: manifests assent to the promise in a manner invited or requested by the parties; brings suit to enforce the promise; or materially changes position in justifiable reliance on the promise. In determining the promisee's intentions in a third-party beneficiary situation, courts will often look at whether the third party is expressly designated in the contract. If so, it is more likely that it is primarily for his benefit. But it is not necessary that the third-party beneficiary be named, or even identifiable, at the time the contract is made; he need only be identifiable at the time performance is due. Even if a third party is named or is otherwise identifiable, the promisor and promisee are free to modify the contract if the third party's rights have not yet vested as discussed above. A party that signs the contract; makes an enforceable promise in the contract; or provides consideration for the promise in the contract would most likely be considered a party to the contract, not a third-party beneficiary to the contact. In any event, these are not the factors that cause a third-party beneficiary's rights to vest. While it is true that only intended, not incidental, beneficiaries have rights under the contract, these rights must be vested to be enforceable. It is not enough that the third party has received notice of the existence of the contract. If his rights have not yet vested, as described above, the original parties are free to take actions, such as rescission or modification, which may affect the third-party beneficiary. These vesting rules apply to both creditor and donee beneficiaries.

Which of the following statements or actions cannot give rise to an express warranty? A"We will include a free car wash whenever you bring your new car in for service" B"This car has a 3.2 liter V6 engine" CA test drive of a car represented to be "just like" the one for sale D"In my opinion, this is the best car with the most fuel efficient engine available today"

D The statement, "In my opinion, this is the best car with the most fuel efficient engine," cannot give rise to an express warranty. Any affirmation of fact or promise made by the seller, any description of the goods, and any sample or model creates an express warranty if it is part of the basis of the bargain. A statement purporting to be only the seller's opinion or commendation of the goods is not a statement of fact and does not create an express warranty. "This car has a 3.2 liter V6 engine" is an affirmation of fact and thus can give rise to an express warranty. A test drive of a car can give rise to an express warranty if it is part of the basis of the bargain. A test drive is a sample or model. The statement about the free car wash is a promise related to the sale and will give rise to an express warranty if it is part of the basis of the bargain.

Which of the following is an element of the implied warranty of fitness for a particular purpose? AThe goods must pass without objection in the trade under the contract description BThe seller is a merchant CThe goods must conform to any promises or affirmations of fact made on the label DThe buyer relied on the seller's skill and judgment

D The warranty of fitness for a particular purpose is implied when:(i) any seller (merchant or not) has reason to know the particular purpose for which the goods are to be used and that the buyer was relying on the seller's skill and judgment to select suitable goods; and (ii) the buyer in fact relied on the seller's skill or judgment. The warranty that the goods will pass without objection in the trade under the contract description and the warranty that the goods conform to any promises or affirmations of fact made on the label are both elements of the implied warranty of merchantability, not fitness for a particular purpose.

Generally, when a sale of goods is induced by fraud and the fraudulent buyer then sells the item to a third-party purchaser, the title he passes to the purchaser is __________. AAlways voidable BVoid, unless the third-party purchaser is a good faith purchaser for value CAlways void DVoidable, unless the third-party purchaser is a good faith purchaser for value

D Under the U.C.C., if a sale is induced by fraud, the title that passes is voidable; the defrauded seller can rescind the sale and recover the goods from the fraudulent buyer. However, the defrauded seller may not recover the goods from a good faith purchaser for value who bought the goods from the fraudulent buyer. The rights of the defrauded seller are cut off both by a buyer and by a person who takes a security interest in the goods. Compare this to the case where a thief sells goods to a buyer. In that case, the transferred title of the stolen goods is generally void, even if the thief attempts to transfer title to a good faith purchaser for value.

When two merchants enter into an oral contract for the sale of goods and one party sends to the other party a signed, written confirmation of the agreement, it: ABinds only the sender because it is signed only by the sender BBinds both the sender and the recipient, provided the recipient actually read the document and did not object in writing within 10 days of receipt CBinds both sender and the recipient, provided the recipient signs the confirmation within 10 days of receipt DBinds both the sender and recipient, provided the recipient had reason to know of its contents and did not object in writing within 10 days of receipt

D Under the confirmatory memo rule, in contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under law to bind the sender, it will also bind the recipient if he has reason to know of the confirmation's contents and does not object to it in writing within 10 days of receipt. The recipient need not actually read the document; it is binding if the recipient had reason to know of its contents. Even though the memo is generally signed only by the sender, the recipient is bound; the recipient's signature is not necessary.

When a party assigns "the contract" to a third party, it results in __________. Aan assignment of rights to the third party, but not a delegation of duties Bthe third party becoming a third-party beneficiary to the contract Crelieving the assignor of all rights and duties under the contract Dan assignment of rights and a delegation of duties to the third party

D When a party assigns "the contract," it results in an assignment of rights and a delegation of duties to the third party. Unless a contrary intention appears, words assigning "the contract" or "all my rights under the contract" are construed to include an assumption of duties. A promise by the assignee to assume the duties of performance is implied. The person to whom the contract is assigned is the assignee, not a third-party beneficiary. The assignor will be relieved of his rights, but not his duties under the contract. In this case, the assignor is also the delegator. A delegator remains liable on his contract.

A contractor with a contract to deepen a well in a drought-stricken area mistakenly entered onto the wrong property and proceeded to deepen the well there. The owner of the property saw the contractor at work but said nothing. When the contractor completed the job, the property owner refused to pay his bill, and the contractor filed suit. In her answer, the property owner stated that she thought the contractor was employed by the county and that the government was paying for the work because of the drought. She knew, however, that two of her neighbors had recently paid private contractors to deepen their wells. Which of the following arguments offers the contractor his best chance for winning his lawsuit? (A) Implied-in-fact contract. (B) Promissory estoppel. (C) Mutual mistake. (D) Unilateral mistake

(A) The contractor's best (and only) argument would be that the property owner's silence while the contractor deepened her well was an acceptance by silence of an implied-in-fact contract. An implied-in-fact contract is formed by manifestations of assent other than oral or written language, i.e., by conduct. Where a person knowingly accepts offered benefits, such conduct, viewed objectively, may be said to manifest an agreement to the conferral of such benefits, resulting in a contract implied in fact. While generally an acceptance must be communicated to an offeror to be effective, courts will often find an acceptance where an offeree silently accepts offered benefits. Here, the property owner's purported belief that the work was being done by a county employee at no charge is not plausible. The property owner had no prior notification from or contact with any county employee, and it is not reasonable to believe that anyone, including an employee of the government, would enter upon and disturb private property without prior consent. Moreover, the property owner knew that her neighbors had not had their wells deepened by county workers but had paid private contractors to do the work. Thus, the facts strongly suggest that the property owner's silence as she watched the contractor deepen her well was acceptance by silence of an implied-in-fact contract. (B) is incorrect because promissory estoppel is inappropriate in this case. Under the doctrine of promissory estoppel, as outlined in section 90 of the First Restatement, a promise is enforceable to the extent necessary to prevent injustice if the promisor would reasonably expect to induce action or forbearance of a definite and substantial character and such action or forbearance is in fact induced. Here, the contractor and the property owner whose well he deepened had never met or negotiated for services and had no communications with one another prior to the contractor sending the property owner his bill, and the contractor did not even realize that he was doing the work for that property owner's benefit. Thus, promissory estoppel is not proper. (C) and (D) are incorrect because mistake is a defense to formation of a contract and is raised to render a contract voidable by the adversely affected party. Thus, mistake would not be a ground on which relief could be granted. Even if the property owner's purported mistake were treated as credible by the court, there was no "mutual" mistake because the contractor and the property owner were not mistaken about the same fact, but rather, each was mistaken about a different fact (the contractor, that he was at the right address, and the property owner, that the contractor was a county employee doing the work without charge). Nor could the facts be characterized as a unilateral mistake, in which only one of the parties is mistaken about facts relating to the agreement, because both parties were operating under a mistaken belief. Thus, both (C) and (D) are incorrect.

An advertising agency specializing in aerial banners and skywriting signed a contract with a film production company that was premiering a new blockbuster film. The contract provided that the agency would advertise the film by flying over the city towing a giant streamer belonging to the film company heralding the film's catch phrase and title in large letters. This contract specified that the flight was to be conducted on the first Saturday in June at noon (the day of the local premier), and the film company was to pay the advertising agency $500 for the flight. On the designated Saturday, the advertising agency was unable to fly because of a defective fuel pump. The defective condition was entirely unforeseeable and did not occur through any negligence or fault of the agency. The film company did not pay the agency, and each of the parties has sued the other for damages. Which of the following best states the rights and liabilities of the parties? (A) The film company is entitled to recover damages from the advertising agency on account of the agency's failure to fly. (B) The advertising agency is entitled to recover from the film company the $500 contract price, as the incapacity of the airplane was not the agency's fault. (C) Neither party is entitled to recover against the other, because the advertising agency's duty to fly was discharged by impossibility, and the film company's duty to pay was contingent on the agency's flight. (D) Neither party is entitled to recover against the other, because the film company's offer to pay $500 for the flight was in effect an offer for an act, and because the act was not performed, there was no valid acceptance.

(A) The film company will be able to recover damages from the advertising agency because the agency's failure to fly constituted a breach of contract. The parties entered into a bilateral contract—the agency promised to fly with the streamer and the film company promised to pay for the flight. The agency breached the contract by failing to fly on the designated Saturday. Its duty to fly was not discharged by impossibility. A contractual duty to perform may be discharged by 10. Contracts Answers objective impossibility (i.e., no one could have performed), but subjective impossibility (defendant could not perform) is insufficient. Here, the defect in the plane constituted only subjective impossibility (if it amounted to impossibility at all) because the agency could have obtained another plane to pull the streamer. If the agency had been unable to fly the plane because of weather (e.g., a severe ice storm), its performance would have been objectively impossible, and the agency would have been discharged. However, under these facts, the film company is entitled to damages for the agency's breach. (B) is incorrect because the film company's duty to perform (pay $500) was subject to the condition precedent of the agency's performance (flying), and, as discussed above, the agency breached the contract by failing to fly. Therefore, the film company's duty to pay never arose. The fact that the engine problem was not the agency's fault does not change things. The agency's inability to perform, even if it were due to impossibility, would merely discharge the contract, and each party would be excused from performance; the film company would not have to pay the $500. (C) is incorrect because, as determined above, the agency's duty was not discharged because performance was still possible. (If there had been objective impossibility, (C) would have been the correct choice.) (D) is incorrect because it suggests that the contract was a unilateral one (the offer to pay could be accepted only by completion of performance). This interpretation is clearly contrary to the facts. Although the film company offered to pay $500 for the flight, the agency accepted that offer by signing the contract. A promise to pay was given in exchange for a promise to fly. Thus, there was a contract to which both parties were bound.

The owner of a sporting goods store noticed that her tent stock was running low. After consulting various manufacturers' catalogs, she decided to order from a large manufacturer of camping equipment whose catalog listed the 9 x 12 tent that she wanted at a cost of $70 per tent. On April 1, the store owner phoned the manufacturer and placed her order for 10 tents with the manufacturer's sales agent. The next day, the manufacturer mailed the store owner a signed letter stating that there was a contract for sale for 10 tents at $70 per tent plus a $40 shipping fee, and that the tents would be shipped on April 16. The store owner received the letter on April 4, but she never responded. On April 15, she received a catalog from another tent company showing tents similar to the ones that she ordered, but for a cost of only $60. The store owner immediately called the manufacturer with whom she had placed her order to cancel it. Nevertheless, the manufacturer shipped the tents to her on April 16. If the manufacturer sues the store owner to enforce the contract, is the manufacturer likely to prevail? (A) No, because there was no meeting of the minds regarding the price term. (B) No, because the store owner's promise was not in writing. (C) Yes, because the manufacturer's April 2 letter was sufficient to bind the store owner. (D) Yes, because the price of each tent is less than $500.

(C) The manufacturer will prevail because the April 2 letter was sufficient to bind the store owner. There are two issues involved here, the battle of the forms provisions of the UCC and the Statute of Frauds. Generally, to be enforceable, a contract for the sale of goods priced at $500 or more must be evidenced by a writing signed by the party sought to be bound. However, in contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if: (i) the recipient has reason to know of the confirmation's contents; and (ii) she does not object to it in writing within 10 days of receipt. Here, both parties are merchants: one is a store owner and the other a manufacturer. The day after the store owner's oral order was placed, the manufacturer mailed a confirmation letter. Assuming the letter was signed or on the manufacturer's letterhead, it would be sufficient to bind the sender. Since the store owner received the letter and read it, she had reason to know of its contents and did not respond. Thus, the writing is sufficient under the Statute of Frauds to bind the store owner as well as the manufacturer. There is also an issue with the fact that the confirmatory memo contains a new term regarding shipping fees. If both parties to the contract are merchants, additional terms in an acceptance or confirmation will be included in the contract unless: (i) they materially alter the original terms of the offer (e.g., they change a party's risk or the remedies available); (ii) the offer expressly limits acceptance to the terms of the offer; or (iii) the offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received. The shipping term does not materially alter the terms of the offer, the offer did not limit the acceptance to its terms, and the store owner has not objected. Thus, the new term will become part of the contract. (A) is wrong because the shipping term is separate from the price term. There was a meeting of the minds as to price. (B) is wrong because the confirmatory memo binds the store owner despite the fact that she did not sign a writing. (D) is wrong. The Statute of Frauds applies here because the total price of the contract was for $500 or more. However, as discussed above, the April 2 letter was sufficient to bind the store owner.

A contract entered into between an infant and an adult is __________. Avoidable by the infant but binding on the adult Bvoidable by either party Cvoid Dvoidable by the adult but binding on the infant

A Infants (generally those younger than age 18) lack capacity to enter into a contract binding on themselves. Adults have the capacity to bind themselves under a contract. Thus, a contract entered into between an infant and an adult is voidable by the infant but binding on the adult.

Under U.C.C. Article 2, a contract for the sale of goods may be modified without consideration only if: AThe modification is sought in good faith. BIt is a requirements or output contract. CThere is an honest dispute as to the legal duty owed by a party. DUnforeseen circumstances make performance impracticable.

