Contracts I & II

Remedies: Specific performance is generally available as a remedy for breach of a contract for ___________ but not for breach of a contract for ________.

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.

Remedies: Expectation damages are also known as:

"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.

Remedes: "Benefit of the bargain" damages are also known as:

"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.

3rd: Which of the following statements would not result in both an assignment of rights and a delegation of duties?

"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.

T&W: Which of the following statements could give rise to an express warranty?

"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.

Question 27 On April 1, a landowner and an investor signed a writing in which the landowner, ''in consideration of $100 to be paid to the landowner by the investor,'' offered the investor the right to purchase the landowner's farm for $100,000 within 30 days. The writing further provided, ''This offer will become effective as an option only if and when the $100 consideration is in fact paid.'' On April 20, the landowner, having received no payment or other communication from the investor, sold and conveyed the farm to a developer for $120,000. On April 21, the landowner received a letter from the investor enclosing a cashier's check for $100 pay- able to the landowner and stating, ''I am hereby exercising my option to purchase the farm and am prepared to close whenever you're ready.'' Which of the following, if proved, best supports the investor's suit against the landowner for breach of contract? (A) The investor was unaware of the sale to the developer when the landowner received the letter and check from the investor on April 21. (B) On April 15, the investor decided to purchase the farm, and applied for and obtained a commitment from a bank for a $75,000 loan to help fi nance the purchase. (C) When the April 1 writing was signed, the landowner said to the investor, ''Don't worry about the $100; the recital of '$100 to be paid' makes this deal binding.'' (D) The landowner and the investor are both professional dealers in real estate.

(A) is the best response, because the investor still had the power of acceptance on April 21. The statement in the document that the offer ''will become effective as an option only if and when the $100 consideration is in fact paid'' will be enforced. However, even before payment of the $100, the landowner had made both an offer to sell the property, and an offer to grant an option. Each of those offers remained open unless something happened to either terminate it or cause it to be accepted. The landowner's sale of the property to the developer on April 20 did not terminate either offer, because this inconsistent sale could terminate the offers only if it was a revocation, and a revocation does not become effective until received by the offeree. So the revocation could not have become effective until the investor learned of the inconsistent sale, which (according to choice A) had not yet happened by the time the investor accepted the option offer by delivering his check to the landowner. Once that happened, the offer to sell the property became temporarily irrevocable under the option.

Question 32 A carpenter contracted with a homeowner to remodel the homeowner's home for $10,000, to be paid on completion of the work. On May 29, relying on his expectation that he would fi nish the work and have the homeowner's payment on June 1, the carpenter contracted to buy a car for ''$10,000 in cash, if payment is made on June 1; if payment is made thereaf- ter, the price is $12,000.'' The carpenter completed the work according to specifi cations on June 1 and demanded pay- ment from the homeowner on that date. The homeowner, without any excuse, refused to pay. Thereupon, the carpen- ter became very excited, suffered a minor heart attack, and, as a result, incurred medical expenses of $1,000. The rea- sonable value of the carpenter's services in remodeling the homeowner's home was $13,000. In an action by the carpenter against the homeowner, which of the following should be the carpenter's measure of recovery? (A) $10,000, the contract price. (B) $11,000, the contract price plus $1,000 for the medical expenses incurred because the homeowner refused to pay. (C) $12,000, the contract price plus $2,000, the bargain that was lost because the carpenter could not pay cash for the car on June 1. (D) $13,000, the amount the homeowner was enriched by the carpenter's services.

(A) is the best response, because the other harms to the carpenter are unrecoverable in a contract action. The homeowner breached the contract by not paying promptly upon the carpenter's completion of the work. As a result, the carpenter can sue for the contract price (here $10,000) plus any damages that would have been foreseeable by the homeowner at the time of the breach. Aside from non-payment, the carpenter has suffered two harms: the medical bills and the lost discount on the car he had contracted to purchase. However, neither of these is recoverable because the homeowner could not have foreseen them. A reasonable person would not expect non-payment on a contract to cause the payee to have a heart attack, and the homeowner was not on notice of the prompt payment provision in the carpenter's contract to purchase the car. As a result, the only item for which the carpenter can recover is the amount due under the terms of the contract with the homeowner.

Question 43 On December 15, a lawyer received from a stationer an offer consisting of its catalog and a signed letter stating, ''We will supply you with as many of the items in the enclosed catalog as you order during the next calendar year. We assure you that this offer and the prices in the catalog will remain fi rm throughout the coming year.'' No other correspondence passed between the stationer and the lawyer until the following April 15 (four months later), when the stationer received from the lawyer a faxed order for ''100 reams of your paper, catalog item #101.'' Did the lawyer's April 15 fax constitute an effective acceptance of the stationer's offer at the prices specifi ed in the catalog? (A) Yes, because the stationer had not revoked its offer before April 15. (B) Yes, because a one-year option contract had been created by the stationer's offer. (C) No, because under applicable law the irrevocability of the stationer's offer was limited to a period of three months. (D) No, because the lawyer did not accept the stationer's offer within a reasonable time.

(A) is the best response, because, although the offer was no longer irrevocable on April 15, it had not been revoked, and was therefore capable of being accepted. UCC § 2-205 allows merchants to make ''firm offers,'' i.e., offers that are irrevocable for a limited period even without consideration. Section 2-205 says that the period of irrevocability ''in no event may . . . exceed three months.'' So by April 15, the offer was no longer irrevocable, and the stationer was therefore free to revoke it. But the stationer did not in fact revoke. (The revocation could only have occurred if the lawyer had learned that the stationer was no longer sticking to the offer.) Nor did the offer lapse on account of the passage of time, because the circumstances indicate that a ''reasonable time for acceptance'' was any time during the following year. There is no other event that caused the offer to terminate. Consequently, the lawyer's fax was a valid acceptance.

Question 34 An elderly widower lived alone on a small farm, which he owned. Except for the farm, including the house and its fur- nishings, and the usual items of personal clothing and similar things, the widower owned substantially no property. Under proper management, the farm was capable of producing an adequate family income. Because of the usual deterioration accompanying old age, the widower was unable to do farm work or even to provide for his own personal needs. The widower entered into an oral contract with his nephew by which the widower agreed to convey the farm to his nephew and his nephew agreed to move into the house with the widower, operate the farm, and take care of the widower for the rest of his life. The oral contract was silent as to when the land was to be conveyed. The nephew, who lived about 50 miles away where he was operating a small business of his own, terminated his business and moved in with the widower. With the assistance of his wife, the nephew gave the widower excellent care until the widower died intestate about fi ve years after the date of the contract. In his fi nal years the widower was confi ned to his bed and required much personal service of an intimate and arduous sort. The widower was survived by his only son, who was also the widower's sole heir and next of kin. The son resided in a distant city and gave his father no attention in his father's fi nal years. The son showed up for the widower's funeral and demanded that the nephew vacate the farm immedi- ately. Upon the nephew's refusal to do so, the widower's son brought an appropriate action for possession. The nephew answered by way of a counterclaim to establish his right to possession and title to the farm. If the court's decision is in favor of the nephew, it will be because (A) the land is located in a state where the Statute of Frauds will not be applied if there has been such part performance as will result in an irreparable hardship if the contract is not performed. (B) the land is located in a state where the Statute of Frauds will not be applied if there has been such part perfor- mance that is by its very nature unequivocally referable to the contract. (C) the brother is precluded by the ''clean hands'' doctrine from enforcing his claim against the nephew. (D) the blood relationship of uncle-nephew is sufficient to remove the necessity for any writing to satisfy the Statute of Frauds.

(A) is the best response, because it provides a sound basis for enforcing the oral contract. The principal obstacle for the nephew under these facts is fi nding a way to enforce the land sale contract even though it was oral. That is, he wants to prove that when the widower bought the farm, the nephew got the farm. The problem is, land sale contracts are within the Statute of Frauds, meaning that they must be in writing to be enforceable. (While Statutes of Frauds vary from state to state, land sale contracts are traditionally covered.) Since the contract here required a writing, if the nephew prevailed, it means he offered some basis on which the writing requirement would be excused. Furthermore, note that the nephew would want the contract enforced, not just quasi-contractual recovery (which would give him only the reasonable value of his services). Choice A offers just such a basis, by providing reasoning that some states view as a valid excuse from complying with the Statute of Frauds. Courts are becoming more willing to apply the reliance doctrine to Statute of Frauds problems, such that where a buyer relies on the contract and performs under it on that basis, the other party is estopped from pleading the Statute of Frauds, and the performing party (here, the nephew) can recover on the contract. Thus, while land sale contracts traditionally required payment plus some action explainable only by the contract's existence, modern courts are allowing payment to suffice based on reliance. While you couldn't say this was a general rule, choice A specifically conditions the recovery on the action being in a state that does recognize the reliance doctrine. This, coupled with the fact that no other choice would result in the nephew's being able to enforce the contract, makes A the best response.

Question 19 In September 2010, a student, 23 years old and unmarried, was beginning his third year of law school. At that time he entered into a written lease with a landlord for the lease of an apartment for the nine-month school year ending on May 31, 2011, at $650 a month, payable in advance on the fi rst day of each month. The student paid the rent through December 1, but did not pay the amount due on January 1, nor has he paid any since. On January 15, 2011, the landlord threatened to evict the student if he did not pay the rent. That night the student called his father and told him that he did not have the money with which to pay the rent nor did he have the money with which to pay his tuition for the second semester. The stu- dent's father told the student that if he agreed not to marry until he fi nished law school, he would pay his tuition, the $650 rent that was due January 1, the rent for the rest of the school year, and $200 a month spending money until the student graduated. The student, who was engaged to be married at that time, agreed that he would not marry until after he graduated. On January 16, the student's father wrote to the landlord the following signed letter, which the landlord received on January 17: ''Because of the love and affection that I bear my son, if you do not evict him, I will pay the rent he now owes you and will pay you his $650 rent on the fi rst day of each month through May 2011. If I do not hear from you by January 25, I will assume that this arrangement is all right with you.'' The landlord did not reply to the father's letter and he did not evict the student. The student's father died suddenly on January 26. The student continued to live in the apartment through May 31, 2011, but paid no more rent. He did not marry and graduated from law school. His father had paid the student's tuition for the spring semester, but had paid no money to either the landlord or the student. The student's claim against his father's estate having been denied by the executor, the student brought suit against the estate in June 2011, asking for a judgment of $800 ($200 spending money for each of the months, February through May). In this action, the student probably will be (A) successful. (B) unsuccessful, because the student's contract with his father was illegal. (C) unsuccessful, because the student's father's death terminated the offer. (D) unsuccessful, because the student's contract with his father was not in writing and signed by his father.

(A) is the best response, because it's the only option that recognizes that the student's claim will succeed. Under these facts, there are a few major obstacles the student's claim would have to overcome. First, you may have noticed the unconventional consideration in the contract — the father gets nothing but peace of mind out of the deal. Second, the contract involves delaying marriage, and that brings up public policy concerns. Finally, there's a Statute of Frauds gloss, since the payment of another's debts is involved (to the extent of the rent provision, not the spending-money provision). As to the consideration issue, consideration requires a bargained-for exchange, as well as either detriment to the promisee or benefit to the promisor (or typically both). While the student (as promisee) clearly suffered a detriment by delaying his wedding, it's not as clear what the benefi t to his father (as promisor) was. As a matter of fact, peace of mind or personal satisfaction is sufficient to qualify as a benefi t. Thus, the student's father's ensuring that his son complete school before being distracted by a wedding would be sufficient to support a contract. Furthermore, since the student delayed the marriage at his father's request, it was ''bargained for.'' As a result, there's no problem with consideration. As to the public policy concerns, it's only contracts in derogation of marriage that are considered illegal (and thus enforceable). If his father had offered to pay the student to divorce, instead of to delay his marriage, such an agreement would be unenforceable. As it is, there's no public policy problem with the contract. Finally, there's no Statute of Frauds problem, because the spending-money agreement doesn't fall within the Statute of Frauds, and thus is enforceable without a writing. It's the promise to pay the student's rent that's within the Statute of Frauds, as a promise to pay the debt of another. But that's not the issue here, so the contract is enforceable without a writing. Since choice A correctly characterizes the contract as enforceable, it's the best response.

Question 12 A borrower owed a lender $50,000 due on March 1. On January 10, the lender telephoned the borrower and said that he would discharge the debt if the borrower would promise to pay the lender $45,000 by January 15. The bor- rower responded, "I will attempt to get the money together." On January 11, the lender again telephoned the borrower and said that he had changed his mind and would expect the borrower to make full payment on March 1. On January 15, the borrower tendered $45,000 as full payment, which the lender refused to accept. On March 1, the borrower refused the lender's demand for $50,000, and the lender sued for that amount. Which of the following statements best supports the lender's position? (A) The borrower's January 10 statement was not a return promise, and therefore the lender effectively revoked his offer on January 11. (B) The January 10 telephone conversation between the lender and the borrower created an executory accord and therefore did not operate as a discharge of the $50,000 debt. (C) The lender's offer to discharge the debt was a gift prom- ise and therefore was not binding on the lender. (D) The lender's promise to discharge the $50,000 debt was not enforceable because it was not in writing.

(A) is the best response, because the borrower's response was too equivocal to constitute an acceptance. The lender made an offer that sought acceptance in the form of the borrower's promise to make early payment, not an acceptance in the form of performance (i.e., the actual making of the early payment). Therefore, the offer could only be accepted by a promise. (I.e., in classical terms, the offer was for a bilateral contract, not for a unilateral one). When the borrower responded, "I will attempt to get the money together," this was not a promise of early payment — it did not represent the type of clear commitment required for an acceptance. Consequently, the offer remained revocable unless and until it was accepted by a promise of early payment. On January 11, the lender rightfully exercised his power of revocation, by saying that he had changed his mind. Therefore, no contract requiring the lender to take the lesser sum ever came into existence, and the borrower's January 15 tender of the lesser sum had no effect.

Question 52 A buyer ordered a new machine from a manufacturer. The machine arrived on time and conformed in all respects to the contract. The buyer, however, rejected the machine because he no longer needed it in his business and returned the machine to the manufacturer. The manufacturer sold many such machines each year and its factory was not operating at full capacity. In an action by the manufacturer against the buyer for breach of contract, which of the following is NOT a proper measure of the manufacturer's damages? (A) The contract price of the machine. (B) The difference between the contract price and the market price of the machine. (C) The difference between the contract price and the price obtained from a proper resale of the machine. (D) The profit the manufacturer would have made on the sale of the machine to the buyer.

(A) is the best response, because the buyer returned the machine. A seller will have an action for the price if the buyer has accepted the goods, the goods are lost or damaged after the risk of loss has passed to the buyer, or if the seller is unable to resell the rejected goods. None of these have taken place in this situation; the buyer rejected the machine and returned it, without damage, to the manufacturer. In addition, since the manufacturer sells many identical machines each year, it should be able to resell the returned one. (See UCC § 2-709.)

Question 17 In a single writing, a painter contracted with a farmer to paint three identical barns on her rural estate for $2,000 each. The contract provided for the farmer's payment of $6,000 upon the painter's completion of the work on all three barns. The painter did not ask for any payment when the fi rst barn was completely painted, but she demanded $4,000 after painting the second barn. Is the farmer obligated to make the $4,000 payment? (A) No, because the farmer has no duty under the contract to pay anything to the painter until all three barns have been painted. (B) No, because the painter waived her right, if any, to pay- ment on a per-barn basis by failing to demand $2,000 upon completion of the fi rst barn. (C) Yes, because the contract is divisible. (D) Yes, because the painter has substantially performed the entire contract.

(A) is the best response, because the contract did not alter the default rule that where one performance takes time and the other doesn't, the former must be completed before the latter. Rest. 2d § 234(2), on order of performances, says that ''where the performance of only one party under . . . an exchange [of promises] requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or circumstances indicate the contrary.'' Since the painter's performance (painting) took a ''period of time,'' and the farmer's performance (payment) didn't, this rule applies, and meant that the painter had to fully perform before the farmer's performance was due, unless ''the language or circumstances indicate the contrary.'' Nothing in the contract language or the circumstances indicated the contrary. (Indeed, the document says explicitly that payment is due upon ''completion of the work on all three barns,'' making the case especially easy.)

Question 30 An innkeeper, who had no previous experience in the motel or commercial laundry business and who knew nothing about the trade usages of either business, bought a motel and signed an agreement with a laundry company for the motel's laundry services. The one-year agreement provided for ''daily service at $500 a week.'' From their conversations during negotiation, the laundry company knew that the innkeeper expected laundry services seven days a week. When the laundry company refused to pick up the motel's laundry on two successive Sundays and indicated that it would not ever do so, the innkeeper canceled the agreement. The laundry company sued the innkeeper for breach of contract. At trial, clear evidence was introduced to show that in the commercial laundry business ''daily service'' did not include service on Sundays. Will the laundry company succeed in its action? (A) No, because the laundry company knew the meaning the innkeeper attached to ''daily service'' and, therefore, the innkeeper's meaning will control. (B) No, because the parties attached materially different meanings to ''daily service'' and, therefore, no contract was formed. (C) Yes, because the parol evidence rule will not permit the innkeeper to prove the meaning she attached to ''daily service.'' (D) Yes, because the trade usage will control the interpretation of ''daily service.''

(A) is the best response, because the laundry company knew of the meaning the innkeeper attached to the term "daily service." Generally the parol evidence rule prohibits consid- eration of prior extrinsic evidence when the parties have entered into a fi nal written agreement. However, when there is an ambiguity in the meaning of a mate- rial term in a contract, a court may consider extrin- sic evidence in determining the proper meaning. This may take the form of usage of trade, course of deal- ing, or course of performance, with the most specifi c form being preferred. However, when the two parties attach different meanings to the term at the time the agreement was made — in this instance, the fi rst knew the meaning attached by the second while the second did not know the meaning intended by the fi rst — the meaning attached by the party unaware of the difference (here, the second party) will control. In this case, the innkeeper did not know of the cus- tom in the industry that "daily service" did not include Sundays. However, the laundry company was aware that the innkeeper expected service on Sundays. As a result, the innkeeper's interpretation will control and the laundry company's action will fail.

Question 47 On June 1, a seller received a mail order from a buyer requesting prompt shipment of a specifi ed computer model at the seller's current catalog price. On June 2, the seller mailed to the buyer a letter accepting the order and assuring the buyer that the computer would be shipped on June 3. On June 3, the seller realized that he was out of that computer model and shipped to the buyer a different computer model and a notice of accommodation. On June 5, the buyer received the seller's June 2 letter and the different computer model, but not the notice of accommodation. At that juncture, which of the following is a correct statement of the parties' legal rights and duties? (A) The buyer can either accept or reject the different computer model and in either event recover damages, if any, for breach of contract. (B) The buyer can either accept or reject the different computer model, but if he rejects it, he will thereby waive any remedy for breach of contract. (C) The seller's prompt shipment of nonconforming goods constituted an acceptance of the buyer's offer, thereby creating a contract for sale of the replacement com- puter model. (D) The seller's notice of accommodation was timely mailed and his shipment of the different computer model constituted a counteroffer.

(A) is the best response, because the seller accepted the buyer's offer by promising to sell the specific computer. In a sales contract, the UCC provides that an order (offer) can be accepted either by shipping goods (either conforming or non-conforming) or by promising to do so. UCC § 2-206(1)(b). The seller's June 2 letter, promising to ship the computer the next day, was therefore the seller's acceptance of the buyer's offer to purchase. On June 3, the seller shipped a different computer (a non-conforming good). Because the contract had been accepted on June 2, the shipment, even though it was accompanied by the letter, was not an accommodation shipment. Instead, the non-conforming shipment was a breach. In the event of a breach by shipment of non-conforming goods, the seller may accept or reject the shipment, and in either event sue for damages.

Question 37 A wholesaler contracted in a signed writing to sell to a bakery 10,000 pounds of fl our each week for 10 weeks, the fl our to be delivered to the bakery on Mondays and payment to be made on Wednesdays of each week. The bakery did all of its weekly bread baking on Tuesdays. On Monday morning of the first week, the wholesaler tendered delivery of 8,000 pounds of fl our to the bakery, and the bakery accepted it on the wholesaler's assurance that the remaining 2,000 pounds would be delivered later that evening, which it was. The bakery paid for both deliveries on Wednesday. On Monday of the second week, the wholesaler tendered delivery of 5,000 pounds of fl our to the bakery and said that the remaining 5,000 pounds could not be delivered on Monday but would be delivered by Wednesday. The bakery rejected the tender. Was the bakery legally justifi ed in rejecting the tender of the 5,000 pounds of fl our? (A) Yes, because the bakery was legally entitled to reject any tender that did not conform perfectly to the contract. (B) Yes, because the tender was a substantial impairment of that installment and could not be cured. (C) No, because the tender was not a substantial impairment of the entire contract, and the wholesaler had given assurance of a cure. (D) No, because by accepting the fi rst 8,000 pounds on Monday of the fi rst week, the bakery had waived the condition of perfect tender and had not reinstated it.

(B) is the best response, because it correctly captures the rule on when defective installments may be rejected. In sale-of-goods cases, it is actually harder for the buyer under an installment contract to reject a non-conforming tender than for the buyer in a one-shot (non-installment) contract. Rejection in installment contracts is handled by a special code section, § 2-612(2), which begins by saying that "the buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured[.]" The final clause of that section then adds a proviso dealing further with cure: If the non-conformity of the installment does not substantially impair the value of the whole contract, then "if . . . the seller gives adequate assurance of [the non-conformity's] cure the buyer must accept that installment." Applying § 2-612(2) to these facts: (1) The non-conformity certainly substantially impaired the value of the installment, since 50 percent of the required poundage was missing. (2) The non-conformity couldn't be "cured" here, since a cure would require that the shortfall be made up by the time of the weekly baking on Tuesday morning, and the seller was merely committing to make up the shortfall on Wednesday, which would be too late to be useful. (3) For the same reason as (2), the seller's assurances of cure were not "adequate," since the make-up delivery would arrive too late for the week's baking. So Choice B correctly explains why the requirements for the buyer to reject under § 2-612(2), first clause, are satisfied.

Question 49 A plumbing company, in a signed writing, contracted with a landlord for the sale to the landlord of 50 identical sets of specifi ed bathroom fi xtures, 25 sets to be delivered on March 1, and the remaining 25 sets on April 1. The agreement did not specify the place of delivery, or the time or place of payment. Which of the following statements is correct? (A) The plumbing company must tender 25 sets to the landlord at the landlord's place of business on March 1, but does not have to turn them over to the landlord until the landlord pays the contract price for the 25 sets. (B) The plumbing company has no duty to deliver the 25 sets on March 1 at the plumbing company's place of business unless the landlord tenders the contract price for the 25 sets on that date. (C) The plumbing company must deliver 25 sets on March 1, and the landlord must pay the contract price for the 25 sets within a reasonable time after their delivery. (D) The plumbing company must deliver 25 sets on March 1, but the landlord's payment is due only upon the delivery of all 50 sets.

(B) is the best response, because the answer correctly states the UCC's non-carrier rules for delivery and payment. Under the UCC, non-carrier cases are those instances where the parties did not intend that the goods be moved by carrier. That is the case here, since there's no indication that either party thought a carrier would be used. In non-carrier cases, unless the contract provides otherwise, ''payment is due at the time and place at which the buyer is to receive the goods.'' UCC § 2-310(A). In other words, this was to be a cash sale, with payment due when the goods were delivered. Furthermore, under § 2-308(a), the place for delivery was ''the seller's place of business. . . .'' So if the landlord didn't tender cash on March 1 at the seller's place of business, the plumbing company had no duty to deliver the goods. (Nor was the landlord entitled to wait until all 50 sets of fixtures had been delivered — see the discussion of choice D below.)

