Contracts - California Bar Exam 2008

Front 1

What is the general definition of a Contract?

Back 1

A promise or set of promises the breach of which the law provides a remedy.

Front 2

What are the 3 elements necessary for Contract creation?

Back 2

1- Mutual Assent, i.e., offer and acceptance
2- Consideration or a substitute; and
3- No defenses to formation

Front 3

What is the standard for Mutual Assent?

Back 3

An objective standard; i.e., did words or conduct manifest a present intention to enter into a contract?

Front 4

What is Mutual Assent?

Back 4

1. An Offer - a promise, undertaking, or commitment with definite and certain terms communicated to the offeree and
2. Acceptance (before termination by revocation, rejection, or operation of law.)

Front 5

What 3 elements constitute an Offer?

Back 5

(i) an expression of promise, undertaking, or commitment to enter into a contract;
(ii) definite and certain in its terms; and
(iii) communicated to the offeree

Front 6

What are the two ways an offer is terminated by the offeree?

Back 6

Rejection or lapse of time

Front 7

What are the two ways an offer is terminated by the offeror?

Back 7

(i) directly communicates the revocation to the offeree; or
(ii) acts inconsistently with continued willingness to maintain the offer, and the offeree receives correct information of this

Front 8

How are offers made by publication terminated?

Back 8

by use of comparable means of publication

Front 9

What is the Offeror's power to revoke?

Back 9

offers not supported by consideration or detrimental reliance can be revoked at will by the offeror, even if he has promised not to revoke for a certain period of time.

Front 10

How may an Offeree reject an offer (2 ways)?

Back 10

1. Expressly or
2. Making a counteroffer.

Front 11

How long does it take for an offer to Terminate by lapse of time?

Back 11

A reasonable time if no time stated in offer.

Front 12

What are three ways of Termination by operation of law?

Back 12

a. Death or insanity of either party.
b. Destruction of the proposed contract's subject matter; or
c. Supervening illegality.

Front 13

Valid acceptance of a bilateral contract requires what (3 elements)?

Back 13

(i) an offeree with the power of acceptance;
(ii) unequivocal terms of acceptance; and
(iii) communication of acceptance.

Front 14

What is the Common law rule on acceptance?

Back 14

Acceptance must mirror the offeror's terms, neither omitting nor adding terms. Otherwise, it may be a counteroffer.

Front 15

What is the U.C.C. Rule on acceptance?

Back 15

In contracts involving the sale of goods, an acceptance need not mirror the offer's terms.
~ Any acceptance that indicates an intention to enter into a K is valid unless it is made conditional on the acceptance of new or different terms.
~ Whether the offer terms or the acceptance terms govern depends on the status of the parties:

Front 16

What is the U.C.C. Rule on acceptance when one of the parties is not a merchant?

Back 16

if one of the parties is not a merchant, the terms of the offer control.
~ the new or different terms are considered mere proposals.

Front 17

What is the U.C.C. Rule on acceptance when both parties are merchants?

Back 17

Additional terms proposed in the acceptance become part of the K unless:
(i) they materially alter the agreement;
(ii) the offer expressly limits acceptance to the terms of the offer, or
(iii) the offeror objects within a reasonable time to the additional terms.

Front 18

What is the U.C.C. Rule on acceptance when both parties are merchants as to additional terms that do materially alter the agreement?

Back 18

Additional terms that do materially alter the agreement do not prevent contract formation, but become part of the contract only if the offeror expressly assents to inclusion;

Front 19

What is the U.C.C. Rule on acceptance, when both parties are merchants, as to different terms becoming part of the agreement?

Back 19

there is a split of authority over whether the different terms in the acceptance become part of the contract.

Front 20

What type of Standard is used to judge acceptance?

Back 20

Acceptance is judged on an objective standard (i.e. would a reasonable person think there was an acceptance?)

Front 21

Is Acceptance by Unauthorized Means effective?

Back 21

It is effective if it is actually received by the offeror while the offer is still in existence.

Front 22

Do offers stating the same terms that cross in the mail give rise to a contract?

Back 22

No, since an offer is effective on receipt.

Front 23

When may an executory bilateral contract may be formed without a communication of acceptance (3 exceptions)?