A Under Article 2, all contract modifications sought in good faith are binding without consideration. Both an honest dispute as to the legal duty owed and unforeseen circumstances that make performance impracticable are exceptions to the preexisting legal duty rule. They are examples of adequate consideration for all contracts, not examples of the facts necessary to modify a sales contract without consideration. Requirements and output contracts are treated the same as other sales contracts in terms of modification. As with other sales contracts, no consideration is required for modification if the modification is sought in good faith. A. INTRODUCTIONOnce you have determined that a contract exists, the next thing you must do is determine what its terms are.B. GENERAL RULES OF CONTRACT CONSTRUCTIONThere are a number of general rules of construction applied by the courts when interpreting contracts. The following are among the more frequently invoked: 1. Contracts will be construed as a "whole"); specific clauses will be subordinated to the contract's general intent);2. The courts will construe words according to their "ordinary" meaning unless it is clearly shown that they were meant to be used in a technical sense);3. If provisions appear to be inconsistent, written or typed provisions will prevail over printed provisions);4. It is important to note that the courts generally will try to reach a determination that a contract is valid and enforceable);5. Ambiguities in a contract are construed against the party preparing the contract, absent evidence of the intention of the parties);6. The parties' course of dealing (i.e., the sequence of conduct concerning previous transactions between the parties to a particular transaction that may be regarded as establishing a common basis of their understanding));7. A usage of trade (i.e., a practice or method of dealing, regularly observed in a particular business setting so as to justify an expectation that it will be followed in the transaction in question));8. The parties' course of performance (i.e., if a contract involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance, any course of performance accepted or acquiesced to is relevant in determining the meaning of the contract)); and9. When rules conflict: (i) express terms are given greater weight than course of performance, course of dealing, and usage of trade); (ii) course of performance is given greater weight than course of dealing or usage of trade); and (iii) course of dealing is given greater weight than usage of trade. C. PAROL EVIDENCE RULE - SUPPLEMENTING, EXPLAINING, OR CONTRADICTING TERMSWhen the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain (i.e., the writing is an "integration"). Any other expressions - written or oral - made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing. 1. Is the Writing an "Integration"?There are two components: (i) whether the writing was intended as the final expression of the agreement); and (ii) whether the integration was intended to be complete or partial. Evidence is admissible to show the parties' intent. a. Partial Integration - Additional Terms PermittedIf an integration is complete, the writing cannot be contradicted or supplemented. If, however, the integration is partial, the writing may not be contradicted but may be supplemented by proving consistent additional terms. The UCC presumes all writings are partial integrations. b. Effect of Merger ClauseA merger clause recites that the agreement is the complete agreement between the parties. The presence of a merger clause is usually determinative in large commercial contracts. For most contracts, however, the modern trend is to consider it as one factor in determining integration. EXAM TIPA memo prepared by one party and not shown to the other can never be an integration because the parties could not have intended it to be the final complete expression of their agreement when one party has not even seen it. The writing is merely evidence of the agreement. Note that a confirmatory memo may be a partial integration under the UCC because it was sent to the other party and that party was aware of its contents. 2. Evidence Outside Scope of RuleBecause the rule prohibits admissibility only of extrinsic evidence that seeks to vary, contradict, or add to an "integration," other forms of extrinsic evidence may be admitted if they will not bring about this result, i.e., they will fall outside the scope of the parol evidence rule. a. Validity IssuesA party to a written contract can attack the agreement's validity. The party acknowledges (concedes) that the writing reflects the agreement but asserts, most frequently, that the agreement never came into being because of any of the following: 1) Formation DefectsFormation defects (e.g., fraud, duress, mistake, and illegality) may be shown by extrinsic evidence.2) Conditions Precedent to EffectivenessIf a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of the understanding may be offered and received. b. Collateral Agreements and Naturally Omitted TermsParol evidence is often said to be admissible if the alleged parol agreement is collateral to the written obligation (i.e., related to the subject matter but not part of the primary promise) and does not conflict with it. The Restatements of Contracts include a similar concept with a more definitive approach: the naturally omitted terms doctrine. The doctrine allows evidence of terms that would naturally be omitted from the written agreement. A term would naturally be omitted if: (i) it does not conflict with the written integration); and (ii) it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument.c. InterpretationIf there is uncertainty or ambiguity in the written agreement's terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact-finder in reaching a correct interpretation of the agreement. However, if the meaning of the agreement is plain, parol evidence is inadmissible.d. Showing of "True Consideration"The parol evidence rule will not bar extrinsic evidence showing the "true consideration" paid (e.g., evidence that the consideration stated in the contract was never paid).e. ReformationIf a party to a written agreement alleges facts (e.g., mistake) entitling him to reformation of the agreement, the parol evidence rule is inapplicable.f. Subsequent ModificationsParol evidence can be offered to show subsequent modifications of a written contract.g. Additional Terms Under Article 2Article 2 generally follows the rules discussed above, providing that a party cannot contradict a written contract but may add consistent additional terms unless: (i) there is a merger clause, or (ii) the courts find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement. Article 2 also provides that a written contract's terms may be explained or supplemented by evidence of course of performance, course of dealing, and usage of trade-regardless of whether or not the writing appears to be ambiguous. D. ARTICLE 2 PROVISIONS ON INTERPRETING CONTRACTS 1. Supplemental ("Gap Filler") TermsRecall that the key to forming a contract for the sale of goods is the quantity term (see II.B.2.b.1)b), supra). If other terms are missing from the agreement, Article 2 has gap filler provisions to fill in the missing term(s). a. PriceIf: (i) nothing has been said as to price); (ii) the price is left open to be agreed upon by the parties and they fail to agree); or (iii) the price is to be fixed in terms of some standard that is set by a third person or agency and it is not set, then the price is a reasonable price at the time for delivery.b. Place of DeliveryIf the place of delivery is not specified, the place usually is the seller's place of business, if he has one); otherwise, it is the seller's home.c. Time for Shipment or DeliveryIf the time for shipment or delivery is not specified, shipment/delivery is due in a reasonable time.d. Time for PaymentIf the time for payment is not specified, payment is due at the time and place at which the buyer is to receive the goods.e. AssortmentIf a contract provides that an assortment of goods is to be delivered (e.g., blouses in various colors and sizes) and does not specify which party is to choose, the assortment is at the buyer's option. If the party who has the right to specify the assortment does not do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner (e.g., choose a reasonable assortment) or treat the failure as a breach. 2. Delivery Terms and Risk of LossAll contracts for the sale of goods require delivery of the goods. A contract's delivery terms are important because they determine when risk of loss passes from the seller to the buyer if the goods are damaged or destroyed. a. Noncarrier CaseA noncarrier case is a sale in which it appears that the parties did not intend that the goods would be moved by a common carrier (e.g., when you buy groceries). In such a case, if the seller is a merchant, risk of loss passes to the buyer only when she takes physical possession of the goods. If the seller is not a merchant, risk of loss passes to the buyer upon tender of delivery.b. Carrier CaseA carrier case is a sale in which it appears that the parties intended the goods to be moved by a carrier (e.g., when you order a book from an Internet website). There are two types of carrier cases: shipment contracts and destination contracts. 1) Shipment ContractIf the contract authorizes or requires the seller to ship the goods by carrier but does not require him to deliver them at a particular destination, it is a shipment contract and risk of loss passes to the buyer when the goods are delivered to the carrier. In the absence of a contrary agreement, Article 2 presumes a contract is a shipment contract. a) Seller's Duties Under Shipment ContractIn a shipment contract, the seller must: (i) make a reasonable contract with the carrier on behalf of the buyer); (ii) deliver the goods to the carrier); (iii) promptly notify the buyer of the shipment); and (iv) provide the buyer with any documents needed to take possession of the goods. 2) Destination ContractsIf the contract requires the seller to deliver the goods at a particular destination, the risk of loss passes to the buyer when the goods are tendered to the buyer at the destination.3) Common Delivery Terms a) F.O.B.F.O.B. stands for "free on board." The letters F.O.B. are always followed by a location, and the risk of loss passes to the buyer at the named location. The seller bears the risk and expense of getting the goods to the named location. These contracts can be either shipment contracts or destination contracts, depending on the location named.b) F.A.S.F.A.S. stands for "free alongside." The term is generally used only when goods are to be shipped by boat. Risk of loss passes to the buyer once the goods are delivered to the dock. EXAM TIPAll contracts for goods require an address for delivery. Merely indicating an address for shipment does not make a contract a destination contract. A contract that does not contain an F.O.B. term or any other term explicitly allocating the risk of loss is a shipment contract. CHART c. Effect of Breach on Risk of Loss 1) Defective GoodsIf the buyer has a right to reject the goods, the risk of loss does not pass to the buyer until the defects are cured or she accepts the goods in spite of their defects. Note that a buyer generally has the right to reject for any defect. (See VII.C., infra.)2) Revocation of AcceptanceIf the buyer rightfully revokes acceptance, the risk of loss is treated as having rested on the seller from the beginning to the extent of any deficiency in the buyer's insurance coverage. EXAM TIPBecause of the above rules, if a seller ships nonconforming goods, it eliminates the importance of determining whether a contract is a shipment or destination contract. If the goods are nonconforming, the risk of loss remains on the seller.d. Risk in Sale or Return and Sale on Approval Contracts 1) Sale or ReturnFor the purpose of determining the risk of loss, a sale or return contract (e.g., the buyer takes goods for resale but may return them if she is unable to resell them) is treated as an ordinary sale and the above rules apply. If the goods are returned to the seller, the risk remains on the buyer while the goods are in transit.2) Sale on ApprovalIn a sale on approval (i.e., the buyer takes goods for use but may return them even if they conform to the contract), the risk of loss does not pass to the buyer until she accepts. CHART e. Goods Destroyed Before Risk of Loss PassesIf goods that were identified when the contract was made are destroyed (i) without fault by either party and (ii) before the risk of loss passes to the buyer, the contract is avoided (i.e., the seller's performance is excused). If the goods were not identified until after the contract was made, the seller in this situation would have to prove impracticability (VI.E.4.b., infra) to be discharged. 3. Insurable Interest and IdentificationAs noted above, a buyer often bears the risk of loss before receiving the goods purchased. In order to aid buyers in this situation (and a few others), Article 2 gives buyers a special property interest in goods as soon as they are identified as the ones that will be used to satisfy the contract (e.g., as soon as the seller sets them aside for the buyer). This special property interest is insurable.4. Bilateral Contracts Formed by PerformanceRecall that a contract may be formed by the parties' performance where the mirror image rule is not satisfied and under certain circumstances under Article 2's "battle of the forms" provision. (See II.D.5.b., supra.) In such cases, under Article 2, the contract includes all of the terms on which the writings of both parties agree. Any necessary missing terms are filled in by the supplemental terms provided for in Article 2. a. Compare - Common Law Last Shot RuleThe rule is different in common law contracts. At common law, the contract includes the terms of the last communication sent to the party who performed. 5. WarrantiesContracts for the sale of goods automatically include a warranty of title (in most cases). They also may include certain implied warranties and express warranties. a. Warranty of Title and Against Infringement 1) Warranty of TitleAny seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting. This warranty arises automatically and need not be mentioned in the contract.2) Warranty Against InfringementA merchant seller regularly dealing in goods of the kind sold also automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims. But a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims. b. Implied Warranty of MerchantabilityImplied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable. To be merchantable, goods must at least be "fit for the ordinary purposes for which such goods are used." 1) Seller's Knowledge of Defect Not RelevantAs in all implied warranty cases, it makes no difference that the seller himself did not know of the defect or that he could not have discovered it. Implied warranties are not based on negligence but rather on absolute liability that is imposed on certain sellers. c. Implied Warranty of Fitness for a Particular PurposeA warranty will also be implied in a contract for the sale of goods whenever (i) any seller, merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller's skill and judgment to select suitable goods); and (ii) the buyer in fact relies on the seller's skill or judgment.d. Express WarrantiesAny affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, sample, or model is part of the basis of the bargain. For the statement, description, sample, or model to be a part of the basis of the bargain, it need only come at such a time that the buyer could have relied on it when she entered into the contract. The buyer does not need to prove that she actually did rely, although the seller may negate the warranty by proving that the buyer as a matter of fact did not rely. It is not necessary that the seller intended the affirmation of fact, description, model, or sample to create a warranty. 1) Distinguish - Statements of Value or OpinionA statement relating merely to the value of the goods, or a statement purporting to be only the seller's opinion or commendation of the goods, does not create an express warranty. e. Disclaimer of Warranties 1) Warranty of TitleThe title warranty can be disclaimed or modified only by specific language or by circumstances that give the buyer notice that the seller does not claim title or that he is selling only such rights as he or a third party may have (e.g., a sheriff's sale).2) Implied WarrantiesThe implied warranties of merchantability and fitness for a particular purpose can be disclaimed by either specific disclaimers or general methods of disclaimer. a) Specific Disclaimers (1) Disclaimer of Warranty of MerchantabilityThe warranty of merchantability can be specifically disclaimed or modified only by mentioning merchantability. If the sales contract is in writing, the disclaimer must be conspicuous.(2) Disclaimer of Warranty of Fitness for a Particular PurposeThe warranty of fitness for a particular purpose can be specifically disclaimed only by a conspicuous writing. A written disclaimer, according to the statute, is sufficient if it says, for example, "[t]here are no warranties which extend beyond the description on the face hereof."(3) "Conspicuous" DefinedA term is conspicuous when it is "so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it." Language in the body of a writing is conspicuous if: (i) it is in larger type than surrounding text); (ii) it is in a contrasting type, font, or color); or (iii) it is set off from the text by marks that call attention to it. The court, not the jury, decides any fact question as to conspicuousness. b) Other Methods of Disclaiming Implied WarrantiesThe UCC also provides several more general methods for disclaiming implied warranties. (1) By "As Is" or Similar LanguageUnless the circumstances indicate otherwise, the implied warranties of merchantability and fitness can be disclaimed by expressions such as "as is," "with all faults," or other expressions that in common understanding call the buyer's attention to the fact that there are no implied warranties. Although this type of disclaimer does not have to be conspicuous, a hidden or fine-print disclaimer of this type is not effective.(2) By Examination or Refusal to ExamineIf the buyer, before entering into the contract, has examined the goods or a sample or model as fully as she desires or has refused to examine, there is no warranty as to defects that a reasonable examination would have revealed to her.(3) By Course of Dealing, Etc.Implied warranties may also be disclaimed by the course of dealing, course of performance, or usage of trade. EXAM TIPIt may seem odd that there are specific disclaimer methods with detailed requirements, and more general disclaimer methods requiring little formality. In actual practice, it is better to use the specific disclaimers because general disclaimers may be limited by the circumstances. However, on the MBE, an "as is" or "with all faults" disclaimer will generally be as effective as a specific disclaimer. 3) Express WarrantiesThe UCC provides that words or conduct relevant to the creation of express warranties and words or conduct tending to negate such warranties shall wherever possible be construed as consistent with each other, but "negation or limitation is inoperative to the extent that such construction is unreasonable." In other words, once an express warranty is made, it is very difficult to disclaim.4) Limitations on DamagesParties may include in their contract a clause limiting the damages available in the case of breach of warranty (e.g., "remedy for breach of warranty is limited to repair or replacement of the defective goods"). However, such a limitation will not be upheld if it is unconscionable (e.g., causes the remedy to fail of its essential purpose, limits personal injury damages for consumer goods); see IV.G.1.d., supra). Moreover, warranty disclaimers that limit damages for personal injury caused by a breach of warranty on consumer goods are prima facie unconscionable.5) Timing - Disclaimers and Limitations in the BoxTo be effective, a disclaimer of warranty or limitation on remedies must be agreed to during the bargaining process. Thus, although a few courts hold otherwise, most hold that a warranty disclaimer or limitation on remedy included inside the packaging of goods is not effective against the buyer. a) Compare - "Clickwrap"Computer software often comes with terms that appear on the user's computer screen during the installation process, and the purchaser must click to agree to the terms before installing. Such limitations and disclaimers typically are upheld on the rationale that the purchaser can return the software if he disagrees with the conditions. 6) Unconscionability and Warranty DisclaimersSome courts will, in addition to determining whether disclaimers have met the formal requirements discussed above, test warranty disclaimers by the unconscionability standards. (See IV.G., supra.) CHART f. Damages for Breach of Warranty 1) In General - Difference Between Goods Tendered and as WarrantedGenerally, the measure of damages for breach of any warranty is the difference between the value of the goods accepted and the value of the goods as warranted, measured at the time and place of acceptance. If there are special circumstances, damages may be measured differently to account for those circumstances.2) Breach of Warranty of TitleIf the warranty of title is breached, the goods are reclaimed by the true owner or lienholder, thus dispossessing the buyer. The buyer may then rescind the contract, revoke acceptance of the goods, or sue for damages. The value of the goods accepted is deemed to be nothing); so the damages are the value of the goods as warranted. Often, but not always, that is the same as the purchase price. a) Special Circumstances - Appreciation and DepreciationIf there are special circumstances, the value of the goods is measured at the time of the dispossession rather than at the time of acceptance. A great appreciation (e.g., art) or depreciation (e.g., car) in the value of the goods from the time of delivery until dispossession is usually considered a special circumstance. g. To Whom Do Warranties Extend?UCC section 2-318 provides alternative provisions for determining to whom warranty liability extends. Most states have adopted the narrowest provision, Alternative A, which provides that the seller's warranty liability extends to any natural person who is in the family or household of the buyer or who is a guest in the buyer's home if it is reasonable to expect that the person may use, consume, or be affected by the goods and that person suffers personal injury because of a breach of warranty. E. MODIFICATION OF CONTRACT TERMS1. ConsiderationUnder general contract law, a contract cannot be modified unless the modification is supported by new consideration. The modern view, however, permits modification without consideration if: (i) the modification is due to circumstances that were unanticipated by the parties when the contract was made and (ii) it is fair and equitable. The UCC is even more liberal - good faith promises of new and different terms by the parties to a sales contract are valid without consideration.EXAM TIPFor MBE purposes, the examiners have indicated that they have adopted the modern view. However, on any non-UCC essay question that involves modification, you should discuss the traditional view and any relevant state exceptions, including the modern Restatement view where it is relevant.2. WritingA written contract can be modified orally. However, the modification must be in writing if the contract as modified falls within the Statute of Frauds. Thus, for a sale of goods contract, if the contract as modified is for $500 or more, it must be evidenced by a writing); if the contract as modified is for less than $500, no writing is necessary. a. Common Law - Provisions Prohibiting Oral Modification Not EffectiveThe common law rule is that even if a written contract expressly provides that it may be modified only by a writing, the parties can orally modify the contract.b. UCC - No-Modification Clauses EffectiveUnder the UCC, if a contract explicitly provides that it may not be modified or rescinded except by a signed writing, that provision is given effect. If the contract is between a merchant and nonmerchant, however, this provision requires the nonmerchant's separate signature.c. WaiverIf the parties attempt to orally modify a contract that requires written modification (either because of a contract clause or the Statute of Frauds), it is technically ineffective as a modification, but it can operate as a waiver. Such a waiver will be found whenever the other party has changed position in reliance on the oral modification. However, a party who makes a waiver affecting an executory (not yet performed) portion of the contract may retract the waiver if she notifies the other party that strict performance of the waived terms is required. The waiver may not be retracted if the other party detrimentally relied on it. 3. Parol Evidence Rule Does Not ApplyAs noted above, parol evidence is admissible to show subsequent oral modifications of a written contract.

A completely integrated writing may not be contradicted or supplemented. A partially integrated writing may: ANot be contradicted or supplemented BNot be contradicted but may be supplemented by proving consistent additional terms CBe contradicted or supplemented

B A completely integrated writing may not be contradicted or supplemented. A partially integrated writing cannot be contradicted, but it may be supplemented by proving up consistent additional terms.

In determining whether an agreement qualifies as a legally enforceable contract, courts of law normally will not inquire into the __________ of consideration. Amutuality Badequacy Cpresence Dtiming

B Courts of law normally will not inquire into the adequacy of consideration, such as when one party wishes to contract to sell an item of high market value for a relatively low price. Consideration on both sides of the bargain will make an executory bilateral contract fully enforceable from the moment of formation. Thus, the presence of consideration is a necessary element of contract formation. If something was already given or performed before the promise was made, it will not satisfy the "bargain" requirement. Therefore the timing of consideration is an issue courts will consider. Consideration must exist on both sides of the contract, or in other words courts consider the issue of mutuality.

