Bar - Contracts Flashcards
Main issues
What is the rule for your first issue on governing law that you have to answer at the start of every contract essay?
Article II of the UCC applies to goods (tangible, moveable objects) while the common law applies to all other contracts including those for land and services.
How is a merchant defined?
A merchant is one who regularly deals in the goods of the kind sold, or who holds themselves out as having special knowledge or skills as to the goods involved.
Remember: Article II applies to all sellers, even friends/non merchants.
What is the overall rule for contract formation?
Contract formation requires offer, acceptance, consideration, and no defenses that would invalidate the otherwise valid contract.
What are the 3 elements to an offer?
(1) Manifestation of an intent to be bound;
(2) To definite and certain terms; AND
(3) Communicated to the offeree.
What are examples of insufficient offers?
Ads, catalogs, price quotes, solicitation of bids, negotiations, offers made in jest or exaggeration
What are examples of sufficient offers?
o Customer says “I found you through your website” and site has prices
o Reward offers if clear who can accept and win (offer for unilateral contract)(“first come first served” or “only one can win”)
o Auctions (auctioneer is inviting offers)
o Bids (count as offers except where “without reserve”)
What are definite and certain terms?
Required terms are
- Parties
- Subject
- Quantity (except in output or requirement contracts)
- Price for real estate contracts
What is a requirement contract?
In a requirement contract, a supplier agrees to supply all of the goods a customer requires.
What is an output contract?
In an output contract, a buyer agrees to purchase all of a supplier’s output.
Note
Sample question: If supplier shuts down output, even if contract provides that either party can terminate at any time, the decision must be made in good faith, so there is a decision for the jury of whether the decision was made in good faith. Thus, MSJ should not be granted.
o Note: ‘Quantity’ term is NOT required in either requirement nor output contracts because court can figure out the number
o Note: Output or requirements must approximate a reasonably foreseeable figure (good faith agreement)
Under the requirement of ‘communicated to the offeree’, what is important?
The offeree must have knowledge of the offer.
What are the 5 ways an offer can be terminated?
(1) Rejection of offer by offeree
(2) Counteroffer
(3) Revocation of the offer
(4) Lapse of Time
(5) Termination of offer by operation of law (death/incapacity, destruction of subject matter, illegality)
Some notes on a counter offer
“Would you take less…” is an inquiry, not a counteroffer
Period = counteroffer
Question mark = counteroffer
Conditional acceptance = counteroffer (e.g., Obama says I agree on the condition that…–> this rejects the offer and is a counteroffer
What is the regular will on revocation of an offer?
An ordinary offer is revocable at the will of the offeror, prior to acceptance, even if has promised not to revoke for a certain period.
How can a revocation be communicated?
Directly through unambiguous words or conduct (e.g., selling goods to another party)
Indirectly by receiving correct information from a reliable source
When is revocation effective and the exception?
Revocation is effective upon receipt.
Exception: if revocation is by publication, in which case it is effective when published, but if it is through publication, it must be through the same magazine.
o Note: Communication does not have to be read to have been received.
o NOTE: Do NOT bring up mailbox rule when talking about revocations.
What are the 4 exceptions where an offer is not revocable?
(1) UCC Firm Offer
(2) Option contract
(3) Detrimental Reliance
(4) Unilateral contract
What are the 3 requirements for a UCC Firm offer?
(1) Signed in writing;
(2) By a merchant; AND
(3) To hold offer open for a specified or reasonable time, but in no case may period exceed 3 months
o Note: For 3 months, offeror cannot revoke offer, after three months, offeror can revoke. If he doesn’t revoke, it will remain open and can still be accepted.
o Note: Seller can attach additional condition that must also be met like, “buyer acceptance must be received on or before X date.”
o NO payment/consideration required
What is the rule for an option contract?
An option contract requires consideration and the offer is revocable for the stated period.
o Recall - Exception to Mailbox Rule
An acceptance of an option contract (when the offeree decides to accept the offer) is not effective until received by the offeror.
What is the rule for detrimental reliance and the scenario it plays out in in revocation of offers?
An offer is irrevocable if the offeree has detrimentally relied.
Example: Subcontractor (offeror) makes the big. Offeree general contractor accepts to his detriment.
What is the rule on revocation for a unilateral contract? When does acceptance occur? When does payment occur?
