Contracts Flashcards

A creditor and debtor enter a contract under which the debtor agrees to pay the creditor $10,000. The debtor then assigns this payment obligation to a third party (assignee), who promises to pay the creditor. The creditor is a third-party beneficiary. Which best describes the creditor's status?

Answer: Creditor beneficiary — the debtor owed a pre-existing obligation to the creditor

A creditor beneficiary is a third party to whom the promisee owes a pre-existing obligation and who benefits from performance of the contract — this beneficiary has enforceable rights against the promisor.

A third-party beneficiary's rights under a contract vest when:

Answer: The beneficiary manifests assent, detrimentally relies on the contract, or files suit to enforce it

Under the Restatement, a third-party beneficiary's rights vest when the beneficiary manifests assent to the contract, detrimentally relies on it, or brings suit to enforce it — after vesting, the contracting parties cannot modify or rescind the contract to the beneficiary's detriment without consent.

An artist assigns her right to receive payment under a commission contract to her creditor. The party who owes payment (the obligor) claims it need not pay the creditor because the artist breached first. Which principle governs?

Answer: The obligor may assert against the assignee any defense it had against the assignor that arose before notice of the assignment

An assignee takes subject to defenses the obligor had against the assignor that arose before the obligor received notice of the assignment; the obligor's rights are not extinguished merely because a third party now holds the claim.

A contractor delegates its duty to paint a house to a subcontractor. The homeowner objects. Under which circumstance is the delegation NOT permitted?

Answer: When the contract is for services involving the personal skill, reputation, or character of the delegator

Duties involving personal skill, trust, or unique character (e.g., a famous artist, a specific attorney) cannot be delegated without the obligee's consent because the obligee bargained for that specific person's performance.

Buyer sends seller a purchase order for widgets at $10 each. Seller responds with an acknowledgment form accepting the quantity and price but adding a mandatory arbitration clause not in the buyer's order. Under UCC § 2-207 (Battle of the Forms), what happens to the arbitration clause?

Answer: Between merchants, it becomes part of the contract unless the buyer objects within a reasonable time or the buyer's form expressly limits acceptance to its terms

Under UCC § 2-207, additional terms in an acceptance between merchants become part of the contract unless (1) the offer expressly limits acceptance to its terms, (2) the terms materially alter the contract, or (3) the offeror objects within a reasonable time; arbitration clauses are typically considered material alterations.

A general contractor relies on a subcontractor's bid when preparing its own bid for a city project. The general contractor wins the project based on the subcontractor's price, but the subcontractor then refuses to honor its bid. Under promissory estoppel, which element is most critical?

Answer: That the general contractor detrimentally and foreseeably relied on the subcontractor's promise

Promissory estoppel under the Restatement § 90 requires a clear promise, foreseeable and actual detrimental reliance, and injustice absent enforcement — in the sub-bid context, foreseeable detrimental reliance by the general contractor is the pivotal element.

A homeowner paid a contractor $15,000 in advance under a contract the contractor never began performing. The contractor later claims the contract is unenforceable because a condition precedent was not met. If the contract is indeed unenforceable, what theory allows the homeowner to recover the $15,000?

Answer: Restitution / unjust enrichment — the contractor must disgorge the benefit conferred to avoid unjust enrichment

When a contract is unenforceable, restitution (quasi-contract) allows recovery of benefits conferred on the other party to prevent unjust enrichment, regardless of the enforceability of the underlying agreement.