If an assignee discovers that the assignor had previously assigned the same contract rights to another party for value, the assignee may sue the assignor for breach of warranty only if: AThe assignment was in writing BThe assignee's assignment was for value CThe assignor gave express warranties at the time of the assignment DThe assignment involves the sale of goods

B If an assignee for value discovers that the assignor had previously assigned the same contract rights to another party, the assignee may sue the assignor for breach of warranty. The assignor makes several implied warranties to an assignee for value, the breach of which gives rise to a cause of action. One of those warranties is the warranty that the assignor has the right to assign, which means he has made no prior assignment of that right. The assignor makes no warranties to a gratuitous assignee. The warranty that the assignor has the right to assign, like other assignment warranties, is implied. It is not necessary that the assignor give express warranties in order for the assignee to sue for breach of an assignment warranty. There is no requirement that the assignment be in writing in order to enforce a warranty of assignment. In addition, the assignment warranty is not limited to sale of goods contracts. A. INTRODUCTIONNonparties to a contract may have rights or duties in connection with the contract.B. THIRD-PARTY BENEFICIARIESIn the typical third-party beneficiary situation, A (the promisee) contracts with B (the promisor) that B will render some performance to C (the third-party beneficiary). 1. Who Is Third-Party Beneficiary? a. Intended vs. Incidental BeneficiaryOnly intended beneficiaries have contractual rights, not incidental beneficiaries. In determining if a beneficiary is intended, consider whether the beneficiary (i) is identified in the contract, (ii) receives performance directly from the promisor, or (iii) has some relationship with the promisee to indicate intent to benefit.b. Creditor vs. Donee BeneficiaryThere are two types of intended beneficiaries: (i) a creditor beneficiary - a person to whom a debt is owed by the promisee, and (ii) a donee beneficiary - a person whom the promisee intends to benefit gratuitously. 2. When Do the Rights of the Beneficiary Vest?A third party can enforce a contract only if his rights have vested. This occurs when he: (i) manifests assent to a promise in the manner requested by the parties); (ii) brings a suit to enforce the promise); or (iii) materially changes position in justifiable reliance on the promise. Prior to vesting, the promisee and promisor are free to modify or rescind the beneficiary's rights under the contract. a. Significance of VestingBefore the intended third-party beneficiary's rights vest, the promisor and promisee are free to modify their contract - including removing the third-party beneficiary altogether - without consulting the third party. Once the third party's rights vest, the promisor and promisee cannot vary his rights without his consent. CHART EXAM TIPOn the exam, look at the call of the question to see who is bringing the suit. If the third-party beneficiary is bringing suit to enforce the contract, the act of bringing the suit vests his rights. No other act is required. Accordingly, if the third-party beneficiary is suing, any answer choice that states the third-party beneficiary's rights have not vested is incorrect.3. What Are the Rights of the Third Party Beneficiary and the Promisee? a. Third-Party Beneficiary vs. PromisorA beneficiary may sue the promisor on the contract. The promisor may raise against the third-party beneficiary any defense that the promisor has against the promisee. Whether the promisor may use the defenses the promisee would have against the third-party beneficiary depends on whether the promisor made an absolute promise to pay or only a promise to pay what the promisee owes the beneficiary. If the promise is absolute, the promisor cannot assert the promisee's defenses); if the promise is not absolute, the promisor can assert the promisee's defenses.b. Third-Party Beneficiary vs. PromiseeA creditor beneficiary can sue the promisee on the existing obligation between them. She may also sue the promisor, but may obtain only one satisfaction. A donee beneficiary has no right to sue the promisee unless grounds for a detrimental reliance remedy exist (see III.D., supra).c. Promisee vs. PromisorA promisee may sue the promisor both at law and in equity for specific performance if the promisor is not performing for the third person. C. ASSIGNMENT OF RIGHTS AND DELEGATION OF DUTIES 1. AssignmentIn the typical assignment situation, X (the obligor) contracts with Y (the assignor). Y assigns his right to X's performance to Z (the assignee). a. What Rights May Be Assigned?Generally, all contractual rights may be assigned. Exceptions: (i) an assignment that would substantially change the obligor's duty or risk (e.g., personal service contracts where the service is unique); (ii) an assignment of future rights to arise from future contracts (not future rights in already existing contracts)); and (iii) an assignment prohibited by law (e.g., wage assignments). 1) Express Contractual Provision Against AssignmentA clause prohibiting assignment of "the contract" will be construed as barring only delegation of the assignor's duties. A clause prohibiting assignment of "contractual rights" generally does not bar assignment, but rather merely gives the obligor the right to sue for damages. However, if the contract provides that attempts to assign will be void, the parties can bar assignment. Also, if the assignee has notice of the nonassignment clause, an assignment will be ineffective. b. Effect of AssignmentThe effect of an assignment is to establish privity of contract between the obligor and the assignee while extinguishing privity between the obligor and the assignor. Once the obligor has knowledge of the assignment, he must render performance to or pay the assignee. If the obligor renders performance to or pays the assignor, he does so at his own risk. Typically, one of the parties (usually the assignee) will notify the obligor of the assignment.c. What Is Necessary for an Effective Assignment?For an assignment to be effective, the assignor must manifest an intent to immediately and completely transfer her rights. A writing is usually not required to have an effective assignment. The right being assigned must be adequately described. It is not necessary to use the word "assign"); any accepted words of transfer will suffice. A gratuitous assignment is effective); consideration is not required.d. Is Assignment Revocable or Irrevocable?Assignments are divided into two categories: assignments for value and gratuitous assignments. 1) Assignment for ValueAn assignment is for value if it is: (i) done for consideration , or (ii) taken as security for or payment of a preexisting debt . Assignments for value cannot be revoked.2) Gratuitous AssignmentsAn assignment not for value (i.e., a gratuitous assignment) generally is revocable. a) Exceptions to RevocabilityA gratuitous assignment is irrevocable if: (i) the obligor has already performed); (ii) a token chose (i.e., a tangible claim, such as a stock certificate) is delivered); (iii) an assignment of a simple chose (i.e., an intangible claim, such as a contract right) is put in writing); or (iv) the assignee can show detrimental reliance on the gratuitous assignment (i.e., estoppel).b) Methods of RevocationA revocable gratuitous assignment may be terminated by: (i) the death or bankruptcy of the assignor); (ii) notice of revocation by the assignor to the assignee or the obligor); (iii) the assignor taking performance directly from the obligor); or (iv) subsequent assignment of the same right by the assignor to another.EXAM TIPThis is where the obligor's peril comes in. The obligor does not necessarily know whether an assignment was gratuitous or for value. Suppose the obligor, after notice of the assignment, renders performance to or pays the assignor. If the assignment was revocable, it is revoked by the assignor's acceptance, and the obligor is discharged. If, however, the assignment was for value, the obligor is not discharged by his performance or payment to the assignor. The obligor remains liable to the assignee.c) Effect of RevocationOnce an assignment is revoked, the privity between the assignor and the obligor is restored, and the assignor is once again the real party in interest. e. What Are the Rights and Liabilities of the Various Parties? 1) Assignee vs. ObligorThe assignee can sue the obligor, as the assignee is the real party in interest); i.e., the assignee - not the assignor - is entitled to performance under the contract. (The obligor has as a defense against the assignee any defense inherent in the contract, e.g., failure of consideration and other defenses that came into existence before the obligor had knowledge of the assignment.) The obligor cannot raise by way of defense any defenses the assignor might have against the assignee.2) Assignee vs. AssignorIn every assignment for value, the assignor warrants that: (i) he has not made a prior assignment of the same right); (ii) the right exists and is not subject to any undisclosed defenses); and (iii) he will do nothing to interfere with the assigned right. The assignee may sue the assignor for breach of any of these warranties. However, the assignor will not be liable to the assignee if the obligor is incapable of performing. f. What Problems Exist If There Have Been Successive Assignments of Same Rights?If the first assignment is revocable, a subsequent assignment revokes it. If it is irrevocable, the first assignment will usually prevail over a subsequent assignment. Several exceptions exist (if the second assignee has paid value and taken without notice of the first assignment): (i) the subsequent assignee gets the first judgment against the obligor); (ii) the subsequent assignee gets the first payment of a claim from the obligor); (iii) the subsequent assignee gets delivery of a token chose); (iv) the subsequent assignee is the party to a novation releasing the assignor); or (v) the subsequent assignee can proceed against the first assignee on an estoppel theory (estoppel could, of course, operate against the subsequent assignee as well). 2. DelegationIn the typical delegation situation, Y (the obligor/delegator) promises to perform for X (the obligee). Y delegates her duty to Z (the delegate). a. What Duties May Be Delegated?Generally, all duties may be delegated. Exceptions: (i) the duties involve personal judgment and skill); (ii) delegation would change the obligee's expectancy (e.g., requirements and output contracts)); (iii) a special trust was reposed in the delegator by the other party to the contract); and (iv) there is a contractual restriction on delegation.b. What Is Necessary for Effective Delegation?The delegator must manifest a present intention to make a delegation. There are no special formalities to be complied with to have a valid delegation. It may be written or oral.EXAM TIPAlthough "assignment" and "delegation" have precise meanings (rights are assigned and duties are delegated), on the MBE the terms are often used loosely. Thus, a question might state initially that "Y assigned his rights in the contract to X," but the facts later show that duties were also delegated.c. What Are the Rights and Liabilities of the Parties?The obligee must accept performance from the delegate of all duties that may be delegated. The delegator remains liable on the contract); thus, the obligee may sue the delegator for nonperformance by the delegate. The obligee may require the delegate to perform only if there has been an assumption (i.e., the delegate expressly or impliedly promises he will perform the duty delegated and this promise is supported by consideration or its equivalent). This promise creates a contract between the delegator and the delegate in which the obligee is a third-party beneficiary.d. TerminologyToday, words assigning "the contract" or "all my rights under the contract" are usually construed as including an assumption of the duties by the assignee, unless a contrary intention appears. D. NOVATION DISTINGUISHEDNovation substitutes a new party for an original party to the contract. It requires assent of all parties and completely releases the original party. (See VI.E.7., supra.)E. POWER OF PERSON OTHER THAN OWNER TO TRANSFER GOOD TITLE TO A PURCHASER 1. EntrustingEntrusting goods to a merchant who deals in goods of that kind gives him the power (but not the right) to transfer all rights of the entruster to a buyer in the ordinary course of business. Entrusting includes both delivering goods to the merchant and leaving purchased goods with the merchant for later pickup or delivery. Buying in the ordinary course means buying in good faith from a person who deals in goods of the kind without knowledge that the sale is in violation of the ownership rights of third parties.Example: Amy leaves her watch with Jeweler for repairs. Jeweler sells the watch to Zoe, who does not know that Jeweler has no right to sell. Zoe gets good title as against Amy. Amy's only remedy is to sue Jeweler for damages.EXAM TIPNote that the requirements for entrustment are very specific: The merchant must be one who ordinarily deals in goods of the kind (e.g., a television repair shop that only repairs televisions does not qualify). The sale must be in the ordinary course of business (e.g., seizure by a creditor to satisfy a lien does not qualify). Entrustment passes only the rights of the entruster (i.e., if the entruster is not the owner, ownership cannot pass).2. Voidable Title ConceptGenerally, if a sale is induced by fraud, the seller can rescind the sale and recover the goods from the fraudulent buyer (i.e., it is a voidable title). However, the defrauded seller may not recover the goods from a good faith purchaser for value who bought from the fraudulent buyer. The rights of a defrauded seller are cut off both by a buyer and by a person who takes a security interest in the goods.3. Thief Generally Cannot Pass TitleIf a thief steals goods from the true owner and then sells them to a buyer, the thief is unable to pass title to the buyer (because his title is void). Rationale: A seller can transfer only the title he has or has power to transfer. Therefore, even a good faith purchaser for value generally cannot cut off the rights of the true owner if the seller's title was void. An exception to this rule may apply, however, if the buyer has made accessions (i.e., valuable improvements) to the goods or the true owner is estopped from asserting title (e.g., if the true owner expressly or impliedly represented that the thief had title).

An otherwise valid debt that is now barred by the statute of limitations can still be enforced if______. AThe debtor makes a new promise to pay the debt, either orally or in writing BThe debtor makes a new promise to pay the debt in writing CThe debtor admits owing the debt, either orally or in writing DThe debtor admits owing the debt in writing

B If an otherwise valid debt would be enforceable except for the fact that a technical defense to enforcement stands in the way (e.g., statute of limitations), the courts will enforce a new promise to pay if it is in writing or has been partially performed. An oral promise is not enough. The fact that debtor admits owing the debt, orally or in writing, is not sufficient, as that obligation is now barred.

Under Article 2, if the buyer has a right to reject the goods, __________. ARisk of loss remains with the seller until the goods are accepted, but if the goods are rejected, the risk of loss is on the buyer for any return shipment BRisk of loss does not pass to the buyer until the defects are cured or the buyer accepts the goods despite the defects CRisk of loss is on the buyer once the goods are delivered to the carrier if the contract is F.O.B. the seller's place of business DBuyer may rightfully revoke acceptance even after the goods are destroyed

B If the buyer has a right to reject the goods, the risk of loss does not pass to the buyer until the defects are cured or the buyer accepts the goods in spite of their defects. The buyer may not revoke acceptance after the goods are destroyed. Revocation of acceptance is rightful only if it occurs before any substantial change in the condition of goods which is not caused by their own defects. Thus, there can be no revocation of acceptance after the goods are destroyed. If the goods are rejected, the risk of loss does not pass to the buyer for any return shipment. The risk of loss remains with the seller. Generally the risk of loss passes to the buyer upon delivery to the carrier in a shipment contract, such as F.O.B. the seller's place of business contract. However, the fact that the goods are defective prevents the risk of loss from passing until the defect is cured or the buyer accepts the goods

Mutual mistake can be a defense to the formation of a contract if: AThe mistake concerns the value of the subject matter of the contract BThe mistake concerns a basic assumption on which the contract is made CThe adversely affected party bore the risk of the mistake DThe mistake has any effect on the agreed-upon exchange

B Mutual mistake can be a defense to the formation of a contract if the mistake concerns a basic assumption on which the contract is made. Such a mistake renders the contract voidable by the adversely affected party if the mistake has a material effect on the agreed-upon exchange (not any effect on the agreed-upon exchange) and the party seeking avoidance did not assume the risk of the mistake. Thus the answer choice stating that the adversely affected party bore the risk of the mistake is incorrect. A mistaken assumption as to the value of the subject matter generally will not be remedied.

The general rule is that when the assignor makes two assignments of the same right, if the first assignment is ____________, the ____________ assignee has priority. Airrevocable; second Birrevocable; first Crevocable or irrevocable; second Drevocable; first

B The general rule is that if the assignor makes two assignments of the same right and the first assignment is irrevocable, the first assignee has priority. If the first assignment is revocable, a subsequent assignment will serve to revoke it, giving the second assignment priority.

Seller sells goods to Buyer on Friday. Buyer and Seller agree that Buyer will pick up the goods from Seller at 1 p.m. on Monday. The goods are ready for Buyer at 12:30 p.m. on Monday. At 2 p.m., before Buyer has arrived to retrieve the goods, the goods are destroyed. The risk of loss is on __________. ASeller regardless of whether Seller is a merchant BBuyer if Seller is not a merchant CSeller if Seller is not a merchant DBuyer if Seller is a merchant

B The risk of loss is on Buyer if Seller is not a merchant. The risk of loss depends on whether the seller is a merchant. If the seller is not a merchant, the risk of loss passes to the buyer upon tender of delivery. Tender of delivery occurs when the goods are ready for pick up at the agreed upon time. If Seller is a merchant, the risk of loss does not pass to Buyer until Buyer takes physical possession of the goods.

Generally speaking, the promise to perform an existing legal duty is __________. APast consideration BNot consideration CValuable consideration DSufficient consideration

B Traditionally the promise to perform, or the performance of, an existing legal duty is not consideration. A promise to perform an existing legal duty is not valuable consideration, unless an exception to the preexisting legal duty rule applies, e.g., new or different consideration is promised, or a minor's ratification of a voidable contract upon reaching the age of majority. Past consideration, which is also not sufficient consideration, is based on something already given or performed, not a promise to perform based on a preexisting legal duty.

A nonbreaching party may not seek specific performance: Awhen the subject matter of the contract is rare Bwhen the contract is for the sale of land Cwhen a service contract is involved Dwhen the legal remedy is inadequate

C Specific performance is not available for breach of a service contract. One reason is the difficulty in supervising the performance, but the primary reason is that courts feel it is tantamount to involuntary servitude. A nonbreaching party may seek specific performance only when the legal remedy is inadequate, such as when the subject matter of the contract is rare or unique. Specific performance is always available for land sale contracts because all land is considered to be unique.

Under the common law, as summarized by the Restatement of Contracts, evidence of additional terms is generally admissible even if the written contract appears to be completely integrated if the alleged terms __________. Aconstitute a condition that discharges one party's duty to perform under the agreement Bdo not change a party's risk or the remedies available Care not collateral to the written obligation Dare of a type that would naturally be omitted from a written agreement

D The Restatement's naturally omitted terms doctrine allows evidence of terms that would naturally be omitted from a written agreement. A term would naturally be omitted if it does not conflict with the written integration and concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument. If a term is found to be naturally omitted, the writing is considered to be only partially integrated despite an appearance of complete integration. Parol evidence is inadmissible as to conditions that discharge performance of an existing agreement. This type of condition does not affect the effectiveness of the agreement; rather, it limits or modifies a duty under an existing contract. If a condition discharges only one party's duty under the agreement, it is not a condition precedent to effectiveness. Also, the fact that it discharges a duty "under the agreement" suggests that the agreement exists. Parol evidence is admissible to show a condition precedent to the contract's effectiveness. Whether additional terms change a party's risk or the remedies available is part of the test for including merchants' additional terms in an acceptance (battle of the forms). It has no application with respect to whether parol evidence is admissible in the face of an apparent completely integrated contract. Parol evidence is generally admissible if the alleged parol agreement is collateral to the written obligation. If the terms are not collateral, they are part of the primary promise and parol evidence is not admissible to vary or supplement a fully integrated written agreement.