An offer for a unilateral contract is irrevocable once performance begins. Acceptance occurs through performance. Payment occurs upon completion of the act.
o Exam tip
Painter takes one stroke of paint
Walker takes one step
In both of these, offer not revocable.
However, mere preparation (buying paint) is not sufficient and offer can be revoked, but offeree if spent $10K on supplies can seek restitution claim for $10K
What is the rule on lapse of time and offers?
An offer remains open for a reasonable time or when the offeror states it does.
What is the reasonable amount of time for an oral offer? An email or mail? Accepting a reward offer?
An oral offer expires at the end of the conversation.
An email or mail offer expires by the next day.
A reward offer doesn’t expire for a long time, can be up to years.
What are the 3 ways an offer can terminate by operation of law?
(1) Termination by death or insanity
(2) Termination by destruction of subject matter
(3) Termination by illegality of subject matter
Is it necessary that the death or insanity be communicated to the other party?
No, however if mental illness is not adjudicated, the offer is terminated only if the offeree is aware of the incapacity.
What is the rule for acceptance? include common law and UCC
Acceptance is the manifestation of assent to the offer terms. Under the common law, the mirror image rule applies, where acceptance must exactly match the offer. Under the UCC, acceptance does not need to exactly match the offer.
Under a unilateral contract, acceptance occurs when performance is completed. What are the rules on notice and two exceptions?
The offeree is not required to give the offeror notice that he has begun the performance, but he is required to notify the offeror within a reasonable time after performance has been completed
Exceptions
(1) Offeror waived notice, OR
(2) Offeree’s performance would normally come to the offeror’s attention within a reasonable time.
Who may accept an offer and what is the exception?
Only a person at whom the offer is directed may accept the offer
Exception
the option contract creates a separate right to accept and contract rights are generally assignable
When is acceptance effective and what is the rule called?
Under the mailbox rule, acceptance is effective upon dispatch.
What are the 5 exceptions to the mailbox rule?
(1) Offeree uses wrong address or postage
(2) Offer itself provides otherwise
(3) Option contract
(4) Rejection sent before acceptance (whichever is received first is the effective one)(if acceptance sent then rejection sent, normal rule at play)
(5) Offeror detrimentally relies on termination before he receives acceptance.
- Recall: Other types of communications (e.g., offers) are effective when received (e.g., option contract)
- NOTE: If revocation and acceptance happen at exact same time, like offeree hands it to post man as he is handing her revocation letter, court determines outcome.
What is the common law mirror image rule?
Under the mirror image rule, acceptance must be a precise mirror image of the offer.
What is the UCC rule on acceptance?
Under the UCC, any expression of acceptance is sufficient. The Battle of the Forms provision applies.
Who does the Battle of Forms apply to?
Merchants only. If the party is not a merchant, the Battle of Forms is not applicable and new terms are considered mere proposals that do not become part the contract unless the offeror accepts.
Under the Battle of Forms, what two kinds of terms are there?
Additional terms
Different terms
What are the 3 situations when an additional term does NOT become part of the contract?
(1) Materially alters
(2) Offer limits acceptance to offer terms
(3) Offeror objects within reasonable time
o Note: If for any reason the additional term doesn’t get added, the parties still have formed a contract, just without that term.
How are different terms treated in the Battle of Forms? There is the majority rule and a minority rule
Under the majority rule, different terms are knocked out of the contract and gaps are filled by the gap-filler provisions. Under the minority rule, different terms and additional terms are treated the same or the offeror’s terms control.
Under the UCC, what are the 2 ways to accept an offer?
(1) A promise to ship
(2) Prompt shipment
What happens if the seller ships non-conforming goods and acknowledges the issue?
If the seller acknowledges the nonconformity, this is an “accommodation” to the buyer and is not an acceptance of the buyer’s offer. Rather, seller makes a counteroffer that the buyer is then free to accept or reject.
If seller does NOT acknowledge nonconformity: Offer has been accepted and breached simultaneously.
In an auction, up to when can a bidder retract an offer?