Back 23

(i) there is an express waiver of communication in the offer;
(ii) the offer requires an act as acceptance;
(iii) the offeree silently takes the offered benefits.

Front 24

If an offer is ambiguous as to whether a unilateral or bilateral K will result, what means of acceptance are acceptable?

Back 24

Either an act or a promise.

Front 25

For real estate transactions, what must the offer contain?

Back 25

A real estate transaction requires identification of land and price terms.

Front 26

For a sale of goods transactions, what must the offer contain?

Back 26

the quantity must be certain or capable of being made certain.

Front 27

For employment contracts, what must the offer specify?

Back 27

the duration of the employment.

Front 28

Who may accept an offer?

Back 28

Person to whom the offer was addressed or a member of class to whom offer was addressed.

Front 29

What is the Mailbox rule?

Back 29

if acceptance is by mail or similar means and properly addressed and stamped, it is effective at the moment of dispatch. (If it is improperly sent, it is effective only upon receipt).

Front 30

If the offeree sends a rejection and then sends an acceptance, which one controls?

Back 30

whichever arrives first is effective (no mailbox rule).

Front 31

If the offeree sends an acceptance and then a rejection, what result?

Back 31

the acceptance is effective (i.e., the mailbox rule applies) unless the rejection arrives first and the offeror detrimentally relies on it.

Front 32

What two elements are necessary for Consideration?

Back 32

(i) bargained for exchange and (ii) legal value.

Front 33

What is exchanged in Bilateral and unilateral contracts?

Back 33

Bilateral contract- promises;
Unilateral K- a promise for an act.

Front 34

Is an Act of Forbearance by a Promisee valid as a bargain?

Back 34

Yes, an act or forbearance by the promisee will be sufficient to form a bargain if it benefits the promisor.

Front 35

Is Past or Moral Consideration valid consideration?

Back 35

No. A promise given in exchange for something already done does not satisfy the bargain requirement.

Front 36

What is the Exception to the rule that past or moral consideration does not constitute valid consideration?

Back 36

Where a past obligation is unenforceable because of a technical defense (e.g., statute of limitations), that obligation will be enforceable if a new promise is made in writing or is partially performed.
~ Also, under the modern trend, if a past act was performed by the promisee at the promisor's request, a new promise to pay for that act will be enforceable.

Front 37

What is the majority rule for the Legal Value Element for consideration?

Back 37

The majority rule requires that a party incur detriment (by doing something he is not legally obligated to do or by refraining from something he has a legal right to do) to satisfy the legal value element.

Front 38

What is the minority rule as to the Legal Value Element rule?

Back 38

The minority rule states that conferring a benefit on the other party is also sufficient.

Front 39

What are the exceptions to the preexisting legal duty rule?

Back 39

Traditionally, performing or promising to perform an existing legal duty is insufficient consideration.
There are several exceptions to this rule:
(i) Where New of different consideration is promised;
(ii) the promise is to ratify a voidable obligation (e.g., a promise to ratify a minor's K after reaching majority, a promise to go through with a K despite the other party's fraud);
(iii) the preexisting duty is owed to a third person rather than to the promisor;
(iv) there is an honest dispute as to the duty; or
(v) there are unforeseen circumstances sufficient to discharge the party.
~ Any good faith agreement modifying a K subject to the U.C.C. needs no consideration to be binding.

Front 40

What is the general rule as to Mutuality and Illusory Promises?

Back 40

Consideration must exist on both sides of the contract (although the benefit of the consideration generally need not flow to all parties).
~ If only one party is bound to perform, the promise is illusory and will not be enforced.

Front 41

1. Is the Right to Choose Alternative Courses considered Illusory?

Back 41

a promise to choose one of several alternative means of performance is illusory unless every alternative involves legal detriment to the promisor.

Front 42

What is an Illusory promise?

Back 42

An illusory promise is one which the promisor has no obligation to keep

Front 43

When will a promise involving alternative courses not be found illusory?

Back 43

A promise involving alternative courses will not be found illusory when:
(i) at least one alternative involves legal detriment and the power to choose rests with the promisee or a third party, or
(ii) a valuable alternative (i.e., one involving legal detriment) is actually selected.