Question 10 A computer retail outlet contracted to service a bank's com- puter equipment for one year at a fi xed monthly fee under a contract that was silent as to assignment or delegation by either party. Three months later, the retail outlet sold the service portion of its business to an experienced and well- fi nanced computer service company. The only provision in the agreement between the retail outlet and the computer service company relating to the outlet's contract with the bank stated that the outlet "hereby assigns all of its computer service contracts to [the computer service company]." The computer service company performed the monthly maintenance required under the service contract. Its perfor- mance was defective, however, and caused damage to the bank's operations. Whom can the bank sue for damages arising from the computer service company's defective performance? (A) The retail outlet only, because the computer service company made no promises to the bank. (B) Either the retail outlet or the computer service com- pany, because the bank has not released the outlet and the bank is an intended benefi ciary of the outlet's agreement with the computer service company. (C) Either the retail outlet or the computer service com- pany, because since each has the right to enforce thebank's performance of its contract with the retail outlet, mutuality of remedy renders either potentially liable for the defective performance. (D) The computer service company only, because it is a qualifi ed and a fi nancially responsible supplier of com- puter services.

(B) is the best response, because a delegation does not release the delegator, and the delegate is deemed to have promised to perform the delegated services. First, let's look at whether the retail outlet may be sued. The outlet effectively delegated to the computer service company the outlet's duty to perform for the bank. This happened automatically when the outlet said that it "assigns all of its computer service contracts[.]" That's because an assignment "of the contract" automatically includes a delegation of duties. See Rest. 2d § 328(1): "Unless the language or the circumstances indicate the contrary . . . an assignment of 'the contract' or of 'all my rights under the contract' or an assignment in similar general terms is an assignment of the assignor's rights and a delegation of his unperformed duties under the contract." But a delegation of duties does not, unless the obligee expressly agrees, release the assignor/delegator. See Rest. 2d § 318(3): "Unless the obligee agrees otherwise, neither delegation of performance nor a contract to assume the duty made with the obligor by the person delegated discharges any duty or liability of the delegating obligor." So even though the outlet successfully delegated its duties, and the service company assumed them, the outlet remained liable to the bank, because the bank did not specifi cally agree to release the outlet from these liabilities. Now, let's look at whether the service company is liable. When a contracting party assigns "the contract" to an assignee, and the assignee accepts the assignment, the assignee is deemed to have promised to perform the assignor's duties, and the obligee is an intended benefi ciary of that implied promise. Rest. 2d § 328(2). So when the outlet assigned all of its service contracts, and the service company accepted the assignment, the service company was deemed to have made a promise to perform the outlet's not- yet-performed services under those contracts, and the bank was deemed to be an intended benefi ciary of that promise of performance by the service company. Since an intended beneficiary of a promise may sue the promisor for breach, the bank may recover against the service company.

Question 5 An actor straight out of drama school and an agent entered into a one-year written contract that described the services the agent would provide. Because he was eager for work, the actor agreed, in the contract, to pay the agent 15 percent of his yearly earnings. At the end of the year, the actor was so pleased with his many roles that he gave the agent 20 per- cent of his earnings. After the fi rst contract had expired, the actor and the agent decided to continue working together. They photocopied their old contract, changed the date, and signed it. At the end of the year, a dispute arose as to what percentage of earnings the actor owed. It is a trade practice in the acting profession for actors to pay their agents 10 per- cent of their yearly earnings, payable at the end of the year. What percentage of the actor's earnings is a court most likely to award the agent? (A) 20 percent, because course of dealing is given greater weight than trade usage. (B) 15 percent, because it was an express term of the contract. (C) 10 percent, because trade usage is the applicable default rule. (D) Nothing, because the contract is too indefi nite.

(B) is the best response, because express terms control over terms of usage. First, notice that this is not a contract governed by the UCC, which contains very specifi c rules about priority among express terms, trade usage, etc. But in non-UCC cases, courts tend to follow the same priority rules as used in the UCC. Those rules attach the most weight to express terms. See Rest. 2d of Contracts § 203(b): "In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable: . . . (b) express terms are given greater weight than course of performance, course of dealing, and usage of trade[.]" Since the first contract contained the 15 percent figure as an express term, and since the parties photocopied that contract to make the template for the present contract, the 15 percent fi gure became an express term of the present contract. Therefore, that 15 percent express term prevails over any alternative meaning, including course of dealing (which probably doesn't apply anyway; see the discussion of Choice A below) or trade usage.

An engineer entered into a written contract with an owner to serve in the essential position of on-site supervisor for con- struction of an office building. The day after signing the contract, the engineer was injured while bicycling and was rendered physically incapable of performing as the on-site supervisor. The engineer offered to serve as an off-site consultant for the same pay as originally agreed to by the parties. Is the owner likely to prevail in an action against the engineer for damages resulting from his failure to perform under the contract? (A) No, because the engineer offered a reasonable substi- tute by offering to serve as an off-site consultant. (B) No, because the engineer's physical ability to perform as on-site supervisor was a basic assumption of the contract. (C) Yes, because the engineer breached the contract by disappointing the owner's expectations. (D) Yes, because the engineer's duty to perform was per- sonal and absolute.

(B) is the best response, because it correctly applies the defense of impracticability. The facts here present a classic scenario for the defense of impracticability. As the Restatement puts it, "Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary." Rest. 2d of Contracts § 261. Here, at the time the contract was made, it was a basic assumption on the part of both parties that the engineer would continue to be physically capable of performing the job according to the contract specifications. His injury, by making him physically incapable of doing the job, was therefore an event the non-occurrence of which was a basic assumption on which the parties contracted. Since there are no "language or circumstances indicat[ing] the contrary" (i.e., indicating that the parties didn't intend for impracticability to operate in circumstances like these), the engineer is discharged from his duty to perform, and will not be liable for breach.Notice, by the way, that this answer choice correctly indicates that the defense of impracticability applies, even though the choice never mentions the word "impracticability." It's up to you to notice that this choice includes the key phrase "basic assumption of the contract," which is always an essential element of the impracticability defense.

Question 23 When a student fi nished college, her father handed her a signed memorandum stating that if she would go to law school for three academic years, he would pay her room, board, and tuition and would ''give her a $1,000 bonus'' for each ''A'' she got in law school. Her father paid her tuition, room, and board for her fi rst year but died just before the end of that year. Subsequently, the student learned that she had received two ''A's'' in the second semester. The executor of her father's estate has refused to pay her anything for the two ''A's'' and has told her that the estate will no longer pay her tuition, room, and board in law school. In an action against her father's estate for $2,000 on account of the two ''A's,'' if the only defense raised is lack of consideration, the student probably will (A) succeed under the doctrine of promissory estoppel. (B) succeed on a theory of bargained-for exchange for her father's promise. (C) not succeed, because the $1,000 for each ''A'' was promised only as a bonus. (D) not succeed, because a student was already legally obligated to use her best efforts in law school.

(B) is the best response, because it correctly identifies that the ''A'' provision is an enforceable promise. In order to be enforceable, an agreement must be supported by consideration, or a substitute for consideration (e.g., promissory estoppel). Consideration requires a bargained-for exchange, and either detriment to the promisee or benefit to the promisor (and typically both). Here, the father made an offer to the student proposing a unilateral contract — that is, he requested in return her performance, in the form of attending law school for three years. The student, as promisee, suffered a detriment by doing something she wasn't legally obligated to do — attending law school. Her father enjoyed a benefit, in the form of personal satisfaction due to his daughter's attending law school, and presumably being able to brag about this to all of his buddies. Finally, by performing at her father's request, the student satisfi ed the bargain element of consideration. Note that the father's promise had two elements — paying expenses and paying $1,000 for every ''A.'' The father's calling the ''A'' provision a bonus doesn't make it a gratuitous promise. The fact is, it was part and parcel of the offer the student accepted by attending law school and earning ''A's.'' Presumably, the student worked harder at law school than she might have otherwise, knowing each ''A'' would mean $1,000 to her, in response to her father's promise. Her extra effort alone would be sufficient to provide consideration for the ''A'' provision. Since B recognizes this, it's the best response.

Before putting her home up for sale, a homeowner painted the living room ceiling to conceal major water damage caused by a leaking roof that had not yet been repaired. On the fi rst day the home was offered for sale, the homeowner gave a buyer a personal tour. The homeowner made no statements at all regarding the water damage or the roof. Without discovering the water damage or the leaking roof and without consulting a lawyer, the buyer immediately agreed in writing to buy the home for $200,000. Before the closing date, the buyer discovered the water damage and the leaking roof. The cost of repair was estimated at $22,000. The buyer has refused to go through with the purchase. If the homeowner sues the buyer for breach of contract, is the homeowner likely to prevail? (A) No, because no contract was formed since the buyer did not have a real opportunity to understand the essential terms of the contract. (B) No, because the homeowner concealed evidence of the water damage and of the leaking roof. (C) Yes, because the homeowner made no affirmative state- ments of fact about the water damage or the leaking roof. (D) Yes, because the buyer acted unreasonably by fail- ing to employ an inspector to conduct an independent inspection of the home.

(B) is the best response, because it expresses the reason for which the buyer is entitled to rescind the contract. If one party's assent to a contract is induced by a material misrepresentation by the other, on which the recipient is justified in relying, the contract is voidable by the recipient. Rest. 2d of Contracts § 164(1). Normally, a party's silent failure to mention a fact will not constitute a misrepresentation as to that fact. But intentional acts of concealment are deemed to be equivalent to misrepresentations. See Rest. 2d § 160: "Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist." So when the homeowner painted the ceiling for the purpose of concealing the water damage, this was affirmative conduct intended to prevent the buyer from learn- ing about the damage, and therefore was the equivalent of an affirmative statement that there was no water damage. Consequently, the buyer is entitled to avoid the contract for misrepresentation, either in his own action to rescind the contract, or (as here) as a defense to the homeowner's damage action.

Question 45 On July 15, in a writing signed by both parties, a furniture store agreed to deliver to a pharmacist on August 15 five storage cabinets from inventory for a total price of $5,000 to be paid on delivery. On August 1, the two parties orally agreed to postpone the delivery date to August 20. On August 20, the furniture store tendered the cabinets to the pharmacist, who refused to accept or pay for them on the ground that they were not tendered on August 15, even though they otherwise met the contract specifi cations. Assuming that all appropriate defenses are seasonably raised, will the furniture store succeed in an action against the pharmacist for breach of contract? (A) Yes, because neither the July 15 agreement nor the August 1 agreement was required to be in writing. (B) Yes, because the August 1 agreement operated as a waiver of the August 15 delivery term. (C) No, because there was no consideration to support the August 1 agreement. (D) No, because the parol evidence rule will prevent proof of the August 1 agreement.

(B) is the best response, because the UCC allows the attempt at modification to serve as a waiver. Waiver is a party's manifestation of willingness to forego the benefi t of a condition that occurs after the contract is formed but before the condition fails to occur. So here, the pharmacist's oral agreement on August 1 that the cabinets didn't have to be delivered until August 20 meets the requirement of a waiver. The real issue in this question is the effect of the Statute of Frauds. Under § 2-201(1), a sales contract for $500 or more must be supported by a signed writing. The question is whether, in a contract that falls within § 2-201(1)'s Statute of Frauds requirement (because it's for more than $500) and that initially satisfies that requirement, any modification must be in writing. Section 2-209(3), on modifications, says that ''the requirements of the statute of frauds section . . . must be satisfied if the contract as modified is within its provisions.'' Courts are in confusion about whether and when this sentence requires the modification itself to be in writing. But on these facts it doesn't matter, because, according to § 2-209(4), ''[a]lthough an attempt at modification or rescission does not satisfy the requirements of [the Statute of Frauds], it can operate as a waiver.'' So the pharmacist's oral promise to take a later delivery, although oral, will still act as a waiver. Although the pharmacist might have had the power to retract the waiver (see § 2-209(5), allowing retraction unless retraction would be ''unjust in view of a material change of position in reliance on the waiver''), there's no indication in these facts that the pharmacist ever retracted. So he's bound by the waiver, and the furniture store will win.

Question 50 A dry goods retailer telephoned a towel manufacturer and offered to buy for $5 each a minimum of 500 and a maximum of 1,000 large bath towels, to be delivered in 30 days. The manufacturer orally accepted this offer and promptly sent a letter to the retailer, which the retailer received two days later. The letter read: ''This confi rms our agreement today by telephone to sell you 500 large bath towels for 30-day delivery.'' The letter was signed by the manufacturer. Twenty-eight days later, the manufacturer tendered to the retailer 1,000 (not 500) conforming bath towels, all of which the retailer rejected because it had found a better price term from another supplier. Because of a glut in the towel market, the manufacturer cannot resell the towels except at a loss. In a suit by the manufacturer against the retailer, which of the following will be the probable decision? (A) The manufacturer can enforce a contract for 1,000 towels, because the retailer ordered and the manufacturer tendered that quantity. (B) The manufacturer can enforce a contract for 500 towels, because the manufacturer's letter of confirmation stated that quantity term. (C) There is no enforceable agreement, because the retailer never signed a writing. (D) There is no enforceable agreement, because the manufacturer's letter of confirmation did not state a price term.

(B) is the best response, because the confirmation sent by the manufacturer became binding on the retailer when he failed to object. In sales-of-goods cases, a writing signed by the party against whom enforcement is sought is required for contracts aggregating $500 or more. UCC § 2-201(1) (first sentence). However, there is a very important exception: A merchant who receives a signed confirmation from the other party will be bound by it just as if he had signed it, unless the recipient of the confirmation objects within ten days. UCC § 2-201(2). Both the retailer, a dry goods retailer, and the manufacturer, a towel manufacturer, are merchants. The manufacturer confirmed in writing the agreement it reached with the retailer on the phone. Under § 2-201(2), if the retailer did not want to enter into a contract under those terms, the retailer was obligated to object in writing within ten days. Since the retailer did not object, the contract is enforceable under the terms listed in the confi rmation. The fact that the retailer originally offered to buy somewhere between 500 and 1,000 towels is irrelevant. Under the last sentence of § 2-201(1), where a memorandum (writing) of the agreement exists, ''the contract is not enforceable . . . beyond the quantity of goods shown in such writing.'' Since under § 2-201(2) the confi rmation serves as the type of memorandum required in § 2-201(1), the 500-unit quantity listed in the confirmation is the maximum quantity for which the contract is enforceable.

Question 39 A lawn service company agreed in writing to purchase from a supplier all of its requirements for lawn care products during the next calendar year. In the writing, the supplier agreed to fulfi ll those requirements and to give the company a 10 percent discount off its published prices, but it reserved the right to increase the published prices during the year. After the parties had performed under the agreement for three months, the supplier notifi ed the company that it would no longer give the company the 10 percent discount off the published prices. Does the company have a viable claim against the sup- plier for breach of contract? (A) Yes, because part performance of the agreement by both parties made it enforceable for the full year. (B) Yes, because the company's agreement to buy all of its lawn care products from the supplier made the agreement enforceable. (C) No, because the supplier could, and did, revoke its offer with respect to future deliveries. (D) No, because the absence of a minimum quantity term rendered the company's promise illusory.

(B) is the best response, because the contract qualifi es as an enforceable requirements contract under the UCC. UCC § 2-306 authorizes requirements and output contracts. The contract here is enforceable, because the company's promise to buy all of its requirements for lawn care products during the coming year furnished consideration for the supplier's promise to give it a 10 percent discount off its published prices. Although the terms of the agreement gave the supplier the discretion to increase the published prices during the year, nothing in the contract gave the supplier the right to discontinue the 10 percent discount from the published prices. Therefore, the supplier's refusal to continue giving the discount was a breach.

Question 53 A new business enterprise about to commence the manufacture of clothing, entered into a written agreement to purchase all of its monthly requirements of a certain elasticized fabric for a period of three years from a textile mill at a specified unit price and agreed-upon delivery and payment terms. The agreement also included a covenant that the parties not assign this contract. The textile mill promptly made an ''assignment of the contract'' to a bank as security for a $100,000 loan. The clothing company subsequently ordered, took delivery of, and paid the mill the agreed price ($5,000) for its requirement of the fabric for the first month of its operation. Which of the following accurately states the legal effect of the covenant not to assign the contract? (A) The covenant made the assignment to the bank ineffective. (B) The covenant had no legal effect. (C) The textile mill's assignment was a breach of its contract with the clothing company but was nevertheless effective to transfer to the bank the mill's rights against the clothing company. (D) By normal interpretation, a covenant against assignment in a sale-of-goods agreement applies only to the buyer, not the seller.

(B) is the best response, because the covenant will have no legal effect — the assignment will be valid and the textile mill will not be liable for breach of contract. Under the UCC, barring circumstances to the contrary, a prohibition against assigning the contract prevents only delegating duties, not assigning rights. UCC § 2-210(4). Furthermore, barring circumstances to the contrary ("as in an assignment for security"), an "assignment of the contract" is a delegation of performance of the duties of the assignor as well as an assignment of his rights. UCC § 2-210(5). Here, the mill, by "assigning the contract" to the bank as security for a loan, assigned only its rights under the contract (not its duties) — that is, its right to payment from the clothing company, in the form of a security interest to the bank. An assignment by a seller of his right to payment, as is the case here, is automatically allowed regardless of a provision in the contract prohibiting assignment. UCC § 2-210(2), which provides for exceptions to the general rule allowing assignment in the sale of goods (such as not allowing an assignment that would materially change the duty of the other party), is now subject to § 9-406(d), which makes rights to payments for goods sold (or the creation of a security interest in the payments), whether or not earned, freely alienable notwithstanding a contrary agreement or rule of law. Section 9-406(d) provides that those anti-assignment clauses are "ineffective," meaning that "the clause is of no effect whatsoever; the clause does not prevent the assignment from taking effect between the parties and the prohibited assignment does not constitute a default" under the contract. § 9-406(d), cmt. 5. In the case of a security interest in a seller's interest, as is the case here, UCC § 2-210(3) does provide for damages, but only where enforcement of the security interest actually resulted in the delegation of material performance by the seller, which has not occurred under these facts. Since Choice B correctly recognizes that the covenant will not be valid, it's the best response.

Question 22 In exchange for a valid and sufficient consideration, a man orally promised his neighbor, who had no car and wanted a minivan, ''to pay to anyone from whom you buy a minivan within the next six months the full purchase-price thereof.'' Two months later, the neighbor bought a used minivan on credit from a dealership for $8,000. At the time, the dealer- ship was unaware of the man's earlier promise to the neigh- bor, but learned of it shortly after the sale. Can the dealership enforce the man's promise to the neighbor? (A) Yes, under the doctrine of promissory estoppel. (B) Yes, because the dealership is an intended benefi ciary of the man-neighbor contract. (C) No, because the man's promise to the neighbor is unen- forceable under the suretyship clause of the Statute of Frauds. (D) No, because the dealership was neither identifi ed when the man's promise was made nor aware of it when the minivan sale was made.

(B) is the best response, because the dealership meets all the requirements necessary to be an intended beneficiary. For a third party to be an intended beneficiary, it must first of all be the case that giving him the right to sue would be appropriate to effectuate the intentions of the parties. If he meets this test, he must further fi t into one of the two following categories: (1) either the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (2) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. The dealership meets these requirements, and is thus an intended beneficiary of the man's promise. First, giving the dealership the right to sue would effectuate the intentions of the parties — the man intended to help his neighbor get a minivan by his promise to pay, and letting the seller sue on the promise is consistent with that intention. Next, the neighbor (the promisee), has promised to pay money to the dealership (the benefi ciary), so enforcing the promise satisfi es alternate test (1) above. Having met the requirements of an intended beneficiary, the dealership can enforce the man's promise to his neighbor.

Question 21 A manager, aged 60, who had no plans for early retirement, had worked for a company for 20 years as a managerial employee-at-will when he had a conversation with the com- pany's president about the manager's postretirement goal of extensive travel around the United States. A month later, the president handed the manager a written, signed reso- lution of the company's board of directors stating that when and if the manager should decide to retire, at his option, the company, in recognition of his past service, would pay him a $2,000-per-month lifetime pension. (The company had no regularized retirement plan for at-will employees.) Shortly thereafter, the manager retired and immediately bought a $30,000 recreational vehicle for his planned travels. After receiving the promised $2,000 monthly pension from the company for six months, the manager, now unemployable elsewhere, received a letter from the company advising him that the pension would cease immediately because of reces- sionary budget constraints affecting in varying degrees all managerial salaries and retirement pensions.In a suit against the company for breach of contract, the manager will probably (A) win, because he retired from the company as bar- gained-for consideration for the company's promise to him of a lifetime pension. (B) win, because he timed his decision to retire and to buy the recreational vehicle in reasonable reli- ance on the company's promise to him of a lifetime pension. (C) lose, because the company's promise to him of a life- time pension was an unenforceable gift promise. (D) lose, because he had been an employee-at-will throughout his active service with the company.

(B) is the best response, because the manager's reasonable reliance caused the company's promise, though not supported by consideration, to be binding under the doctrine of promissory estoppel. The company's promise was not supported by consideration, since the manager didn't confer any benefit to the company, or undergo any legal detriment, in exchange for the promise. (See the discussion of choice A below for more details about why this is so.) However, the doctrine of promissory estoppel applies to make the company's promise enforceable even without consideration. Rest. 2d § 90(a) (the most famous section in the entire Restatement) says that ''[a] promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.'' This section applies here. It was reasonably foreseeable to the company that, when it made the ''you'll get a pension if you retire'' offer to the manager, he would or might rely on it by retiring, rather than staying on or taking another job. The promise, then, did in fact induce the foreseeable reliance: The manager relied by not only retiring but by buying the RV and not taking another position somewhere else. Furthermore, that reliance has made the manager unemployable elsewhere, so that without enforcement of the promise the manager won't have any means of support. Consequently, all the requirements of promissory estoppel are satisfied, making the promise enforceable despite the lack of consideration. Notice, by the way, that neither the correct choice nor any other choices here mentions the doctrine of promissory estoppel. That's typical of MBE fact patterns where the correct answer is promissory estoppel: The examiners try to allude to the doctrine without mentioning it explicitly, because they believe that mentioning it will tip you off and make the question too easy.

Question 15 A homeowner and a contractor entered into a contract for the construction of a home for the price of $300,000. The contractor was to earn a profi t of $10,000 for the job. After the contractor had spent $45,000 on labor and materials, including $5,000 on oak fl ooring not yet installed, the home- owner informed the contractor that the homeowner had lost his job and could not pay for any services. The homeowner told the contractor to stop working immediately. The reason- able market value of the labor and materials provided by the contractor at that point, including the oak fl ooring, was $40,000. The contractor used the $5,000 worth of oak fl oor- ing on another job. In an action by the contractor against the homeowner for damages, which of the following would be the largest amount of damages recoverable by the contractor? (A) $40,000, the reasonable value of the services the con- tractor had provided. (B) $40,000, the contractor's construction costs. (C) $50,000, the contractor's construction costs of $45,000 plus the $10,000 profi t minus the $5,000 saved by reus- ing the oak fl ooring on another job. (D) $55,000, the contractor's construction costs of $45,000 plus the $10,000 profit.