A homeowner and a builder entered into a written contract to build a sauna in a spare room in the homeowner's home at a cost of $3,000. The contract contained a clause stating that the builder will not begin construction without prior approval of the plans by the homeowner's certified public accountant. The builder submitted his designs to both the homeowner and the accountant. The homeowner liked the plans, but the accountant did not and withheld his approval. The builder asked the homeowner whether she wanted him to submit new designs. The homeowner told the builder orally, "No! Your designs are great! My accountant is crazy! You go right ahead and construct the sauna." The builder constructed the sauna. The homeowner now refuses to pay the builder, citing the clause requiring approval by the accountant. If the builder sues the homeowner, what will the builder likely recover? (A) The full contract price, because the accountant's approval was not a condition precedent for the contract to take effect. (B) The full contract price, because once the builder began building the sauna after speaking to the homeowner, the homeowner did nothing to stop the builder. (C) The reasonable value of the builder's services and materials, because otherwise the homeowner would be unjustly enriched. (D) Nothing, because the homeowner's oral statement will be excluded by the parol evidence rule.

(B) By her statement to the builder, the homeowner waived the benefit of the condition requiring the accountant's approval of the design plans, and the builder detrimentally relied on the statement by building the sauna. Thus, there is a binding waiver of the condition. A condition is an event, other than the passage of time, the occurrence or nonoccurrence of which creates, limits, or extinguishes the absolute duty to perform in the other contracting party. The occurrence of a condition may be excused under a number of different circumstances. One such circumstance is where the party having the benefit of the condition indicates by words or conduct that she will not insist upon it. If a party indicates that she is waiving a condition before it happens, and the person affected detrimentally relies on it, a court will hold this to be a binding estoppel waiver. The promise to waive the condition may be retracted at any time before the other party has detrimentally changed his position. Here, the contract provided that the builder could not begin work without the accountant's prior approval. This approval was a condition that had to be met before the homeowner's duty to pay would arise. When the homeowner told the builder to commence working on the sauna, even though the accountant had withheld his approval, the homeowner was telling the builder that she was waiving the condition of the accountant's approval. The builder then acted in detrimental reliance on this statement by in fact starting and completing the building of the sauna. While the homeowner could have retracted her statement and reinstated the condition prior to the builder's detrimental reliance, she did nothing when the builder began working on the sauna. Under such circumstances, the homeowner made a binding waiver of the condition and will be estopped from asserting it. Thus, the builder is entitled to recover the full contract price. (A) is incorrect because, as discussed above, the accountant's approval was a condition precedent for the parties' contractual duties to arise. The builder's duty to build the sauna and the homeowner's duty to pay for it would not arise without the condition of the accountant's approval either being satisfied or being excused. (C) is incorrect because unjust enrichment is a quasi-contract alternative that the builder could utilize if he did not have a contract remedy. Here, however, the builder can recover the full contract price because the homeowner waived the condition and is estopped from retracting the waiver. (D) is incorrect because the parol evidence rule does not Contracts Answers 11. prohibit evidence of a subsequent modification of a written contract; the rule applies only to prior or contemporaneous expressions. Consequently, it may be shown that the parties altered the integrated writing after its making. The oral agreement between the homeowner and the builder described in the facts was made subsequent to the writing. Therefore, the parol evidence rule is inapplicable to this agreement.

A general contractor who wished to bid on a construction project solicited bids from a variety of subcontractors. Four electrical subcontractors submitted bids to the contractor in the amounts of $75,000, $85,000, $90,000, and $95,000, respectively. As he was making out his company's bid, which was higher than he wanted it to be, the contractor called the low bidder on the electrical work and told him, "We won't be able to do it with your present bid, but if you can shave off $5,000, I'm sure that the numbers will be there for us to get that project." The low bidder told the contractor that he could not lower his bid, adding that the bid he submitted was based on a $15,000 error, and he could not do the job for less than $90,000. The contractor lost the construction job and subsequently sued the low bidder. For what is the low bidder is liable? (A) Breach of contract, because the mistake was not so unreasonably obvious as to make acceptance of his bid unconscionable. (B) Breach of contract, because the mistake was unilateral. (C) Nothing, because the low bidder rejected the contractor's counteroffer. (D) Nothing, because even though the low bidder lacked authority to renege on its bid, the contractor suffered no damages because no bidder was willing to do the work for $70,000.

(C) The low bidder is liable for nothing because no contract was formed between the contractor and the low bidder. Formation of a contract requires mutual agreement between the parties (offer and acceptance) and consideration. There was no contract here because there was no acceptance. The low bidder's bid constituted an offer—a certain and definite promise, undertaking, or commitment to enter into a contract communicated to the offeree. An offer gives the offeree the power to accept and create a contract until the offer is terminated. An offer can be terminated in a number of ways, including through a counteroffer from the offeree. A counteroffer serves as both a rejection terminating the original offer and a new offer from the original offeree, thus reversing the former roles of the parties and giving the original offeror the right to accept or reject the new offer. Here, the contractor's call constituted a rejection and a counteroffer that the low bidder rejected, and so no contract was formed. Therefore, the low bidder cannot be held liable. (A) and (B) are incorrect because, as stated above, a contract was never formed between the contractor and the low bidder. Thus, it is irrelevant whether the mistake was unilateral or obvious. (Note that the general rule is that a contract will not be set aside for a unilateral mistake unless the nonmistaken party either knew or should have known of the mistake. Thus if the contractor had not called the low bidder but had instead accepted his bid, the low bidder would be liable on the contract despite his mistake because (B) the mistake was unilateral and (A) it was not obvious.) (D) is incorrect for several reasons: First, it relies on the existence of a contract, and as stated above, there is no contract here. Second, the premise that the low bidder could not renege on its offer is untrue. The general rule is that offers are revocable until accepted. In a subcontractor bid situation, a bid is treated as irrevocable for a reasonable amount of time because of detrimental reliance (i.e., the general contractor will rely on the mistaken bid in preparing his bid). However, here the contractor learned of the low bidder's mistake before any reliance on the bid. Moreover, it is unclear whether the contractor is complaining about the low bidder's reneging on his bid; the contractor appears to be complaining that the low bidder refused to lower the mistaken bid. The low bidder would have no duty to lower its bid in any case. The final premise in (D) is irrelevant. If the low bidder lacked the power to renege, the lack of power goes to the $75,000 bid; the fact that no one would do the job for $70,000 has no bearing on the issue.

A contractor agreed to build a plant for a manufacturer for $5 million, with $1 million paid in advance and the balance to be paid upon completion of the project. The contract required the contractor to use lighting fixtures from a specific company. Inadvertently, the contractor installed fixtures from a different company. The installed fixtures are generally considered to be of a slightly better quality than the fixtures specified in the contract. The mistake was not discovered until the manufacturer did a final inspection of the building. As built, the plant is worth $10,000 more than it would have been worth had the specified fixtures been used. It would cost the contractor $100,000 to replace the fixtures with the ones specified in the contract. Because of a downturn in the economy, the manufacturer no longer wants to move into the new plant and refuses to pay the contractor because of the breach regarding the light fixtures. If the contractor sues the manufacturer for breach of contract, which of the following doctrines will be most important to a court's decision? (A) Perfect tender. (B) Divisibility. (C) Substantial performance. (D) Quasi-contract.

(C) Under the doctrine of substantial performance, contracts governed by the common law are enforceable despite minor breaches. The contract here—to build a manufacturing plant—is governed by the common law. In determining whether a breach is minor or substantial, courts look to whether the party received the substantial benefit of the bargain. Here, the manufacturer got a plant that was, perhaps, better than the one called for in the contract. Therefore, the contract will be enforceable under the doctrine of substantial performance. (A) is incorrect because the perfect tender doctrine applies only to contracts for the sale of goods—not to common law contracts. (B) is incorrect. Under the divisibility doctrine, if a party performs one of the units of a divisible contract, he is entitled to the agreed-on equivalent for that unit even if he fails to perform the other units. It is not a condition precedent to the other party's liability that the whole contract be performed. For a contract to be divisible: (i) the performance of each party must be divided into two or more parts under the contract, (ii) the number of parts due from each party must be the same, and (iii) the performance of each part by one party is agreed on as the equivalent of the other party's corresponding part. Here, the payment is broken into two parts, but the payments do not correspond to units of work performed by the contractor, so this contract is not divisible. In any case, divisibility is unlikely to be of much help in deciding this case unless the installation of the lights was a separate task under the contract, with a corresponding payment. (D) is incorrect because quasi-contract provides a remedy in some situations in which a contract fails (or is absent) and the defendant would be unjustly enriched as a result. The doctrine is not applicable here because, as discussed above, the contract will not fail due to a minor breach.

Conditional promises are generally enforceable, unless the __________. Acondition is entirely within the promisor's control Bcontingency is too remote Cpromise is conditioned on one party's satisfaction Dcondition is based on a subjective standard

A Conditional promises are enforceable, no matter how remote the contingency, unless the "condition" is entirely within the promisor's control. Furthermore, a condition may be based on a subjective standard, such as one party's satisfaction with the goods.

Valuable consideration must have: ALegal value BEconomic value CSubstantial value

A One of the basic elements of consideration is that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee. The benefit to the promisor need not have economic value. Peace of mind or the gratification of influencing the mind of another may be sufficient to establish bargained-for consideration, provided that the promisee is not already legally obligated to perform the requested act. There is no requirement of substantial value.

Which of the following is not an equitable defense? ASpecific Performance BLaches CUnclean Hands DSale to a Bona Fide Purchaser

A Specific performance is an equitable remedy, not an equitable defense. Equitable remedies, such as specific performance, are subject to equitable defenses. Laches is an equitable defense that arises when a party delays in bringing an equitable action and the delay prejudices the defendant. Unclean hands is a defense that arises when the party seeking specific performance is guilty of some wrongdoing in the transaction being sued upon. Sale to a bona fide purchaser is a defense that arises when the subject matter of a contract has been sold to another who purchased for value and in good faith. This cuts off the right to specific performance.

The right to receive services under a contract between ______________ may be assigned but the right to receive services under a contract between ________________ may not. AA property owner and a contractor for construction of a home; a publisher and an author BA property owner and an architect; a client and a lawyer CA patron and an artist; a patient and a physician DA lawn maintenance company and a property owner; a property owner and a contractor for remodeling a kitchen

A The right to receive services under a contract between a property owner and a contractor for construction of a home may be assigned, but the right to receive services under a contract between a publisher and author may not. Generally all contractual rights may be assigned. However, there are exceptions to this rule when an assignment of rights would substantially change the obligor's duty. If the assignment of rights would result in the obligor having to perform personal services for someone other than the original obligee, the attempted assignment is invalid. For this purpose, personal services include only those services that involve the personality or personal characteristics of the obligor. An author's services involve the author's personality or personal characteristics, but a contractor's services are generally found not to involve his personality or personal characteristics. Of course, the assignment of the home construction contract would be valid only for construction of the same house on the same property; otherwise, the assignment would substantially change the contractor's duty. The services of an architect, a lawyer, an artist, and a physician all fall within personal services involving the personality or personal characteristics of the obligor. Rights to these services may not be assigned. Lawn maintenance and kitchen remodeling are usually held not to involve this type of personal service, and contractual rights involving them may be assigned

Assignments for value cannot be revoked. An assignment is for value even if it is: ASupported by moral consideration BTaken as payment of a preexisting debt CGiven as a gift

B An assignment is for value if it is: (i) done for consideration or (ii) taken as security for or a payment of a preexisting debt. An assignment supported by moral consideration would still be considered a gratuitous assignment and thus subject to the general rule of revocability. Moral consideration is generally not sufficient to support a simple contract and thus is not consideration for this purpose. A gift is not consideration and thus is not value for purposes of assignment. Assignments given as a gift are gratuitous and are subject to the revocability rules for gratuitous assignments

A and B enter into a contract. A delegates her duties under the contract to a third party, C. Which of the following is correct? AA is the delegator, B is the third-party beneficiary, and C is the delegate BA is the delegator, B is the obligee, and C is the delegate CA is the delegator, B is the delegate, and C is the obligee DA is the delegator, B is the delegate, and C is the third-party beneficiary

B In this case, A is the delegator, B is the obligee, and C is the delegate. In the original contract between A and B, A was the obligor and B was the obligee as to any duties A owed to B. A then acted as delegator and delegated those duties to her delegate C. B remains the obligee. The term third-party beneficiary is used when two parties make a contract for the benefit of a third party. In that situation, the original contract confers rights and duties on the third party. No third-party beneficiary was present in the original contract in this case. The original contract was only between A and B, with no mention of C. Later, A delegated her duties under the contract to C.

As a general rule, if the property owner in a construction contract breaches, the builder has a duty to: ASecure other work BCease work after the breach CComplete the project

B The nonbreaching party cannot recover avoidable damages. Thus, to avoid incurring further losses when a property owner breaches a construction contract, the builder has a duty to cease work on the project after the breach. Completion of the project will be allowed only in the rare instance that it decreases the damages. The builder does not have a duty to seek or secure other work.

Under the doctrine of promissory estoppel, a promise is enforceable __________ when the promisor should reasonably expect to induce action or forbearance, and such action or forbearance is in fact induced. AProvided there is proper consideration BIn all cases CIf necessary to prevent injustice

C A promise is enforceable if necessary to prevent injustice when the promisor should reasonably expect to induce action or forbearance, and such action or forbearance is in fact induced. Such a promise is not enforceable in all cases because the doctrine of promissory estoppel only applies when necessary to prevent injustice. Promissory estoppel is considered a substitute for consideration. Thus proper consideration is not necessary if the facts indicate that the promisor should be estopped from not performing.

Which of these might be considered valuable consideration? AA promise to do something that one is legally obligated to do BA promise to make a gift CA promise with no economic value

C A promise with no economic value might be considered valuable consideration. Peace of mind or the gratification of influencing the mind of another may be sufficient, provided that the promisee is not already legally obligated to do the requested act. A promise to make a gift is not considered valuable consideration as no bargained-for exchange is present.

What does it mean when an agreement lacks mutuality? AThe consideration for the agreement is not equal BThe agreement is so unfair to one party that it will be deemed unconscionable COne party has become bound but the other has not

C An agreement that lacks mutuality is one in which one party has become bound but the other has not. Consideration must exist on both sides of the contract. Without mutuality, there is consideration on only one side. Courts of law normally will not inquire into the adequacy of consideration to judge whether the agreement is unfair to one of the parties. If a party wishes to enter into a contract that others might judge unfair, so be it. (Note that courts of equity may inquire into the adequacy of consideration and deny an equitable remedy if the court deems the deal unconscionable.) While consideration must exist on both sides of the contract, there is no requirement that consideration be equal.

Which of the following is a condition precedent to effectiveness? AA condition limiting a party's duty under an existing contract. BAn agreement that a party to an existing contract is not obliged to perform until the happening of a certain event. CA condition that triggers a contingency clause of a contract. DAn agreement that a contract will not become binding until a certain condition has occurred.

D An agreement that a contract will not become binding until a certain condition has occurred is a condition precedent to the contract's effectiveness. Under a condition subsequent to the formation of the contract, there is a contract, but a party is not obliged to perform until the happening of a certain event. This type of condition limits or modifies a duty under a formed contract and is subject to the parol evidence rule. A contingency clause might be included in such an existing contract.

Which of the following is not traditionally an element of the doctrine of promissory estoppel? ADetrimental reliance BThe reasonable expectation that the promise will induce action or forbearance CAn action or forbearance that is in fact induced by a promise DValuable consideration on both sides of the bargain

D Promissory estoppel is considered a substitute for consideration. Thus, consideration is not necessary if the facts indicate that the promisor should be estopped from not performing. A promise is enforceable if necessary to prevent injustice if: (i) the promisor should reasonably expect to induce action or forbearance; and (ii) such action or forbearance is in fact induced. Detrimental reliance is simply another way of describing the action or forbearance of the promisee (i.e., he relied on the promise to his detriment)

A general contractor advertised in a trade publication that she planned to bid on the construction of a new building to be located in the town square. The advertisement welcomed bids from subcontractors to perform various functions, including plumbing. The lowest plumbing bid was from a local plumber who bid $10,000. The contractor used the bid in preparing her general bid. One hour after she submitted her general bid, the plumber called her and told her that he made a mistake on the bid he submitted to her, and that he could not do the plumbing work for less than $12,000. The contractor acknowledged that he had done good work for her in the past and said, "I'll just forget you ever made that $10,000 bid." The contractor then hired the second lowest bidder to do the plumbing work for $12,000. If the contractor sues the plumber for damages, will she prevail? (A) Yes, because there was no additional consideration to support a release. (B) Yes, because the dollar amount of the agreement is large enough that the Statute of Frauds applies. (C) No, because a rescission has taken place. (D) No, because the contractor and the plumber mutually agreed to a release.

