Contracts and Sales Flashcards

A software company hires a developer under a contract stating payment is due 'upon the owner's personal satisfaction' with the work. The owner honestly but unreasonably claims dissatisfaction. For work involving personal taste or judgment, is payment excused?

Answer: Yes, if the dissatisfaction is honest and in good faith, even if unreasonable

Satisfaction clauses involving personal taste or judgment are measured by a subjective good-faith standard, so honest dissatisfaction excuses payment.

A landlord and tenant orally agree to a two-year lease starting next month. The tenant moves in and pays one month's rent, but the landlord later denies the lease. Under the statute of frauds, what is the likely result?

Answer: The two-year lease is unenforceable because it cannot be performed within one year and lacks a writing

A contract that cannot be performed within one year falls within the statute of frauds and requires a writing to be enforced.

A buyer contracts to buy a machine for $50,000. The seller repudiates, and the buyer purchases a reasonable substitute machine for $58,000. What damages may the buyer recover under the UCC?

Answer: $8,000, the difference between the cover price and the contract price, plus incidental damages

Under UCC 2-712, a covering buyer recovers the difference between the cover price and the contract price plus incidental and consequential damages.

A general contractor uses a subcontractor's bid in computing its own bid on a project. After the general contractor wins the project, the subcontractor attempts to revoke its bid. What doctrine most likely binds the subcontractor?

Answer: Promissory estoppel, because the general contractor foreseeably and reasonably relied on the bid

Under Drennan v. Star Paving, a subcontractor's bid is held open by promissory estoppel when the general contractor foreseeably relies on it.

A contract for the sale of a warehouse names the seller's bank as the party to receive the purchase money in payment of the seller's loan. The bank is aware of and relies on the arrangement. What is the bank's status?

Answer: An intended creditor beneficiary who can enforce the contract once its rights vest

A third party named to receive performance in satisfaction of a debt is an intended creditor beneficiary with enforcement rights after vesting.

A seller of goods disclaims 'all warranties, express or implied' in an inconspicuous clause buried in fine print, without mentioning merchantability. Is the disclaimer of the implied warranty of merchantability effective?

Answer: No, because a merchantability disclaimer must mention merchantability and, if written, be conspicuous

UCC 2-316 requires a disclaimer of merchantability to mention merchantability and be conspicuous if in writing.

Two parties contract for the sale of a cow both believe to be barren, priced accordingly. Before delivery, the cow proves fertile and far more valuable. What is the seller's best argument to avoid the contract?

Answer: Mutual mistake as to a basic assumption that materially affects the exchange

As in Sherwood v. Walker, a mutual mistake about a basic assumption going to the essence of the bargain permits avoidance.