(C) is the best response, because it correctly calculates the contractor's expectation damages. The most common measure of damages sought by a party as the result of the other party's breach is expectation damages, which seek to put the non-breaching party in the same position as he would have been had there been no breach. What the contractor expected from this job was to make a profit of $10,000. To fi nd the amount of damages, we must first figure out where the contractor stands now. At the moment, he has already expended $40,000 on labor and $5,000 on the oak fl ooring, for a total of $45,000 in construction costs. However, he has saved $5,000 on another job by using the flooring there. As a result, the contractor has expended a net of $40,000. In order to put him in the same position as he would have been had there been no breach ($10,000 ahead), he will need to be awarded $50,000. Alternatively, this result can be derived using the formula for expectation damages: Expectation Damages = Amount of loss (expenditures and other loss) + Expected profit − Amount saved as a result of the breach Here, the formula would work out as follows: $50,000 = $45,000 loss (the expenditures) + $10,000 (expected profi t) − $5,000 (saved by reusing the flooring)

Question 14 In a written contract, an architect agreed to draw up plans for and to supervise construction of a client's new house. In return, the client agreed to pay the architect a fee of $10,000 to be paid upon the house's completion. After completion, the client claimed erroneously but in good faith that the archi- tect's plans were defective. The client orally offered to pay the architect $7,500 in full settlement of the claim for the fee. The architect orally accepted that offer despite the fact that the reasonable value of his services was in fact $10,000. The client paid the architect $7,500 pursuant to their agreement. The architect subsequently sued the client for the remaining $2,500. In a preliminary finding, the trier of fact found that there were no defects in the architect's plans. Will the architect be likely to prevail in his action against the cli- ent for $2,500? (A) Yes, because payment of $7,500 cannot furnish con- sideration for the architect's promise to surrender his claim. (B) Yes, because the oral agreement to modify the written contract is not enforceable. (C) No, because the architect's promise to accept $7,500 became binding when the client made the payment. (D) No, because the architect's acceptance of partial pay- ment constituted a novation.

(C) is the best response, because it correctly states that the architect's acceptance of the $7,500 payment prevents him from any further recovery. The doctrine of accord and satisfaction will prevent the architect from further recovery. An ''accord'' is an agreement under which a party to a contract agrees to accept, as complete satisfaction of the contract, some performance different from that originally due under the contract. ''Satisfaction'' is performance of the accord, and once satisfaction takes place, both the accord and the original contractual duty are discharged. Here, there was a good-faith (although mistaken) dispute as to whether the architect had produced defective plans. The ''accord'' was the cli- ent's offer to pay $7,500 for the settlement of the claim. ''Satisfaction'' of the accord occurred when the architect accepted the payment. As a result, the original obligations under the contract were discharged, and the client is not liable for the remaining $2,500.

Question 6 A bank agreed to lend a merchant $10,000 for one year at 8% interest. The loan proceeds were to be disbursed within two weeks. The merchant intended to use the loan pro- ceeds to purchase a specifi c shipment of carpets for resale at an expected profi t of $5,000 but said nothing about these plans to the bank. The bank failed to disburse the proceeds and refused to assure the merchant that it would do so. The merchant was able to secure a loan from another lender at 10% interest for one year. However, by the time the merchant started the application process for a substitute loan, it was too late to pursue the opportunity to buy the shipment of carpets. In an action against the bank for breach of contract, which of the following amounts is the merchant likely to recover? (A) Nothing, because lost opportunities are not foreseeable. (B) Nothing, because the parties failed to tacitly agree that the merchant would be entitled to damages in the event of a breach by the bank. (C) The difference in cost over time between a loan at 10 percent and a loan at 8 percent. (D) $5,000, the merchant's foreseeable loss.

(C) is the best response, because it correctly states the limits on a borrower's right to recover damages for breach of a loan commitment. The non-breaching party's right to recover damages is limited by the doctrine of Hadley v. Baxendale. As the Hadley doctrine is articulated by the Restatement, "Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made." Rest. 2d of Contracts § 351. In the case of a contract to lend money, the lender is usually entitled to presume that an alternative source of loan money is readily available, unless the borrower has brought home to the lender at the time of the loan contract the borrower's likely inability to borrow elsewhere. Nothing in these facts indicates that the merchant gave the bank reason to believe that the merchant wouldn't be able to promptly borrow elsewhere. Furthermore, the merchant didn't mention to the bank the entire proposed carpet-resale transaction that the merchant intended, so the bank had no idea of the probability that these profi ts would be lost if the bank breached. So for two different reasons, the damages from the lost resale profi ts are ones that the bank "did not have reason to foresee as a probable result of the breach." On the other hand, it was reasonably foreseeable to the bank that if it breached, the best available alternative lender might charge a higher rate of interest, so the extra interest cost to the merchant is recoverable.

Question 29 On May 1, an uncle mailed a letter to his adult nephew that stated: ''I am thinking of selling my pickup truck, which you have seen and ridden in. I would consider taking $7,000 for it.'' On May 3, the nephew mailed the following response: ''I will buy your pickup for $7,000 cash.'' The uncle received this letter on May 5 and on May 6 mailed a note that stated: ''It's a deal.'' On May 7, before the nephew had received the letter of May 6, he phoned his uncle to report that he no longer wanted to buy the pickup truck because his driver's license had been suspended. Which of the following statements concerning this exchange is accurate? (A) There is a contract as of May 3. (B) There is a contract as of May 5. (C) There is a contract as of May 6. (D) There is no contract.

(C) is the best response, because acceptances are effective when mailed. In order to analyze questions that ask you to determine the time at which a contract becomes effective, it is important to examine each communication one at a time. The uncle's May 1 letter, which said he was "thinking of selling" his pickup truck, is not an offer, because it does not create a power of acceptance in his nephew. Instead, it is more accurately categorized as a solicitation for an offer, because it indicates that he would only "consider" a $7,000 offer, not that he would certainly accept it. The nephew's May 3 letter stating, "I will buy your pickup for $7,000 cash," is an offer, because the uncle would reasonably believe that he has the power to say "it's a deal" and form a binding contract. This is exactly what he did in his letter of May 6, which accepted the nephew's offer. Under the mailbox rule, an acceptance is effective as soon as the offeree places the letter in the mail. As a result, the contract was formed on May 6.

Question 13 A famous chef entered into a written agreement with a well- known interior decorator, who was respected for his unique designs. In that agreement, the decorator agreed, for a fi xed fee, to design the interior of the chef's new restaurant and, upon the chef's approval of the design plan, to decorate and furnish the restaurant accordingly. The agreement was silent as to assignment or delegation by either party. Before beginning work, the decorator sold his business to his son under an agreement in which the decorator assigned to his son. The son agreed to complete the chef-decorator contract. The son was also an experienced decorator of excellent repute, advised the chef of the assignment, and supplied the chef with information confi rming both the son's fi nancial responsibility and past commercial success. Is the chef obligated to permit the decorator's son to perform the chef-decorator agreement? (A) Yes, because the agreement contained no prohibition against assignment or delegation. (B) Yes, because the chef received adequate assurances of the decorator's son's ability to complete the job. (C) No, because the decorator's duties were of a personal nature, involving his reputation, taste, and skill. (D) No, because the decorator's purported delegation to his son of his obligations to the chef effected a novation.

(C) is the best response, because contracts involving artistic services are not delegable. Delegation is a transfer of one's duties under a contract. Assignment is a transfer of one's rights under a contract. If a party to a contract wishes to have another person perform his duties under the contract, he delegates them. There are certain kinds of duties that are non-delegable. In general a duty or performance is delegable unless the obligee has a substantial interest in having the delegator perform. Rest. 2d of Contracts § 318(2). (See also UCC § 2-210(1) for contracts involving the sale of goods.) Contracts that call for the promissor's use of his own particular skills are normally not delegable. Rest. 2d of Contracts § 318(2), cmt. C. Thus, contracts involving artistic performances or professional services are generally not delegable. Here, the chef hired the decorator because of his own particular, personal skills. Therefore, the rule that duties involving performance by a specifi ed skilled person are not delegable applies. Thus, when the decorator sold his decorating business to his son, the chef was not obligated to permit the decorator's son to perform the chef-decorator contract, even though the decorator's son was also an experienced decorator of excellent repute.

Question 16 A vendor and a purchaser each signed a memorandum which stated that the vendor agreed to sell and the pur- chaser agreed to purchase a tract of land and that the con- tract should be closed and conveyance made and accepted ''by tender of general warranty deed conveying a good and marketable title'' on a date specifi ed. The memorandum signed by the parties contains all of the elements deemed essential and necessary to satisfy the Statute of Frauds applicable to the transaction except that there was omis- sion of a recitation of the agreed-upon purchase price. The vendor has refused to perform the contract, and in action by the purchaser for specific performance, the vendor relies upon the Statute of Frauds as a defense. If the purchaser offers evidence, in addition to the written memorandum, that the parties discussed and agreed upon a purchase price of $35,000 just prior to signing, the purchaser should (A) succeed, because the vendor is estopped to deny that such agreed-upon price is a fair and equitable one, which will be implied by law as a term of the written memorandum. (B) succeed, because the law implies that the parties con- tracted for the reasonable market value of the land, although the price paid may not necessarily be that orally agreed upon. (C) fail, because the price agreed upon is an essential ele- ment of the contract and must be in writing. (D) fail, because the evidence does not show that the agreed-upon price is in fact the reasonable market value of the land.

(C) is the best response, because it correctly identifi es that the missing price term will render the agreement unenforceable. Contracts for the sale of an interest in land fall within the Statute of Frauds, and thus require a writing in order to be enforceable (unless they are partially performed). In order to suffice, the writing must specify with reasonable certainty: 1. the contract's subject matter; 2. the parties' identities; 3. promises, by whom and to whom made, and essential terms and conditions; and 4. the signature of the party to be charged (the one who denies the contract's existence). In many states, the contract requires a recital of consideration as well. Under these facts, the price would be considered an essential term, so the written agreement would be unenforceable without it. Since C recognizes this, it's the best response.

Question 25 A fi fty-year-old uncle wrote to his adult, unemployed niece and said: ''If you come and live with me and take care of me and my farm for the rest of my life, I will leave the farm to you in my will.'' The niece immediately moved in with her uncle and took care of him and the farm until the uncle was killed instantly in an automobile accident two weeks later. By his will, the uncle left his entire estate, including the farm, to his unmarried sister. The farm was reasonably worth $75,000. Which of the following best states the rights of the niece and the uncle's estate (or sister)? (A) The niece is entitled to receive the reasonable value of her two weeks services only, because two weeks service would be inadequate consideration for the conveyance of the farm. (B) The niece is entitled to receive the reasonable value of her two weeks services only, because the uncle's letter was an invalid promise to make a will. (C) The niece is entitled to receive a conveyance of the farm, because the letter and her services created a valid contract between her and her uncle. (D) The estate (or sister) has the right to rescind the contract, if any, because the uncle's death within two weeks after the agreement was a circumstance apparently unforeseen by the parties at the time they entered into the agreement.

(C) is the best response, because it correctly identifi es that the niece will be entitled to the farm due to a valid, enforceable contract with her uncle. Under these facts the uncle made his niece an offer, in his letter — that is, a promise to do something in return for something else. He promised to will the farm to his niece in return for her caring for him and the property for the rest of his life. Since he sought performance in return, not a promise, he proposed a unilateral, not a bilateral, contract. By moving in with him and commencing taking care of him and the property, his niece accepted his offer. By remaining at the farm until his death, she fully performed under the contract, thus entitling her to the uncle's return performance: transferring the farm to her. Since C identifies this, it's the best response.

Question 26 In March, when a student was 17, an electronics store delivered to him a television set. At that time the student agreed in writing to pay $400 for the set on July 1 when he would reach his eighteenth birthday. Eighteen is the applicable statutory age of majority, and on that date the student was to receive the proceeds of a trust. On July 1, when the reasonable value of the television set was $250, the student sent the electronics store a signed letter stating, ''I'll only payyou $300; that is all the set is worth.'' In an action against the student for money damages on July 2, what is the maximum amount that the electronics store will be entitled to recover? (A) Nothing. (B) $250, the reasonable value of the set. (C) $300, the amount the student promised to pay in his letter of July 1. (D) $400, the original sale price.

(C) is the best response, because it correctly identifies that the electronics store can only recover to the extent the student ratified the contract when he reached age 18: $300. Under these facts, the student entered into a contract for a non-necessary item — a television set — when he was a minor. As a result, his initial promise was voidable at his option due to his incapacity to contract. Thus, had the student not ratified the contract when he reached the age of majority, he could have avoided the contract all together (although the electronics store could seek return of the set via restitution, if it was still in the student's possession when he disaffirmed the contract). By ratifying the contract when he reached 18, the student made the original promise to pay enforceable, but only to the extent he ratified it: $300. Incidentally, note that the student wrote the letter to the electronics store on his eighteenth birthday. This is relevant, in that, had he kept the television for some time thereafter, this could be considered ratifi cation by conduct manifesting such an intent, and he could have been liable for the entire $400. Similarly, had he failed to disaffirm within a reasonable time after reaching 18, this could be considered a ratification of his original promise. Thus, by sending the letter, the student avoided the promise to pay $400. Since C recognizes this, it's the best response.

Question 46 A farmer contracted in writing to deliver to a baker 100 bushels of wheat on August 1 at $3.50 a bushel. Because his suppliers had not delivered enough wheat to him by that time, the farmer on August 1 only had 95 bushels of wheat with which to fulfi ll his contract with the baker. If the farmer tenders 95 bushels of wheat to the baker on August 1, and the baker refuses to accept or pay for any of the wheat, which of the following best states the legal relationship between the farmer and the baker? (A) The farmer has a cause of action against the baker, because the farmer has substantially performed his contract. (B) The farmer is excused from performing his contract because of impossibility of performance. (C) The baker has a cause of action against the farmer for the farmer's failure to deliver 100 bushels of wheat. (D) The baker is obligated to give the farmer a reasonable time to attempt to obtain the other five bushels of wheat.

(C) is the best response, because it correctly states that the baker has a valid claim against the farmer for breach of contract. Under UCC § 2-601, the buyer, in a single delivery (not installment) contract, has the right to reject the goods if they ''fail in any respect to conform to the contract.'' However, the seller will have the right to cure defects, under § 2-508, under two circumstances, as long as seller notifies buyer of his intent to cure: 1. The time for performance has not run out, and the seller can cure within that time; or 2. The seller has reason to believe that the buyer would accept non-conforming goods — in which case the seller can go reasonably beyond the time allowed for performance in curing the defects. Here, neither of these exceptions will apply. The contract called for the farmer to deliver on August 1, which he did; thus, there's no time left for perfor- mance. Second, there's nothing in these facts to give the farmer a reasonable belief that the baker would accept non-conforming goods. As a result, the general rule will apply, and the baker will have a claim for breach (since the baker rightfully rejected the goods). Since C recognizes this, it's the best response.

Question 42 A seller entered into an agreement to sell a machine to a buyer for $5,000. At the time of the order, the buyer gave the seller a down payment of $1,000. The buyer then built a foundation for the machine at a cost of $250. The seller failed to deliver the machine. The buyer made reasonable efforts to fi nd a similar machine and bought one for $5,500 that did not fi t on the foundation. The buyer sued the seller for breach of contract. Which of these amounts claimed by the buyer, if any, could best be described as restitution? (A) The $250 cost of the foundation. (B) The $500 difference in price. (C) The $1,000 down payment. (D) None of the claimed amounts.

(C) is the best response, because restitution is designed to reverse unjust enrichment. A party's "restitution interest" is defined as his "interest in having restored to him any benefit that he has conferred on the other party." Rest. 2d of Contracts § 344(c). Of the three sums laid out by the buyer, the only one that took the form of a benefit conferred on the other party was the $1,000 down payment. Under UCC § 2-711(1), if the seller fails to make delivery, the buyer is entitled to various items of damage "in addition to recovering so much of the price as has been paid[.]" So in addition to such expectation-interest damages as the cost of cover, the buyer will be entitled to restitution of the down payment.

Question 38 A buyer sent a seller an offer to buy 50 tons of cotton of a specifi ed quality. The offer contained no terms except those specifying the amount and quality of the cotton. The seller then sent an acknowledgment by fax. The acknowledgment repeated the terms of the buyer's offer and stated that shipment would occur within fi ve days. Among 12 printed terms on the acknowledgment was a statement that any dispute about the cotton's quality would be submitted to arbitration. Neither the buyer nor the seller said anything further about arbitration. The seller shipped the cotton, and it was accepted by the buyer. A dispute arose between the buyer and the seller as to the quality of the cotton, and the seller asserted that the dispute had to be submitted to arbitration. The buyer instead sued the seller in court. In that suit, which of the following arguments best sup- ports the seller's position that the buyer must submit the dispute to arbitration? (A) Arbitration is a more efficient method of resolving disputes than resolving them in court. (B) The provision for arbitration did not contradict any term in the buyer's offer. (C) The provision for arbitration did not materially alter the parties' contract. (D) The seller's acknowledgment containing a provision for arbitration constituted a counteroffer that was accepted by the buyer when it accepted delivery of the cotton.

(C) is the best response, because the arbitration clause was a proposal for an additional term, which automatically became part of the contract if it was not a material alteration. This is a classic battle-of-the-forms problem under the UCC. Because the buyer's offer was silent on the issue of whether disputes were to be arbitrated, the arbitration clause contained in the seller's acknowledgment (i.e., the seller's acceptance) was what the UCC refers to as an "additional" term. Under § 2-207(2), in a contract between merchants, the acceptance's proposed additional terms become part of the contract unless one of three things happens: (1) the offer expressly limits acceptance to the term of the offer; (2) the proposed term materially alters the contract; or (3) the offeror promptly notifi es the offeree of an objection to the proposed term. (It's clear that both parties are "merchants," because non-merchants don't buy or sell 50 tons of cotton.) Here, it's clear that event (1) didn't happen (the buyer's offer said nothing to indicate that the seller could only accept by agreeing to the terms of the offer and making no other changes or proposals). Similarly, it's clear that (3) didn't happen, since the buyer never responded with an objection (or any other comment) about the proposed arbitration clause. So the arbitration clause became part of the contract as long as (2) didn't happen, i.e., as long as the clause is not deemed to have materially altered the contract. Courts have generally split on the issue of whether an arbitration clause materially alters a contract. But this choice is correct in stating that the seller's best argument is to assert that the arbitration clause did not pose a material alteration — the seller has a plausible chance of convincing the court that this is true, and if the seller is able to do so, he automatically wins the case (i.e., he's entitled to arbitration). By contrast, none of the other arguments, even if factually correct, will result in victory for the seller on this point.

Question 18 While waiting in line to open an account with a bank, a customer read a poster on the bank's wall that said, ''New Customers! $25 FOR 5 MINUTES. If you stand in line for more than fi ve minutes, we will pay you $25! We like happy customers! (This offer may be withdrawn at any time.)'' The customer started timing his wait and just as fi ve minutes was about to pass, the bank manager tore the poster down and announced, ''The $25 stand-in-line promotion is over.'' The customer waited in line for ten more minutes before being served. In the customer's action against the bank for $25, will the customer prevail? (A) No, because the bank withdrew its offer before the customer completed the requested performance. (B) No, because the bank's statement was a non-binding gift promise. (C) Yes, because the bank could not revoke its offer once the customer had commenced performance. (D) Yes, because the customer's presence in line served as notice to the bank that he had accepted.

(C) is the best response, because the bank's unilateral offer was irrevocable once the customer started to stand in line. An offer is unilateral if it allows acceptance only by performing the requested act. Here, the bank's offer of $25 is unilateral since it is only acceptable by actually standing in line for five minutes, not by promising to do so. A unilateral offer becomes irrevocable once the offeree begins performance. As a result, the offer from the bank to the customer became irrevocable the moment the customer got in line. Since the offer was irrevocable, the bank manager's attempt to revoke it was ineffective. The statement on the sign that ''This offer may be withdrawn at any time'' has no effect.

Question 20 A chef purchased the front portion of the land needed for a restaurant he desired to build and operate, but the back portion was the subject of a will dispute between a brother and his sister. The sister's attorney advised her that her claim was doubtful. The chef, knowing only that the unre- solved dispute existed, agreed in a signed writing to pay the sister $6,000, payable $1,000 annually, in exchange for a quitclaim deed (a deed containing no warranties) from the sister, who promptly executed such a deed to the chef and received the chef's fi rst annual payment. Shortly thereafter, the probate court handed down a decision in the brother's favor, ruling that the sister had no interest in the land. This decision has become fi nal. The chef subsequently defaulted when his second annual installment came due. In an action against the chef for breach of contract, the sister will probably (A) lose, because she was aware at the time of the agree- ment with the chef that her claim to the property quit- claimed was doubtful. (B) lose, because the sister suffered no legal detriment in executing the quitclaim deed. (C) win, because the chef bargained for and received in exchange a quitclaim deed from the sister. (D) win, because the chef, by paying the first $1,000 installment, is estopped to deny that his agreement with the sister is an enforceable contract.

(C) is the best response, because the chef's promise of payment to the sister was supported by consideration. When the sister issued the quitclaim deed, she was effectively settling — by assigning to the chef — her claim against the property. So the question is whether one who promises to make payment in exchange for the surrender of an invalid claim has received consideration. (If the chef didn't receive consideration in return for his promise, that promise wouldn't be enforceable.) The answer is that the surrender of the claim that turns out to be invalid nonetheless constitutes consideration if either (1) the claim is in fact doubtful because of uncertainty as to the facts or the law; or (2) the surrendering party believes that the claim may be valid. Rest. 2d § 74(1). Here, (1) was the case (since the sister's attorney told her that her claim was doubtful, not that it was defi nitely invalid). Since the sister's surrender of the claim in a bargained-for exchange in return for the chef's promise of payment constituted consideration, the chef's promise is enforceable.

An experienced rancher contracted to harvest his neigh- bor's wheat crop for $1,000 "when the crop [was] ripe." In early September, the neighbor told the rancher that the crop was ripe. The rancher delayed because he had other cus- tomers to attend to. The neighbor was concerned that the delay might cause the crop to be lost, for hailstorms were common in that part of the country in the fall. In fact, in early October, before the crop was harvested, it was destroyed by a hailstorm. Is the rancher liable for the loss? (A) No, because no time for performance was established in the contract. (B) No, because the neighbor failed to tell the rancher that the crop might be destroyed by a hailstorm. (C) Yes, because at the time the contract was made, the rancher had reason to foresee the loss as a probable result of his breach. (D) Yes, because a party who undertakes a contractual obligation is liable for all the consequences that fl ow from his breach.

(C) is the best response, because the foreseeability of the loss is what makes the loss recoverable. This question involves application of an aspect of the Hadley v. Baxendale doctrine. As the Restatement puts the general Hadley principle, "Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made." Rest. 2d of Contracts § 351(1). That section goes on to specify the two situations in which loss will be deemed foreseeable. One of these two situations is where the loss follows from the breach "as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know." Section 351(2)(b). This "had reason to know of special circumstances" provision applies here. That's because (1) we're told that the rancher was "experienced" (and the matters in which he's experienced include the local conditions, since what he's agreed to harvest is his neighbor's crop, not some far-away crop); and (2) we're told that autumn hailstorms are "common" in that area of the country. So the fact that the neigh- bor didn't expressly warn the rancher of the hailstorm danger doesn't matter — the rancher still had "reason to know of the special circumstances."