(C) The unilateral option contract between the plumber and the contractor to keep the plumber's offer open was effectively rescinded by the contractor's expressed intent to make a gift of the obligation owed her. The typical case of rescission involves a bilateral contract where neither party has 4. Contracts Answers yet performed; i.e., the duties of both parties are still executory. However, no contract to do the plumbing work has been created yet, because the contractor has not communicated her acceptance of the bid to the plumber. Despite her use of the plumber's bid to prepare her own bid, the contractor is free to award the plumbing work to someone else if she is awarded the general contract. Hence, the contract to do the plumbing cannot be rescinded because it has not been created. Another contract is present under this fact pattern, however. Under section 87 of the Restatement (Second) of Contracts, the plumber's offer is binding as an option contract because the contractor reasonably relied on it to submit her bid. The option contract here is unilateral: The contractor's acceptance of the option contract by using the bid also constituted performance of her duties under the option contract. In a unilateral contract case, a rescission promise must be supported by either (i) an offer of new consideration, (ii) elements of promissory estoppel (i.e., detrimental reliance), or (iii) the offeree's manifestation of an intent to make a gift of the obligation owed her. The first two alternatives are absent in these facts, but the gift alternative is indicated by the contractor's statement that she will "forget" that the plumber ever made the bid. The contractor's response was an effective rescission of the option contract. (A) is an incorrect choice even though it is a true statement. A discharge of contractual duties by means of a release requires additional consideration or some substitute, such as a signed writing or reliance by the offeror on the discharge. Here there is no additional consideration to support a release, as choice (A) indicates, but the contractor will not win because a rescission has taken place. (B) is incorrect because a large dollar amount for purposes of the Statute of Frauds is irrelevant unless there is a contract for the sale of goods, which must be in writing if the goods are priced at $500 or more. The agreement between the contractor and the plumber involved a contract for services, which is not within the $500 provision of the Statute. (D) is incorrect because, as discussed above, a release requires additional consideration, a signed writing, or detrimental reliance by the offeror. Because none of these is indicated by the facts, a release has not taken place.

Under the Article 2 version of the parol evidence rule, which of following may not be used to explain or supplement the terms of a written contract? ASubsequent Agreements BCourse of Dealing CUsage of Trade DCourse of Performance

A Any subsequent agreements of the parties are not relevant to explain or supplement the terms of a prior written contract. The parties may have changed their positions for any number of reasons. The parties' course of dealing may be used to explain a contract. A course of dealing is a sequence of conduct concerning previous transactions between the parties that may be regarded as establishing a common basis of their understanding. A usage of trade (i.e., a practice or method of dealing, regularly observed in a particular business setting) may also be used to explain a contract because it justifies an expectation that it will be followed in this transaction. If a contract involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance, any course of performance accepted or acquiesced to is admissible in determining the meaning of the contract.

If a person leaves an item of jewelry with a jeweler for repair, and the jeweler sells the item to an unsuspecting purchaser, __________. Athe purchaser has title to the item and the true owner cannot recover it Bthe purchaser has good title to the item, and the original owner has no recourse under contract law against the jeweler Cthe original owner retains title to the item, and the purchaser may not recover damages from the jeweler Dthe original owner retains title to the item, and the purchaser may recover damages from the jeweler

A If a person leaves an item of jewelry with a jeweler for repair and the jeweler sells the item to an unsuspecting purchaser, the purchaser has title to the item and the true owner cannot recover it. Entrusting goods to a merchant who deals in goods of that kind gives him the power (but not the right) to transfer all of the rights of the entruster to a buyer in the ordinary course of business. The original owner does have recourse under contract law; she may sue the jeweler for damages.

The promise to refrain from suing on a claim may constitute consideration provided that __________. Athe claimant reasonably and in good faith believes his claim to be valid Bthe claimant has a substantial likelihood of success on his claim Cthe claim is timely Dthe claim is for $500 or more

A If the claimant reasonably and in good faith believes his claim to be valid, forbearance of the legal right to have his claim adjudicated constitutes detriment and consideration. There is no dollar threshold on the amount of the claim; thus, it need not be for $500 or more. Whether the claim is actually invalid or timely, and whether the claimant has a substantial likelihood of success on his claim are not factors in determining whether the forebearance is sufficient consideration

Which of the following would not be considered valuable consideration that supports a contract? APeace of mind for the promisor. BFulfillment of a condition to receive a gift. CA benefit with no economic value. DThe gratification of influencing the mind of another.

B The mere fulfillment of a condition to receive a gift is not adequate consideration. The fulfillment of the condition must be of some benefit to the promisor to constitute proper consideration. The benefit to the promisor need not have economic value. Peace of mind or the gratification of influencing the mind of another may be sufficient to establish bargained-for consideration.

An agreement in which one party has become bound but the other has not, can be said to lack __________. Adetriment Bexclusivity Cmutuality Dsatisfaction

C An agreement in which one party has become bound but the other has not can be said to lack mutuality. Consideration must exist on both sides of the contract; i.e., the promises must be mutually obligatory.

Which of these is the best example of a ratification? AA new valid promise to perform on a disputed debt BA new valid promise to perform a preexisting legal duty CA new valid promise to perform a voidable obligation

C The best example of ratification is a new valid promise to perform a voidable obligation, such as when an infant ratifies an already formed, yet voidable, contract upon reaching the age of majority, or when a defrauded person promises to go through with a tainted contract after learning of the fraud. A promise to perform a preexisting legal duty is not ratification because there is already a duty to perform an enforceable agreement. A promise to perform on a disputed debt will be enforced, as the compromise itself is considered consideration for the new promise. This is not an example of ratification because it does not involve a voidable obligation.

The implied warranty of merchantability is ______________. AImplied in every contract for the sale of goods by a merchant BImplied in every contract for the sale of goods CImplied in every contract for the sale of goods by a merchant who deals in goods of the kind sold

C The implied warranty of merchantability is implied in every contract for the sale of goods by a merchant who deals in goods of the kind sold. It is not implied in every sale of goods by any seller or even any merchant.

The value of the benefit conferred is the measure of recovery for ___________. AReliance damages BConsequential damages CRestitution DWarranty damages

C In a suit for restitution, the measure of recovery is the value of the benefit conferred. Restitution is based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent. The value of the benefit conferred is usually measured by the benefit received by the defendant, but it may also be measured by the reasonable value of the work performed by the plaintiff. Reliance damages award the plaintiff the cost of her performance; i.e., they are designed to put the plaintiff in the position she would have been in had the contract never been formed. The measure of recovery for warranty damages is the difference between the value of the goods as delivered and the value they would have had if they had been according to contract. Warranty damages arise when a buyer accepts nonconforming goods. Consequential damages are damages above and beyond general damages that flow from a breach as a result of the plaintiff's special circumstances. They are recoverable only if the breaching party knew of the special circumstances and the losses from the breach were foreseeable.

Which of the following is not an action that results in the vesting of a third-party beneficiary's rights? AThe third-party beneficiary brings suit to enforce the promise BThe third-party beneficiary buys a house because the money from the contract will cover most of the mortgage payments CThe third party beneficiary agrees to accept performance by the promisor DThe third-party beneficiary assigns his rights under the contract

D Assigning his rights under the contract will not cause the third-party beneficiary's rights to vest. Bringing suit to enforce the promise vests the third-party beneficiary's rights under the contract. By agreeing to accept performance by the promisor, the third party beneficiary is manifesting assent to the promise, which is a method of vesting his rights under the contract. Buying a house because the money from the contract will cover a portion of the mortgage payments is an example of a third-party beneficiary materially changing his position in reliance on the promise, which will result in the vesting of his rights under the contract.

__________ damages consist of losses resulting from the plaintiff's particular circumstances that any reasonable person would have foreseen as a probable result of breach. AIncidental BExpectation CReliance DConsequential