A bidder may retract the bid until auctioneer announces completion of the sale
Listen to special auction rules in the UCC
o Goods Auctioned in Lots
Rule: In an auction, if goods are put up in lots, each lot is the subject of a separate sale.
o When Sale Is Complete
Rule: A sale by auction is complete when the auctioneer announced by the fall of the hammer or up to his discretion.
o With or Without Reserve
With: Auctioneer may withdraw goods at any time until he announces completion of the sale
Without Reserve: Once the auctioneer calls for bids, the article cannot be withdrawn unless no bids made in reasonable time.
In either case, bidder may retract bid until auctioneer announces completion of the sale
o Bid on Sellers Behalf
If the seller makes a bid to drive up price, winning bidder may avoid the sale or take the goods at the price of the last good faith bid
What are the 2 requirements for consideration?
(1) A bargained for exchange; AND
(2) Of legal value
- Act of forbearance by promisee must benefit promisor
o Example: Refraining from suing on a valid claim. - The benefit to the promisor need not have economic value.
o Peace of mind or gratification for influencing another is sufficient
o Example: Father tells kid, “I’ll give you $1K if you stop smoking.” This is OK.
o Note: A promise to make a gift is unenforceable. - Note - Exclusive Distributors
o Rule: Where a party is to be the exclusive distributor, courts will imply a promise to use best efforts to sell the product, and the implied promise is valid consideration.
(2) Of legal value. - Sham or Nominal Consideration: Is insufficient, but it must be obvious, because court reluctant to inquire into the adequacy of consideration.
What are the 2 areas that are NOT sufficient consideration?
(1) Past consideration
(2) Pre existing legal duty
What are the 2 exceptions to the general rule that past consideration is insufficient?
(1) Promise to pay a debt that has already been barred by a technical defense
(2) Promise to pay for a past benefit at the promisor’s request
Rule: A new promise to pay a past debt that is now barred does not require consideration so long as promise in writing or is partially performed.
Examples: Man owed lady money but Statute of Limitations had run so lady couldn’t sue. Man wins lottery and promises to pay woman. Written promise to pay a debt discharged by bankruptcy. Written promise is enforceable.
Rule: A new promise to pay for benefits previously received at the promisor’s request or in an emergency can be binding without consideration
Examples
* Promisee performs act at promisor’s request
* Man performs unrequested act during emergency (saves drowning child)
What is the rule on pre existing duty?
Performance of a pre-existing duty is not consideration unless an exception applies.
What are the 6 exceptions to the pre existing duty rule?
(1) New or different consideration provided
(2) Promise to pay voidable obligation
(3) Third party enters
(4) Good faith dispute and parties agree to lesser amount, accord
(5) Extreme, unforeseen circumstances
(6) UCC modification in good faith
o 7 Exceptions to Pre Existing Duty Rule
(1) New or different consideration promised
* Rule: If the promisee gives new consideration or in some way agrees to vary her existing duty (e.g., by accelerating performance), is consideration.
* Rule: When the amount due is not disputed, payment of a smaller sum will not be sufficient consideration for a promise by creditor to discharge the debt. However, if the consideration is any way new or different, sufficient consideration is found.
* Example: Payment before maturity, payment to another other than the creditor, payment in a different medium (stock instead of cash), or payment of a debt that is subject to a honest dispute
* Note: Usually immaterial how slight the change is, because courts want to avoid the preexisting duty rule.
(2) Promise to perform a voidable obligation
* Examples: A minor’s ratification of a contract upon reaching the age of majority is enforceable without new consideration; A defrauded person’s promise to go through with the contract even after learning of the fraud is enforceable.
(3) The preexisting duty is owed to a person different from the one in the new deal
* Example: Baseball player hitting homerun owes the duty to hit well for his baseball team. Then, father of sick boy, says I’ll pay you because this will make my son feel better. OK to take dad’s money. Contract formed.
* Example: Simon forms contract to pay Pam to sing. Later, when Simon threatens to cancel, Dan comes in and offers to pay Simon to not cancel. Because Simon did not owe Dan a duty under the original contract, the contract is enforceable.
(4) Good faith dispute as to a claim and the parties agree to settle the debt for a lesser amount, amounting to an accord
(5) Extreme, unforeseen circumstances
(6) UCC modification in good faith
What is an illusory promise?
An illusory promise is not supported by consideration and is not enforceable. Performance is up to the discretion of the other party.
Example: Party A promises to buy ‘as many widgets as he wants’
Exam tip: For requirement and output contract, explain why the contract is not illusory.