Question 48 By the terms of a written contract signed by both parties on January 15, a computer retailer agreed to sell from its inventory a particular ICB personal computer to a law fi rm for $3,000, and the law fi rm agreed to pick up and pay for the computer at the company's store on February 1. The law fi rm unjustifi ably repudiated on February 1. Without notifying the law fi rm, the retailer subsequently sold at private sale that same ICB computer to a bank, who paid the same price ($3,000) in cash. The ICB computer model in question is a popular product. The retailer can buy from the manufacturer more ICB units than the retailer can sell. If the retailer sues the law fi rm for breach of contract, the retailer will probably recover (A) nothing, because it received a price on resale equal to the contract price that the law fi rm had agreed to pay. (B) nothing, because the retailer failed to give the law firm proper notice of the retailer's intention to resell. (C) the retailer's anticipated profit on the sale to the law firm plus incidental damages, if any, because the retailer lost that sale. (D) $3,000 (the contract price), because the law fi rm intentionally breached the contract by repudiation.

(C) is the best response, because the retailer is a ''lost volume'' seller. A ''lost volume'' seller is one who can obtain as many items from a supplier as she can sell. When the customer of such a seller breaches his contract, and the seller resells the item to another customer at the same price, the seller will end up making one fewer sale because of the breach. This is because the new customer would have bought the item anyway, regardless of whether the first customer had breached. Damages available to a lost volume seller under the UCC are the profits, including reasonable overhead, which the seller would have made from full performance by the buyer, together with any incidental damages. UCC § 2-708(2). The retailer is a ''lost volume'' seller, because as the facts state, the company can buy more ICB personal computers than it can sell. The retailer contracted with the law firm for the sale of an ICB personal computer for $3,000. The law fi rm repudiated and the retailer sold at private sale the same specific computer to the bank, who paid the same price. The retailer did not lose any money on the sale of the specific computer, but as a lost volume seller, the retailer made one fewer sale. The retailer's damages would include the profit from the lost sale to the law firm plus any incidental damages.

Question 7 A janitorial service contracted in writing with a hospital for a one-year term. Under the terms of the contract, the janitorial service agreed to clean the hospital daily in accordance with the hygiene standards of the city's health code. Because the janitorial service did not clean a patient's room in accor- dance with the required hygiene standards, the patient con- tracted an infection that required continued hospitalization. In addition to suing the hospital, the patient sued the janito- rial service for breach of contract. Which of the following statements is most accurate with respect to the breach of contract claim against the janitorial service? (A) The janitorial service is liable to the patient as a mat- ter of public policy, because it violated the city's health code. (B) The patient is an intended third-party benefi ciary under the contract, because the janitorial service's promise was intended to benefi t all hospital patients. (C) The patient has no claim for breach of contract against the janitorial service, because she is an incidental benefi ciary. (D) The patient cannot sue on the contract, because she was not named in the contract.

(C) is the best response, because there is no affirmative evidence that the hospital intended the contract to benefit hospital patients. Since the patient was not a party to the contract between the janitorial service and the hospital, she would have to recover, if at all, on a third-party-beneficiary theory. A non-party who is found to be an "intended beneficiary" of the contract may recover, but a non-party who is found to be merely an "incidental beneficiary" may not recover. According to the Restatement and the prevailing modern view, the decision whether the benefi ciary was intended or incidental is to be made principally by looking at the intent of the promisee (here, the hospital). See, e.g., Rest. 2d of Contracts § 302(b): putting aside the creditor-beneficiary scenario (not present here), the beneficiary is an intended one only if "the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance." So, unless there is affirmative evidence that the hospital intended to give its patients the benefit of the promise (an intent that would presumably have to include an intent to give the patient the right to sue the janitorial service if it didn't perform), each patient would merely be an incidental beneficiary. Here, the only circumstances we're told about suggest that the hospital was mainly or exclusively concerned with fulfilling its duty of hygiene under the city's health code, not with giving patients a right of action if the janitorial service did not perform. While the question is a close one — there is a plausible argument that the hospital had a secondary desire to make sure that its patients benefi ted from hygienic rooms — the slightly-better prediction-of-outcome is the one made in this choice. (In any event, we can say that this is the choice that the National Conference of Bar Examiners, the drafters of this question, say is the right answer.)

Question 44 A buyer and a seller entered into a contract for the sale of 10,000 novelty bracelets. The seller had the bracelets in stock. The contract specifi ed that the seller would ship the bracelets by a third-party carrier. However, the contract did not specify either who was to pay the costs of carriage or the place of tender for the bracelets. On the above facts, when would the risk of loss of the bracelets pass to the buyer? (A) When the contract was made. (B) When the bracelets were identifi ed to the contract by the seller, assuming the goods conformed to the contract. (C) When the bracelets were delivered to a carrier and a proper contract for their carriage was made. (D) When the bracelets were unloaded on the buyer's premises by the carrier.

(C) is the best response, because unless a sales contract expressly provides otherwise, the risk of loss passes when the goods are shipped. Because the subject of this contract is the sale of goods (the bracelets), Article 2 of the UCC applies. UCC § 2-509 provides that, as a default rule, when a third-party carrier is used, the risk of loss of the goods passes to the buyer upon the seller's delivery of the goods to the carrier. The parties to the contract are free to alter this allocation of risk by providing otherwise in the contract. However, since the contract of sale is silent on this matter, § 2-503 will apply, and the risk of loss passed when the bracelets were delivered to the carrier.

Question 41 A farmer contracted to sell 100,000 bushels of wheat to a buyer. When the wheat arrived at the destination, the buyer discovered that the farmer had delivered only 96,000 bushels. The buyer sued the farmer for breach of contract. At the trial of the case, the court found that the written contract was intended as a complete and exclusive statement of the terms of the agreement. The farmer offered to prove that in the wheat business, a promise to deliver a specified quantity is considered to be satisfied if the delivered quantity is within 5 percent of the specified quantity. The buyer objected to the offered evidence. Is the court likely to admit the evidence offered by the farmer? (A) No, because the offered evidence is inconsistent with the express language of the agreement. (B) No, because the written contract was totally integrated. (C) Yes, because the offered evidence demonstrates that the farmer substantially performed the contract. (D) Yes, because the offered evidence explains or supplements the agreement by usage of trade.

(D) is the best response, because even a total integration may be supplemented or explained by a trade usage. First, notice that this agreement, since it is for the sale of goods, is governed by Article 2 of the UCC. Article 2's version of the parol evidence rule makes it clear that even a term in a total integration may be supplemented or explained by a trade usage. When the sub-sections of § 2-202 are viewed together, the result is that even where the writing is a total integration (i.e., it was "intended . . . as a complete and exclusive statement of the terms of the agreement," § 2-202(b)), the meaning of terms in it may still be "explained or supplemented (a) by course of performance, course of dealing, or usage of trade[.]" (But express terms in the total integration may not be "contradicted" by evidence of prior agreements, or of simultaneous oral agreements; also, even "consistent additional terms" may not be shown if the integration is total.) According to most courts, a trade usage will be viewed as permissibly "explaining" or "supplementing" a term in a total integration, as long as the usage doesn't represent a "total negation" of the writing. The 5%-leeway trade usage would likely not be found to "totally negate" the quantity term of the writing, but rather, to merely "explain" the precise meaning of that term.

Question 40 On June 1, a general contractor and a subcontractor entered into a contract under which the subcontractor agreed to deliver all of the steel joists that the general contractor required in the construction of a hospital building. The contract provided that delivery of the steel joists would begin on September 1. Although the general contractor had no reason to doubt the subcontractor's ability to perform, the general contractor wanted to be sure that the subcontractor was on track for delivery in September. He therefore wrote a letter on July 1 to the subcontractor demanding that the subcontractor provide assurance of its ability to meet the September 1 deadline. The subcontractor refused to provide such assurance. The general contractor then immediately obtained the steel joists from another supplier. If the subcontractor sues the general contractor for breach of contract, is the subcontractor likely to prevail? (A) No, because the subcontractor anticipatorily repudiated the contract when it failed to provide adequate assurance. (B) No, because the contract failed to specify a defi nite quantity. (C) Yes, because a demand for assurance constitutes a breach of contract when the contract does not expressly authorize a party to demand assurance. (D) Yes, because the subcontractor's failure to provide assurance was not a repudiation since there were no reasonable grounds for the general contractor's insecurity.

(D) is the best response, because it correctly construes the limits on the general contractor's right to demand assurances of performance. This is a contract for the sale of goods, so the scope of a party's right to demand assurances of performance is specifi ed in UCC § 2-609(1). That section says, in part, that "When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return." By negative implication, if reasonable grounds for insecurity concerning the performance of the other party have not yet arisen, the fi rst party does not have a right to demand assurances. Since we're expressly told that "the general contractor had no reason to doubt the subcontractor's ability to perform," we know that reasonable grounds for insecurity had not yet arisen. Therefore, the general contractor had no right to demand assurances, and the subcontractor was not required to provide them. When he didn't provide them, this was not a repudiation or breach of the contract, so the general contractor had no right to suspend (let alone cancel) the contract or obtain the supplies from someone else.

Question 4 A niece had worked in her aunt's bookstore for many years. The bookstore business, which was housed in a build- ing that the aunt leased, was independently appraised at $200,000. The aunt decided to retire. She wrote to the niece, expressing her affection for the niece and offering to sell her the bookstore business for $125,000 if the land- lord would agree to a transfer of the lease. The letter also specifi ed when the aunt would transfer the business. The niece wrote back accepting her aunt's offer. In a phone call to the niece, the aunt stated that the landlord had approved the transfer of the lease and that she would now ask her attorney to draft a written contract so that there would be a record of the terms. Before the attorney had fi nished drafting the document, the aunt changed her mind about selling the business and informed the niece of her decision. QUESTIONS CONTRACTS Contracts — Questions 175 In an action for breach of contract brought by the niece against her aunt, is the niece likely to prevail? (A) No, because the motivation for the transfer of the busi- ness was the aunt's affection for her niece, not the price. (B) No, because the promised consideration was inad- equate in light of the market value of the business. (C) Yes, because the condition concerning the landlord's assent to the transfer of the lease was beyond the con- trol of either party. (D) Yes, because the document being drafted by the attor- ney was merely a record of an agreement already made, not a condition to it.

(D) is the best response, because it correctly indicates that the original informal agreement is enforceable. If the parties reach (perhaps orally) what would otherwise be a binding agreement, the fact that they further agree that the contract will be embodied in a not-yet-drafted writing does not prevent the original agreement from being binding. And that's true even if the anticipated writing is never prepared. See Rest. 2d of Contracts § 27: "Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations." Here the very detailed back-and-forth discussions between the parties indicate that the parties intended to be bound as of the time of the phone call; there is nothing in the circumstances to show that the "manifestations of assent" were merely "preliminary negotiations."

A seller entered into a contract to sell to a buyer a house for a price of $150,000. The contract contained the following clause: "This contract is conditional on the buyer's securing bank fi nancing at an interest rate of 7% or below." The buyer did not make an application for bank fi nancing and therefore did not secure it, and refused to proceed with the purchase. The seller sued the buyer for breach of contract. Is the seller likely to prevail? (A) No, because the buyer did not secure bank fi nancing. (B) No, because the contract did not expressly impose on the buyer any obligation to apply for bank fi nancing. (C) Yes, because a court will excuse the condition to avoid a disproportionate forfeiture. (D) Yes, because a court will imply a term imposing on the buyer a duty to use reasonable efforts to secure bank fi nancing.

(D) is the best response, because the buyer lost the right to rely on non-occurrence of the condition due to his failure to make reasonable efforts to obtain the fi nancing. To begin with, "Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." Rest. 2d of Contracts § 205. Where a duty of one party is subject to the occurrence of a condition and that party's cooperation is necessary for the condition to occur, a court will typically conclude that such cooperation is part of that party's duty of good faith. See Rest. 2d § 245, Comment a. That's the case here: The buyer's duty was conditional upon receipt of financing, and that financing could not occur without the cooperation of the buyer (by his making an application). So the court will fi nd an implied term requiring the buyer to make a good-faith application for the fi nancing. Since the buyer did not fulfi ll this duty to make good-faith efforts, he has breached. Furthermore, "Where a party's breach by non-performance contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused." Rest. 2d § 245. See also Illustr. 3 to § 245, which is exactly on point (buyer's failure to make mortgage application causes him to lose the benefit of the mortgage-financing contingency in the contract). So when the buyer failed to make reasonable efforts to get fi nanc- ing, he lost the right to assert the lack of bank financing as the non-occurrence of a condition to his duty to close.

Question 8 A developer contracted in writing to sell to a buyer a house on a one-acre lot for $100,000. The developer told the buyer that the lot abutted a national park and that the water for the house came from a natural artesian spring. The developer knew that both of these representations were important to the buyer and that both were false. The buyer moved into the house and eight months later learned that a private golf course was being constructed on the adjacent land and that the water for his house was piped in from the city reser- voir. The buyer immediately sued the developer to avoid the contract. The construction of the golf course will probably increase the market value of the buyer's property, and the water from the city reservoir exceeds all established stan- dards for drinking water. Is the buyer likely to prevail? (A) No, because eight months exceeds a reasonable time for contract avoidance. (B) No, because the developer's misstatements caused no economic harm to the buyer. (C) Yes, because the contract was void ab initio. (D) Yes, because the buyer retained the power to avoid the contract due to fraud.

(D) is the best response, because a person who is induced to enter a contract by means of a fraudulent misrepresentation has the power to avoid the contract. Where one party induces the other to enter into a contract by making a fraudulent or material misrepresentation, the latter may avoid the contract. Thus the Restatement says that "If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justifi ed in relying, the contract is voidable by the recipient." Rest. 2d of Contracts § 164(1). Here, all the required elements are present: (1) We know that the buyer was "induced" by the misrepresentations, because we are told that these representations "were important" to the buyer. (It's not necessary that the misrepresentations have been the "but for" cause of the plaintiff's decision to enter the contract; all that's required is that the misrepresentation "substantially contributed" to the plaintiff's decision. Rest. 2d § 167.) (2) We know that the representations here were fraudulent, because we're told that the developer knew that they were false. (Therefore, under the Restatement test the misrepresentations do not even have to be "material," though the ones here pretty clearly are material.) (3) The buyer was "justifi ed" in relying on the statements, because the case does not involve any of the special situations that pose problems of the justifi ability of reliance (e.g., certain assertions of opinion, assertions as to matters of law, etc.), and there is nothing in the facts to indicate that the buyer was foolish to rely on the assertions. So the buyer was entitled to avoid the contract for fraud. The fact that the buyer did not suffer pecuniary harm is irrelevant, as is discussed in Choice B.

Question 36 A manufacturer of computers pays its salespeople a salary of $1,000 per month and a commission of five percent on billings actually rendered for machines they sell. The manufacturer's sales people are employed at will under written agreements that provide that in order to receive a commission the sales person must be in the employment of the manufacturer when the bill is sent to the customer. In 2010, a salesman worked for eight months to get an order from a customer for a large $750,000 computer. He consulted extensively with the customer's top executives and worked with its operating personnel to develop detailed specifi cations for the new equipment. He also promised the customer, with the manufacturer's knowledge and approval, to assist the customer for six months after installation in order to make the equipment work. On January 1, 2011, the customer signed an order, and on March 1 the computer was installed. On March 15, the manufacturer fired the salesman on the stated ground that he had failed to meet his 2009 and 2010 sales quotas. The salesman thought that the manufacturer was correct in this statement. A replacement salesperson was thereupon assigned to service the customer's account. On March 31, the manufacturer billed the customer for the computer. Assuming that the manufacturer's termination of the salesman's employment was not wrongful, if he, after demand and refusal, sues the manufacturer for the customer's sale commission, which of the following is the most likely to result? (A) The salesman will win, because he had procured the sale of the computer. (B) The salesman will win, because he had promised the customer to assist in making the equipment work. (C) The manufacturer will win, because the replacement salesperson is entitled to the commission on a quan- tum meruit basis. (D) The manufacturer will win, because the salesman was not employed by the manufacturer when the customer was billed for the computer.

(D) is the best response, because it addresses the central reason that the salesman will not be entitled to the commission. There are two key points here: the provisions of the original contract, and the fact that the termination wasn't wrongful. Under the original contract, the manufacturer was free to terminate the salesman at any time. Furthermore, the salesman's being employed when the bill was sent to the customer was an express condition of the duty to pay the commission. As a result, in the absence of a bad-faith termination, the contract terms would control in determining the salesman's right to the commission. Here, you're told specifically that the termination wasn't wrongful. Thus, the termination was within the manufacturer's rights, and it can't be a source of liability for the company. Furthermore, the salesman was paid a salary for the time he put in, and thus the manufacturer didn't receive something for nothing. A primary purpose of contracts is to allocate risks. Here, the salesman knew what he bargained for and undertook the risk he might be rightfully terminated before the bill was sent. The thing that makes this question tough is that your gut feeling is that the salesman deserves the commission. This answer indicates, as do so many MBE questions, why it's so important to analyze MBE questions coldly and impartially. Since D recognizes that the salesman isn't entitled to the commission and the central reason why, it's the best response.

Question 24 A wealthy widow, wishing to make a substantial and poten- tially enduring gift to her beloved adult stepson, established with a bank a passbook savings account by an initial deposit of $10,000. The passbook was issued solely in the stepson's name; but the widow retained possession of it, and her stepson was not then informed of the savings account. Subsequently, the widow became disgusted with her stepson's behavior and decided to give the same savings account solely to her beloved adult daughter. As permitted by the rules of the bank, the widow effected this change by agreement with the bank. This time she left possession of the passbook with the bank. Shortly thereafter, the stepson learned of the original savings account in his name and the subsequent switch to the daughter's name. If the stepson now sues the bank for $10,000 plus accrued interest, will the action succeed? (A) Yes, because the stepson was a third-party intended benefi ciary of the original widow-bank deposit agreement. (B) Yes, because the stepson was a constructive assignee of the widow's claim, as depositor, to the savings account. (C) No, because the stepson never obtained possession of the passbook. (D) No, because the stepson's rights, if any, to the funds on deposit were effectively abrogated by the second widow-bank deposit agreement.

(D) is the best response, because it implicitly recognizes that the stepson's rights as an intended third-party benefi ciary under the original widow-bank agreement hadn't ''vested,'' so he couldn't block the modifi cation. When two parties form an agreement, two types of third-party benefi ciaries may be created: intended benefi ciaries and incidental benefi ciaries. Only intended benefi ciaries have enforceable rights. An intended beneficiary is one whom the promisee (here, the widow) intends to benefit from the promisor's (here, the bank's) performance; all others are incidental beneficiaries. Here, since the widow intended her stepson to benefit from the savings account at the bank, the stepson was an intended benefi ciary. Having established that, you have to determine when the stepson's rights would ''vest,'' such that the agreement couldn't be modifi ed or rescinded without his consent. This traditionally depended on whether the stepson was a donee or creditor beneficiary. Since the widow didn't owe her stepson a prior duty that setting up the savings account would discharge, he was a donee beneficiary. Traditionally, a donee beneficiary's rights only vested on justified detrimental reliance or when he manifested assent to the agreement, which could be implied to occur as soon as he had knowledge of it. However, most modern courts agree with the Rest. 2d of Contracts § 311, which ignores the donee/creditor distinction and, rather, views the rights of both as vesting when one of these three events occurs: 1. The beneficiary manifests assent to the promise; 2. The beneficiary sues to enforce the promise; or 3. The beneficiary justifiably relies on the promise to his detriment. Here, the stepson didn't even know about the contract when it was modified, so he can't contest the modification. Note that even if the widow had transferred the account to him after she created it — thus making him an assignee — she could still have rescinded it, because the assignment was revocable. The things most likely to make it irrevocable — foreseeable reliance by the stepson, or transferring to him the bank book, or his paying for the assignment, or his receiving performance from the bank as obligor — hadn't occurred. Thus, even if you mischaracterized the stepson as an assignee, you'd still select choice D, the correct response.

Question 31 On May 1, a seller and a buyer entered into a written contract, signed by both parties, for the sale of a tract of land for $100,000. Delivery of the deed and payment of the purchase price were scheduled for July 1. On June 1, the buyer received a letter from the seller repudiating the contract. On June 5, the buyer bought a second tract of land at a higher price as a substitute for the fi rst tract. On June 10, the seller communicated a retraction of the repudiation to the buyer. The buyer did not tender the purchase price for the fi rst tract on July 1, but subsequently sued the seller for breach of contract. Will the buyer likely prevail? (A) No, because the seller retracted the repudiation prior to the agreed time for performance. (B) No, because the buyer's tender of the purchase price on July 1 was a constructive condition to the seller's duty to tender a conveyance. (C) Yes, because the seller's repudiation was non-retractable after it was communicated to the buyer. (D) Yes, because the buyer bought the second tract as a substitute for the first tract prior to the seller's retraction.

(D) is the best response, because the buyer purchased the second tract. Generally, when a party repudiates, that party may retract that repudiation at any time. However, the right to retract the repudiation ends once the non-repudiating party has materially changed its position in reliance on the repudiation. In this problem, the buyer learned of the seller's repudiation on June 1st and four days later purchased a substitute tract. The buyer would not have done so but for the seller's indication that he did not intend to go through with his obligations under the contract. At the point the buyer purchased the substitute plot, he had materially changed his position, and the seller's repudiation became non-retractable. Since the seller's attempted retraction was not until five days after the substitute tract, the retraction was ineffective.

Question 11 The mother of a son and a daughter was dying. The daughter visited her mother in a hospice facility and said, "You know that I have always been the good child, and my brother has always been the bad child. Even so, you have left your property in the will to us fi fty-fi fty. But it would be really nice if you would sell me the family home for $100,000." "I don't know," said the mother. "It is worth a lot more than that — at least $250,000." "That is true," said the daughter. "But I have always been good and visited you, and my brother has never vis- ited you, so that ought to be worth something. And besides, if you won't sell me the house for that price, maybe I won't visit you anymore, either." "Oh, I wouldn't want that," said the mother, and she signed a contract selling the house to her daughter for $100,000. Shortly thereafter, the mother died. When her son found out that the house had been sold and was not part of his mother's estate, he sued to have the contract avoided on behalf of the mother. On what ground would the contract most likely be avoided? (A) Duress. (B) Inadequate consideration. (C) Mistake. (D) Undue infl uence.

(D) is the best response, because the daughter used her domination of the mother in order to unfairly persuade her to make the sale. One of the grounds for avoiding a contract is that it has been induced by undue influence. Undue influence exists where one party to the contract is subjected to "unfair persuasion," which can stem either from the "domination" of the victim by the persuader, or from the fact that the victim is "by virtue of the relation between [the victim and the persuader] . . . justified in assuming that [the persuader] will not act in a manner inconsistent with [the victim's] welfare." Rest. 2d of Contracts § 177(1). Here, both sources of unfair persuasion were arguably present: (1) the mother's illness, together with the daughter's threat not to visit her when the mother was vulnerable, allowed the daughter to "dominate" the mother; and (2) the mother-daughter relationship justifi ed the mother in assuming that the daughter would not act in a way inconsistent with the mother's welfare (welfare that arguably included treating the two children equally). It's not certain that the undue infl uence ground will succeed, but it is the only one that has a reasonable prospect of success.