D Compensatory damages attempt to put the nonbreaching party where she would have been had the promise been performed, so far as money can do this. Expectation, consequential, incidental, and reliance damages are all forms of compensatory damages. Consequential damages are special damages over and above standard expectation damages. These damages result from the nonbreaching party's particular circumstances and are recoverable only if a reasonable person would have foreseen them as a probable result of breach. Note that in contracts for the sale of goods, only a buyer may recover consequential damages. Expectation damages are the standard measure of compensatory damages. Expectation damages are based on an "expectation" measure or what is sufficient for the nonbreaching party to buy a substitute performance. This type of damages is also known as "benefit of the bargain" damages. Reliance damages award the plaintiff the cost of her performance. They are designed to put the plaintiff in the position she would have been in had the contract never been formed. A plaintiff may elect to recover damages based on a reliance measure rather than an expectation measure when expectation damages will be too speculative to measure. Incidental damages include expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller's breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer's breach. A. NONMONETARY REMEDIESThere are two broad branches of remedies available in breach of contract situations: nonmonetary and monetary. The primary nonmonetary remedy for exam purposes is specific performance, but Article 2 has a number of other specific nonmonetary remedies for certain situations involving contracts for the sale of goods. 1. Specific PerformanceIf the legal remedy is inadequate, the nonbreaching party may seek specific performance, which is an order from the court to the breaching party to perform or face contempt of court charges.EXAM TIPWatch for a fact pattern in which a party is seeking to specifically enforce a contract containing a liquidated damages clause. Such a clause does not make the legal remedy adequate. a. Available for Land and Rare or Unique GoodsSpecific performance is always available for land sale contracts. It is also available for goods that are rare or unique at the time performance is due (e.g., rare paintings, gasoline in short supply because of oil embargoes, etc.). It is not available for breach of a contract to provide services, even if the services are rare or unique. This is because of problems of enforcement (it would be difficult for the court to supervise the performance) and because the courts feel it is tantamount to involuntary servitude, which is prohibited by the Constitution. 1) Injunction as Alternate RemedyIn contrast, a court may enjoin a breaching employee from working for a competitor throughout the duration of the contract if the services contracted for are rare or unique. b. Covenant Not to CompeteMost courts will grant an order of specific performance to enforce a contract not to compete if: (i) the services to be performed are unique (thus rendering money damages inadequate)); and (ii) the covenant is reasonable. To be reasonable: 1) The covenant must be reasonably necessary to protect a legitimate interest of the person benefited by the covenant (i.e., an employer or the purchaser of the covenantor's business));2) The covenant must be reasonable as to its geographic scope and duration (i.e., it cannot be broader than the benefited person's customer base and typically cannot be longer than one or two years)); and3) The covenant must not harm the public. c. Equitable Defenses AvailableIn addition to standard contract defenses, an action for specific performance is subject to the equitable defenses of: 1) Laches - a claim that the plaintiff has delayed bringing the action and that the delay has prejudiced the defendant);2) Unclean hands - a claim that the party seeking specific performance is guilty of wrongdoing in the transaction being sued upon); and3) Sale to a bona fide purchaser - a claim that the subject matter has been sold to a person who purchased for value and in good faith. 2. Nonmonetary Remedies Under Article 2 a. Buyer's Nonmonetary Remedies 1) CancellationIf a buyer rightfully rejects goods because they do not conform to the contract, one of her options is simply to cancel the contract.2) Buyer's Right to Replevy Identified Goods a) On Buyer's PrepaymentIf a buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the seller has not delivered the goods, the buyer may replevy the goods from the seller in two circumstances: (i) The seller becomes insolvent within 10 days after receiving the buyer's first payment); or(ii) The goods were purchased for personal, family, or household purposes.In either case, the buyer must tender any unpaid portion of the purchase price to the seller. b) On Buyer's Inability to CoverIn addition, the buyer may replevy undelivered, identified goods from the seller if the buyer, after reasonable effort, is unable to secure adequate substitute goods (i.e., cover). 3) Buyer's Right to Specific PerformanceA right closely related to the buyer's right to replevy is her right to specific performance "where the goods are unique or in other proper circumstances." The court may order specific performance even where the goods have not yet been identified to the contract by the seller. b. Seller's Nonmonetary Remedies 1) Seller's Right to Withhold GoodsIf the buyer fails to make a payment due on or before delivery, the seller may withhold delivery of the goods. The seller may also withhold goods when the goods are sold on credit and, before the goods are delivered, the seller discovers that the buyer is insolvent. However, in such a case, the seller must deliver the goods if the buyer tenders cash for their payment.2) Seller's Right to Recover Goods a) Right to Recover from Buyer on Buyer's InsolvencyIf a seller learns that a buyer has received delivery of goods on credit while insolvent, the seller may reclaim the goods upon demand made within 10 days after the buyer's receipt of the goods. However, the 10-day limitation does not apply if a misrepresentation of solvency has been made in writing to the particular seller within three months before delivery.b) Right to Recover Shipped or Stored Goods from Bailee (1) On Buyer's InsolvencyThe seller may stop delivery of goods in the possession of a carrier or other bailee if he discovers that the buyer is insolvent. Of course, the seller must deliver the goods if the buyer tenders cash for their payment.(2) On Buyer's BreachThe seller may stop delivery of carload, truckload, planeload, or larger shipments of goods if the buyer breaches the contract or the seller has a right to withhold performance pending receipt of assurances. (See c., infra, on the right to demand assurances.) 3) Seller's Ability to Force Goods on Buyer LimitedThe seller's ability to force goods on a buyer is limited to an action for price when the seller is unable to resell the goods to others at a reasonable price. (See B.2.b.2), infra.) c. Right to Demand AssurancesActions or circumstances that increase the risk of nonperformance by a party to a contract but do not clearly indicate that performance will not be forthcoming may not be treated immediately as an anticipatory repudiation (see VI.D.6.c., supra). Instead, if there are reasonable grounds for insecurity with respect to a party's performance, the other party may demand assurances in writing that the performance will be forthcoming at the proper time. Until he receives adequate assurances, he may suspend his own performance. If the proper assurances are not given within a reasonable time (i.e., within 30 days after a justified demand for assurances), he may then treat the contract as repudiated. What constitutes an adequate assurance depends on the facts of the case.EXAM TIPBe sure that you understand the difference between circumstances giving rise to a right to demand assurances and those constituting anticipatory repudiation. The right to demand assurances arises when there are reasonable grounds for insecurity - something makes a party nervous that the other will not perform. Anticipatory repudiation requires much more than nervousness); there must be a clear indication that the other party is unwilling or unable to perform. Thus, for example, "I'm not going to perform" is an anticipatory repudiation, but "I'm not sure if I can perform" most likely is only a reason to demand assurances. B. MONETARY REMEDY - DAMAGESDamages can be recovered only to the extent they can be proved with reasonable certainty and could not be avoided with reasonable effort. 1. Types of Damages a. Compensatory DamagesThe usual goal of damages for breach of contract is to put the nonbreaching party in the position she would have been in had the promise been performed, so far as money can do this. 1) "Standard Measure" of Damages - Expectation DamagesIn most cases, the plaintiff's standard measure of damages will be based on an "expectation" measure, i.e., sufficient damages for her to buy a substitute performance. This is also known as "benefit of the bargain" damages.2) Reliance Damage MeasureIf the plaintiff's expectation damages are too speculative to measure (e.g., the plaintiff cannot show with sufficient certainty the profits she would have made if the defendant had performed the contract), the plaintiff may elect to recover damages based on a "reliance" measure, rather than an expectation measure. Reliance damages award the plaintiff the cost of her performance); i.e., they are designed to put the plaintiff in the position she would have been in had the contract never been formed.3) Consequential DamagesConsequential damages are special damages and reflect losses over and above standard expectation damages. They arise because of the nonbreaching party's particular circumstances, and most often they consist of lost profits. These damages may be recovered only if, at the time the contract was made, a reasonable person would have foreseen the damages as a probable result of the breach. Foreseeability is the key issue for consequential damages. To recover consequential damages, the breaching party must have known or had reason to know of the special circumstances giving rise to the damages. Note that in contracts for the sale of goods, only a buyer may recover consequential damages.4) Incidental Damages - Contracts for the Sale of GoodsIn contracts for the sale of goods, compensatory damages may also include incidental damages. Incidental damages include expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller's breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer's breach.5) Certainty RuleThe plaintiff must prove that the losses suffered were certain in their nature and not speculative. Traditionally, if the breaching party prevented the nonbreaching party from setting up a new business, courts would not award lost profits from the prospective business as damages, because they were too speculative. However, modern courts may allow lost profits as damages if they can be made more certain by observing similar businesses in the area or other businesses previously owned by the same party. b. Punitive DamagesPunitive damages are generally not awarded in contract cases.c. Nominal DamagesNominal (token) damages (e.g., $1) may be awarded when a breach is shown but no actual loss is proven.d. Liquidated DamagesThe parties to a contract may stipulate what damages are to be paid in the event of a breach. These liquidated damages must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach. 1) Requirements for EnforcementLiquidated damage clauses will be enforceable if the following two requirements are met: a) Damages for contractual breach must have been difficult to estimate or ascertain at the time the contract was formed); andb) The amount agreed on must have been a reasonable forecast of compensatory damages in the case of breach. The test for reasonableness is a comparison between the amount of damages prospectively probable at the time of contract formation and the liquidated damages figure. If the liquidated damages amount is unreasonable, the courts will construe this as a penalty and will not enforce the provision. 2) Recoverable Even If No Actual DamagesIf the above requirements are met, the plaintiff will receive the liquidated damages amount. Most courts hold this is so even if no actual money or pecuniary damages have been suffered. 2. Contracts for Sale of Goods a. Buyer's Damages 1) Seller Does Not Deliver or Buyer Rejects Goods or Revokes AcceptanceThe buyer's basic damages where the seller does not deliver, or the buyer properly rejects or revokes her acceptance of tendered goods, consist of the difference between the contract price and either: (i) the market price or (ii) the cost of buying replacement goods (i.e., cover), plus incidental and consequential damages (see above), if any, less expenses saved as a result of the seller's breach. a) Difference Between Contract Price and Market PriceIf the buyer measures damages by the difference between contract price and market price, market price usually is determined as of the time the buyer learns of the breach and at the place of tender.EXAM TIPNote that the buyer's damages are measured as of the time she learns of the breach, while the seller's damages are measured as of the time for delivery. (See b., infra.)b) Difference Between Contract Price and Cost of ReplacementGoods - "Cover"If the buyer chooses the cover measure (i.e., difference between contract price and cost of buying replacement goods), the buyer must make a reasonable contract for substitute goods in good faith and without unreasonable delay. 2) Seller Delivers Nonconforming Goods that Buyer Accepts a) Warranty DamagesIf the buyer accepts goods that breach one of the seller's warranties, the buyer may recover as damages "loss resulting in the normal course of events from the breach." The basic measure of damages in such a case is the difference between the value of the goods as delivered and the value they would have had if they had been according to contract, plus incidental and consequential damages.b) Notice RequirementTo recover damages for any defect as to accepted goods, the buyer must, within a reasonable time after she discovers or should have discovered the defect, notify the seller of the defect. If she does not notify the seller within a reasonable time, she loses her right to sue. "Reasonable time" is, of course, a flexible standard. 3) Seller Anticipatorily Breaches ContractThe measure of damages when the seller anticipatorily breaches the contract is the difference between the market price at the time the buyer learned of the breach and the contract price.4) Consequential DamagesAs noted above, a seller is liable for consequential damages arising from his breach if: (i) he had reason to know of the buyer's general or particular requirements, and (ii) the subsequent loss resulting from those needs could not reasonably be prevented by cover. Particular needs must be made known to the seller, but general requirements usually need not be. a) Goods for ResaleIf the buyer is in the business of reselling the goods, the seller is deemed to have knowledge of the resale.b) Goods Necessary for ManufacturingIf a seller knows that the goods he provides are to be used in the manufacturing process, he should know that his breach would cause a disruption in production leading to a loss of profits. b. S eller's Damages 1) Where Buyer Repudiates or Refuses to Accept Conforming GoodsThe Code provides three measures for damages for when the buyer wrongfully repudiates or refuses to accept conforming goods. In addition to incidental damages (e.g., costs of storing, shipping, reselling), the seller can: (i) Recover the difference between the market price (measured as of the time and at the place of delivery) and the contract price);(ii) Resell the goods and recover the difference between the contract price and the resale price); or(iii) If the above measures are inadequate because the seller could have made an additional sale, recover under a "lost profits" measure the difference between the contract price and the cost to the seller. CHARTEXAM TIPOther damages measures will never be adequate if the seller is a lost volume seller.To determine whether the lost profits measure is appropriate, look at the seller's supply. If the seller's supply of goods is unlimited (i.e., he can obtain all the goods he can sell), then he is a lost volume seller, and the lost profits measure can be used. If the seller's supply is limited (i.e., he cannot obtain all the goods he can sell, as with the sale of a unique item), the lost profits measure cannot be used, and one of the other two measures must be used instead. 2) Where Buyer Accepted Goods - Action for PriceIf the buyer has accepted the goods and has not paid, or has not accepted the goods, and the seller is unable to resell them at any reasonable price, or if the goods have been lost or damaged at a time the risk of loss was on the buyer (see V.D.2., supra), the seller may maintain an action against the buyer for the full contract price. 3. Contracts for Sale of LandThe standard measure of damages for breach of land sale contracts is the difference between the contract price and the fair market value of the land.4. Employment ContractsIn employment contracts, check to see whether the breach was by the employer or the employee. a. Breach by EmployerIrrespective of when the breach occurs - i.e., before performance, after part performance, or after full performance, the standard measure of the employee's damages is the full contract price (although such damages may be reduced if the employee fails to mitigate - see 7.a., infra).b. Breach by EmployeeIf an employee materially breaches an employment contract, the employer is entitled to recover the cost of replacing the employee (i.e., the wages the employer must pay to a replacement employee minus the breaching employee's wages). The breaching employee may offset money owed for work done to date.c. Employment at WillWhen employment is at will, it may be terminated at any time for any reason. Thus,termination of at-will employment by either party does not result in breach. A positioncharacterized as "permanent" creates an employment-at-will relationship. CHART 5. Construction ContractsIf a construction contract is breached by the owner, the builder will be entitled to profits that would have resulted from the contract plus any costs expended. (If the contract is breached after construction is completed, the measure is the full contract price plus interest.) If the contract is breached by the builder, the owner is entitled to the cost of completion plus reasonable compensation for the delay. Most courts allow the builder to offset or recover for work performed to date to avoid unjust enrichment of the owner. (If the breach is only late performance, the owner is entitled to damages incurred because of late performance.) a. Restoration and Economic WasteUsually, when a building contract is not properly performed, the owner is entitled to the cost of fixing the defect. However, unless there is special significance attached to use of a particular item (e.g., the owner is the CEO of the particular brand of copper pipe specified) and that significance is communicated to the builder, a court will not order a remedy that results in undue economic waste. Courts are split on the result when a party contracts to restore property and willfully refuses to do so because it is much more costly than any diminution in value of the property. 6. Contracts Calling for Installment PaymentsIf a contract calls for payments in installments and a payment is not made, there is only a partial breach. The aggrieved party is limited to recovering only the missed payment, not the entire contract price. However, the contract may include an acceleration clause making the entire amount due on any late payment, in which case the aggrieved party may recover the entire amount.7. Avoidable Damages (Mitigation)Under the common law, the nonbreaching party cannot recover damages that could have been avoided with reasonable effort. Thus, she must refrain from piling up losses after she receives notice of the breach); she must not incur further expenditures or costs, and she must make reasonable efforts to cut down her losses by procuring a substitute performance at a fair price. Should she not do so, she will not be allowed to recover those damages that might have been avoided by such mitigation after the breach. Generally, a party may recover the expenses of mitigation. Note the following specific contract situations: a. Employment ContractsIf the breaching employer can prove that a comparable job in the same locale was available, then contract damages against that breaching employer for lost wages will be reduced by the wages that the plaintiff would have received from that comparable job.b. Manufacturing ContractsGenerally, in a contract to manufacture goods, if the person for whom the goods are being manufactured breaches, the manufacturer is under a duty to mitigate by not continuing work after the breach. However, if the facts are such that completion of the manufacturing project will decrease rather than increase damages, the manufacturer has a right to continue.c. Construction ContractsA builder does not owe a duty to avoid the consequences of an owner's breach, e.g., by securing other work, but does have a duty to mitigate by not continuing work after the breach. Again, however, if completion will decrease damages, it will be allowed.d. Contracts for Sale of GoodsUnder Article 2, the rule of mitigation generally does not apply. An injured buyer is not required to cover, and an injured seller is not required to resell. Market damages are always available if the buyer does not cover or the seller does not resell. Recall, however, that the seller generally cannot bring an action against the buyer for the full contract price unless the goods cannot be resold at a reasonable price or were damaged or lost when the risk of loss was on the buyer. (See 2.b.2), supra.) EXAM TIPKeep in mind that the duty to mitigate only reduces a recovery); it does not prohibit recovery. Thus, if a fact pattern shows a clear breach and the plaintiff does not attempt to mitigate damages, she can recover for the breach, but the recovery will be reduced by the damages that would have been avoided by mitigation. C. RESTITUTIONAs an alternative to the contract damages discussed above, restitution may be available in a contract-type situation. Restitution is not really part of contract law, but rather is a distinct concept. Restitution is based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent. Restitution can provide a remedy not only when a contract exists and has been breached, but also when a contract is unenforceable, and in some cases when no contractual relationship exists at all between the parties. 1. TerminologyWhen a contract is unenforceable or no contract between the parties exists, an action to recover restitutionary damages often is referred to as an action for an implied in law contract, an action in quasi-contract, or an action for quantum meruit.2. Measure of DamagesGenerally, the measure of restitution is the value of the benefit conferred. Although this is usually based on the benefit received by the defendant (e.g., the increase in value of the defendant's property or the value of the goods received), recovery may also be measured by the "detriment" suffered by the plaintiff (e.g., the reasonable value of the work performed or the services rendered) if the benefits are difficult to measure or the "benefit" measure would achieve an unfair result.3. Specific Applications a. When Contract BreachedWhen a contract has been breached and the nonbreaching party has not fully performed, he may choose to cancel the contract and sue for restitution to prevent unjust enrichment. Note that if the plaintiff has fully performed, he is limited to his damages under the contract. This may be less than he would have received in a restitutionary action, because a restitutionary remedy is not limited to the contract price. 1) "Losing" ContractsA restitutionary remedy often is desirable in the case of a "losing" contract (i.e., a contract in which the actual value of the services or goods to be provided under the contract is higher than the contract price), because normal contract expectation damages or reliance damages would be for a lesser amount.2) Breach by PlaintiffUnder some circumstances, a plaintiff may seek restitution even though the plaintiff is the party who breached. If the breach was intentional, some courts will not grant the breaching party restitution); modern courts, however, will permit restitutionary recovery but limit it to the contract price less damages incurred as a result of the breach. a) Restitution of Advance Payments or Deposit If Buyer of Goods BreachesIf the buyer has paid part of the purchase price in advance and then breaches the contract, he can usually recover some of the payments. Unless the seller can prove greater damages, he may keep advance payments totaling 20% of the purchase price or $500, whichever is less. The balance must be returned to the buyer. If there is a valid liquidated damages clause, the seller need refund only the excess of the buyer's payments over the amount of liquidated damages.EXAM TIP:Generally, when there is a breaching party attempting to collect on a partially performed contract, you should consider: substantial performance, divisibility, and restitution-in that order. You must read the call of the question and each answer choice carefully, and of course, you must be able to regroup when your expected answer is not one of the choices. b. When Contract Unenforceable - Quasi-Contract RemedyRestitution may be available in a quasi-contract action when a contract was made but is unenforceable and unjust enrichment otherwise would result (e.g., celebrity is hired to sign autographs and is paid, but dies before he performs); the other party has a restitutionary action to recover the payment).c. When No Contract Involved - Quasi-Contract RemedyRestitution may also be available in a quasi-contractaction when there is no contractual relationship between the parties if: 1) The plaintiff has conferred a benefit on the defendant by rendering services or expending properties);2) The plaintiff conferred the benefit with the reasonable expectation of being compensated for its value);3) The defendant knew or had reason to know of the plaintiff's expectation); and 4) The defendant would be unjustly enriched if he were allowed to retain the benefit without compensating the plaintiff.EXAM TIPAlways keep the quasi-contract remedy in the back of your mind. Look first for a valid contract allowing the plaintiff relief. But if there is no valid contract, quasi-contract may provide a remedy if the plaintiff has suffered a loss or rendered services. D. RESCISSIONRescission is a remedy whereby the original contract is considered voidable and rescinded. The parties are left as though a contract had never been made. The grounds for rescission must have occurred either before or at the time the contract was entered into. The grounds are: (i) Mutual mistake of a material fact (see IV.B.1.a., supra));(ii) Unilateral mistake if the other party knew or should have known of the mistake);(iii) Unilateral mistake if hardship by the mistaken party is so extreme it outweighs the other party's expectations under the contract);(iv) Misrepresentation of fact or law by either party as to a material factor in the negotiations that was relied upon); and(v) Other grounds, such as duress, undue influence, illegality, lack of capacity, and failure of consideration. 1. DefensesGenerally all equitable defenses (e.g., laches, unclean hands) are available in a rescission action. Note that the plaintiff's negligence is not a defense.2. Additional ReliefIf the plaintiff has paid money to the defendant, she is entitled to restitution in addition to rescission. E. REFORMATIONReformation is the remedy whereby the writing setting forth the agreement between the parties is changed so that it conforms to the original intent of the parties. 1. Grounds a. MistakeTo reform a contract because of mistake, there must be: (i) an agreement between the parties, (ii) an agreement to put the agreement in writing, and (iii) a variance between the original agreement and the writing. b. MisrepresentationIf a writing is inaccurate because of a misrepresentation, the plaintiff can choose between reformation and avoidance. To qualify for reformation, the misrepresentation must relate to the content or the legal effect of the record. Misrepresentations as to the subject matter of the agreement are not grounds for reformation); rescission and damages are the proper remedy for that. 2. Negligence Does Not Bar ReformationFailure to read the record of the agreement does not preclude a party from obtaining reformation. In nearly every case in which the record does not reflect the agreement, either one or both parties have failed to read it. 3. Clear and Convincing Evidence StandardThe variance between the antecedent agreement and the writing must be established by clear and convincing evidence.4. Parol Evidence Rule and Statute of Frauds Do Not ApplyThe parol evidence rule is not applied in reformation actions. Likewise, the majority rule is that the Statute of Frauds does not apply-but many courts will deny reformation if it would add land to the contract without complying with the Statute of Frauds.5. DefensesIn addition to the general equitable defenses, the existence of a bona fide purchaser for value is also a defense to reformation. Similarly, reformation is not permitted if the rights of third parties will be unfairly affected. F. STATUTE OF LIMITATIONS UNDER UCCFor sales contracts, the UCC provides for a four-year statute of limitations. The parties may shorten the period by agreement to no less than one year, but they may not lengthen the period. 1. Accrual of ActionThe statutory period begins to run when a party can bring suit - i.e., when breach occurs. The period begins to run regardless of whether the aggrieved party knows about the breach.2. Breach of Warranty ActionsFor a breach of warranty action, the breach occurs and the limitations period begins to run upon delivery of the goods. This is true even if the buyer does not discover the breach until much later. a. Warranty Extends to Future PerformanceIf there is an express warranty that explicitly extends to future performance of the goods, the four-year period does not begin to run until the buyer should have discovered the breach.b. Implied Warranties Breached on DeliveryBecause implied warranties cannot "explicitly" extend to future performance, they are breached, if at all, upon delivery.

A landlord heard that a company was looking for old buildings to purchase and raze to make room for new development. On July 1, the landlord sent a letter to the company stating, "I own two adjacent apartment buildings that might meet your needs. One is located on 123 Main Street and the other property is right behind it on 123 Wood Street. I will sell you one or both of the apartment buildings for $250,000 each. This offer remains open until August 1." On July 15, the company faxed the landlord, "Accept your offer with respect to the apartment building on Main Street." On July 18, the company faxed the landlord, "Will also take the building on Wood Street." On July 22, the landlord discovered that he did not have good title to the Wood Street property. Which of the following would provide the best legal support to the landlord's contention that he was not liable for breach of contract as to the Wood Street property? (A) Impossibility of performance. (B) Unilateral mistake as to basic assumption. (C) Termination of the offer by the company's having first contracted to buy the Main Street property. (D) Excuse by failure of an implied condition precedent.

(C) Arguably, the company's fax on July 15 could reasonably be interpreted as a rejection of the landlord's offer as to the Wood Street building, i.e., having accepted only the Main Street property, the company was impliedly rejecting the rest. Once rejected, the offer is terminated and the offeree's power of acceptance is extinguished; thus, the July 18 attempt to accept would be ineffective. None of the other alternatives makes sense. For impossibility of performance in (A) to apply, the impossibility must be "objective"; i.e., the duties could not be performed by anyone. Also, the impossibility must arise after the contract has been entered into. (D) is wrong because a condition precedent must be distinguished from a promise. A condition is the occurrence of an event that will create, limit, or extinguish the absolute duty to perform. In this case, it would probably be determined that the intention of the parties was an exchange of promises. (B) is wrong because a unilateral mistake in most cases will not prevent formation of a contract. Only mutual mistake going to the heart of the bargain may prevent the formation of the contract.

What is an "illusory" promise? AA promise where the promisor is not bound to perform BA promise where the promisor's performance is conditioned on the promisor's satisfaction CA promise where the promisor has some choice or discretion in the means of performance

A An illusory promise is one in which the promisor is not bound to perform. Consideration fails in such instances because the agreement lacks mutuality. Mutuality requires that consideration exists on both sides of the contract. A promise is not illusory just because the promisor has some choice or discretion in the means of performance, or because performance is conditioned on the promisor's satisfaction. The promisor still has a duty to perform in good faith in such situations. Since both the promisor and the promisee are bound to perform, mutuality exists.

Which of the following is not required for an effective assignment of an interest in land? AConsideration BA description of the right being assigned CA writing DPresent words of assignment

A Consideration is not required for an effective of assignment of any rights, including an interest in land. Gratuitous assignments are effective. A writing is generally not required to have an effective assignment. However, an assignment of an interest of land requires a writing. To be effective, any assignment must include an adequate description of the right being assigned. Present words of assignment are required for all assignments of rights. The assignor must manifest an intent to transfer his rights under the contract completely and immediately to assignee.

Under the common law of contracts, modification of a written contract generally requires __________. Aa waiver if the contract provides that all modifications must be in writing Bconsideration Ca signed writing Dgood cause

B Contrary to the U.C.C. position, the common law of contracts generally requires that a modification be supported by new consideration. A signed writing is not required. A written contract may be modified orally. The common law rule is that even if a written contract provides that all modifications must be in writing, the parties can orally modify the contract. Good cause is not required; a contract may be modified for any reason at all.

