Multistate Bar Exam - Contracts

Front 1

Consequential Damages

Back 1

The foreseeable losses resulting from the nonbreaching party's particular circumstances.

NOTE: in contracts for the sale of goods, only a buyer may recover consequential damages.

Front 2

Expectation Damages

Back 2

Also called "benefit of the bargain" damages, these 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.

Front 3

Reliance Damages

Back 3

The cost of performance for the nonbreaching party. These are designedto put the nonbreaching party in the position she would have been in had the contract never been formed.A plaintiff may elect to recover reliance damages rather than expectation damages when expectation damages are too speculative to measure.

Front 4

Incidental Damages

Back 4

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.

Front 5

Seller's Damages in the Event of a Breach by Buyer

Back 5

1. The difference between the contract price and the market price

2. The difference between the contract price and the resale price

3. Lost profits.

Front 6

Buyer's Damages in the Event of a Breach by Seller

Back 6

1. Consequential damages

2. Warranty damages (when the buyer accepts nonconforming goods)

Front 7

When are damages measured in the breach of a sale of goods contract?

Back 7

The buyer’s damages are measured as of the time he learns of the breach.

The seller’s damages are measured as of the time for delivery.

Front 8

What damages is a builder entitled to if the property owner breaches a construction contract during construction?

Back 8

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.

Front 9

What damages is an employer entitled to in the breach of an employment contract by an employee?

Back 9

If an employee materially breaches an employment contract, the employer is entitled to recover the cost of replacing the employee (i.e., the wages the employer must pay to a replacement employee minus the breaching employee’s wages). The breaching employee may offset money owed for work done to date.

Front 10

What damages is an employee entitled to in the breach of an employment contract by an employer?

Back 10

Irrespective of when the breach occurs (i.e., before performance, after part performance, or after full performance), the standard measure of the employee’s damages is the full contract price.

Front 11

Specific Performance in Service Contracts

Back 11

Specific performance is not available for breach of a contract to provide services, even if the services are rare or unique.

Front 12

Injunction as a Remedy in Service Contracts

Back 12

A court may enjoin a breaching employee from working for a competitor throughout the duration of the contract if the services contracted for are rare or unique.

Front 13

Punitive Damages

Back 13

Punitive damages are generally not awarded in a contracts case.

Front 14

Restitution

Back 14

Based on preventing unjust enrichment when one has conferred a benefit without gratuitous intent. Restitution can provide a remedy not only when a contract exists and has been breached, but also when a contract is unenforceable, and in some cases when no contractual relationship exists at all between the parties.

Front 15

Avoidable Damages in Construction Contracts

Back 15

A builder does not owe a duty to avoid the consequences of an owner’s breach (e.g., by securing other work), but does have a duty to mitigate by not continuing work after the breach. However, if completion will decrease damages, it will be allowed.

Front 16

Avoidable Damages in Contracts for the Sale of Goods When Buyer Breaches

Back 16

When a buyer refuses to accept goods or repudiates the contract, a seller MAY resell the goods, but is not required to do so. Market damages are available if the seller does not resell.

Front 17

Avoidable Damages in Employment Contracts When Employer Breaches

Back 17

The employee must try to find a comparable job in the same locale.

Front 18

Avoidable Damages in Manufacturing Contracts When Buyer Breaches

Back 18

Unless it will increase, rather than decrease damages, a manufacturer is under a duty to cease work when the party for whom the goods are being manufactured breaches the contract.

Front 19

Substantial Performance

Back 19

If the work remaining on the contract is minor, the party will be seen as substantially performing its contract, and substantial performance will discharge its duty to perform and obligate payment by the other party.

Front 20

Right to Cure in Sale of Goods Contracts

Back 20

Under the UCC, if a buyer has rejected goods because of defects, the seller may, within the time originally provided for performance, "cure" the defective tender by giving reasonable notice of its intention to do so and making new tender of conforming goods, which the buyer must then accept.

Front 21

Rejection of Nonconforming Goods

Back 21

A buyer who receives nonconforming goods generally has the right to accept all, reject all, or accept any commercial units and reject the rest. To properly reject, the rejecting party must, within a reasonable time after delivery and before acceptance, reject the goods or notify the seller of the rejection.

Front 22

What damages is a property owner entitled to if the builder breaches a construction contract during construction?