Question 33 During negotiations to purchase a used car, a buyer asked a dealer whether the car had ever been in an accident. The dealer replied: ''It is a fi ne car and has been thoroughly inspected and comes with a certifi cate of assured quality. Feel free to have the car inspected by your own mechanic.'' In actuality, the car had been in an accident and the dealer had repaired and repainted the car, successfully concealing evidence of the accident. The buyer declined to have the car inspected by his own mechanic, explaining that he would rely on the dealer's certifi cate of assured quality. At no time did the dealer disclose that the car had previously been in an accident. The parties then signed a contract of sale. After the car was delivered and paid for, the buyer learned about the car's involvement in a major accident. If the buyer sues the dealer to rescind the transaction, is the buyer likely to succeed? (A) No, because the buyer had the opportunity to have the car inspected by his own mechanic and declined to do so. (B) No, because the dealer did not affirmatively assert that the car had not been in an accident. (C) Yes, because the contract was unconscionable. (D) Yes, because the dealer's statement was intentionally misleading and the dealer had concealed evidence of the accident.

(D) is the best response, because the dealer intentionally misled the buyer. In the event that a seller convinces a buyer to purchase goods based on the seller's intentional material misrepresentation, the buyer may elect to void the contract of sale. Here, the buyer specifically asked the dealer whether the car had been in any accidents and the dealer made statements that were clearly intended to cause the buyer to believe that it had not, even though the dealer knew that was not the case. Although the seller did not explicitly state that the car had never been in an accident, the context of his statements (in response to a direct question) would cause a reasonable person hearing them to believe that the car was accident-free. The context also indicates that the dealer's silence was an intentional deception, since he had also repaired and repainted the car to conceal evidence of the past accident. As to the materiality requirement, the fact that a car had been in an accident would clearly be a piece of information that would be an important concern to an individual deciding whether or not to purchase a car. Accordingly, the buyer may void the contract and rescind the sale.

Question 35 A seller and a buyer entered into a contract obligating the seller to convey title to a parcel of land to the buyer for $100,000. The agreement provided that the buyer's obligation to purchase the parcel was expressly conditioned upon the buyer's obtaining a loan at an interest rate no higher than ten percent. The buyer was unable to do so, but did obtain a loan at an interest rate of 10.5 percent and timely tendered the purchase price. Because the value of the land had increased since the time of contracting, the seller refused to perform. The buyer sued the seller. Will the buyer prevail? (A) No, because an express condition will only be excused to avoid forfeiture. (B) No, because the contract called for a loan at an interest rate not to exceed ten percent and it could not be mod- ifi ed without the consent of the seller. (C) Yes, because the buyer detrimentally changed position in reliance on the seller's promise to convey. (D) Yes, because the buyer's obtaining a loan at an interest rate no higher than ten percent was not a condition to the seller's duty to perform.

(D) is the best response, because the interest rate condition was intended to only benefit the buyer. While the general rule is that express conditions in a contract will be strictly enforced, there is an important exception for cases in which a condition is only intended to benefit one party to the contract. In such cases, that party always has the power to waive the condition. The waiver need not be express, but rather may be inferred by the circumstances. Here, the provision that made the buyer's obligation to purchase the parcel conditional on his obtaining a loan at an interest rate no higher than ten percent was designed to protect the buyer in the event that he could not obtain such a loan. (The seller has no reason to care what interest rate the buyer gets.) Since the buyer tendered the purchase price, he was clearly willing to go through with the sale even though he was unable to get a loan at a specified rate. From this conduct, a court would certainly infer that the buyer intended to waive the condition. Accordingly, the seller cannot use the failure of the condition as a means of avoiding the contract.

Question 28 A landowner and a contractor entered into a written contract under which the contractor agreed to build a building and pave an adjacent sidewalk for the landowner at a price of $200,000. Later, while construction was proceeding, the landowner and the contractor entered into an oral modifi cation under which the contractor was not obligated to pave the sidewalk, but still would be entitled to $200,000 upon completion. The contractor completed the building. The landowner, after discussions with his landscaper, demanded that the contractor pave the adjacent sidewalk. The contractor refused. Has the contractor breached the contract? (A) No, because the oral modifi cation was in good faith and therefore enforceable. (B) Yes, because a discharge of a contractual obligation must be in writing. (C) Yes, because the parol evidence rule bars proof of the oral modification. (D) Yes, because there was no consideration for the discharge of the contractor's duty to pave the sidewalk.

(D) is the best response, because the modification is ineffective. At common law, in order to be effective, a modification must be supported by consideration. In this case, the modification would allow the contractor to reap an additional benefit (the release of his obligation to pave the sidewalk) without offering any return promise. Since the contractor has not provided consideration for the release, the modification will be ineffective under the pre-existing duty rule, and the landowner may elect to enforce the original contract as written.

Question 51 A buyer mailed a signed order to a seller that read: ''Please ship us 10,000 widgets at your current price.'' The seller received the order on January 7 and that same day mailed to the buyer a properly stamped, addressed, and signed letter stating that the order was accepted at the seller's current price of $10 per widget. On January 8, before receipt of the seller's letter, the buyer telephoned the seller and said, ''I hereby revoke my order.'' The seller protested to no avail. The buyer received the seller's letter on January 9. Because of the buyer's January 8 telephone message, the seller never shipped the goods.Under the relevant and prevailing rules, is there a contract between the buyer and the seller as of January 10? (A) No, because the order was an offer that could be accepted only by shipping the goods; and the offer was effectively revoked before shipment. (B) No, because the buyer never effectively agreed to the $10 price term. (C) Yes, because the order was, for a reasonable time, an irrevocable offer. (D) Yes, because the order was an offer that the seller effectively accepted before the buyer attempted to revoke it.

(D) is the best response, because the seller's acceptance was effective on dispatch. First, the buyer's signed order was an offer. How could this offer be accepted? Well, under UCC § 2-206(1), ''[u]nless otherwise unambiguously indicated by the language or circumstances . . . (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods[.]'' So this order authorized the seller to accept by either promising to ship or shipping. Next, we have to figure out whether and/or when the seller accepted that offer. Acceptance by mail was reasonable under the circumstances (see § 2-206(1) (a): Acceptance normally may be made ''in any manner and by any medium reasonable in the circumstances.''). The ''mailbox rule'' (a common-law rule that applies in the UCC context because nothing in Article 2 displaces it, and under § 1-103 common-law rules apply in the UCC unless expressly displaced by the Code) states that acceptance is effective immediately upon proper dispatch. The Second Restatement states the rule this way: ''An acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree's possession, without regard to whether it ever reaches the offeror.'' Rest. 2d § 63(A). So under this common-law rule, the seller accepted by mailing, since at that moment the acceptance document (his letter) was ''put out of the offeree's possession.''

Remedies: When will a court order specific performance for breach of a service contract?

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.

Def: 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?

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.

Remedies: 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:

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.

K: A&B; Under Article 2, a buyer's right to reject is cut off by __________.

A buyer's right to reject under the perfect tender doctrine generally is cut off by acceptance of the goods by the buyer, even though they are nonconforming. Under Article 2, a buyer accepts when, after a reasonable opportunity to inspect the goods, she indicates to the seller that they conform to requirements or that she will keep them even though they are nonconforming; or she fails to reject within a reasonable time after tender or delivery of the goods or fails to seasonably notify the seller of her rejection; or she does any act inconsistent with the seller's ownership. When a buyer receives goods and submits them to an inspection, she has not yet accepted the goods. A buyer must be given a reasonable opportunity to inspect the goods before acceptance; thus, merely receiving the goods and submitting them to an inspection is not yet an acceptance and the buyer's right to reject has not yet been cut off. Delivery of goods in substantial conformity with the contract would not cut off a buyer's right to reject. Article 2 generally does not follow the common law substantial performance doctrine. Instead, it follows the perfect tender rule—if goods or their delivery fail to conform to the contract in any way, the buyer generally may reject all, accept all, or accept any commercial units and reject the rest. The buyer is not obligated to return the goods within a reasonable time; she only needs to notify the seller of her rejection. After rejecting the goods, the buyer has an obligation to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them. If the seller has no agent or place of business within the market area where the goods are rejected, a merchant buyer has an obligation to obey any reasonable instructions as to the rejected goods. If a seller gives no instructions within a reasonable time after notification of rejection, the buyer may reship the goods to the seller, store them for the seller's account, or resell them for the seller's account. The buyer has a security interest in rejected goods in her possession for any part of the price already paid and for expenses reasonably incurred in connection with handling them after rejection.

O&A: A communication will not be considered to be definite and certain enough to be an offer if it is for the sale of goods and __________.

A communication will not be considered to be definite and certain enough to be an offer if it is for the sale of goods and is missing a quantity term. The quantity term is the only term that is absolutely required to make a communication an offer when the sale of goods is involved. Most other terms can be implied or supplied later in the contract. A communication may be considered definite enough to be an offer for the sale of goods despite a missing price term. If the price term is not included, a reasonable price can be implied. The buyer's requirements and the seller's output are valid quantity terms sufficient to make a communication an offer for the sale of goods. Although these terms do not state a specific quantity, the quantity is capable of being made certain by reference to objective, extrinsic facts (i.e., the buyer's actual requirements and the seller's actual output).

PE: Which of the following statements is correct under the parol evidence rule?

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.

Conditions: What is the difference between a condition precedent and a condition subsequent?

A condition precedent is one that must occur before the duty of performance will arise; the occurrence of a condition subsequent will cut off an already existing duty of performance. Both conditions precedent and conditions subsequent are anticipated before entering into a contract since they are often express conditions explicitly stated in a contractual provision. A condition that is implied by the circumstances surrounding the contract is known as a constructive condition.

Conditions: A condition __________ is one that must occur before the duty of performance will arise; the occurrence of a condition __________ will cut off an already existing duty of performance.

A condition precedent is one that must occur before the duty of performance will arise; the occurrence of a condition subsequent will cut off an already existing duty of performance. Conditions concurrent are those that are capable of occurring together, and that the parties are bound to perform at the same time. Thus, in effect, each is a condition "precedent" to the other.

Conditions: A condition that cuts off an already existing absolute duty of performance is also known as __________.

A condition subsequent is one the occurrence of which cuts off an already existing absolute duty of performance. A condition precedent is one that must occur before an absolute duty of immediate performance arises in the other party. Conditions concurrent are those that are capable of occurring together, and that the parties are bound to perform at the same time. There is no condition by hindrance. A hindrance occurs when a party having a duty of performance that is subject to a condition prevents the condition from occurring. In such a case the condition will be excused if such prevention is wrongful.

Conditions: What is a "constructive" condition?

A constructive condition is a condition that is implied by a court even though it is not explicitly stated in the contract. Common examples of constructive conditions are the conditions of cooperation and notice. Constructive conditions are also known as implied conditions. In contrast, an express condition precedent is an explicit contractual provision providing that a party does not have a duty to perform unless some event occurs or fails to occur. When an entire contract is not effective unless some event occurs or fails to occur, the contract is subject to an express condition precedent, not a constructive condition. The concept of substantial performance was developed in construction cases to avoid the harsh results that could occur when complete performance is required. Under the doctrine of substantial performance, the condition of complete performance may be excused if the party has rendered substantial performance.

O&A: An agreed upon price is a necessary element for a valid __________.

A contract for real property must state a price to be a valid contract. In other types of contracts, including those for personal services, consumer goods, and requirements or output contracts, the failure to state a price in the contract itself does not prevent the formation of the contract, if the parties intended to form a contract without the price being settled.

Def: Which of the following service contracts must satisfy the Statute of Frauds to be enforceable?

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.

Def: Which one of the following contracts involving an interest in land does not come within the Statute of Frauds?

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.

3rd: Which of the following duties can be delegated?

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.

DD: When a contractor is under a contractual duty to construct a building and the building is destroyed by an act of nature while it is still a work in progress, the destruction __________.

A contractor's duty to construct a building is not discharged by destruction of the work in progress. However, if the destruction was not caused by the contractor, such as by an act of nature, most courts will extend the date of performance beyond the original deadline.

O&A: Under the common law, a counteroffer serves as:

A counteroffer is an actual offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms. Traditionally, a counteroffer serves as a rejection of the original offer, as well as a new offer. Article 2 provides exceptions to this general treatment through its Battle of the Forms provision. In contrast to a counteroffer, a mere inquiry would not terminate an offer, so long as the inquiry is consistent with the idea that the offeree is still keeping the original proposal under consideration. The test is whether a reasonable person would believe that the original offer had been rejected. Similarly, an invitation for a new offer could be seen as a mere inquiry, if it were worded in such a way that a reasonable person would understand that the offeree was not rejecting the original offer.

Conditions: The performance of one contractual promise is usually a condition precedent to the duty of immediate performance of the return promise. Less than complete performance is a breach of contract. A court will apply the doctrine of "substantial performance" to excuse the condition of complete performance in the case of:

A court will apply the doctrine of substantial performance to excuse the condition of complete performance in the case of a minor breach and a constructive condition. The condition of complete performance may be excused if the party has rendered substantial performance. Courts generally apply this doctrine only where a constructive condition is involved. The doctrine of substantial performance will not apply to excuse an express condition, as this would likely defeat the express intent of the parties. If there is a material breach, then performance has not been substantial, and thus the doctrine would not apply.

K: A&B; A destination contract __________.

A destination contract is one in which the seller is required to tender delivery of the goods at a particular destination. At the destination, the seller must give the buyer notice of the tender, put and hold conforming goods at the buyer's disposition, and provide the buyer with documents of title. The requirement that the seller put the goods into the hands of a carrier for shipment is a requirement of a shipment, rather than a destination, contract. Requirements that the buyer take possession of the goods at the seller's place of business and arrange for shipment of the goods describe a noncarrier case, not a destination contract. A noncarrier case is a sale in which the parties did not intend that the goods be moved by carrier.

DD: A contract may be discharged by a new contract that substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the original contract. This is known as a discharge by:

A discharge by novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. A discharge by cancellation occurs when the parties manifest an intent to have an act of destruction or surrender of the written contract serve as a discharge, and consideration or one of its alternatives is present. A discharge by release is an agreement by the contracting parties not to sue on the contract. A discharge by substituted contract occurs when the same parties to a contract enter into a second contract that immediately revokes the first contract.

3rd: 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?

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.

3rd: 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?

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.

Consideration: A legal detriment can best be defined as __________.

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

DD: Which of the following will not discharge the duty to perform?

A mere promise of performance will not suffice to discharge the duty to perform; the tendering party must possess the present ability to perform. Good faith tender of performance made in accordance with contractual terms will discharge contractual duties. A supervening illegality, which occurs when the subject matter of the contract becomes illegal due to a subsequently enacted law or other governmental act, will discharge the duty to perform. The occurrence of a condition subsequent can also serve to discharge the duty to perform. A condition subsequent is one the occurrence of which cuts off an already exiting absolute duty of performance.

Def: Which of the following will always render a contract voidable?

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.

DD: A mutual agreement between two parties to a contract that each will give up her respective rights to performance from the other is known as:

A mutual rescission occurs when the parties to a contract agree that each will give up her respective rights to performance from the other. The contract will be discharged by the mutual rescission. The agreement to rescind is itself a binding contract supported by consideration, namely, the giving up by each party of her rights to counterperformance from the other. A modification is an agreement to change the terms of a contract. A modification can partially discharge a contract, discharging only those terms of the original contract that are subject to the modification. A contract may be discharged by an accord and satisfaction. 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 to the existing contract, some other, different performance. Satisfaction is the performance of the accord agreement. Its effect is to discharge not only the original contract but also the accord contract as well. This is not an example of a novation. A novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. The original contract will be discharged by the novation.

Remedies: To recover full damages when an employer breaches an employment contract, the employee:

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.

K: A & B; In a noncarrier case, for proper tender of delivery, the seller must:

A noncarrier case is a sale in which it appears that the parties did not intend that the goods be moved by carrier. In a proper tender of delivery, the seller must put and hold conforming goods at the buyer's disposition for a time sufficient for the buyer to take possession. The seller must give the buyer notice reasonably necessary to enable her to take possession of the goods. Absent a contrary agreement, a seller is not required to actually deliver the goods to the buyer. The seller need only tender (offer) the goods to the buyer at the seller's place of business or residence. In a destination contract, the seller has agreed to tender at a particular destination. In that case, the seller must put and hold conforming goods at the buyer's disposition at the agreed upon destination. He must also give the buyer any notice of tender that is reasonably necessary and provide her with any documents of title necessary to obtain delivery

K: A&B; Under Article 2, in a noncarrier case, in the absence of an agreement otherwise, the place of delivery is generally__________.

A noncarrier case is a sale in which it appears that the parties did not intend that the goods be moved by carrier. Under Article 2, in a noncarrier case, in the absence of an agreement otherwise, the place of delivery is generally the seller's place of business, or if he has none, his residence. It is not at the seller's discretion to choose the buyer's place of business in the absence of an agreement to the contrary, as the buyer may not be prepared to accept delivery at its own place of business.

DD: What is a "novation"?

A novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. A novation will serve to discharge the old contract. The elements for a valid novation are:(i) a previous valid contract;(ii) an agreement among all parties, including the new party (or parties) to the new contract; (iii) the immediate extinguishment of contractual duties as between the original contracting parties; and (iv) a valid and enforceable new contract.An accord is 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 to the existing contract, some other, different performance. An accord must be supported by consideration. Where the consideration is of a lesser value than the originally bargained-for consideration in the prior contract, it will be sufficient if the new consideration is of a different type or if the claim is to be paid to a third party.An agreement between two contracting parties not to sue on a contract is a discharge by release. The release or contract not to sue usually must be in writing and supported by new consideration or promissory estoppel elements. A discharge by substituted contract occurs when the same parties to a contract enter into a second contract that immediately revokes the prior contract.

Conditions: In contract law, which of the following best summarizes the distinction between the terms "promise" and "condition"?

A promise is a commitment to do or refrain from doing something. A promise binds a party to perform under a contract. A condition creates or extinguishes a duty to perform under the contract. A condition is a provision the fulfillment of which creates or extinguishes a duty to perform under a contract. A condition is normally either an event that must occur or fail to occur before a party has a duty to perform under a contract or an event the occurrence or nonoccurrence of which releases a party from the duty to perform under a contract. The distinction between the terms "promise" and "condition" is important in understanding that there is a difference between whether a party is bound under a contract and whether a party who is bound has come under a duty to perform. Thus the terms should not be used interchangeably. The failure to fulfill a promise has legal significance in that it results in a breach of contract. The failure to fulfill a condition is not a breach of contract, but it discharges the liability of the promisor whose obligations on the conditional promise never mature. Either a promise or a condition can be based on positive actions or restraints. A promise can be a commitment to do something or refrain from doing something. A condition is a promise modifier, which could restrain a party from acting or prompt a party to act. The fulfillment of the condition creates or extinguishes a duty to perform under a contract.

Consideration: 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.

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.

Consideration: A promise not to sue on a claim can be considered valuable consideration only if:

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

Consideration: A promise to choose among one of several alternative means of performance, only one of which involves an actual legal detriment, will be deemed __________.

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.

Consideration: A promise to choose one of several alternative means of performance is illusory (lacks consideration) if __________.

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.

Consideration: A promise __________ lacks consideration.

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 act.

Consideration: Which of these might be considered valuable consideration?

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.

O&A: A quasi-contract is __________.

A quasi-contract can be constructed by a court to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant. Quasi-contracts are not contracts at all; their only relationship to genuine contracts is historical. Express contracts are formed by language, oral or written. Implied contracts are formed by manifestations of assent other than oral or written language, i.e., by conduct.

O&A: Which of the following is not really a contract?

A quasi-contract is not really a contract at all. It is a remedy imposed by courts to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover a benefit conferred on the defendant. A bilateral contract is a type of contract. Traditionally the term is used to describe a contract in which a promise is exchanged for another promise. A unilateral contract is a type of contract. Traditionally the term is used to describe a contract in which a promise is exchanged for an act or other performance. An implied-in-fact contract is a type of contract. Traditionally the term is used to describe a contract that is formed by conduct (e.g., sitting in a barber's chair).

Conditions: How can a repudiating party retract an anticipatory repudiation?

A repudiating party may at any time before his next performance is due withdraw his repudiation unless the other party has canceled, materially changed her position in reliance on the repudiation, or otherwise indicated that she considers the repudiation final. Withdrawal of the repudiation may be in any manner that clearly indicates intention to perform. The withdrawal must include adequate assurances if they are justifiably demanded by the other party, but otherwise this is generally not necessary for retracting a repudiation. Because the withdrawal may be in any manner, it is not necessary that it be in the same manner as the repudiation.

Conditions: Can a repudiating party retract his anticipatory repudiation before his performance is due?

A repudiating party may at any time before his next performance is due withdraw his repudiation, unless the other party has canceled, materially changed her position in reliance on the repudiation, or otherwise indicated that she considers the repudiation final. Withdrawal of the repudiation may be in any manner that clearly indicates intention to perform, but must include any assurances justifiably demanded. It is not necessary that there has been a material change in circumstances since the repudiation. If anything, such a change would make it more likely that the repudiating party would not be allowed to withdraw the repudiation, because the other party is likely to have also materially changed her position in reliance on the repudiation. If the other party has not so relied, the repudiation is not considered final, and it is not necessary for the other party to agree to the retraction.

Conditions: In a case of anticipatory repudiation, how long does the repudiating party have to retract the repudiation?

A repudiating party may retract his repudiation at any time until performance is due, unless the other party has materially changed position in reliance on the repudiation, or otherwise indicated that she considers the repudiation final. Withdrawal of the repudiation may be in any manner that clearly indicates intention to perform, but must include any assurances justifiably demanded. The other party's actions in response to the anticipatory repudiation are important. If the other party has not changed position in reliance on the repudiation, the repudiation is not final and can be retracted until the time performance is due. There is no set period of time, such as 10 days, within which the repudiating party must retract the repudiation. The time for retraction depends on the terms of the contract.

O&A: Which of the following statements regarding revocation and acceptance of contract offers is correct?

A revocation generally is effective when received and an acceptance generally is effective when dispatched (i.e., the mailbox rule). Under the mailbox rule, if the offeree dispatches an acceptance before he receives a revocation sent by the offeror, a contract is formed.

O&A: Which of the following is a true statement?

A seller's catalog listing the sale price of seller's items is usually construed as an invitation for offers. Advertisements in newspapers, catalogs, circular letters, and the like containing price quotations are usually construed as mere invitations for offers. The typical rationale given for this is that: (i) these items are considered too indefinite as to quantity or other terms, and (ii) offers to the general public, as opposed to specific offerees, may be overaccepted (i.e., number of acceptances may exceed number of products available). Advertisements that are specific and contain the phrase "first come, first served" are usually construed as offers because the terms are certain and definite and the offeree(s) is clearly identified.

Consideration: Which of the following statements about suretyships is false?

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.

Consideration: A suretyship contract is supported by proper consideration:

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.

O&A: A valid offer for a real estate contract must include:

A valid offer for a real estate transaction must include the identity of land and a price. The land must be identified with some particularity, but a deed description is not required. Most courts will not supply a missing price term. The subject matter of the deal must be certain, because a court can enforce a promise only if it can tell with reasonable accuracy what the promise is.

3rd: A writing is __________.

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.