When the parties to a contract have expressed their agreement in a completely integrated writing, a court will apply the __________ to determine whether any other expressions, made prior to or contemporaneous with the writing, are admissible to vary the terms of the writing. Abattle of the forms Bparol evidence rule Cmirror image rule Dstatute of frauds

B The parol evidence rule prohibits the admission of extrinsic evidence that seeks to vary, contradict, or add to a completely integrated writing. The mirror image rule is a common law rule that requires an absolute and unequivocal acceptance of each and every term of an offer before a contract will be formed. The statute of frauds is a defense to enforcement of a contract. It provides that certain agreements must be evidenced by a writing signed by the party sought to be bound. The battle of the forms is a provision of Article 2 that sets forth specific rules for determining which terms are included in a contract when the terms of acceptance do not match the terms of the offer.

When a buyer, pursuant to a sale of goods contract, accepts nonconforming goods, the buyer's measure of damages is: AThe difference between the contract price and the market price, plus incidental and consequential damages BThe difference between the value of the goods as delivered and the value they would have had if they had been as according to contract, plus incidental and consequential damages CThe difference between the contract price and the cost of replacement goods, plus incidental and consequential damages DThe difference between the value of the goods as delivered and the value they would have had if they had been as according to contract, plus incidental damages, but not consequential damages

B When a buyer, pursuant to a sale of goods contract, accepts nonconforming goods, the buyer's measure of damages is for breach of warranty; i.e., the difference between the value of the goods as delivered and the value they would have had if they had been according to contract, plus incidental and consequential damages. The difference between the contract price and the market price, plus incidental and consequential damages, and the difference between the contract price and the cost of replacement goods, plus incidental and consequential damages, are both "benefit of the bargain" measures, which are appropriate when the seller does not deliver or the buyer rejects the goods. They are not the appropriate measures when the buyer has accepted the goods.

Which of the following statements about suretyships is false? ASuretyship contracts involve a promise to pay the debt of another BSureties can be compensated or gratuitous CSuretyship contracts are enforceable without consideration

C A suretyship contract is not enforceable unless it is supported by consideration. A suretyship contract involves a promise to pay the debt of another. A suretyship contract can be compensated or gratuitous. If a surety is compensated, the requirement of consideration is not much of an issue, because the compensation will serve as consideration for the surety's promise. If the surety is gratuitous, the timing of the promise becomes important in determining whether adequate consideration is present. If the surety makes his promise to pay before or at the same time as the creditor performs or promises to perform, there is consideration.

If you agree to refrain from doing something that you have a legal right to do, you have __________. AIncurred a loss BProvided no consideration if you had no intention of doing the particular activity CSuffered a legal detriment

C If you agree to refrain from doing something that you have a legal right to do, you have suffered a legal detriment. A legal detriment need not involve any actual loss to the promisee or benefit to the promisor. A party suffers legal detriment if he agrees to refrain from doing something that he has a legal right to do—even if he has no intention of doing the act. For example, if a person of legal age agrees to refrain from drinking alcohol or smoking, he has suffered a legal detriment even if he was not a drinker or smoker. As long as he had a right to do the act he promised to refrain from, he suffers legal detriment.

In the case of a sale of goods contract, if the standard measure of damages does not adequately compensate a seller for the buyer's breach because the seller can manufacture or obtain as many goods as he can sell, he may recover damages based on ____________. AThe difference between the contract price and the market price BThe difference between the contract price and the resale price CLost profits

C In the case of a sale of goods contract, if the standard measure of damages does not adequately compensate a seller for the buyer's breach because the seller can manufacture or obtain as many goods as he can sell, the seller is a lost volume seller and may recover damages based on lost profits. Generally, the lost profit is measured by the contract price with the breaching buyer minus the cost to the seller. The difference between the contract price and the market price and the difference between the contract price and the resale price are the standard measures of a seller's damages. Neither measure will adequately compensate a lost volume seller.

Which one of the following contracts is considered void, rather than voidable? AA contract made by a mentally incompetent person BA contract made by an infant CA contract induced by duress or coercion DA contract involving illegal consideration

D Illegal consideration or subject matter renders a contract void and unenforceable. Contracts may be illegal because they are inconsistent with the Constitution, violate a statute, or violate public policy. Contracts induced by duress or coercion are voidable and may be rescinded as long as not affirmed. A contract entered into by a mentally incompetent person (i.e., one whose mental capacity is so deficient that he is incapable of understanding the nature and significance of a contract) is voidable. Mentally incompetent persons may affirm or disaffirm the contract during a lucid interval. Infants lack the capacity to enter into a contract binding on themselves. A contract entered into by an infant is voidable by the infant.

A child wishes to buy an electric guitar from a music store on credit. Her father promises the music store that he will make the payments on the guitar if the child defaults. The father's promise is __________. AAn illusory promise BAn option contract CA voidable contract DA suretyship promise

D The father's promise is a suretyship promise because it is a promise to pay the debt of another. Although the child is a minor and her contract with the music store may be voidable, the father is under no such disability and, thus, his suretyship promise is not voidable. The father's promise is not illusory. An illusory promise is one in which the promisor is not actually bound to perform. Here, the father is bound to make the payments if the child defaults. This is not an option contract. An option contract is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke the offer.

When the amount due on a debt is undisputed, which of the following will not be considered sufficient consideration for a promise by the creditor to discharge the debt? APayment before maturity. BPayment in a different medium. CPayment to one other than the creditor. DPayment of a smaller sum than due.

D When the amount due is undisputed, payment of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt. Neither a legal detriment nor a benefit would be present. In contrast, if the consideration is in any way new or different, such as payment before maturity or to one other than the creditor; or payment in a different medium (e.g., stock instead of cash), then sufficient consideration may be found.

When the parties to a contract express their agreement in a writing with the intent that the writing embody the final expression of their bargain, this is known as __________. Aan implied in law contract Bparol evidence Ca confirmatory memo Dan integration

D When the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is known as an integration. Parol evidence is a term referring to other expressions made prior to, or contemporaneous with, the writing. An implied in law contract, also known as a quasi-contract, is not a contract at all, but is a remedy to avoid unjust enrichment. A confirmatory memo is one between merchants that summarizes an oral agreement.

The owner of a stationary bicycle wrote a letter to her friend offering to sell her stationary bicycle to him for $150. The friend received the letter on January 18. On January 19, he mailed a letter back saying that he was not interested in purchasing the bike because he had just purchased a gym membership. However, the friend changed his mind the next day and mailed a letter to the owner accepting her offer to sell the bicycle and enclosing a certified check for $150. The owner received the friend's rejection letter on January 21 but put it aside without reading it. The next day, she received the friend's acceptance letter, which she opened and read immediately. Do the parties have a contract? (A) Yes, because under the mailbox rule an acceptance is effective on dispatch, while a rejection is effective on receipt. (B) Yes, because the friend paid for the bicycle when he accepted the offer to buy it. (C) No, because the acceptance was dispatched after the rejection. (D) No, because the mailbox rule does not apply—whichever is received first controls.

(D) The parties do not have a contract, because the mailbox rule does not apply when the offeree sends a rejection, followed by an acceptance. In such a case, whichever is received first controls. Contracts Answers 5. Under the mailbox rule, acceptance by mail or similar means creates a contract at the moment of posting, with a couple of exceptions not relevant here. Rejection, on the other hand, is effective when received. So, if the mailbox rule had applied, there would have been a contract, because the friend's acceptance was mailed before his rejection letter was received. But because the mailbox rule does not apply here, and the matter is decided based on which letter was received first, there is no contract, because the friend's rejection letter was received by the bicycle owner a day before his acceptance letter was received by her. (A) is incorrect because, as discussed above, the mailbox rule does not apply when a rejection is sent before an acceptance; rather, whichever is received first controls. The fact that the bicycle owner did not read the rejection does not matter; it still was received by her before the acceptance. [See Restatement (Second) Contracts §68] (B) is incorrect because whether the friend paid for the bicycle is irrelevant. He sent the certified check (and his acceptance) after he sent his rejection, and the rejection was received first. (C) is incorrect because when a rejection by mail is followed by an acceptance by mail, the rule is that whichever is received first controls, not whichever is dispatched first. Thus, although it is true that there is no contract between the parties, it is because the friend's rejection letter was received by the bicycle owner first, rather than because it was mailed first.

On April 1, a music store owner offered to sell a rare piano to his best customer, a concert pianist, for $100,000. The following day, the pianist, who performs around the world with two of the several pianos he has purchased from the store, wrote to the store owner: "I have decided to purchase the piano. A check for $100,000 is enclosed. I am leaving in one week for Canada. I will be gone for one month and will pick up the piano when I return. I will pay you to store the piano in your air-conditioned warehouse." One week later, the pianist left for Canada without hearing from the music store owner. What does the letter that the pianist wrote to the store owner constitute? (A) A conditional acceptance. (B) A rejection of the offer. (C) An acceptance, and the store owner is not bound to store the piano. (D) An acceptance, and the store owner must store the piano but is entitled to the reasonable value of that service.

(D) The pianist's letter to the store owner is an acceptance, and the store owner must store the piano. This is a contract for a sale of goods and thus is governed by the UCC. Under the UCC, an acceptance with additional terms does not constitute a rejection and counteroffer, but rather is an effective acceptance unless made expressly conditional on the assent to the additional terms. Here, the pianist expressly accepted the store owner's offer and included an additional term adding one month of storage. The acceptance was not expressly conditional on the store owner's assent to the storage term. Thus, the acceptance was sufficient to create a contract. Whether additional terms become part of the agreement depends on whether both parties are merchants. If both parties are merchants, the additional terms become part of the contract unless they materially alter the terms of the offer, the offer expressly limited the acceptance to its terms, or they are objected to within a reasonable time. A "merchant" is one who regularly deals in goods of the kind sold or 6. Contracts Answers who otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved. For purposes of the UCC battle of the forms provisions, a merchant is almost anyone in business because anyone in business has knowledge of business practices. Here, the store owner is clearly a merchant. The pianist, by virtue of his occupation, has knowledge or skill peculiar to the goods (piano) involved. He plays the piano professionally and has purchased several pianos for this purpose. The additional term included in the pianist's acceptance did not materially alter the terms of the offer (i.e., it did not change a party's risk or remedies), the offer was not limited to its terms, and the facts indicate that the store owner did not object. Thus, the additional term regarding storage becomes part of the agreement. (A) is incorrect because the pianist did not make the acceptance conditional on the owner's assent to the additional term. (B) is incorrect because, unlike at common law, under the UCC, an acceptance that contains additional terms (i.e., one that is not a mirror image of the offer) is not a rejection and counteroffer. (C) would be the correct answer if the pianist were not a merchant. If one of the parties to a contract is not a merchant, any additional terms in the acceptance will be ignored unless specifically accepted.

Which of the following is not a general rule of contract construction? APrinted provisions will prevail over handwritten provisions BCustom and usage in the particular business and in the particular locale where the contract is either made or to be performed is considered CAmbiguities in a contract are construed against the party preparing the contract DWords will be construed according to their "ordinary" meaning

A Printed provisions will not prevail over handwritten provisions. In fact, if provisions are inconsistent, written or typed provisions will prevail over printed provisions (which indicate a form contract). Courts construe words according to their "ordinary" meaning unless it is clearly shown that they were meant to be used in a technical sense. Courts generally look to see what custom and usage is in the particular business and in the particular locale where the contract is either made or is to be performed. Ambiguities in a contract are construed against the party preparing the contract, absent evidence of the intention of the parties

A bargained-for change in legal position between the parties is commonly known as __________. Avaluable consideration Ban executory bilateral contract Cpromissory estoppel Ddetrimental reliance

A Valuable consideration can be defined as a bargained-for change in legal position between the parties. Valuable consideration is only one element of a properly formed executory bilateral contract. The substitute doctrines of detrimental reliance and promissory estoppel might come into play when valulable consideration is not present, but when the facts indicate that to prevent injustice the promisor should be estopped from not performing.

Under the warranty of _____________ , goods are warranted to be fit for the ordinary purpose for which such goods are used. AMerchantability BFitness for a particular purpose CAgainst infringement