What is a surety contract and what is the rule?
A surety contract involves a promise to pay someone else’s debt. It is not enforceable unless it is supported by consideration.
NOTE: Surety makes promise before or at same time creditor makes promise: consideration present. If surety makes promise after time creditor makes promise, no consideration.
If there is no consideration, what are the 2 avenues to alternative remedies to pursue?
(1) Promissory estoppel/detrimental reliance, where reliance damages can be sought
(2) Quasi contract (implied in law contract), where restitution can be sought
What are the 3 requirements to promissory estoppel/detrimental reliance in which reliance damages may be sought?
(1) Promise foreseeably induces reliance;
(2) Promisee relies to their detriment; AND
(3) Injustice can be avoided only by enforcement of the promise
- Context: Defendant made a promise.
- Recovery
o Reliance damages (restore plaintiff to position she would have been in had the contract never been formed) - Example: Where grandpa promises granddaughter she can stop working because he will pay her
- Damages
o Reliance
o Example: Man says he will bequeath university $5M and university markets this. Man pulls out. University sues for damages. Court unlikely to give university $5M, but will likely award university reliance damages (money they spend on advertising, a plaque, etc.) - Exam note
o If contract lacks consideration, consider promissory estoppel to make contract enforceable. The recovery is higher with a valid contract, but promissory estopped is a good alternative where consideration is lacking.
What are the 2 requirements to a quasi contract? What is the recovery?
(1) Enrichment without intent to make a gift; AND
(2) Unjust for defendant to keep benefit without compensation.
- Context: Defendant did not make a promise.
- Note: Also called an implied-in-law contract.
- Recovery
o Restitution damages (fair market value of benefit conferred)
What is the general rule for the Statute of Frauds? How many areas apply? Remember you bring this up on any contract essay.
Under the Statute of Frauds, certain agreements must be in writing and signed by the party to be bound. 6 areas apply.
What is the mnemonic?
MY LEGS
- Note: If the Statute of Frauds is not raised as a defense, it is waived.
What are the 6 areas which must be evidenced in a writing signed by party to be bound?
(1) Marriage contract prenup
(2) Year bar from start of contract
(3) Land contract
(4) Executor promise to pay estate debts out of his own funds
(5) Guarantor promise to guarantee debt of another
(6) Sale of goods for $500 or more
- (1) Marriage contract
o A promise the consideration of which is marriage must be evidence in writing (e.g., sign a prenuptial agreements)
o Exception
Does not include mutual promise to marry - (2) Year bar
o Rule: A contract that cannot be performed within one year from the date of contract must be evidenced in writing.
o Note: Performance must be literally impossible to perform in one year.
Example: Lease/easements for more than 1 year
Possible to perform in one year - Lifetime agreements (could die tomorrow)
- Superhuman doing job = can always get done in a year
- (3) Land contract
o Includes not only agreements for sale of property but also other agreements pertaining to land
o Includes:
Leases for more than one year
Easements for more than one year
Mortgages and other security liens
Fixtures
Minerals or structures if they are to be severed by the buyer.
o Items That Do Not Create Interest in Land
Contract to build a building
Contract to buy and sell real estate and then divide the profits - (4) Executor
o Rule: A promise by an executor or administrator to pay the estate’s debts out of own funds must be evidenced in writing.
Note on guarantor promise: they are guaranteeing the debt, NOT assuming it.
Example: Bail bond or dad promises to pay cook for daughter’s meal if she doesn’t pay
Example: Give her the food and I’ll pay the bill is not a guaranty contract and thus does not need a writing.
Note: If an indivisible item is partially paid for (like down payment on a car), Statute of Fraud is satisfied for the whole item (car).
Under the guarantor area, where a writing is required, what is the exception where a writing is not required?
Main purpose rule:
If the guarantor’s main purpose is to benefit himself economically, a writing is not required.
o Example: Guarantor owns 40% of company and co-signs loan for company
Under the sale of goods for $500 or more, what are the 2 exceptions where a writing is not required?
(1) Specially-Manufactured Goods
(2) Written Follow Up Memo from Merchant
Under Specially Manufactured Goods, what are the 3 requirements?