O&A: At common law, a written communication revoking an offer is considered "received" by an offeree at the moment:

A written revocation of an offer is effective when it is received by the offeree. At common law, a written communication is considered to have been "received" as soon as it comes into the physical possession of the person addressed (or of someone authorized by him to receive it) or when it is deposited in some place authorized as the place for this or similar communications to be deposited. The offeree need not review the contents of the revocation for it to be effective. The rule for revocation is different from the rule for acceptance, which generally creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped.

Remedies: Which of the following is generally not required for an award of liquidated damages?

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.

T&W: 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?

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.

O&A: A merchant's printed catalog containing a price quote is usually construed as __________.

Advertisements, catalogs, circular letters, and the like containing price quotations are usually construed as mere invitations for offers. There is no clearly identified offeree, and therefore there can be no offer of any type (so no contingent offer, merchant's firm offer, or offer by publication).

K: A&B; After a reasonable time, a buyer may resell rejected goods only if:

After a reasonable time and in the absence of instructions from the seller, a buyer may resell the goods and hold the proceeds for the seller's account. The seller does not have to agree to the sale, and it is not necessary that the buyer is a merchant. A merchant buyer has an obligation to obey any reasonable instructions of the seller as to the rejected goods. By contrast, a nonmerchant buyer is merely required to hold the goods with reasonable care for a time sufficient for the seller to remove them. If a buyer resells rejected goods, he is entitled to any commission ordinarily paid in the trade or, if none, a reasonable commission not exceeding 10%

K: A&B; After a reasonable time has passed since the notification of rejection, if the seller has given the buyer no instructions as to the disposal of the defective goods, the buyer may do any of the following, except:

After rejecting goods in her physical possession, a buyer has an obligation to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; thus, the buyer should not destroy the goods. If the seller gives no instructions to the buyer within a reasonable time after notification of rejection, the buyer may return the goods to the seller by shipment, store the goods for the seller's account, or resell the goods for the seller's account.

PE: In interpreting and enforcing a contract, what does it mean to say that a writing is an "integration"?

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.

DD: __________ 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 to the existing contract, some other, different performance.

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 to the existing contract, some other, different performance. Satisfaction is the performance of the accord agreement. Its effect is to discharge not only the original contract but also the accord contract as well. A novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. The original contract will be discharged by the novation. Once it is determined that a party is under an immediate duty to perform, the duty to perform must be discharged. A discharge may occur in several ways other than by actual performance, including discharge by novation and discharge by accord and satisfaction.

DD: An accord will not be supported by consideration that __________.

An accord will not be supported by consideration that serves as partial payment on an undisputed debt. In general, an accord must be supported by consideration. One frequently encountered problem involves the offer of a smaller amount than the amount due under an existing obligation in satisfaction of the claim, i.e., partial payment of an original debt. The majority view is that this will support an accord and satisfaction if there is a "bona fide dispute" as to the claim or there is otherwise some alteration, even if slight, in the debtor's consideration. However, a partial payment on an undisputed debt will not suffice. The consideration will support an accord if it is of greater value than the originally bargained-for consideration. If the consideration is of a lesser value than the originally bargained-for consideration in the prior contract, it will be sufficient if the new consideration is of a different type or if the claim is to be paid to a third party.

3rd: Which of the following cannot be assigned?

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.

Conditions: At common law, which of the following generally would not legally excuse a condition?

An actual breach of the contract might excuse a condition, but only if the breach is material. A minor breach may at best suspend the duty, but it will not excuse it. Divisibility of a contract is a concept designed to avoid the harsh result of forfeiture. If a contract can be divided into parts and one party performs some but not all of the parts, the condition precedent that the whole contract be performed before the other party has a duty to perform is excused. If a party having a duty of performance that is subject to a condition prevents the condition from occurring through failure to cooperate, the condition will be excused if such prevention is wrongful. One having the benefit of a condition under a contract may grant a waiver of the condition, or in other words, indicate by words or conduct that she will not insist on that condition's being met.

Consideration: An agreement in which one party has become bound but the other has not, can be said to lack __________.

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.

PE: Which of the following is a condition precedent to effectiveness?

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.

Consideration: What does it mean when an agreement lacks mutuality?

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.

Conditions: An anticipatory repudiation __________.

An anticipatory repudiation stems from the words or conduct of the promisor indicating that he cannot or will not perform when the time comes. An anticipatory repudiation must be unequivocal. An anticipatory repudiation must be a positive statement that the repudiating party will not perform when performance is due. It cannot be based on expressions of doubt or fear, although those statements could establish a prospective inability to perform. There is no requirement that an anticipatory repudiation should be in writing. An anticipatory repudiation can stem from the words or conduct of the promisor.

3rd: An assignment for value __________.

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.

3rd: Assignments for value cannot be revoked. An assignment is for value even if it is:

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.

3rd: 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?

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.

DD: Which one of the following elements is needed for a discharge of a contract due to frustration?

An element of frustration is that an unforeseen act or event has completely or almost completely destroyed the purpose of the contract. Frustration will exist if the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge. If the purpose has been frustrated, a number of courts will discharge contractual duties even though performance of these duties is still possible. The elements necessary to establish frustration are: (i) some supervening act or event leading to the frustration; (ii) at the time of entering into the contract, the parties did not reasonably foresee the act or event occurring;(iii) the purpose of the contract has been completely or almost completely destroyed by this act or event; and (iv) the purpose of the contract was realized by both parties at the time of making the contract. A contract can be discharged by impossibility or impracticability when an unanticipated or extraordinary act or event has made the contractual duties impossible or impracticable to perform. Contractual duties can also be discharged by a subsequent act of nature that destroys the contract's subject matter or the designated means for performing the contract. But neither of these is considered discharge by frustration. A discharge by illegality occurs when the subject matter of the contract has become illegal due to a subsequently enacted law or other governmental act. This is often referred to as "supervening illegality."

Consideration: What is an "illusory" promise?

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.

T&W: An implied warranty of merchantability may be disclaimed __________.

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.

O&A: Under the common law, which of the following does not terminate an offer?

An inquiry into changing the terms of the offer will not terminate the offer when it is consistent with the idea that the offeree is still keeping the original proposal under consideration. An express rejection is a statement by the offeree that she does not intend to accept the offer. Such a rejection will terminate the offer. A counteroffer serves as a rejection of the original offer as well as a new offer. An acceptance conditional upon additional terms is considered a counteroffer.

3rd: An intended beneficiary must be __________.

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.

O&A: An offer for a bilateral contract can be accepted by __________.

An offer for a bilateral contract may be accepted either by a promise to perform or by the beginning of performance. Note: Unless an offer specifically provides that it may be accepted only through performance, it will be construed as an offer to enter into a bilateral contract. In contrast, a unilateral contract can be accepted only by full performance. Note that the beginning of performance may create an option so that the offer is irrevocable. However, the offeree is not obligated to complete performance merely because he has begun performance, as only complete performance constitutes an acceptance of the offer.

O&A: Once an offeree begins performance in response to an offer for a true unilateral contract, __________.

An offer for a true unilateral contract becomes irrevocable once performance has begun. The offeree is given a reasonable time to complete performance. A unilateral contract is not formed until the total act of performance is complete. The offeree is not bound to complete performance and may withdraw at any time prior to completion.

O&A: When can an offeror properly revoke an offer for a unilateral contract?

An offer for a true unilateral contract becomes irrevocable once performance has begun. Thus, an offeror can properly revoke an offer for a unilateral contract at any time before the offeree has begun performance. Unlike a bilateral contract, which may be deemed accepted when an offeree has promised performance, a unilateral contract can be accepted only by full performance. Thus, the promise of performance has no effect on the offeror's ability to properly revoke an offer for a unilateral contract. Although the unilateral contract will not be formed until the offeree has completed performance, the offeror's power to revoke the offer is limited once the offeree has begun performance. The offeree is given a reasonable time to complete performance, during which time the offer is irrevocable. Note that the offeree is not bound to complete performance—she may withdraw at any time prior to completion of performance.

O&A: To be valid, an offer for the sale of goods must include __________.

An offer for the sale of goods must include a quantity term to be valid. The quantity being offered must be certain or capable of being made certain, such as in a requirements or output contract. The offer need not contain a price term. The majority of jurisdictions and Article 2 hold that the court can supply a reasonable price if the parties intended to form a contract without the price being settled. The offer also does not need to refer to an identified item. An offer allowing a person to specify an item within a reasonable range of choices may be sufficiently definite to result in a contract if accepted

O&A: An option contract is a distinct contract in which __________ a promise not to revoke an outstanding offer.

An offer normally can be revoked at will by the offeror. An option contract is a distinct contract in which an offeree gives consideration for a promise by the offeror not to revoke an outstanding offer. Even if an offeror gives written assurances regarding a promise not to revoke for a certain period, the revocation-at-will rule applies unless the offeror's power to terminate the offer has been limited in some way, such as by the creation of an option contract. Note that if the offeror could reasonably expect that the offeree would rely to her detriment on the written assurances and the offeree does so rely, the offer could be held irrevocable as an option contract, but the assurances alone are generally not enough to make an offer irrevocable. Under the Merchant's Firm Offer rule in Article 2, a promise to keep an offer open will be enforceable without the payment of consideration when a merchant offers to buy or sell goods in a signed writing that gives assurances that the contract will be held open for a specified period of time. This is not the same as an option contract, which is a distinct contract and generally requires that the offeree give some consideration for the promise not to revoke.

O&A: How can an offeree terminate an offer?

An offeree can terminate an offer by not accepting the offer within a reasonable time, even if no time period is specified in the offer. An offeree must accept the offer within the time period specified in the offer or, if no time period is specified, within a reasonable time. If she does not do so, then she will have allowed the offer to terminate. Because an option is a contract to keep an offer open, a rejection of or a counteroffer to an option does not terminate the offer. The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree's rejection. Simply inquiring whether the offeror would consider a price different from that contained in the offer will not terminate the offer so long as the inquiry is consistent with the idea that the offeree is still keeping the original proposal under consideration. The test is whether a reasonable person would believe that the original offer had been rejected.

O&A: When an offeree gives consideration for a promise by the offeror not to revoke an outstanding offer, this is known as __________.

An option contract is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer. A merchant's firm offer is found under Article 2 under certain circumstances in which a promise to keep an offer open is enforceable even if no consideration has been paid to keep the offer open. In a requirements contract, a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer. Under some circumstances, a seller may ship nonconforming goods to a buyer as an accommodation.

O&A: What is 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 an outstanding offer. Normally offers can be revoked at will by the offeror, even if he has promised not to revoke for a certain period. An option contract is an exception to this general rule, which limits the offeror's power to terminate the offer. When a merchant offeror offers to buy or sell goods in a signed writing that gives assurances that the contract will be held open for a specified period of time, this is a merchant's firm offer, not an option, and under Article 2 the promise to keep an offer open will be enforceable without the payment of consideration. An offer where the offeree has the option to accept by a promise or by the start of performance is an offer to form a bilateral contract, as opposed to a unilateral contract, which can only be accepted by performance. Under Article 2 and the Restatement (Second) of Contracts, all offers are deemed bilateral contracts unless clearly indicated otherwise.

Remedies: A court order requiring a breaching party to perform under the contract or face contempt of court charges is also known as:

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.

Remedies: Which of the following would not be an appropriate response to a breach of a service contract?

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.

Conditions: If, prior to the time set for performance, the promisor indicates that he will not perform when the time comes, this is known as:

Anticipatory repudiation occurs if a promisor, prior to the time set for performance of his promise, indicates that he will not perform when the time comes. A repudiating party may at any time before his next performance is due withdraw his repudiation unless the other party has canceled, materially changed her position in reliance on the repudiation, or otherwise indicated that she considers the repudiation final. This known as a retraction. The one having the benefit of a condition may waive that condition. An estoppel waiver occurs when a party indicates that she is waiving a condition and the other party detrimentally relies on the waver. An election waiver occurs when the beneficiary of a broken condition chooses to continue on under the contract.

Conditions: In the case of an anticipatory repudiation, the nonrepudiating party:

Anticipatory repudiation occurs if a promisor, prior to the time set for performance of his promise, indicates that he will not perform when the time comes. In the case of an anticipatory repudiation, the nonrepudiating party may sue immediately or choose to wait until the performance date to sue. In fact, the nonrepudiating party has four basic alternatives: (i) treat the anticipatory repudiation as a total repudiation and sue immediately; (ii) suspend his own performance and wait to sue until the performance date; (iii) treat the repudiation as an offer to rescind and treat the contract as discharged; or (iv) ignore the repudiation and urge the promisor to perform. By urging the promisor to perform, the nonrepudiating party will not be deemed to have waived the repudiation. He can still sue for breach and is excused from performing unless the promisor retracts the repudiation.

Conditions: Anticipatory repudiation occurs when:

Anticipatory repudiation occurs when a party to a contract, prior to the time set for performance, indicates that he will not perform when performance is due. Prospective failure of condition occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. Prospective inability or unwillingness to perform is not an anticipatory repudiation because such a repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform. An estoppel waiver occurs when a party to a contract indicates that she is waiving a condition of the contract and the other party to the contract detrimentally relies on that waiver. An election waiver occurs when the beneficiary of a broken condition chooses to continue on under the contract despite the broken condition.

T&W: Which of the following is a true statement about express warranties?

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.

PE: 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?

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.

O&A: Which of these is necessary to form a contract?

Apparent mutual assent is necessary to form a contract. The parties must be in agreement to form the "same bargain at the same time." Courts will determine this using an objective measure, by which each party is bound to the apparent intention that he manifested to the other(s). An actual subjective meeting of the minds is not necessary. Rather, as stated above, courts use an objective measure. A contract need not be written or oral. An offer can be made and accepted by conduct (e.g., sitting in a barber's chair can constitute an offer to pay the barber for a haircut even if no words are spoken).

K: A&B; Under Article 2 of the U.C.C., a buyer cannot reject a shipment of nonconforming goods if:

Article 2 follows the Perfect Tender Rule. If the goods fail to conform to the contract in any way, the buyer generally may reject tender. An exception to this rule is that a defective shipment in an installment contract cannot be rejected if the defect can be cured. In a single delivery contract, the buyer can always reject the goods because of defects under the perfect tender rule. Note, however, that the seller may, within the time originally provided for performance, "cure" by giving reasonable notice of her intention to do so and making a new tender of conforming goods, which the buyer must then accept. It is not enough that the defective shipment be part of an installment contract; the defect must be capable of being cured. For example, if the defects are in the particular goods themselves and thus cannot be cured, the buyer can reject them. The seller retains the right to cure within the time for performance by making a tender of conforming goods within the time for performance. Under the perfect tender rule, a buyer can choose to reject nonconforming goods even if they cause no monetary damage to the buyer. For example, a buyer could rightly reject nearly identical goods in a different color than those ordered even if the monetary value of the goods is the same.

Remedies: Which of the following statements is true regarding a specific performance remedy for breach of a contract to provide services?

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.

O&A: Article 2 has abandoned the __________, in favor of the __________.

Article 2 has abandoned the mirror image rule and instead uses the battle of the forms provision to deal with the proposal of additional or different terms by an offeree in a definite and timely acceptance. The mirror image rule insists on an absolute and unequivocal acceptance of each and every term of the offer. Any different or additional terms in the acceptance make the response a rejection and counteroffer. Under Article 2, the proposal of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer, but rather is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms. Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants. This is often referred to as the battle of the forms provision. The mailbox rule has not been abandoned, and it is not an alternative to the Mirror Image Rule. The Mailbox Rule is a rule dealing with the timing of an acceptance. Under the Mailbox Rule, in most cases, acceptance by mail or similar means creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped.

T&W: For which of the following does Article 2 provide gap-filling provisions?

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.

T&W: Which of the following statements about a sale of goods contract is true?

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.

O&A: When might a court utilize an Article 2 "gap filler"?

Article 2 includes some very specific "gap fillers" for situations where certain terms are not included in a contract for the sale of goods. Under Article 2, the price will be a reasonable price at the time of delivery if the price is not included in the contract. When one party to a contract for the sale of goods has the power to fix the price but fails to do so in good faith, the other party may either cancel the contract or fix a reasonable price herself. Unlike missing terms, gap fillers do not apply to vague terms. With missing terms, the court can presume that the parties' intent was to include a reasonable term, but that presumption cannot be made if the parties have included a term that makes the contract too vague to be enforced. The problem then is that the parties have manifested an intent that cannot be determined

O&A: Generally, which of the following statements is correct regarding the law governing contracts?

Article 2 of the Uniform Commercial Code governs contracts for the sale of goods, while the common law governs contracts for services and interests in land. Article 2 governs all contracts for the sale of goods. The term "goods" is defined as all things moveable. The common law governs contracts not involving goods (e.g., service contracts and contracts for interests in land). Contracts for the sale of commercial interests in land are not governed by Article 2. As stated above, Article 2 governs contracts for the sale of goods, and the common law governs other contracts. The fact that a contract involves the sale of a commercial interest in land does not bring the contract within Article 2. Contracts for commercial services are not governed by Article 2. The common law governs contracts not involving the sale of goods. The fact that a contract involves commercial services does not bring the contract within Article 2. Contracts for the sale of goods by nonmerchants are governed by Article 2. Article 2 governs all contracts for the sale of goods—whether the sale is by a merchant or nonmerchant, although Article 2 does have some special rules that apply only to merchants.

3rd: 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?

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.

3rd: As a general rule, if the promisor fails to perform under a contract, a donee third-party beneficiary whose rights have vested can sue:

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.

3rd: Which of the following is not an action that results in the vesting of a third-party beneficiary's rights?

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.

Conditions: At common law, ______________ will excuse a contract condition.

At common law an estoppel waiver will excuse a contract condition. Whenever a party indicates that he is waiving a condition before it is to happen and the person addressed detrimentally relies on the waiver, courts will find a binding estoppel waiver. A demand for assurances, in and of itself, will not excuse a condition. However, a party may suspend his performance and make a demand for assurances if he has a reasonable belief that the other party will be unable or unwilling to perform. If he does not receive adequate assurances, his performance may be excused, and he may treat the failure as a repudiation. At common law, an actual breach of the contract will excuse a condition, but only if the breach is material. A minor breach may at best suspend the duty to perform, but it will not excuse it. Cooperation does not excuse a contract condition. The rule is the opposite. Noncooperation will excuse a contract condition.

Consideration: Which of the following statements is true regarding the modification of a contract?

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.

Remedies: A nonbreaching party may not seek specific performance:

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.

Consideration: In most states, when forming a contract, which of the following is not a necessary element of consideration?

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.

DD: Owner enters into a contract with Builder under which Builder agrees to renovate Owner's 100-year-old mansion for $400,000. When the renovation is 80% complete, the mansion is washed away in a flood. Builder's duties under the contract will:

Builder's duties under the contract will be discharged by impossibility. If a contract's subject matter is destroyed without the fault of either party, contractual duties are discharged. If the mansion no longer exists, it is impossible to renovate it. Discharge by impracticability occurs when performance is possible, but can be accomplished only with extreme and unreasonable difficulty or expense. Here, performance is not merely difficult or expensive, it is impossible. For duties to be discharged by frustration of purpose, the purpose of the contract must have become valueless by virtue of a supervening event. Frustration is generally raised by the party whose duty is to pay money. This would be the appropriate defense for Owner because a contract to renovate his mansion that no longer exists is valueless to him. It is not valueless to Builder. Builder's appropriate avenue to discharge is impossibility, not frustration.

DD: Owner enters into a contract with Builder under which Builder agrees to build a home to Owner's specifications for $500,000. When the home is 90% complete, it is destroyed by a fire caused by a lightning strike. Builder's duties under the contract will:

Builder's duties under the contract will not be discharged because it is still possible for him to perform the contract. Builder can rebuild the house. Builder's duties under the contract will not be discharged by impossibility because construction is not rendered impossible by the destruction of the building. Builder can rebuild the house. Nor will Builder's duties be discharged by frustration because frustration occurs when the purpose of the contract has become valueless by reason of an unforeseeable supervening event. Here, the purpose was not rendered valueless—presumably Owner still wants a home built on the property. Builder's duties will not be discharged regardless of whether it is possible to rebuild the house by the delivery date specified. To mitigate this harsh result, if the destruction was not caused by the contractor, courts typically will excuse the contractor from meeting the original deadline

3rd: 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:

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.

Remedies: __________ damages consist of losses resulting from the plaintiff's particular circumstances that any reasonable person would have foreseen as a probable result of 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, 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.

Remedies: What are consequential damages?

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.

Consideration: A conditional promise is unenforceable if:

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.

Consideration: Conditional promises are generally enforceable, unless the __________.

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.

Consideration: Conditional promises are enforceable even if __________, but not if __________.

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.

Remedies: In a contract for the sale of goods, __________ may recover consequential damages.

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.

3rd: Which of the following is not required for an effective assignment of an interest in land?

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.

T&W: Under the common law of contracts, modification of a written contract generally requires __________.

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.

Consideration: How can one avoid the preexisting legal duty rule?

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. Even full performance of a preexisting legal duty is not sufficient consideration. There must be some new or different obligation.

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

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.

Consideration: In judging the validity of consideration, courts of law __________ inquire into the adequacy of the consideration.

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.

Remedies: 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:

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.

O&A: What is the effect of the destruction of the subject matter of an offer prior to acceptance?

Destruction of the subject matter of an offer prior to acceptance terminates the offeree's power of acceptance. Obviously, since the offeree's power to accept has been terminated by operation of law, the offeree may no longer accept the offer. Since no contract is ever formed, the offeree cannot sue the offeror for breach. Once a contract is formed, a buyer often bears the risk of loss before receiving the goods purchased. 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, so that a buyer may obtain insurance for goods while they are being shipped to prevent loss in case of damage or destruction during shipment. But again, this applies to goods lost after the formation of a contract, not after a mere offer.

O&A: An express contract is __________.

Express contracts are formed by language, oral or written. Implied contracts are formed by manifestations of assent other than oral or written language, i.e., by conduct. A quasi-contract can be constructed by a court to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant. Quasi-contracts are not contracts at all; their only relationship to genuine contracts is historical.

DD: Which of the following is not a requirement for discharging a contract because of frustration?

Extreme and unreasonable difficulty the nonoccurrence of which was a basic assumption of the parties is the requirement for impracticability, not frustration of purpose. The elements necessary to establish frustration are: There is some supervening act or event leading to the frustration;At the time of entering into the contract, the parties did not reasonably foresee the act or event occurring;The purpose of the contract has been completely or almost completely destroyed by this act or event; andThe purpose of the contract was realized by both parties at the time of making the contract.

T&W: 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?

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.

3rd: Which of the following best describes the elements required for an effective assignment?

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

T&W: Which of the following is not a requirement for the implied warranty of fitness for a particular purpose?

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.

Consideration: Which of the following is sufficient to establish bargained-for consideration?

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.

DD: __________ exists if the purpose of the contract has become valueless by virtue of an unforeseeable supervening event.

Frustration exists if the purpose of the contract has become valueless by virtue of an unforeseeable supervening event. Supervening illegality occurs when the subject matter of the contract has become illegal due to a subsequently enacted law or other governmental act. Impracticability occurs when an unanticipated or extraordinary event makes it impracticable to perform. Rescission is an agreement between the parties to mutually give up their rights to performance under a contract, or a party can sue for rescission if there are adequate legal grounds to rescind the contract.

O&A: Full performance is necessary to properly accept an offer for a(n) __________ contract.