Front 44

What are the elements to Promissory Estoppel or Detrimental Reliance?
(3)

Back 44

(i) the promisor should reasonably expect her promise to induce action or forbearance;
(ii) of a definite and substantial nature on the part of the promisee; and
(iii) the promisee justifiably relies on the promise and
(iv) a substantial detriment does result.

Front 45

What is the U.C.C. rule as to Modifications?

Back 45

Consideration is not necessary to a good faith written modification of a contract.

Front 46

What is the rule as to Promises to pay legal obligations barred by law?

Back 46

a new promise to fulfill the legal obligation is enforceable if in writing.
~ However, it will be enforceable only according to the new terms, not the terms of the original legal obligation.

Front 47

A mutual mistake by both parties is a defense if (3 elements)?

Back 47

(i) it concerns a basic assumption on which the K was made;
(ii) it has a material adverse effect on the agreed-upon exchange; and
(iii) the adversely affected party did not assume the risk of the mistake.

Front 48

What is the general rule as to Unilateral mistake?

Back 48

whether it be of identity, subject matter, or computation, a mistake by one party is generally insufficient to make a contract voidable.

Front 49

What is the exception to the general rule as to Unilateral mistake?

Back 49

if the nonmistaken party knew of should have known of the mistake, the contract is voidable by the mistaken party.

Front 50

Under the Statute of Frauds, what are the Memorandum Requirements?
(5 elements)

Back 50

1- The identity of the parties sought to be charged
2- Identification of the contract's subject matter
3- Terms and conditions of the agreement.
4- Recital of the consideration; and
5- The signature of the party to be charged or his agent.

Front 51

What are the exceptions to the rule that Agreements for the sale of goods for $500 or more are within the Statute of Frauds?
4 of them

Back 51

[remembered by the acronym S.W.A.P.]
(i) specially manufactured goods,
(ii) a written confirmation of an oral agreement between merchants,
(iii) admission in pleadings or court that a K for goods existed, or
(iv) partial payment or delivery made and accepted.

Front 52

When Does a Beneficiary Acquire Contractual Rights?

Back 52

A third-party can enforce a K only when his rights have vested.

Front 53

When do a TPB's contract rights vest?
(3 ways)

Back 53

(i) when he manifests assent to a promise in the manner requested by he parties;
(ii) when he brings a suit to enforce the promise; or
(iii) when he materially changes position in justifiable reliance on the promise.

Front 54

What rights may be assigned?

Back 54

generally, all K rights may be assigned

Front 55

What are the Exceptions to the general rule that all K rights may be assigned?
(3 exceptions)

Back 55

(i) an assignment that substantially changes the obligor's duty or risk (e.g., personal services K where service is unique, requirements and output K where the assignee will substantially vary the quantity);
(ii) an assignment of future rights to arise from future contracts (not future rights in already existing contracts);
(iii) an assignment prohibited by law (e.g., wage assignments)

Front 56

What is Necessary for an Effective Assignment?

Back 56

The assignor must manifest an intent to immediately and completely transfer her rights.

Front 57

What are the elements for the defense of mutual mistake?
(3 elements)

Back 57

(i) the mistake concerns a basic assumption on which the K was made;
(ii) it has a material adverse effect on the agreed-upon exchange; and
(iii) the adversely affected party did not assume the risk of the mistake.

Front 58

What is the general rule re Unilateral mistake?

Back 58

whether it be of identity, subject matter, or computation, a mistake by one party is generally insufficient to make a contract voidable.

Front 59

What is the general rule as to Unilateral mistake?

Back 59

if the nonmistaken party knew of should have known of the mistake, the contract is voidable by the mistaken party.

Front 60

What are the Statute of Frauds Memorandum Requirements?
(5 elements)

Back 60

1- The identity of the parties sought to be charged
2- Identification of the contract's subject matter
3- Terms and conditions of the agreement.
4- Recital of the consideration; and
5- The signature of the party to be charged or his agent.