(1) Goods specially manufactured for the buyer;
(2) Not suitable for sale to others; AND
(3) Manufacture made substantial beginning toward manufacture or commitments to procurement.
What is the written confirmation by merchant?
In a deal between merchants, a writing confirming the deal sent from one party to another binds both parties unless the other party objects within 10 days of receipt.
For the writing requirement what are the 3 requirements?
(1) Writing;
(2) Includes essential terms; AND
(3) Signed by party to be bound.
o (1) Writing(s);
Entire set of writings may be combined if:
* (1) Signed writing is attached to other writing by party to be charged;
* (2) Signed writing refers to the unsigned writings;
* (3) Signed and unsigned docs clearly refer to the same subject matter; OR
o Note: An ad in the paper that has a price in it is not good enough, the parties could have negotiated a different price. Only way is if party to be bound had signed the ad.
* (4) Written Confirmation by Merchant
o (2) Including essential terms; AND
Note: If a term is missing and cannot be supplied by the law, evidence will not be permitted to add it.
o (3) Signed by the party against whom enforcement is sought.
Typed, initialed, letterhead, one’s name on an email, or firm name on a fax.
Where a contract is subject to the Statute of Frauds but no writing exists, what are the 3 areas in which the contract will still be enforced?
(1) Judicial admission
(2) Promissory estoppel/detrimental reliance
(3) Full or partial performance
What is full performance in the UCC and what is the special rule?
Goods are accepted or paid for, but contract is enforceable only up to that amount.
- Example: Gemologist delivers gems to jeweler and jeweler accepts but refuses to pay. Gemologist entitled to full contract price, and does not need to employ any quasi contract theory.
What is full performance for a land sale contract? What is partial performance?
For full performance, conveyance must have been made.
For partial performance, 2 of 3 must be met. Possession, improvement, payment.
What are the 4 steps to analyze in a Statute of Frauds?
(1) Does contract fall within Statute of Frauds?
(2) Do any exceptions apply?
(3) Is the writing requirement satisfied?
(4) If the writing requirement is not satisfied, can promissory estoppel/detrimental reliance be applied to enforce the oral contract?
What is the difference between a void, voidable, and unenforceable contract?
A void contract has no legal effect from the beginning and cannot be enforced (e.g., agreement to do something illegal).
A voidable contract is one that can be rescinded or avoided (e.g., raising a defense like infancy or mental illness that makes it voidable)
An unenforceable contract is an agreement that is otherwise valid but might not be enforceable (e.g., due to SoL running or Statute of Frauds requirement not met).
What is the difference between a promise and a condition?
Failure to fulfill a promise gives rise to breach but does not discharge the other’s parties obligation.
Failure to meet a condition discharges the other party’s obligation to perform?
Courts tend to favor finding promises over conditions.
How are satisfaction conditions treated?
Satisfaction conditions are judged by a reasonable person standard unless the deal involves art or personal taste in which a subjective standard is used.
What are the 3 situations when one will have waived a condition benefitting them?
(1) Voluntarily giving up condition’s benefit
(2) Receiving and keeping the benefit
(3) Failing to insist on compliance
- Voluntarily gives up condition’s benefit
o Example: Beyonce contract with builder says builder must do X. Builder doesn’t do X. Beyonce says it’s OK, I’ll pay you anyway. Now, she must pay. - Receiving and keeping the benefit
- Fails to insist on compliance
Retraction - Rule: Waiver of conditions can be retracted so long as the other party has not relied upon the waiver.
What is the main rule for the Parole Evidence Rule (PER)?
The Parole Evidence Rule (PER) excludes evidence of prior or contemporaneous agreements that contradict a final agreement. The outcome depends on whether the agreement is partially or fully integrated.
What is a partially integrated contract and what is the rule?
A partially integrated contract sets some but not all of the terms.
Statements that supplement can come in; statements that contradict cannot come in.
Example: Sale for grey horse, will allow oral agreement for saddle but not oral agreement for brown horse (b/c contradicts)
What is a final integrated contract and what is the rule?
A final integrated contract is one in which the parties expressly agree that the writing embodies the final expression of their bargain.
No additional information can come in.
Note: Judge determines whether writing is final integration.
o Example: Merger Clause
A merger clause recites that the agreement is the complete agreement between the parties and is strong evidence that the writing is a complete integration.