Full performance is necessary to properly accept an offer for a unilateral contract. A bilateral contract may be accepted either by a promise to perform or by the beginning of performance. Unless an offer (including one for an option contract) specifically provides that it may be accepted only through performance, it will be construed as an offer to enter into a bilateral contract, which may be accepted either by a promise or by beginning performance.

K: A&B; Generally speaking, if a contract does not address the importance of timeliness of performance in its terms, a failure by the promisor to perform at the time stated in the contract will result in __________.

If a contract does not address the importance of timeliness of performance in its terms, a failure by the promisor to perform at the stated time will result in a minor breach of the contract. Unless the nature of the contract is such as to make performance on the exact day agreed upon of vital importance, or the contract by its terms provides that time is of the essence, failure by a promisor to perform at the stated time generally will not be considered material. A failure to perform on time will always be some form of a breach of contract. It is not at the option of the nonbreaching party. The issue is the materiality of the breach. In mercantile contracts, timely performance is usually considered important. In contrast, more delay is generally permitted in land contracts.

Consideration: A gratuitous surety contract will be considered unenforceable for lack of consideration if the surety makes his promise to pay __________.

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.

K: A & B; When should the nonbreaching party treat an otherwise minor breach as a material breach?

If a minor breach is coupled with an anticipatory repudiation, the nonbreaching party may treat it as a material breach. Thus, the nonbreaching party may sue immediately for total damages and is permanently discharged from any duty of further performance. The courts hold that the nonbreaching party must not continue on with the contract, because to do so would be a failure to mitigate damages. There is no reason that a minor breach that is part of a divisible contract should be treated as a material breach. In fact, in a divisible contract, recovery is available for substantial performance of a divisible part even if there has been a material breach of the entire contract. Even a minor breach can cause the nonbreaching party damages. The effect of a minor breach is to provide a remedy for the immaterial breach to the aggrieved party. The aggrieved party is not relieved of her duty of performance under the contract by a minor breach, unlike in the case of a material breach. Unless the nature of the contract is such as to make performance on the exact day agreed upon of vital importance, or the contract by its terms provides that time is of the essence, a failure by a promisor to perform at the stated time will not be material. Thus, a minor breach that relates to the timing of performance generally should not be treated as a material breach.

3rd: If a person leaves an item of jewelry with a jeweler for repair, and the jeweler sells the item to an unsuspecting purchaser, __________.

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.

T&W: Under Article 2, which of the following is not a true statement concerning contract terms?

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.

O&A: If a sale involves both goods and services, __________.

If a sale involves both goods and services (e.g., a contract to paint a portrait), a court will determine which aspect is dominant and apply the law governing that aspect to the whole contract. Thus, the other choices are wrong. Note, however, if the contract divides payment between goods and services, then Article 2 will apply to the sale portion and the common law will apply to the services portion.

K: A&B; If a seller gives no instructions within a reasonable time after notification of rejection, the buyer may _________________ the goods.

If a seller gives no instructions within a reasonable time after notification of rejection, the buyer may reship the goods to the seller, store them for the seller's account, or resell them for the seller's account. A buyer may not destroy rejected goods.

DD: If an accord agreement is breached __________.

If an accord agreement is breached by the debtor, the creditor may sue either on the original contract or for breach of the accord agreement, but not on both. If the accord agreement is breached by the creditor by suing on the original contract, the debtor may either: raise the accord agreement as an equitable defense and ask that the contract action be dismissed or wait until the creditor is successful in the action (i.e., until the debtor is damaged) and then bring an action at law for damages for breach of the accord contract. The debtor may not immediately sue for damages. If the accord agreement is breached by the creditor refusing to accept the performance agreed upon in the accord, the debtor may bring an action for breach of the accord agreement, but is not entitled to punitive damages. Punitive damages generally are not awarded in contract cases.

3rd: 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:

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.

3rd: If an assignee for value discovers that the assignor had previously assigned the same contract rights to another party for value, the assignee may _________.

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.

3rd: If an assignor takes payment or performance directly from the obligor, __________.

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.

Consideration: An otherwise valid debt that is now barred by the statute of limitations can still be enforced if______.

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.

T&W: 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?

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.

O&A: An offer is terminated by the death of the offeror unless:

If either of the parties to an offer dies prior to acceptance, the offer is terminated unless one of the rules limiting an offeror's power to terminate is applicable (e.g., in an option contract). It is not necessary that the other party has notice of the death. Also, because the offer is automatically terminated at the offeror's death, it does not matter that the executor of the offeror's estate wishes to keep the offer open. A new offer will need to be issued to the offeree to go forward with the transaction.

O&A: If it reasonably appears that the parties intended to make a valid contract, a court may apply the presumption that the parties' intent was to include a reasonable term to rectify any __________ term.

If it appears the parties intended to make a contract and there is a reasonably certain basis for giving a remedy, the majority of jurisdictions and Article 2 hold that a court can supply a reasonable term for one that is missing. However, the presumption cannot be made if the parties have included a term that makes the contract too vague to be enforced. The problem then is that the parties have manifested an intent that cannot be determined. The 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. If a court finds as a matter of law that a contract or any clause of the contract was unconscionable when made, the court does not simply apply a presumption that the parties' intent was to provide a reasonable term. Instead, 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.

T&W: Under Article 2, if the buyer has a right to reject the goods, __________.

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.

K:A&B; Under the U.C.C., in a single delivery contract, a seller may always cure a shipment that the buyer has rejected because of defects by delivering conforming goods within:

If the buyer has rejected goods because of defects, the seller may, within the time originally provided for performance, "cure" by giving reasonable notice of her intention to do so and making a new tender of conforming goods which the buyer must then accept. Ordinarily, the seller has no right to cure beyond the original contract time. However, in cases where the buyer rejects a tender of nonconforming goods that the seller reasonably believed would be acceptable "with or without money allowance," the seller, on reasonable notification to the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender. A seller will probably be found to have had reasonable cause to believe that the tender would be acceptable if the seller can show that trade practices or prior dealings with the buyer led the seller to believe that the goods would be acceptable, or the seller could not have known of the defect despite proper business conduct. There is no set time period, such as 10 days after the notice of rejection is sent or received, in which the seller always has a right to cure. As stated above, the length of time to cure depends on the specifics of the contract and the circumstances surrounding the defective delivery.

Consideration: The promise to refrain from suing on a claim may constitute consideration provided that __________.

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

Remedies: 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:

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.

3rd: An important difference between the rights of a donee beneficiary and a creditor beneficiary is that __________.

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.

Remedies: Which of the following is not a requirement for an enforceable covenant not to compete?

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.

Remedies: 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:

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.

PE: 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 __________.

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.

Consideration: If you agree to refrain from doing something that you have a legal right to do, you have __________.

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.

Def: Which one of the following contracts is considered void, rather than voidable?

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.

O&A: An implied contract is __________.

Implied contracts are formed by manifestations of assent other than oral or written language, i.e., by conduct. Express contracts are formed by language, oral or written. A quasi-contract can be constructed by a court to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant. Quasi-contracts are not contracts at all; their only relationship to genuine contracts is historical.

Remedies: In a construction contract, if the property owner breaches the contract __________.

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.

Def: A 17-year-old contracts to buy his neighbor's car. The neighbor is 25 years old. The agreement between the two parties is:

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.

T&W: In a shipment contract, when goods are destroyed en route from the seller to the buyer, the risk of loss is borne by:

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.

K: A&B; Which of the following best summarizes a buyer's right to reject a defective shipment under Article 2 of the U.C.C.?

In a single delivery contract, the buyer can always reject the shipment because of defects under the perfect tender rule. Note however, that the seller may, within the time originally provided for performance, cure by giving reasonable notice of her intention to do so and making a new tender of conforming goods, which the buyer must then accept. In contrast, Article 2 provides that a defective shipment in an installment contract cannot be rejected if the defect can be cured. For example, a deficiency in quantity could be cured by an additional delivery, so the buyer in an installment contract could not reject a shipment that was deficient in quantity. If the defects are in the particular goods themselves and thus cannot be cured, the buyer can reject them. The seller retains the right to cure within the time for performance by making a tender of conforming goods within the time for performance.

Remedies: The value of the benefit conferred is the measure of recovery for ___________.

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.

Remedies: In a suit for restitution, the measure of recovery is __________.

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.

O&A: In an auction __________, the auctioneer may withdraw the goods at any time until he announces completion of the sale.

In an auction with reserve, the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, once the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In a sale by auction, if goods are put up in lots, each lot is the subject of a separate sale, each of which could be specified as with or without reserve.

K: A&B; In an installment contract situation, an installment can be rejected by the buyer __________.

In an installment contract situation, an installment can be rejected only if the nonconformity substantially impairs the value of that installment and cannot be cured. In an installment contract situation, if there is a nonconformity that substantially impairs the value of the entire contract and cannot be cured, that is grounds for canceling the contract—but it is not the standard for rejecting a single installment. Under the perfect tender rule of Article 2, a buyer has a right to reject if the goods or their delivery fail to conform to the contract in any way. However, there is an exception for installment contracts, which requires that the nonconformity substantially impair the value of the installment in order for the buyer to reject the installment. If the shipment is deficient in quantity, the deficiency may be cured by an additional delivery. Thus, the buyer cannot reject the installment for that reason.

Remedies: Which of the following statements is correct regarding damages for a breach of a contract for the sale of goods?

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.

Def: 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?

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.

3rd: 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 _________.

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.

T&W: In general, if there is no evidence of the parties' intention, contracts will be construed ___________, and ambiguities in the contract will be ____________.

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.

Def: What is the Statute of Frauds?

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.

3rd: In the case of a contract involving a third-party beneficiary, a __________ makes a promise to a ____________ for the benefit of a __________.

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.

Remedies: 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 ____________.

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.

Conditions: In the case of an anticipatory repudiation, the nonrepudiating party __________.

In the case of an anticipatory repudiation, the nonrepudiating party has several alternatives. He may sue immediately or wait until the date performance is due to sue.The nonrepudiating party may choose to suspend his own performance, but he need not wait until the date performance is due to sue.Even if the nonrepudiating party does not sue immediately, the repudiation is not deemed waived, because the nonrepudiating party can choose to wait until the date performance is due to sue.The nonrepudiating party may choose to suspend his performance immediately. There is no need for him to continue his own performance until the date of performance and then sue.

Consideration: Which of the following normally would not be an exception to the preexisting legal duty rule?

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.

Remedies: 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.

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

Remedies: 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.

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.

3rd: 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?

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.

Remedies: Incidental damages ______________.

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.

Def: A contract entered into between an infant and an adult is __________.

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.

Remedies: __________ 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.

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.

O&A: Which statement best summarizes the distinction between the standard method of acceptance for unilateral and bilateral contracts?

Most courts hold that an offer for a unilateral contract may be accepted only by full performance. In contrast, an offer for a bilateral contract may be accepted either by a promise to perform or by the beginning of performance.

Remedies: Which of the following statements is true regarding enforcement of a covenant not to compete?

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.

Def: Mutual mistake can be a defense to the formation of a contract if:

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.

Conditions: Nonfulfillment of a condition __________.

Nonfulfillment of a condition normally will excuse a duty to perform that was subject to the condition. A condition is a provision the fulfillment of which creates or extinguishes a duty to perform under a contract, thus nonfulfillment of a condition will excuse the other party's duty to perform under the contract. Nonfulfillment of a condition is not a breach of contract and does not give rise to liability for nonperformance.

Remedies: 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.

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.

3rd: Once an obligor delegates his duties under a contract to a delegate, the obligee __________.

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.

Consideration: Valuable consideration must have:

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.

Consideration: 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?

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.

Consideration: Which of the following promises is commonly considered to be illusory?

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).

Remedies: The remedy of restitution is based on ______________ and is measured by ____________.

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.

T&W: Which of the following is not a general rule of contract construction?

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.

Consideration: Which of the following is not traditionally an element of the doctrine of promissory estoppel?

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).

Consideration: __________ can serve as a substitute for consideration.

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.

Conditions: Which of the following is a key distinction between an anticipatory repudiation and a prospective failure to perform?

Prospective inability or unwillingness to perform differs from anticipatory repudiation because repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform. Repudiation must be unequivocal. However, a prospective failure to perform is not based on the subjective beliefs of the other party, but rather is judged on a reasonable person standard. Both repudiation and prospective failure to perform may be retracted, provided the other party has not yet changed position in reliance on the repudiation or prospective failure. The effect of a prospective failure is to allow the innocent party to suspend performance until she receives adequate assurances. She may treat this situation as a breach only if the assurances are not given. If a defaulting party regains his ability or willingness to perform, he must communicate that to the other party.

Remedies: 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:

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.

3rd: 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:

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.

Remedies: Which of the following is not an equitable defense?

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.

3rd: 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?

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.

PE: 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 __________.

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.

O&A: Which of the following does not interfere with an offeror's right to revoke an offer?

The Statute of Frauds is not relevant to an offeror's power to terminate an offer. Generally, an offeror may terminate an offer any time before acceptance. The Statute of Frauds requires that certain contracts be memorialized in a writing to be enforceable and has nothing to do with the termination of offers. An option is a contract to keep an offer open. It requires consideration to be enforceable. An offer that is the subject of an option contract is irrevocable for as long as the option contract provides. A merchant's firm offer is a written and signed offer for a sale of goods made by a merchant that gives assurances that the offer will remain open. Such an offer is irrevocable for the time stated in the offer, or if no time is stated, for a reasonable time, but in no event may such period exceed three months. Detrimental reliance can make an offer irrevocable as an option contract for a reasonable period of time. Detrimental reliance arises when a person makes an offer under circumstances such that he should reasonably expect that the offeree will rely on the offer to her detriment and the offeree does so rely.

Def: A service contract that by its terms __________ is subject 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. 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.

Def: A writing is not required to enforce a contract that would otherwise be covered by the Statute of Frauds if:

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). 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 sometimes be enforceable without a writing, but only under circumstances where 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. 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.

Def: The confirmatory memo rule applies __________.

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.

K: A&B; The U.C.C. gives a seller the right to cure a defective shipment within a reasonable time beyond the original time for performance in the contract if:

The U.C.C. provides that in cases where a buyer rejects a tender of nonconforming goods that the seller reasonably believed would be acceptable "with or without money allowance," the seller, upon a reasonable notification to the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender. A seller will probably be found to have had reasonable cause to believe that the tender would be acceptable if the seller can show that trade practices or prior dealings with the buyer led the seller to believe that the goods would be acceptable, or the seller could not have known of the defect despite proper business conduct. Although notification of the desire to cure is required before the seller can cure the defective delivery, it is not enough that the seller notifies the buyer of his desire to cure before the time for performance in the original contract. To extend the right to cure beyond the original time of performance, the seller must show that he mistakenly, but reasonably, believed that the nonconforming goods would be acceptable to the buyer. The seller's right to cure under the U.C.C. is not determined by whether the buyer would suffer damages by allowing the seller to cure; and the buyer need not agree to extend the terms of the contract to allow for late delivery without additional consideration for the seller to exercise the right to cure under the U.C.C.

Remedies: Which of the following is not a valid measure of a seller's damages?

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.

O&A: Under Article 2, when an offeree proposes additional or different terms during acceptance, the court will apply __________ to determine whether the additional or different terms become part of the contract.

The battle of the forms provision of Article 2 lists specific rules for determining what terms are included in a contract when the terms of acceptance do not match the terms of the offer. Article 2 has abandoned the mirror image rule, which requires an absolute and unequivocal acceptance of each and every term of the offer. Gap fillers are used when certain terms are not included in the contract; it does not apply to additional or different terms in the acceptance. The mailbox rule is applied to determine the timing of acceptance of a contract.

Consideration: Which of these is the best example of a ratification?

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.

K: A&B; A buyer orders 600 widgets to be delivered on the 10th of each month in lots of 100. The second month's shipment arrived on the 8th of the month and contains only 95 widgets. The buyer ____________________.

The buyer may not reject the shipment. Under a single delivery sale of goods contract, a five-widget shortfall could be the basis for rejection under the perfect tender rule. However, this is an installment contract, and the buyer cannot reject the installment unless he can show that the shortfall substantially impairs the value of the installment and cannot be cured. A deficiency in quantity can always be cured, and there are still two days before performance is due. Under the perfect tender rule, if goods or their delivery fail to conform to the contract in any way, the buyer may reject all, accept all, or accept any commercial units and reject the rest. However, in an installment contract, the right to reject an installment is limited to nonconformities that substantially impair the value of the installment and cannot be cured. In an installment contract, a buyer may cancel the entire contract due to breach only if the buyer can show that the nonconformity substantially impairs the value of the entire contract. The five-widget deficiency is easily cured and is unlikely in any event to be found to impair the value of the entire 600-widget contract.

Def: When a court refuses to enforce a provision of a contract to avoid "unfair" terms, it is applying the concept of:

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.

K: A&B; Which of the following statements regarding shipment and destination contracts is accurate?

The correct statement is that in a shipment contract, the price is due when the goods are put in the hands of the carrier, and in a destination contract, the price is due when the goods reach the named destination. In both a shipment and destination contract, the cost of the buyer's inspection of the goods is borne by the buyer. The buyer may recover inspection costs from the seller if the goods are nonconforming and the buyer rejects them. In both a shipment and destination contract, tender of payment by check is sufficient unless the seller demands legal tender.

DD: The physical incapacity of a person necessary to effectuate a personal services contract:

The death or physical incapacity of a person necessary to effectuate the contract serves to discharge the contract by impossibility. If a contract is discharged because of impossibility, each party is excused from duties arising under the contract that are yet to be fulfilled.The incapacitated person does not breach the contract despite being unable to perform. That party's duty to perform has been discharged.Frustration occurs when the purpose of the contract has become valueless by virtue of a supervening event. Here the purpose of the contract has not changed, but performance by a person necessary to the contract has become impossible due to physical incapacity. The contract is not rescinded, it is discharged. Mutual rescission occurs when the parties make a mutual agreement to give up their rights under the contract. Unilateral rescission occurs when one party is granted the right to rescind, despite the other party's objections, based on adequate legal grounds such as mistake or duress.

DD: The subsequent physical incapacity of a person necessary to effectuate a personal services contract serves to discharge the contract by:

The death or physical incapacity of a person necessary to effectuate the contract serves to discharge the contract by impossibility. Personal service contracts are discharged in this manner only if the services involved are unique. If a contract is discharged because of impossibility, each party is excused from duties arising under the contract that are yet to be fulfilled. Frustration occurs when the purpose of the contract has become valueless by virtue of a supervening event. Here the purpose of the contract is still valuable, but receiving the services from a physically incapable person is now impossible. Frustration of purpose is generally used as a defense by the party whose duty it is to pay money, rather than the party that is to perform services. Discharge by occurrence of a condition subsequent does not apply here because there was no condition subsequent in the contract. A condition subsequent is a condition in the contract the occurrence of which cuts off an already existing duty of performance. 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 to the existing contract, some other, different performance. There is no mention of an accord in this question.

DD: A contractor is hired to remodel a restaurant. After the contractor completes 90% of the work, the restaurant is destroyed in an earthquake. The destruction of the restaurant :

The destruction of the restaurant will discharge the contractor's duty to perform. If a contract's subject matter (here, the restaurant) is destroyed, contractual duties will be discharged as long as the destruction was not the fault of either party. Note the different rules for buildings already in existence and those to be built. When, as here, the contract is for the repair or remodel of an existing building, the destruction of the building will discharge the duty to perform, even if rebuilding could reasonably be completed by the date of performance. By contrast, in a contract to construct a building, destruction of the building in progress will not discharge the duty to perform because performance is not impossible—the building can still be built. In that case, the date of performance may be extended.

Conditions: The doctrine of "substantial performance" generally does not apply to __________.

The doctrine of "substantial performance" generally does not apply to contracts for the sale of goods due to the U.C.C. "perfect tender rule." The doctrine of substantial performance was developed in construction contracts cases, so it certainly applies to such contracts. Courts generally apply the doctrine only where constructive conditions are involved. They will not apply it to express conditions for fear this would defeat the express intent of the parties. Most courts will not apply the substantial performance doctrine if the breach was "willful," however, trivial defects, even if willful, will be ignored by the courts as de minimis.

Remedies: In the case of a breach of an employment contract by the employee, the employer may recover:

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.

Remedies: The equitable defense of __________ arises when a party delays in bringing an equitable action and the delay prejudices the defendant.

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.

Consideration: 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 __________.

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.

3rd: The general rule is that when the assignor makes two assignments of the same right, if the first assignment is ____________, the ____________ assignee has priority.

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.

T&W: The implied warranty of merchantability is ______________.

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.

3rd: 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 __________.

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.

Consideration: The __________ is a possible exception to the general rule against the use of "past" consideration as the basis for a contract.

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.

Consideration: Which of the following would not be considered valuable consideration that supports a contract?

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.

O&A: Which of the following would satisfy the mirror image rule?

The mirror image rule insists on an absolute and unequivocal acceptance of each and every term of the offer. Any different or additional terms in the acceptance make the response a rejection and counteroffer. A grumbling acceptance (i.e., an acceptance accompanied by an expression of dissatisfaction) is an effective acceptance as long as it stops short of actual dissent. When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer and thus would not satisfy the mirror image rule. As stated above, the mirror image rule insists on an absolute and unequivocal acceptance of each and every term of the offer, thus a partial acceptance would violate the rule because some of the terms of the offer were not accepted.

O&A: Which of the following would be in violation of the mirror image rule?

The mirror image rule requires an absolute and unequivocal acceptance of each and every term of the offer. Under the mirror image rule, any different or additional terms in the acceptance make the response a rejection and counteroffer. In contrast, statements by the offeree that make implicit terms explicit, express dissatisfaction, or request clarification do not necessarily amount to a rejection and counteroffer.

Remedies: As a general rule, if the property owner in a construction contract breaches, the builder has a duty to:

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.

O&A: Generally, whether a communication is deemed an offer depends upon __________.

The objective or apparent intention of the offeror determines whether there has been an offer (i.e., a communication creating a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms. Sometimes stated as a manifestation of intent to enter into a contract). Contract law generally is governed by an objective test—how would reasonable people interpret the communications involved. The subjective intention of the offeror does not determine whether a communication is an offer. As explained above, contract law generally is governed by an objective test—how would reasonable people interpret the communications involved. Whether the offeror has communicated in writing does not determine whether a communication is an offer. Offers can be oral or even made by conduct (e.g., sitting in a barber's chair can constitute an offer to pay the barber for a haircut even if no words are spoken). Whether the offeror has communicated the words "offer" or "promise" does not determine whether the communication is an offer. As discussed above, an offer is any communication creating a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms. The communication need not include the words "offer" or "promise"; indeed, words are not even necessary, as discussed above.

DD: The death of a party to a contract:

The occurrence of an unanticipated or extraordinary event may make contractual duties impossible or impracticable to perform or may frustrate the purpose of the contract. The death of a party necessary to effectuate the contract serves to discharge the contract for impossibility. However, personal service contracts are discharged in this manner only if the services involved are unique. If the services are the kind that can be delegated, it is not true the contract is always discharged by reason of impossibility by the death of the person who was to perform them. Even though that party is no longer able to perform, a substitute performance can sometimes be made. But it also is not true that any contract is capable of performance by a substitute party. As discussed above, when a service is unique, death of the person necessary to the service will serve to discharge the contract. Where the nonoccurrence of the event was a basic assumption of the parties in making the contract and neither party has expressly or impliedly assumed the risk of the event occurring, contractual duties may be discharged. Normally the parties to a contract are not anticipating the death of a party if the contract makes no provisions for the death of a party. Thus, if the deceased was necessary to effectuate the contract, his death would be considered an extraordinary or unexpected event sufficient to discharge the contract.