Back 22

Where a builder in a construction contract breaches during the construction, the nonbreaching party is entitled to the cost of completion plus compensation for any damages caused by the delay in completing the building.

Front 23

What damages may a builder recover if he breaches a construction contract during construction?

Back 23

The builder may offset or recover for work performed to date to avoid the unjust enrichment of the owner. If substitute performance is readily obtainable, damages are measured by the unpaid contract price minus the cost of completion (up to the value of the benefit received by the defendant).

Front 24

Preexisting Duty Rule

Back 24

A modification solely for the benefit of one of the parties is usually unenforceable for lack of consideration.

Front 25

Modern View of Modifications

Back 25

A modification is enforceable without consideration if it is fair and equitable in view of unanticipated circumstances.

Front 26

Novation

Back 26

Where a new contract substitutes a new party under the terms of the old contract.

Front 27

Impracticability

Back 27

Where a party encounters extreme and unreasonable difficulty and/or expense and this difficulty was not anticipated.

Front 28

Accord

Back 28

An agreement in which one party to an existing contract agrees to accept, in lieu of the performance that he is supposed to receive from the other party, some other, different performance.

Front 29

Satisfaction

Back 29

The performance of the accord agreement.

Front 30

"Paid in Full"

Back 30

An accord and satisfaction generally may be accomplished by tender an acceptance of a check marked "paid in full" where there is a bona fide dispute as to the amount owed.

Front 31

Who carries the risk of loss during construction?

Back 31

Absent contrary provisions, the risk of loss lies with the builder. While contractual duties will generally be discharged if the contract's subject matter is destroyed, a contractor's duty to construct a building is not discharged by destruction of the work in progress unless the other party has assumed the risk.

Front 32

Impossibility

Back 32

Contractual duties will generally be discharged where it has become objectively impossible to perform them; i.e., where the contract's subject matter has been destroyed.

Front 33

Parol Evidence Rule

Back 33

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 written or oral statements made prior or contemporaneously to the writing are inadmissible to vary the terms of the writing.

Front 34

Statute of Frauds

Back 34

Unless evidenced by a writing signed by the party to be charged, the following agreements are unenforceable:

In contemplation of Marriage

Unable to be completed within a Year

An interest in Land

Executor/Administrator agreement to pay the debts of an Estate

Sale of Goods

Suretyships

Front 35

Sales of Goods in Violation of the Statute of Frauds

Back 35

An oral contract for the sale of goods amounting to greater than $500 is enforceable to the extent of the goods received and accepted by the buyer.

Front 36

Specially Manufactured Goods Exception

Back 36

Oral contracts for specially manufactured goods not suitable for sale in the ordinary course of the seller's business are enforceable once the seller has begun substantially to perform.

Front 37

Laches

Back 37

An equitable defense available to a defendant if the plaintiff has unreasonably delayed in bringing the action and the delay is prejudicial to the defendant.

Front 38

Nominal Damages

Back 38

Where there is a breach but no actual loss, a court may award nominal damages (usually in the amount of $1).

Front 39

Mailbox Rule

Back 39

Acceptance by mail creates a contract at the moment of posting, properly addressed and stamped, unless the offer stipulates that acceptance is not effective until received, or an option contract is involved.

Front 40

Rescission

Back 40

A contract may be discharged by an express agreement between the parties to rescind; the agreement is itself a binding contract requiring a meeting of the minds.

Front 41

F.O.B.

("Free on Board")

Back 41

F.O.B. obligates the seller to get the goods to the location indicated after the term.

Front 42

When is there an offer?

Back 42

For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract based on the offered terms.

Front 43

Promisor

Back 43

The party who promised to perform, and thus owes the duty to perform.

Front 44

Promisee

Back 44

The party to whom the promise is made.

Front 45

What is the effect of words assigning "the contract" or "all my rights under the contract"?

Back 45

This language is construed as including an assumption of the duties of the contract as well.

Front 46

Entrusting

Back 46

Entrusting goods to a merchant who deals in goods of that kind gives him the power (but not the right) to transfer all rights of the entruster to a buyer in the ordinary course of business.

Front 47

What constitutes entrusting?

Back 47

Delivering goods to a merchant who deals in goods of that kind, and leaving purchased goods with the merchant for later pick-up or delivery.