How are non-integrated contracts treated with respect to evidence coming in?
The PER does not apply to non-integrated contracts like tentative drafts, so the evidence can come in.
What are the 4 exceptions to the PER where PER will not apply to bar the evidence?
(1) Defense to contract formation or enforcement
(2) Separate, collateral agreements
(3) Oral condition precedent
(4) Explaining/interpreting (ambiguous term)
- (2) Separate/collateral agreements
o Extrinsic evidence may be offered if it represents a distinct and separate contract. - (3) Oral condition precedent
o This exception applies to a situation where the parties agree that the contract itself will not take force until some stated condition is met.
o Example: Parties negotiate contract but orally agree contract will not be in effect until Board of Trustees votes to approve the contract.
What are the 3 areas where the court can admit evidence to explain the contract?
(1) Course of performance (parties conduct in contract at hand)
(2) Course of dealing (past history)
(3) Trade usage (what is typically accepted in the industry)
If the PER bars admission and a mistake has occurred, what should be pursued?
Reformation
o Rule: If the PER bars admission, the contract could still be reformed for mutual mistake if an omitted term in the document was accidental. The parol evidence rule does not apply if a party to a written agreement alleges facts that entitle him to reformation of the agreement.
Exam Tip
* Argue both ways on whether partially integrated or final integration
* Chronology is very important
o If communication occurs after the writing, explain why PER not relevant
Who is an intended beneficiary?
Under an intended third party beneficiary scenario, 2 parties contract to benefit a third party. The intended beneficiary can sue to enforce the contract.
o Note: The original party can sue as well, because they paid consideration to have the other party help the third party.
o Two types of intended beneficiaries
Creditor beneficiary: This is a third party who is owed money by the promisor.
Donee beneficiary: This is a third party to whom the promisor wants to give a gift.
o Promisor has same defenses against third party beneficiary (your friend never paid me) as against promisee (you never paid me)
o Note: If the third party makes a promise to someone else (come to the concert, Beyonce is going to sing for me), and Beyonce is a no show, the someone else has no cause of action, because she is merely an incidental beneficiary.
When a third party beneficiary is involved, when can a contract be modified or discharged?
Only before the third party’s rights have vested.
Example: Singer can only rescind contract before third party beneficiary knows singer will sing for her.
When does the party’s rights vest?
When they learn of the contract and rely on it.
What are the only 2 ways to rescind or modify a contract after the 3rd party intended beneficiaries rights have vested?
(1) Beneficiary consents
(2) Contract provides otherwise
o NOTE: A third-party beneficiary may sue both the promisor and promisee but may obtain only one satisfaction.
What is the rule on incidental beneficiary?
An incidental beneficiary indirectly benefits from the contract and cannot sue to enforce
- Example: Adjacent property owner to a large planned development
What is the rule on entrustment?
An owner who entrusts her goods to a merchant has no rights against a BFP (one who takes for value without notice)
- Note: Person can still sue the jewelry for conversion but cannot go back and get the watch that was sold to a BFP.
- Exam Tip: BFP always wins so long as the BFP bought it from a merchant dealer. If BFP bought it from back of van, you have reason to know you are not getting good title.
Define an assignment and what are the three parties in an assignment
o Defined: Under an assignment, two parties make a contract. The two parties are about to become the obligor and the assignor. Next, the assignor transfers their rights to a third party (assignee).
Obligor assignor assignee
What are the 3 things that an assignor warrants?
(1) He made no prior assignment of right
(2) Right not subject to statute of limitations or defenses other than what is apparent
(3) He will do nothing to defeat or impair the right
Who can the assignee sue and for what?
- Right to sue obligor for non-performance
- Right to sue assignor for wrongful revocation of assignment, for impairing value of assignment, for breach of implied warranty
What is the rule on privity of contract in assignments?
An assignment establishes privity of contract between the assignee and the obligor, and extinguishes privity between the obligor and the assignor.
The general rule is that all rights are assignable. What are the 3 exceptions?
(1) Personal services
(2) Requirements contracts
(3) Public policy violations
What is the rule on trying to change an obligor’s duties?
Assignments cannot substantially change an obligor’s duties, regardless of what the contract says.
- Transfer of who obligor needs to pay: OK
- Transfer of what type of performance she owes: not OK
What language makes an assignment valid?