T&W: 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?

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.

PE: Despite the parol evidence rule, a party to a fully integrated written contract can always offer evidence __________.

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.

PE: Extrinsic evidence of a condition precedent to a fully integrated agreement is admissible, despite the parol evidence rule, because __________.

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.

Remedies: A liquidated damage clause will be enforceable only if:

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.

Remedies: A liquidated damages clause may be enforced even if:

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.

Conditions: In some cases, the condition of complete performance may be excused if a party has rendered __________.

The performance of one contractual promise is usually a condition precedent to the duty of immediate performance of the return promise. Generally, the condition of complete performance may be excused if the party has rendered substantial performance. The rules for determining substantiality of performance are the same as those for determining materiality of breach. The test is whether the breach of contract by the performing party is material or minor. If it is material, then performance has not been substantial; if it is minor, performance has been substantial. Partial performance that did not rise to the level of substantial performance would not be enough to excuse the condition of complete performance. Whether an alternative performance would be acceptable would depend on the terms of the contract. If an alternative performance is allowed, this would still be a form of complete performance, not a way to excuse the condition of performance.

Conditions: __________ best describes the primary difference between excuse of condition by prospective unwillingness to perform and excuse of condition by anticipatory repudiation because _____________.

The primary distinction between anticipatory repudiation and prospective inability to perform is one of degree of certainty. Anticipatory repudiation occurs when a party to a contract, prior to the time set for performance, indicates that he will not perform when performance is due. Prospective unwillingness to perform occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. Hence, the terms are not interchangeable; prospective inability or unwillingness to perform is not an anticipatory repudiation because such a repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform. Both excuse of condition by prospective unwillingness to perform and excuse of condition by anticipatory repudiation involve similar timing, because both occur before the time of performance. Generally speaking, neither excuse of condition by prospective unwillingness to perform nor excuse of condition by anticipatory repudiation is final. Both can be retracted before the time of performance so long as the other party has not changed position in reliance on the prospective failure or anticipatory repudiation.

3rd: The rights of a third-party beneficiary vest when he:

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.

3rd: The right to receive services under a contract between ______________ may be assigned but the right to receive services under a contract between ________________ may not.

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.

T&W: 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 __________.

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.

3rd: 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?

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.

O&A: Under Article 2, a seller can accept an offer by shipping nonconforming goods to the buyer without committing a breach of the contract by:

The shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of the contract—unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation. Under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment of conforming or nonconforming goods. Thus, the act of shipping nonconforming goods is itself an acceptance (and breach) and not a counteroffer, unless the seller takes the actual step of notifying the buyer that the shipment is being offered only as an accommodation. Shipping goods of an objectively greater value than those specified in the contract without notifying the buyer that these greater goods are being offered as an accommodation would still be considered a breach of contract, and the buyer may sue for any appropriate damages.

T&W: Which of the following statements or actions cannot give rise to an express warranty?

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.

DD: A building that is the subject of a contract between its owner and a contractor is completely destroyed by an act of nature. If the contractor was working on a renovation, the destruction _____________; if the contractor was constructing the building, the destruction ________________.

The total destruction by an act of nature of a renovation in progress discharges the contractor's duties by impossibility. If a contract's subject matter is destroyed without the fault of either party, the contractual duties are discharged. If the original building no longer exists, it is impossible to renovate it. The construction of a new building, even if destroyed during progress, is not impossible and thus will not discharge the contractor's duty to perform. However, if the destruction was not caused by the contractor, courts typically will extend the time for the contractor to perform. Discharge by impracticability occurs when performance is possible, but can be accomplished only with extreme and unreasonable difficulty or expense. It is impossible, not impracticable, to renovate a building that no longer exists. Moreover, discharge by frustration may not be raised by the contractor in either case. His purpose in entering into the contract was to make money. Frustration occurs when the purpose of the contract has become valueless by virtue of a supervening event. Frustration of purpose would be a valid defense of the owner in the contract for renovation. Without the building, there is no point in paying to renovate it.

DD: An executive hires a personal trainer for six months at $100 per week to ready the executive for an upcoming triathlon. One month into the contract, the executive suffers an accident that leaves her paralyzed and unable to compete in the triathlon. When the executive fails to pay the trainer, the trainer sues for breach of contract. The trainer will ______________ because ___________.

The trainer will not prevail because the purpose of the contract was frustrated, thereby discharging the executive's duty to pay. If a subsequent physical incapacity of a person prevents that person from enjoying the benefits of the contract, the contractual duties may be discharged by frustration of purpose. Frustration exists if the purpose of the contract has become valueless by virtue of an unforeseeable supervening event. The person is still capable of performing under the contract but would not enjoy the benefit he anticipated when entering into the contract. Here, the executive can still perform (i.e., pay), but the contract for the trainer's services has become valueless by virtue of the unforeseeable accident and paralysis. Performance by the executive is NOT impracticable. Impracticability occurs when an unanticipated or extraordinary event makes it impracticable to perform. Here, the executive's contractual duty is to pay money. The incapacity only prevents the executive from enjoying the benefits, not from performing on the contract; thus, this not a case of impracticability. The trainer will not prevail even though performance by the executive is not impossible. Impossibility occurs when it has become impossible for anyone to perform the contractual duties. As noted above, the executive's duty is to pay money. Thus, performance is not impossible. However, the trainer will not prevail because the executive's duties are discharged because of frustration. It is not necessary for the contract to contain a provision for discharge by occurrence of a condition subsequent in order for the executive's duties to be discharged. As noted above, the executive's paralysis makes it impossible for her to compete in the triathlon; thus, the purpose of the contract with the trainer is frustrated.

3rd: Which of the following is not an implied warranty given by an assignor to an assignee for value?

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.

T&W: Which of the following is an element of the implied warranty of fitness for a particular purpose?

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.

DD: A and B enter into a contract. A, B, and C subsequently enter into a new contract that states that C will receive all benefits and assume all duties that had originally belonged to A in the initial A-B contract. This is an example of:

This is an example of a novation. A novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. A novation will serve to discharge the old contract. The elements for a valid novation are:(i) a previous valid contract;(ii) an agreement among all parties, including the new party (or parties) to the new contract; (iii) the immediate extinguishment of contractual duties as between the original contracting parties; and (iv) a valid and enforceable new contract. An assignment is a transfer of rights under a contract. The effect of an assignment is to establish privity of contract between the obligor and the assignee, while extinguishing privity between the obligor and assignor. The assignee then replaces the assignor as the real party in interest, and she alone is entitled to performance under the contract. In this question, there was no assignment of rights under the A-B contract, instead there was a new contract between A, B, and C, which discharged the A-B contract. A modification is a change in the terms of a contract agreed to by the original parties to the contract. Here, an entirely new contract has been created by A, B, and C, which serves to discharge the original A-B contract. 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 to the existing contract, some other, different performance. It is not applicable to these facts.

K: A&B; In an installment contract situation, the contract can be canceled by the buyer if:

To cancel the entire installment contract due to breach, the buyer must show that the nonconformity substantially impairs the value of the entire contract and cannot be cured. If the nonconformity substantially impairs the value of only the installment and cannot be cured, only the single installment may be rejected. Unlike most contracts for the sale of goods, under which a shipment may be rejected in it fails to conform to the contract in any way, installment contracts have special rules limiting the right to reject to substantial impairment of the value of the installment. The right to cancel the entire contract is even further limited to substantial impairment of the value of the entire contract. A shipment that is deficient in quantity is not grounds for canceling an installment contract. This situation is the least likely to even give rise to a right to reject an installment because it is easily cured by a shipment of the missing quantity.

Def: The Statute of Frauds requires:

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.

Def: At common law, the Statute of Frauds requires _____________ signed by ____________.

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.

Consideration: Generally speaking, the promise to perform an existing legal duty is __________.

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.

O&A: A merchant who offers to buy or sell goods in a signed writing that gives assurances that the offer will be held open is offering:

Under Article 2, a merchant's firm offer arises when a merchant offers to buy or sell goods in a signed writing that gives assurances that the offer will be held open. If no specific time frame is stated in the offer, a merchant's firm offer will remain open for a reasonable time (but in no event may such period exceed three months). An option contract is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer for a period of time. An offer for a unilateral contract is one that can be accepted only by full performance. Note that the beginning of performance may create an option so that the offer is irrevocable. However, the offeree is not obligated to complete performance merely because he has begun performance, as only complete performance constitutes an acceptance of the offer.

O&A: Which of the following most accurately lists the necessary elements for a merchant's firm offer?

Under Article 2, a merchant's firm offer arises when a merchant offers to buy or sell goods in a signed writing, and the writing gives assurances that the offer will be held open. If no specific time frame is stated in the offer, a merchant's firm offer will remain open for a reasonable time (but in no event may such period exceed three months). For a merchant's firm offer, it is not necessary that the offer be made to another merchant; only the offeror must be a merchant. Furthermore, while a merchant's firm offer must be in writing, it need not be for a specified time; if no time is specified, it will remain open for a reasonable time (but in no event may such period exceed three months). A merchant's firm offer differs from a traditional option contract in that no consideration need be paid to keep the offer open.

Consideration: Under U.C.C. Article 2, what standard is applied to allow the modification of a sales contract without additional consideration?

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.

Consideration: Under U.C.C. Article 2, a contract for the sale of goods may be modified without consideration only if:

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.

O&A: Which of the following scenarios best illustrates the Article 2 concept of "accommodation"?

Under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment of conforming or nonconforming goods. The shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of the contract—unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation. The concept of accommodation applies to offers to buy goods for current or prompt shipment. If a seller of goods verbally rejects a buyer's offer but makes a counteroffer for comparable goods, this is a simple case of a rejection and counteroffer, not an accommodation. Similarly, if a seller of goods verbally accepts a buyer's order but proposes that the buyer accept nonconforming, comparable goods in place of those ordered, accommodation is not at issue. A contract was formed when the seller verbally accepted the buyer's order. The Battle of the Forms provision of Article 2 may then be used to determine the content of that contract. If the seller merely ships nonconforming goods to a buyer in an effort to make a counteroffer, without notifying the buyer that the shipment is being offered only as an accommodation, the act of shipping nonconforming goods is an acceptance and breach, not a counteroffer.

K: A&B; Under U.C.C. Article 2, unless the contract provides otherwise, any expenses for inspection of the goods sold will be borne by:

Under Article 2, unless the contract provides otherwise, the buyer has a right to inspect the goods before paying. Expenses of inspection must be borne by the buyer, but may be recovered from the seller if the goods do not conform and are rejected. A buyer may inspect at any reasonable time and in any reasonable manner. If the contract between the parties provides for payment C.O.D. or otherwise indicates that the buyer has promised to pay without inspecting the goods, there is no right of inspection prior to payment. If payment is due before inspection, the fact that the goods are defective does not excuse nonpayment unless the defect appears without inspection or there is fraud in the transaction. Thus, generally the seller will not share in the cost of inspections, but may have to pay the costs if the goods do not conform and are rejected, as noted above.

K: A&B; Under a U.C.C. Article 2 shipment contract, the seller need not ___________ but must ___________.

Under a U.C.C. Article 2 shipment contract, a seller need NOT see that the goods reach the buyer, but must: put the goods into the hands of a reasonable carrier and make a reasonable contract for their transportation to the buyer; obtain and tender any documents required to enable the buyer to take possession; and promptly notify the buyer of the shipment. In a shipment contract, the seller bears the risk of loss only until the seller delivers the goods to the carrier.

Def: Which of the following contracts must be evidenced in writing?

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.

Def: To be enforceable under the Statute of Frauds, which of the following must be in a writing signed by the parties sought to be bound?

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.

3rd: Under the U.C.C., a good faith purchaser for value can be _________ or ____________.

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.

K: A&B; Under the U.C.C., what is required to cure a defective delivery in a single delivery contract?

Under the U.C.C., a seller may "cure" a defective delivery by giving reasonable notice of the intention to cure and making a new tender of conforming goods within the time for performance. If the seller follows this procedure, the buyer must then accept the new tender. There is no set time period, such as 10 days after the notice of rejection is received, in which the seller has a right to cure. The length of time to cure depends on the specifics of the contract and the circumstances surrounding the defective delivery. The seller generally has no right to cure beyond the original contract time. However, in cases where the buyer rejects a tender of nonconforming goods that the seller reasonably believed would be acceptable "with or without money allowance," the seller, on reasonable notification to the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender. A seller will probably be found to have had reasonable cause to believe that the tender would be acceptable if the seller can show that trade practices or prior dealings with the buyer led the seller to believe that the goods would be acceptable, or the seller could not have known of the defect despite proper business conduct. In any case, reasonable notice of intent to cure is required.

3rd: 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 __________.

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.

Def: 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:

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.

Def: 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:

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.

Conditions: Under the doctrine of substantial performance, can one party recover damages for the other party's incomplete performance?

Under the doctrine of substantial performance, even though the party who has substantially performed is able to enforce the contract, the other party will be able to mitigate by deducting damages suffered due to the first party's incomplete performance. The doctrine of substantial performance applies only if the breach is minor. If the breach is material, the performance is not considered substantial, and the party is in breach. Damages could be recovered for a material breach—but not under the doctrine of substantial performance. Similarly, if the performing party's breach was willful, most courts will not apply the substantial performance doctrine. A willful breach would be considered a standard breach of contract, and the regular damages rules would apply. While it is true that the doctrine of substantial performance was adopted to avoid the harsh result that could occur if complete performance were required, this does not preclude the nonbreaching party from also recovering any damages suffered due to the other party's incomplete performance. It just means that the nonbreaching party has a duty to perform in spite of the incomplete performance.

T&W: Under the warranty of _____________ , goods are warranted to be fit for the ordinary purpose for which such goods are used.

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.

K: A & B; Under Article 2, unless the contract provides otherwise, a buyer has a right to inspect the goods __________.

Unless the contract provides otherwise, the buyer has a right to inspect the goods at the buyer's own expense before she pays. Under Article 2, expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected.

T&W: Which of the following statements is true?

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.

Consideration: Which of the following is the best definition for the term "consideration"?

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.

Consideration: A bargained-for change in legal position between the parties is commonly known as __________.

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.

DD: Student enters into a contract with Violinist under which Violinist agrees to give Student violin lessons once a week for one year for $50 per week. Violinist subsequently has a stroke and is unable to teach. Violinist's duties under the contract will:

Violinist's duties under the contract will be discharged by impossibility. Death or physical incapacity of a person necessary to effectuate the contract serves to discharge it. This is the type of personal services contract that cannot be delegated because Violinist's services are considered unique. Frustration occurs when the purpose of the contract has become valueless by virtue of a supervening event. Here the purpose of the contract (violin lessons) is still valuable, but receiving them from Violinist is now impossible. Frustration of purpose is generally used as a defense by the party whose duty it is to pay money, rather than the party that is to perform services. Discharge by occurrence of a condition subsequent does not apply here because there was no condition subsequent in the contract. A condition subsequent is a condition in the contract the occurrence of which cuts off an already existing duty of performance.

K: A&B; Which of the following is a true statement regarding a minor breach of contract under the common law?

When a breach of contract is minor, the obligee still gains the substantial benefit of her bargain despite the obligor's defective performance. The aggrieved party is entitled to a remedy for the minor breach. Although a minor breach may prevent the aggrieved party from gaining the entire benefit of her bargain, she still gains the substantial benefit of her bargain. Thus, the minor breach will not discharge any duty of counterperformance owed by the aggrieved party, nor entitle her to a remedy for breach of the entire contract.

K: A&B; Which of the following does not constitute an acceptance of goods under Article 2?

When a buyer receives goods and submits them to an inspection, he has not yet accepted the goods. A buyer must be given a reasonable opportunity to inspect the goods before acceptance, thus merely receiving the goods and submitting them to an inspection is not yet an acceptance. After inspection, the buyer may then accept the goods if they conform. In addition, it is also an acceptance, if the buyer indicates to the seller that she will keep the goods even though they fail to conform to the contract requirements. Failure to reject the goods within a reasonable time after tender or delivery and any act inconsistent with the seller's ownership are also considered an acceptance under Article 2.

Remedies: When a buyer, pursuant to a sale of goods contract, accepts nonconforming goods, the buyer's measure of damages is:

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.

Conditions: When a condition is not satisfied or a duty of performance is broken, and the beneficiary of the condition or duty nevertheless chooses to continue under the contract, a court will hold this to be __________.

When a condition or a duty of performance is broken, and the beneficiary of the condition or duty nevertheless chooses to continue under the contract, a court will hold this to be an election waiver. An election waiver does not require estoppel (although estoppel elements are often present). When a party indicates that she is "waiving" a condition before it is to happen, and the person addressed detrimentally relies on the waiver, a court will hold this to be an estoppel waiver. A prospective unwillingness to perform occurs when one party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. The effect of this prospective failure would be to allow the seller to suspend further performance until she receives adequate assurances that the buyer's performance will be forthcoming. If the buyer does not provide adequate assurances, the seller can treat this as a repudiation of the contract. Anticipatory repudiation occurs when a promisor, prior to the time set for performance of his promise, indicates that he will not perform when the time comes.

DD: When a debtor breaches an accord agreement by failing to make an immediate satisfaction, the creditor:

When a debtor breaches an accord agreement by not following the agreement with an immediate satisfaction, the creditor may sue either on the original undischarged contract or for breach of the accord agreement. A contract may be discharged by an accord and satisfaction. The effect of the satisfaction is to discharge not only the original contract but also the accord contract. The accord, taken alone, will not discharge the original contract. It merely suspends the right to enforce it in accordance with the terms of the accord contract. The creditor is not required to sue on the original contract, but may choose to do so. The accord agreement is valid without the satisfaction; it just does not discharge the original agreement without the satisfaction. It is incorrect to state that the creditor can recover under both the original contract and the accord agreement; that would create an unfair windfall to the creditor. A valid accord suspends the right to enforce the original contract.

3rd: When a delegate assumes the duty to perform, the most important consequence is:

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.

3rd: When a party assigns "the contract" to a third party, it results in __________.

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.

Conditions: When a party having the benefit of an ancillary condition under a contract indicates by words or conduct (and without receiving any additional consideration) that she will not insist on that condition being met, this is called __________.

When a party having the benefit of an ancillary condition under a contract indicates by words or conduct that she will not insist on that condition being met, courts, in certain circumstances, will enforce that party's decision, despite the lack of additional consideration, as a waiver of the condition. No consideration is generally required for the waiver of an ancillary, or collateral, condition. In contrast, one cannot simply waive a condition regarding the main subject of a contract without receiving additional consideration. This would amount to a new undertaking that is really a gift in the disguise of a waiver. Without a waiver of the condition, nonfulfillment of the condition normally will excuse the other party's duty to perform that was subject to the condition. When a party is under an immediate duty to perform, the duty to perform must then be discharged, normally by performance.

Conditions: When a party indicates that she is "waiving" a condition before it is to happen, and the person addressed detrimentally relies on the waiver, a court will hold this to be __________.

When a party indicates that she is "waiving" a condition before it is to happen, and the person addressed detrimentally relies on the waiver, a court will hold this to be an estoppel waiver. When a condition is not satisfied or a duty of performance is broken, and the beneficiary of the condition or duty nevertheless chooses to continue under the contract, a court will hold this to be an election waiver. An election waiver does not require estoppel (although estoppel elements are often present). A prospective unwillingness to perform occurs when one party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. The effect of this prospective failure would be to allow the seller to suspend further performance until she receives adequate assurances that the buyer's performance will be forthcoming. If the buyer does not provide adequate assurances, the seller can treat this as a repudiation of the contract. Anticipatory repudiation occurs when a promisor, prior to the time set for performance of his promise, indicates that he will not perform when the time comes.

3rd: When an obligor delegates his duties, the obligor is __________.

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.

3rd: 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 __________.

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.

Def: When both parties entering into a contract are mistaken about an existing fact relating to the agreement, __________.

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.

K: A&B; Unless the contract provides otherwise, in a shipment contract, payment is due __________.

When goods are shipped by carrier, the price is due only at the time and place at which the buyer receives the goods. In a shipment case, the price is due when the goods are put in the hands of the carrier. In a destination contract, which also involves a carrier, the price is due when the goods reach the named destination. In a noncarrier case, i.e., one in which it appears that the parties did not intend that the goods be moved by carrier, unless the contract provides otherwise, the sale is for cash and the price is due concurrently with tender of delivery. In a proper tender of delivery, the seller must put and hold conforming goods at the buyer's disposition for a time sufficient for the buyer to take possession. The seller must give the buyer notice reasonably necessary to enable her to take possession of the goods. The tender must be at a reasonable hour. In no case is the price due at the time of contracting, because the obligation to pay is concurrent with delivery of the goods.

O&A: When a published revocation of an offer is appropriate, the published revocation becomes effective at the moment it is __________.

When revocation is by publication, revocation of the offer is effective when it is published. This rule for the revocation of published offers differs from the general rule that a revocation is effective when received by the offeree. At common law, a written communication is considered to have been "received" when it comes into the possession of the person addressed (or of someone authorized by him to receive it) or when it is deposited in some place authorized as the place for this or similar communications to be deposited. Similarly, under the U.C.C., a person receives notice when it comes to his attention, or it is delivered at a place of business through which the contract was made or another location held out by that person as the place for receipt of such communications. An organization receives a communication at the time it is brought (or should have been brought) to the attention of the individual conducting the transaction. As with the general rule, a revocation by publication need not be actually read by the offeree to be effective.

Consideration: 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?

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.

Consideration: Which of the following would serve as sufficient consideration for a promise by a creditor to discharge an existing debt?

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. 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 address.

Conditions: A condition read into a contract by the court is also known as:

Where it is implied that the duty to render performance under a contract is conditional upon the occurrence of some event or state of the world, a constructive condition will be read into a contract by the court. A condition precedent is one that must occur before and absolute duty of immediate performance arises in the other party.An express condition is the opposite of a constructive condition. An express condition is an explicit contractual provision that either: a party does not have a duty to perform unless some event occurs (or fails to occur) or, if some event occurs (or fails to occur), the obligation of a party to perform is suspended or terminated.There is no anticipatory condition. Anticipatory repudiation may excuse a condition. It occurs when a promisor, prior to the time set for performance of his promise, indicates that he will not perform when the time comes.

3rd: Which of the following is not a factor a court considers in determining whether a party is an intended third-party beneficiary?

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

O&A: Under the Article 2 battle of the forms provision, whether additional or different terms proposed by the offeree during acceptance ultimately become part of a contract depends on whether or not __________.

Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants. If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract. They do not become part of the contract unless the offeror expressly agrees. If both parties are merchants, additional terms in the acceptance become part of the contract unless they materially alter the terms of the offer, the offer expressly limits acceptance to the terms of the offer, or the offeror has already objected to the terms (or objects within a reasonable time after notice of them is received). Between merchants, some courts treat different terms in an acceptance the same as additional terms; other courts apply the knockout rule (i.e., conflicting terms are knocked out and replaced by gap-filling terms under the U.C.C.).

DD: Which of the following will not discharge the duty to perform?

Which one of the following elements is needed for a discharge of a contract due to frustration?