Front 61

Agreements for the sale of goods for $500 or more are within the Statute of Frauds, except?
4 exceptions

Back 61

(i) specially manufactured goods,
(ii) a written confirmation of an oral agreement between merchants,
(iii) admission in pleadings or court that a K for goods existed, or
(iv) partial payment or delivery made and accepted.

Front 62

When Does a Beneficiary Acquire Contractual Rights?

Back 62

A third-party can enforce a K only when his rights have vested.

Front 63

When do a TPB's contract rights vest?
(3 ways)

Back 63

(i) manifests assent to a promise in the manner requested by he parties;
(ii) brings a suit to enforce the promise; or
(iii) materially changes position in justifiable reliance on the promise.

Front 64

What rights may be assigned?

Back 64

generally, all K rights

Front 65

What are the Exceptions to the general rule that all K rights may be assigned (3 kinds)?

Back 65

(i) an assignment that substantially changes the obligor's duty or risk (e.g., personal services K where service is unique, requirements and output K where the assignee will substantially vary the quantity);
(ii) an assignment of future rights to arise from future contracts (not future rights in already existing contracts);
(iii) an assignment prohibited by law (e.g., wage assignments)

Front 66

What is Necessary for an Effective Assignment?

Back 66

The assignor must manifest an intent to immediately and completely transfer her rights.
~ A writing is usually not required.

Front 67

What is the status of An assignment for consideration?

Back 67

it is irrevocable;
an assignment not for consideration is generally revocable.

Front 68

How may a gratuitious assignment be irrevocable?
(4 ways)

Back 68

(i) the obligor has already performed;
(ii) a token chose (i.e., a tangible claim, such as a stock certificate), is delivered;
(iii) an assignment of a simple chose (i.e., an intangible claim, such as a contract right) is put in writing; or
(iv) the assignee can show detrimental reliance on the gratuitous assignment (i.e., estoppel)

Front 69

1) What is the Effect of an Assignment?

Back 69

Is to establish privity of contract between the obligor and the assignee while extinguishing privity between the obligor and the assignor.

Front 70

What duties may be delegated?

Back 70

Generally, all duties may be delegated

Front 71

What are the Exceptions to the rule that "Generally, all duties may be delegated?
(4 main)

Back 71

(i) personal judgment and skill duties;
(ii) delegation would change the obligee's expectancy (e.g., requirements and output contracts);
(iii) a special trust was reposed in the delegator by the other party to the contract; and
(iv) there is a contractual restriction on delegation.

Front 72

What are the Requirements for an effective delegation?

Back 72

The delegator must manifest a present intention to make a delegation. There are no special formalities.

Front 73

Does the delegator remain liable on the contract?

Back 73

Yes - thus the obligee (the one who's owed performance) may sue the delegator for nonperformance by the delegate.
~ note the Obligee must accept performance from the delegate

Front 74

What is the Parol Evidence Rule?

Back 74

Evidence of prior or contemporaneous negotiations and agreements that contradict, modify, or vary the contractual terms are inadmissible if the written contract is intended as a complete and final expression of the parties.

Front 75

May the obligee (one owed the peformance) sue the delegate (one assuming the duties)?

Back 75

yes, but can require the delegate to perform only if there has been an assumption (i.e., the delegate promises he will perform the duty delegated and this promise is supported by consideration or its equivalent).

Front 76

What is a Novation?

Back 76

Novation substitutes a new party for an original party to the contract.
~ It requires assent of all parties and completely releases the original party.

Front 77

Generally, When does breach occur?

Back 77

If:
(i) the promisor is under an absolute duty of performance and
(ii) this duty has not been discharged, then the party is in breach.

Front 78

What is Excuse of Condition by Anticipatory Repudiation?

Back 78

a declaration by one party (the promising party) to a contract that they do not intend to live up to their obligations under the contract.
Anticipatory repudiation must be unequivocal, not just an expression of doubt.
~ It applies only if there are executory (unperformed) duties on both sides of a bilateral contract.

Front 79

What are the options Anticipatory repudiation gives the nonrepudiating party?
four alternatives.

Back 79

(i) to treat the K as totally repudiated and sue immediately;
(ii) Suspend his own performance and wait until the performance is due to sue;
(iii) treat the repudiation as an offer to rescind and treat the K as discharged;
(iv) ignore the repudiation and urge performance.