A Under the implied warranty of merchantability, the goods are warranted to be at least fit for the ordinary purposes for which such goods are used. The warranty against infringement is provided by a merchant seller and warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims. The implied warranty of fitness for a particular purpose arises when a seller has reason to know the particular purpose for which the goods are to be used and that the buyer was relying on the seller's skill and judgment to select suitable goods when the buyer bought the goods. This warranty is for a specific use intended by the buyer, whereas the implied warranty of merchantability warrants fitness for ordinary purposes. A. INTRODUCTIONOnce you have determined that a contract exists, the next thing you must do is determine what its terms are.B. GENERAL RULES OF CONTRACT CONSTRUCTIONThere are a number of general rules of construction applied by the courts when interpreting contracts. The following are among the more frequently invoked: 1. Contracts will be construed as a "whole"); specific clauses will be subordinated to the contract's general intent);2. The courts will construe words according to their "ordinary" meaning unless it is clearly shown that they were meant to be used in a technical sense);3. If provisions appear to be inconsistent, written or typed provisions will prevail over printed provisions);4. It is important to note that the courts generally will try to reach a determination that a contract is valid and enforceable);5. Ambiguities in a contract are construed against the party preparing the contract, absent evidence of the intention of the parties);6. The parties' course of dealing (i.e., the sequence of conduct concerning previous transactions between the parties to a particular transaction that may be regarded as establishing a common basis of their understanding));7. A usage of trade (i.e., a practice or method of dealing, regularly observed in a particular business setting so as to justify an expectation that it will be followed in the transaction in question));8. The parties' course of performance (i.e., if a contract involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance, any course of performance accepted or acquiesced to is relevant in determining the meaning of the contract)); and9. When rules conflict: (i) express terms are given greater weight than course of performance, course of dealing, and usage of trade); (ii) course of performance is given greater weight than course of dealing or usage of trade); and (iii) course of dealing is given greater weight than usage of trade. C. PAROL EVIDENCE RULE - SUPPLEMENTING, EXPLAINING, OR CONTRADICTING TERMSWhen the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain (i.e., the writing is an "integration"). Any other expressions - written or oral - made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing. 1. Is the Writing an "Integration"?There are two components: (i) whether the writing was intended as the final expression of the agreement); and (ii) whether the integration was intended to be complete or partial. Evidence is admissible to show the parties' intent. a. Partial Integration - Additional Terms PermittedIf an integration is complete, the writing cannot be contradicted or supplemented. If, however, the integration is partial, the writing may not be contradicted but may be supplemented by proving consistent additional terms. The UCC presumes all writings are partial integrations. b. Effect of Merger ClauseA merger clause recites that the agreement is the complete agreement between the parties. The presence of a merger clause is usually determinative in large commercial contracts. For most contracts, however, the modern trend is to consider it as one factor in determining integration. EXAM TIPA memo prepared by one party and not shown to the other can never be an integration because the parties could not have intended it to be the final complete expression of their agreement when one party has not even seen it. The writing is merely evidence of the agreement. Note that a confirmatory memo may be a partial integration under the UCC because it was sent to the other party and that party was aware of its contents. 2. Evidence Outside Scope of RuleBecause the rule prohibits admissibility only of extrinsic evidence that seeks to vary, contradict, or add to an "integration," other forms of extrinsic evidence may be admitted if they will not bring about this result, i.e., they will fall outside the scope of the parol evidence rule. a. Validity IssuesA party to a written contract can attack the agreement's validity. The party acknowledges (concedes) that the writing reflects the agreement but asserts, most frequently, that the agreement never came into being because of any of the following: 1) Formation DefectsFormation defects (e.g., fraud, duress, mistake, and illegality) may be shown by extrinsic evidence.2) Conditions Precedent to EffectivenessIf a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of the understanding may be offered and received. b. Collateral Agreements and Naturally Omitted TermsParol evidence is often said to be admissible if the alleged parol agreement is collateral to the written obligation (i.e., related to the subject matter but not part of the primary promise) and does not conflict with it. The Restatements of Contracts include a similar concept with a more definitive approach: the naturally omitted terms doctrine. The doctrine allows evidence of terms that would naturally be omitted from the written agreement. A term would naturally be omitted if: (i) it does not conflict with the written integration); and (ii) it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument.c. InterpretationIf there is uncertainty or ambiguity in the written agreement's terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact-finder in reaching a correct interpretation of the agreement. However, if the meaning of the agreement is plain, parol evidence is inadmissible.d. Showing of "True Consideration"The parol evidence rule will not bar extrinsic evidence showing the "true consideration" paid (e.g., evidence that the consideration stated in the contract was never paid).e. ReformationIf a party to a written agreement alleges facts (e.g., mistake) entitling him to reformation of the agreement, the parol evidence rule is inapplicable.f. Subsequent ModificationsParol evidence can be offered to show subsequent modifications of a written contract.g. Additional Terms Under Article 2Article 2 generally follows the rules discussed above, providing that a party cannot contradict a written contract but may add consistent additional terms unless: (i) there is a merger clause, or (ii) the courts find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement. Article 2 also provides that a written contract's terms may be explained or supplemented by evidence of course of performance, course of dealing, and usage of trade-regardless of whether or not the writing appears to be ambiguous. D. ARTICLE 2 PROVISIONS ON INTERPRETING CONTRACTS 1. Supplemental ("Gap Filler") TermsRecall that the key to forming a contract for the sale of goods is the quantity term (see II.B.2.b.1)b), supra). If other terms are missing from the agreement, Article 2 has gap filler provisions to fill in the missing term(s). a. PriceIf: (i) nothing has been said as to price); (ii) the price is left open to be agreed upon by the parties and they fail to agree); or (iii) the price is to be fixed in terms of some standard that is set by a third person or agency and it is not set, then the price is a reasonable price at the time for delivery.b. Place of DeliveryIf the place of delivery is not specified, the place usually is the seller's place of business, if he has one); otherwise, it is the seller's home.c. Time for Shipment or DeliveryIf the time for shipment or delivery is not specified, shipment/delivery is due in a reasonable time.d. Time for PaymentIf the time for payment is not specified, payment is due at the time and place at which the buyer is to receive the goods.e. AssortmentIf a contract provides that an assortment of goods is to be delivered (e.g., blouses in various colors and sizes) and does not specify which party is to choose, the assortment is at the buyer's option. If the party who has the right to specify the assortment does not do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner (e.g., choose a reasonable assortment) or treat the failure as a breach. 2. Delivery Terms and Risk of LossAll contracts for the sale of goods require delivery of the goods. A contract's delivery terms are important because they determine when risk of loss passes from the seller to the buyer if the goods are damaged or destroyed. a. Noncarrier CaseA noncarrier case is a sale in which it appears that the parties did not intend that the goods would be moved by a common carrier (e.g., when you buy groceries). In such a case, if the seller is a merchant, risk of loss passes to the buyer only when she takes physical possession of the goods. If the seller is not a merchant, risk of loss passes to the buyer upon tender of delivery.b. Carrier CaseA carrier case is a sale in which it appears that the parties intended the goods to be moved by a carrier (e.g., when you order a book from an Internet website). There are two types of carrier cases: shipment contracts and destination contracts. 1) Shipment ContractIf the contract authorizes or requires the seller to ship the goods by carrier but does not require him to deliver them at a particular destination, it is a shipment contract and risk of loss passes to the buyer when the goods are delivered to the carrier. In the absence of a contrary agreement, Article 2 presumes a contract is a shipment contract. a) Seller's Duties Under Shipment ContractIn a shipment contract, the seller must: (i) make a reasonable contract with the carrier on behalf of the buyer); (ii) deliver the goods to the carrier); (iii) promptly notify the buyer of the shipment); and (iv) provide the buyer with any documents needed to take possession of the goods. 2) Destination ContractsIf the contract requires the seller to deliver the goods at a particular destination, the risk of loss passes to the buyer when the goods are tendered to the buyer at the destination.3) Common Delivery Terms a) F.O.B.F.O.B. stands for "free on board." The letters F.O.B. are always followed by a location, and the risk of loss passes to the buyer at the named location. The seller bears the risk and expense of getting the goods to the named location. These contracts can be either shipment contracts or destination contracts, depending on the location named.b) F.A.S.F.A.S. stands for "free alongside." The term is generally used only when goods are to be shipped by boat. Risk of loss passes to the buyer once the goods are delivered to the dock. EXAM TIPAll contracts for goods require an address for delivery. Merely indicating an address for shipment does not make a contract a destination contract. A contract that does not contain an F.O.B. term or any other term explicitly allocating the risk of loss is a shipment contract. CHART c. Effect of Breach on Risk of Loss 1) Defective GoodsIf the buyer has a right to reject the goods, the risk of loss does not pass to the buyer until the defects are cured or she accepts the goods in spite of their defects. Note that a buyer generally has the right to reject for any defect. (See VII.C., infra.)2) Revocation of AcceptanceIf the buyer rightfully revokes acceptance, the risk of loss is treated as having rested on the seller from the beginning to the extent of any deficiency in the buyer's insurance coverage. EXAM TIPBecause of the above rules, if a seller ships nonconforming goods, it eliminates the importance of determining whether a contract is a shipment or destination contract. If the goods are nonconforming, the risk of loss remains on the seller.d. Risk in Sale or Return and Sale on Approval Contracts 1) Sale or ReturnFor the purpose of determining the risk of loss, a sale or return contract (e.g., the buyer takes goods for resale but may return them if she is unable to resell them) is treated as an ordinary sale and the above rules apply. If the goods are returned to the seller, the risk remains on the buyer while the goods are in transit.2) Sale on ApprovalIn a sale on approval (i.e., the buyer takes goods for use but may return them even if they conform to the contract), the risk of loss does not pass to the buyer until she accepts. CHART e. Goods Destroyed Before Risk of Loss PassesIf goods that were identified when the contract was made are destroyed (i) without fault by either party and (ii) before the risk of loss passes to the buyer, the contract is avoided (i.e., the seller's performance is excused). If the goods were not identified until after the contract was made, the seller in this situation would have to prove impracticability (VI.E.4.b., infra) to be discharged. 3. Insurable Interest and IdentificationAs noted above, a buyer often bears the risk of loss before receiving the goods purchased. In order to aid buyers in this situation (and a few others), Article 2 gives buyers a special property interest in goods as soon as they are identified as the ones that will be used to satisfy the contract (e.g., as soon as the seller sets them aside for the buyer). This special property interest is insurable.4. Bilateral Contracts Formed by PerformanceRecall that a contract may be formed by the parties' performance where the mirror image rule is not satisfied and under certain circumstances under Article 2's "battle of the forms" provision. (See II.D.5.b., supra.) In such cases, under Article 2, the contract includes all of the terms on which the writings of both parties agree. Any necessary missing terms are filled in by the supplemental terms provided for in Article 2. a. Compare - Common Law Last Shot RuleThe rule is different in common law contracts. At common law, the contract includes the terms of the last communication sent to the party who performed. 5. WarrantiesContracts for the sale of goods automatically include a warranty of title (in most cases). They also may include certain implied warranties and express warranties. a. Warranty of Title and Against Infringement 1) Warranty of TitleAny seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting. This warranty arises automatically and need not be mentioned in the contract.2) Warranty Against InfringementA merchant seller regularly dealing in goods of the kind sold also automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims. But a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims. b. Implied Warranty of MerchantabilityImplied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable. To be merchantable, goods must at least be "fit for the ordinary purposes for which such goods are used." 1) Seller's Knowledge of Defect Not RelevantAs in all implied warranty cases, it makes no difference that the seller himself did not know of the defect or that he could not have discovered it. Implied warranties are not based on negligence but rather on absolute liability that is imposed on certain sellers. c. Implied Warranty of Fitness for a Particular PurposeA warranty will also be implied in a contract for the sale of goods whenever (i) any seller, merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller's skill and judgment to select suitable goods); and (ii) the buyer in fact relies on the seller's skill or judgment.d. Express WarrantiesAny affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, sample, or model is part of the basis of the bargain. For the statement, description, sample, or model to be a part of the basis of the bargain, it need only come at such a time that the buyer could have relied on it when she entered into the contract. The buyer does not need to prove that she actually did rely, although the seller may negate the warranty by proving that the buyer as a matter of fact did not rely. It is not necessary that the seller intended the affirmation of fact, description, model, or sample to create a warranty. 1) Distinguish - Statements of Value or OpinionA statement relating merely to the value of the goods, or a statement purporting to be only the seller's opinion or commendation of the goods, does not create an express warranty. e. Disclaimer of Warranties 1) Warranty of TitleThe title warranty can be disclaimed or modified only by specific language or by circumstances that give the buyer notice that the seller does not claim title or that he is selling only such rights as he or a third party may have (e.g., a sheriff's sale).2) Implied WarrantiesThe implied warranties of merchantability and fitness for a particular purpose can be disclaimed by either specific disclaimers or general methods of disclaimer. a) Specific Disclaimers (1) Disclaimer of Warranty of MerchantabilityThe warranty of merchantability can be specifically disclaimed or modified only by mentioning merchantability. If the sales contract is in writing, the disclaimer must be conspicuous.(2) Disclaimer of Warranty of Fitness for a Particular PurposeThe warranty of fitness for a particular purpose can be specifically disclaimed only by a conspicuous writing. A written disclaimer, according to the statute, is sufficient if it says, for example, "[t]here are no warranties which extend beyond the description on the face hereof."(3) "Conspicuous" DefinedA term is conspicuous when it is "so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it." Language in the body of a writing is conspicuous if: (i) it is in larger type than surrounding text); (ii) it is in a contrasting type, font, or color); or (iii) it is set off from the text by marks that call attention to it. The court, not the jury, decides any fact question as to conspicuousness. b) Other Methods of Disclaiming Implied WarrantiesThe UCC also provides several more general methods for disclaiming implied warranties. (1) By "As Is" or Similar LanguageUnless the circumstances indicate otherwise, the implied warranties of merchantability and fitness can be disclaimed by expressions such as "as is," "with all faults," or other expressions that in common understanding call the buyer's attention to the fact that there are no implied warranties. Although this type of disclaimer does not have to be conspicuous, a hidden or fine-print disclaimer of this type is not effective.(2) By Examination or Refusal to ExamineIf the buyer, before entering into the contract, has examined the goods or a sample or model as fully as she desires or has refused to examine, there is no warranty as to defects that a reasonable examination would have revealed to her.(3) By Course of Dealing, Etc.Implied warranties may also be disclaimed by the course of dealing, course of performance, or usage of trade. EXAM TIPIt may seem odd that there are specific disclaimer methods with detailed requirements, and more general disclaimer methods requiring little formality. In actual practice, it is better to use the specific disclaimers because general disclaimers may be limited by the circumstances. However, on the MBE, an "as is" or "with all faults" disclaimer will generally be as effective as a specific disclaimer. 3) Express WarrantiesThe UCC provides that words or conduct relevant to the creation of express warranties and words or conduct tending to negate such warranties shall wherever possible be construed as consistent with each other, but "negation or limitation is inoperative to the extent that such construction is unreasonable." In other words, once an express warranty is made, it is very difficult to disclaim.4) Limitations on DamagesParties may include in their contract a clause limiting the damages available in the case of breach of warranty (e.g., "remedy for breach of warranty is limited to repair or replacement of the defective goods"). However, such a limitation will not be upheld if it is unconscionable (e.g., causes the remedy to fail of its essential purpose, limits personal injury damages for consumer goods); see IV.G.1.d., supra). Moreover, warranty disclaimers that limit damages for personal injury caused by a breach of warranty on consumer goods are prima facie unconscionable.5) Timing - Disclaimers and Limitations in the BoxTo be effective, a disclaimer of warranty or limitation on remedies must be agreed to during the bargaining process. Thus, although a few courts hold otherwise, most hold that a warranty disclaimer or limitation on remedy included inside the packaging of goods is not effective against the buyer. a) Compare - "Clickwrap"Computer software often comes with terms that appear on the user's computer screen during the installation process, and the purchaser must click to agree to the terms before installing. Such limitations and disclaimers typically are upheld on the rationale that the purchaser can return the software if he disagrees with the conditions. 6) Unconscionability and Warranty DisclaimersSome courts will, in addition to determining whether disclaimers have met the formal requirements discussed above, test warranty disclaimers by the unconscionability standards. (See IV.G., supra.) CHART f. Damages for Breach of Warranty 1) In General - Difference Between Goods Tendered and as WarrantedGenerally, the measure of damages for breach of any warranty is the difference between the value of the goods accepted and the value of the goods as warranted, measured at the time and place of acceptance. If there are special circumstances, damages may be measured differently to account for those circumstances.2) Breach of Warranty of TitleIf the warranty of title is breached, the goods are reclaimed by the true owner or lienholder, thus dispossessing the buyer. The buyer may then rescind the contract, revoke acceptance of the goods, or sue for damages. The value of the goods accepted is deemed to be nothing); so the damages are the value of the goods as warranted. Often, but not always, that is the same as the purchase price. a) Special Circumstances - Appreciation and DepreciationIf there are special circumstances, the value of the goods is measured at the time of the dispossession rather than at the time of acceptance. A great appreciation (e.g., art) or depreciation (e.g., car) in the value of the goods from the time of delivery until dispossession is usually considered a special circumstance. g. To Whom Do Warranties Extend?UCC section 2-318 provides alternative provisions for determining to whom warranty liability extends. Most states have adopted the narrowest provision, Alternative A, which provides that the seller's warranty liability extends to any natural person who is in the family or household of the buyer or who is a guest in the buyer's home if it is reasonable to expect that the person may use, consume, or be affected by the goods and that person suffers personal injury because of a breach of warranty. E. MODIFICATION OF CONTRACT TERMS1. ConsiderationUnder general contract law, a contract cannot be modified unless the modification is supported by new consideration. The modern view, however, permits modification without consideration if: (i) the modification is due to circumstances that were unanticipated by the parties when the contract was made and (ii) it is fair and equitable. The UCC is even more liberal - good faith promises of new and different terms by the parties to a sales contract are valid without consideration.EXAM TIPFor MBE purposes, the examiners have indicated that they have adopted the modern view. However, on any non-UCC essay question that involves modification, you should discuss the traditional view and any relevant state exceptions, including the modern Restatement view where it is relevant.2. WritingA written contract can be modified orally. However, the modification must be in writing if the contract as modified falls within the Statute of Frauds. Thus, for a sale of goods contract, if the contract as modified is for $500 or more, it must be evidenced by a writing); if the contract as modified is for less than $500, no writing is necessary. a. Common Law - Provisions Prohibiting Oral Modification Not EffectiveThe common law rule is that even if a written contract expressly provides that it may be modified only by a writing, the parties can orally modify the contract.b. UCC - No-Modification Clauses EffectiveUnder the UCC, if a contract explicitly provides that it may not be modified or rescinded except by a signed writing, that provision is given effect. If the contract is between a merchant and nonmerchant, however, this provision requires the nonmerchant's separate signature.c. WaiverIf the parties attempt to orally modify a contract that requires written modification (either because of a contract clause or the Statute of Frauds), it is technically ineffective as a modification, but it can operate as a waiver. Such a waiver will be found whenever the other party has changed position in reliance on the oral modification. However, a party who makes a waiver affecting an executory (not yet performed) portion of the contract may retract the waiver if she notifies the other party that strict performance of the waived terms is required. The waiver may not be retracted if the other party detrimentally relied on it. 3. Parol Evidence Rule Does Not ApplyAs noted above, parol evidence is admissible to show subsequent oral modifications of a written contract.

Which of the following will always render a contract voidable? AA mutual mistake as to the value of the subject matter of the contract BA unilateral mistake as to a basic assumption on which the contract is made CA unilateral mistake as to the value of the subject matter of the contract DA mutual mistake as to a basic assumption on which the contract is made

D A mutual mistake as to a basic assumption on which the contract is made will render a contract voidable by the adversely affected party. If only one of the parties is mistaken about facts relating to the agreement (i.e., a unilateral mistake), that mistake will not prevent formation of a contract unless the nonmistaken party knew or had reason to know of the mistake made by the other party. If the parties to a contract make a mistaken assumption as to the value of the subject matter of the contract, that mistake generally will not be remedied, whether such mistake is mutual or unilateral.

Which of the following statements could give rise to an express warranty? A"Ford Fusions have the best resale value" B"Your car will look just like the one in the showroom" C"In my opinion, this is the best car with the most fuel-efficient engine available today"

B "Your car will look just like the one in the showroom" is a description that could give rise to an express warranty if made at a time that the buyer could have relied on it when entering into the contract. It is a statement of fact about the good. Statements relating merely to the value of the goods, such as "Ford Fusions have the best resale value," and statements purporting to be only the seller's opinion, such as "In my opinion, this is the best car with the most fuel-efficient engine available today," do not create express warranties.

A promise __________ lacks consideration. Awithout an economic benefit Bto make a gift Cbased on peace of mind

B A promise to make a gift lacks consideration because there is no bargained-for exchange. A promise without an economic benefit may be proper consideration. A promise based on peace of mind or the gratification of influencing the mind of another may be sufficient to establish bargained-for consideration, provided that the promisee is not already legally obligated to perform the requested ac

The Statute of Frauds requires: Athe handwritten signature of the party sought to be held liable on some document acknowledging the existence of the contract. Ba signed writing for suretyship promises that primarily serve the pecuniary interest of the promisor. Cone or more writings that reflect the material terms of the contract, signed by the person sought to be held liable. Da formal written contract signed by both parties to the agreement.

C To satisfy the Statute of Frauds, there must be one or more writings signed by the person sought to be held liable on the contract that reflect the material terms of the contract. The Statute of Frauds does not require a formal written contract signed by both of the parties. For example, a letter, receipt, or a check containing the material terms (e.g., quantity for sale of goods) and signed by the party to be charged satisfies the Statute of Frauds. The needed signature need not be handwritten, but the document or documents must include the material terms of the contract, not just acknowledge the existence of the contract. Generally, the Statute of Frauds requires that suretyship promises be in writing and signed by the party to be held liable. However, there is an exception for suretyship promises that primarily serve the pecuniary interest of the promisor; they are not within the Statute of Frauds.

Which of the following statements is true? AThe buyer may revoke acceptance of goods destroyed in a warehouse fire if they were defective, and the seller will bear the loss BIn a destination contract, the risk of loss is on the seller until the goods are tendered to the buyer at the destination, even if the goods are defective CIn a shipment contract, the risk of loss passes to the buyer when the goods are delivered to the carrier, unless the goods are defective

C Usually, the risk of loss passes to the buyer when the goods are delivered to the carrier, but if the goods are defective the risk remains on the seller. If goods are defective, the risk remains on the seller regardless of the type of shipping contract. Thus, the risk remains on the seller in a destination contract if the goods are defective. A buyer may not rightfully revoke acceptance once the goods are destroyed. A revocation is rightful only if it occurs before any substantial change in the condition of the goods which was not caused by their own defects.