Front 48

Buying in the Ordinary Course of Business

Back 48

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.

Front 49

Voidable Title

Back 49

If a sale is induced by fraud, the seller can rescind the sale and recover the goods from the fraudulent buyer.

EXCEPTION: the defrauded seller may not recover the goods from a good faith purchaser for value who bought from the fraudulent buyer.

Front 50

When do a third-party beneficiary's rights vest?

Back 50

When the beneficiary manifests assent to the promise, brings suit to enforce the promise, or materially changes position in justifiable reliance on the promise

Front 51

Significance of Vesting for Third Party Beneficiaries

Back 51

Before the intended third-party beneficiary's rights vest, the promisor and promisee are free to modify their contract, including removing the third-party beneficiary altogether, without consulting that third party. Once the third party's rights have vested, the promisor and promisee cannot vary his rights without his consent.

Front 52

What happens if there have been successive revocable assignments of the same rights?

Back 52

If the first assignment is revocable, a subsequent assignment will serve to revoke it (i.e., the subsequent assignee wins).

Front 53

What happens if there have been successive irrevocable assignments of the same rights?

Back 53

If the assignor makes two assignments of the same right and the first assignment is irrevocable, the first assignee has priority.

Front 54

In what situations will a second assignee who pays value and takes without notice of the earlier irrevocable assignment prevail?

Back 54

1. First judgment against obligor;

2. First payment from obligor;

3. First delivery of a token chose from assignor;

4. If he obtains a novation that supersedes the obligation running to the assignor;

5. If he is able to set up an estoppel against the first assignee

Front 55

Assignor's Warranties

Back 55

In every assignment for value, the assignor impliedly warrants that:

1. he has the right to make the assignment;

2. the right exists and is not subject to limitations or defenses other than those stated or apparent at the time of the assignment;

3. he will do nothing to defeat or impair the assigned right

Front 56

Rights of Sub-Assignees

Back 56

Sub-assignees do not have any rights against the original assignor (as there is no privity of contract). However, the assignee who "sub-assigns" becomes the assignor with respect to that assignment and can be held liable thereon.

Front 57

What happens to an assignee's rights if the obligor becomes incapable of performance?

Back 57

The assignor will not be liable to the assignee if the obligor is incapable of performing. The assignee can only look to the obligor for his failure to perform.

Front 58

Warranty of Title

Back 58

Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting.

Front 59

Warranty Against Infringement

Back 59

A merchant seller regularly dealing in goods of the kind sold automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims.

EXCEPTION: a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims.

Front 60

Breach of Warranty Against Infringement

Back 60

The buyer must give the seller notice of the litigation within a reasonable time or lose her right to any remedy. The seller can give the buyer notice of his wish to defend the lawsuit and, if the seller agrees to bear all expenses and satisfy any adverse judgment, the buyer must let him defend or lose any rights to him arising out of the breach.

Front 61

Thieves and Title

Back 61

A thief is unable to pass title to a buyer because the thief's title to the good is void, and a seller can only transfer the title he has.

Front 62

Good Faith Purchaser for Value

Back 62

A buyer, or a person who takes a security interest in the goods.

Front 63

Irrevocable Assignments

Back 63

An assignment for value is irrevocable. An assignment is for value if it is done for consideration, or taken as a security for or payment of a preexisting debt.

Front 64

When are gratuitous assignments irrevocable?

Back 64

1. The obligor has already performed;

2. A token chose involving the rights to be assigned has been delivered;

3. Assignment of a simple chose in writing;

4. Estoppel (if the assignor should reasonably foresee that the assignee will change her position in reliance on the assignment, and such detrimental reliance actually occurs).

Front 65

Token Chose

Back 65

A physical object signifying the right to collect, such as a stock certificate.

Front 66

Simple Chose

Back 66

An intangible claim not embodied by any token

Front 67

How may a gratuitous revocable assignment be terminated?

Back 67

1. Death of the assignor;

2. Bankruptcy of the assignor;

3. Notice of revocation by assignor to either that assignee or the obligor;

4. The assignor takes performance directly from the obligor;

5. Subsequent assignment of the same right by the assignor to another.

Front 68

What are the rights and liabilities of the delegator?

Back 68

Remains 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.

Front 69

What are the rights and liabilities of the obligee in a delegation

Back 69

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.