Front 80

What is Excuse Of Condition by Prospective Inability or Unwillingness to Perform? How is this distinguished from anticipatory repudication?

Back 80

Prospective inability to perform merely raises doubts about performance (reasonable person standard);
~ thus, it does not meet the unequivocality requirement of anticipatory repudiation

Front 81

What is the option of the other party re Excuse of condition by prospective inability to perform?

Back 81

The innocent party may suspend her own performance until she receives adequate assurances of performance.
~ If these are not forthcoming, she may treat the failure as a repudiation.

Front 82

What is Excuse Of Condition By Substantial Performance?

Back 82

Where a party has almost completely performed his duties, but has breached in some minor way, the rule of substantial performance avoids forfeiture of a return performance.

Front 83

a. How is Discharge by Impossibility measured?

Back 83

Discharge by impossibility is measured by an objective standard, i.e., nobody could perform according to the terms of the contract.

Front 84

By What kind of test is Discharge by Impracticability measured?

Back 84

Discharge by impracticability is a subjective test.
Impracticability requires that a party encounter extreme and unreasonable difficulty or expense that was not anticipated.

Front 85

What is Discharge by Frustration of Purpose?

Back 85

Discharge by Frustration of Purpose results where a supervening event that was not reasonably foreseeable destroys the purpose of the contract.

Front 86

a. What is necessary for Mutual Rescission?

Back 86

The K to be rescinded must be executory on both sides.

Front 87

What is necessary for Unilateral Rescission?

Back 87

In this case, the aggrieved party must have adequate legal grounds (e.g., mistake, misrepresentation, or duress).

Front 88

Is consideration necessary for Partial Discharge by Modification of Contract?

Back 88

Generally, consideration is necessary, although courts will usually find it where each party has limited his right to enforce the original contract.
~ Consideration is not necessary where the modification is only a correction, or for a modification of a K for the sale of goods.

Front 89

7. What is Discharge by Novation?
(4 elements)

Back 89

a new contract substituting a new party for one of the parties to the original contract. Necessary elements are:
(i) a previous valid contract;
(ii) an agreement among all parties, including the new party;
(iii) immediate extinguishment of contractual duties as between the original contracting parties; and
(iv) a valid new contract.

Front 90

11. What is Discharge by Accord and Satisfaction?

Back 90

An accord is an agreement in which one party to a contract agrees to accept performance different from that originally promised;
Satisfaction is the performance of the accord (e.g. paying the smaller amt.).
~ It discharges both the accord and the original debt.

Front 91

What is Excuse of Condition by Waiver or Estoppel?

Back 91

Estoppel Waiver
A party may ""waive"" a condition by indicating that he will not insist on it.
~ such a waiver may be retracted at any time unless the other party relies on the waiver and changes her position to her detriment.
~ Upon such detrimental reliance, the waiving party is estopped from asserting the condition.

Front 92

What is the Difference between the doctrines of impossibility and impracticability?

Back 92

The major difference between impossibility and impracticability is that while impossibility excuses performance where the contractual duty cannot physically be performed, the doctrine of impracticability comes into play where performance is still physically possible, but would be very burdensome for the party whose performance is due. Thus, impossibility is an objective condition, whereas impracticability is a subject condition for a court to determine.

Front 93

What are the requirements for Discharge by release?

Back 93

The release must be in writing and supported by new consideration or promissory estoppel elements.

Front 94

10. What is Discharge by Substituted Contract?

Back 94

Discharge by Substituted Contract exists where the parties to a contract enter into a second contract that expressly or impliedly immediately revokes the first contract.

Front 95

When is a Breach material?

Back 95

If, as a result of the breach, the nonbreaching party does not receive the substantial benefit of her bargain.

Front 96

If the breach is material, what is the nonbreaching party entitled to?

Back 96

(i) he may treat the contract as at an end (any duty of counterperformance is discharged), and
(ii) he has an immediate right to all remedies for breach of the entire contract, including total damages.

Front 97

What does minor breach entitle the aggrieved party to?

Back 97

minor breach may allow the aggrieved party to recover damages, but she still must perform

Front 98

What are the Three kinds of damages?

Back 98

Compensatory (1. Standard and 2. Consequential), Nominal, and Punitive (not available for contracts).

Front 99

What is the Goal of compensatory damages?

Back 99

The goal of compensatory damages is to put the nonbreaching party into as good a position as the party would have been in had the other party fully performed.

Front 100

What are the Two kinds of compensatory damages?

Back 100

The standard measure and consequential, and the nonbreaching party may recover both.

Front 101

In most cases, What is the Standard measure of damages?

Back 101

In most cases, the standard measure will be expectation damages that would permit the plaintiff to buy a substitute.

Front 102

In cases where expectation damages are speculative, what may the plaintiff be able to recover?

Back 102

Reliance damages (i.e., the cost she has incurred by performing).

Front 103

In a Contract for the sale of goods, what is the standard measure of damages?

Back 103

Damages are measured by the difference between the contract price and the market price when the seller tenders or when the buyer learns of the breach.

Front 104

Under the U.C.C., what are the options available to the seller when the buyer breaches?

Back 104

the seller may withhold delivery or stop delivery by the carrier, resell the goods and recover the difference, or recover ordinary contract damages for nonacceptance.
~ If the buyer has already accepted the goods, or if the seller is unable to resell identified goods, the seller can recover the contract price.

Front 105

Under the U.C.C., what remedies are available to the buyer when the seller breaches?

Back 105

the buyer may reject nonconforming goods, cancel, cover, recover goods identified to the contract, obtain specific performance (in some cases), or recover damages for nondelivery.

Front 106

Under the U.C.C., if the buyer accepts nonconforming goods what is the damages measure?

Back 106

the buyer may recover the difference between the value that the goods would have had if they had been as warranted and the actual value of the goods.

Front 107

In Contracts for the sale of land what is the measure of damages?

Back 107

the difference between the contract price and fair market value.

Front 108

What are Consequential Damages?

Back 108

Consequential damages are awarded in addition to the standard measure and will be given if a reasonable person would have foreseen at the time of entering the contract that such damages would result from the breach.

Front 109

When will Liquidated damages be valid if?
(2 elements)

Back 109

(i) damages were difficult to ascertain at the time the contract was formed, and
(ii) the amount agreed upon was a reasonable forecast of compensatory damages.

Front 110

e. What is the result if an aggrieved party doesn't mitigate?

Back 110

If she does not do so, her damages will be reduced by the amount that might have been avoided by mitigation.

Front 111

What is a Suit in Equity for Specific Performance?

Back 111

Where the legal remedy (i.e. damages) is inadequate, the nonbreaching party can seek specific performance - essentially an order from the court for the party to perform or face contempt of court charges.

Front 112

For specific performance, when is the legal remedy considered inadequate?

Back 112

when the subject matter of the contract is rare or unique.

Front 113

What are the Main areas where specific performance is available?

Back 113

Specific performance is always available for contracts involving the sale of land (because all land is considered unique) and for contracts for the sale of unique or rare goods (e.g., a unique painting or gasoline in short supply because of an embargo).

Front 114

Is Specific performance available for unique services?

Back 114

Not usually - because of the difficulty in supervision and because the courts feel it is tantamount to involuntary servitude.

Front 115

What Equitable Defenses Available are available in a specific performance situation?

Back 115

In addition to standard contract defenses, the following defenses are available
1) Laches - a claim that the plaintiff has delayed bringing the action and that the delay has prejudiced the defendant;
2) Unclean hands - a claim that the party seeking specific performance is guilty of wrongdoing in the transaction being sued upon; and
3) Sale to a bona fide purchaser - a claim that the subject matter has been sold to a person who purchased for value and in good faith.

Front 116

3.What are Rescission and Restitution?

Back 116

The nonbreacher may rescind (i.e., cancel) and sue for damages at law or in equity. (Contract is executory).
~ If the nonbreacher transferred a benefit to the breacher while attempting to perform, the nonbreacher is entitled to restitution for the benefit transferred.

Front 117

What is Quasi-contract?

Back 117

A quasi contract is an obligation that is imposed by the courts to avoid injustice or unjust enrichment.