Assignments must contain language of present transfer.
- Example: I promise to transfer or I will assign my rights to you”: insufficient
- Example: I assign or Batman assigns: sufficient
If a contract prohibits assignments, what is the rule?
Assignment is still valid by the assignee so long as the assignee had no knowledge of the prohibition.
- Example: “Rights under this contract are not assignable.”
If a contract invalidates assignments, what is the rule?
The assignment is void and assignee cannot collect.
- Example: “All assignments are null and void.”
Under multiple gift assignments, what is the rule on who can collect?
The last gratuitous assignee wins, because gifts are easily revocable.
o Note: Best to be at the end of the line with gifts.
Under multiple assignments with consideration, what is the rule?
The first assignee involving consideration wins over all subsequent assignees and gift assignees
What is the exception?
Later assignee for consideration prevails if (1) He doesn’t know of the earlier assignments; AND
(2) Is first to receive payment or judgment from obligor.
o Exam Tips
Recall: In a third party beneficiary, the third party is named in the contract itself. In an assignment, the additional person doesn’t come around until later.
Even if contract prohibits assignments, often the assignment itself will still be enforceable, BUT the party who assigned the rights will be in breach. Be careful to distinguish the assignment being still valid despite the breach.
What is the rule on delegation?
Under a delegation, a party contracts to delegate his duties to a third party to perform. Both the delegator and the delegatee are liable for performance to the main/first party.
What are the 4 types of duties that cannot be delegated?
(1) Duties of special skill or judgment
(2) Those involving special trust (e.g., doctor, lawyer)
(3) Those restricted by contract
(4) Those that materially change obligee expectancy
What is the rule on whether consent is required?
The original party must accept performance. Consent is not required before making the delegation.
o Example: I contract to have Bob paint my house. Bob delegates his duties to have Maria paint the house. Bob’s obligations are not excused, and I can sue him absent a novation releasing him. Also, I do not need to give my consent for Maria to now paint the house.
If a delegation is prohibited in the contract, how is this treated?
No delegations allowed
(compare to assignments where prohibition language is not an obstacle)
If a contract prohibits assignments, what happens to delegations?
If a contract provides “no assignments” this also means “no delegation.”
When is a delegate liable?
When he receives consideration. A delegate who receives a gift is not liable.
Example: I paid Alex $1000 to paint Mark’s house. Since Alex (the delegate) received consideration, he is liable for not painting the house.
What is an exam cluster related to anticipatory repudiation? Three additional issues
Anticipatory repudiation
demand for adequate assurances
failure to respond to request for assurances
performance - material or minor breach. substantial performance vs. perfect tender rule.
PER
Contract modification
alternative theories of enforcement
What are the 3 requirements for anticipatory repudiation?
(1) An unequivocal expression;
(2) Before the time for performance is due; AND
(3) That the repudiating party will not perform.
Note: After this analysis, analyze whether material or minor breach.
Conclusion: There was anticipatory repudiation.
What 4 options does the non-repudiating party have?
(1) Suspend performance and wait to sue
(2) Sue immediately
(3) Treat contract as discharged
(4) Urge promisor to perform
What are the 3 situations in which the repudiating party may not retract their repudiation?
(1) Other party acts in reliance on the repudiation
(2) Other party cancels contract
(3) Other party bring suit
What is the rule on the right to demand adequate assurances?
Where reasonable grounds for insecurity exist, the insecure party can demand adequate assurances of due performance. This must be done in writing.
- Note: Only entitled to adequate assurance.
Conclusion: M was permitted to demand adequate assurances.
What may the insecure party do while waiting to receive adequate assurances?
Suspend his own performance
What is the rule on failure to respond to a demand for adequate assurances?
A party must respond within 30 days or the party is deemed to have repudiated.
What is the common law rule on breach and performance?
Under the common law, a party must substantially perform. A material breach occurs if the party does not substantially perform, and excuses the other party from performance. In a minor breach, the other party must still perform. To determine whether there is substantial performance, the following factors are weighed: degree of benefit received, degree of breach, whether breach intentional, whether time was of the essence to the contract.
o Rule: If timing not specifically agreed to, a delay will not amount to a material breach. Contract must state something like time is of the essence, or delivery by this day is important. Having a performance date on the contract is not enough.
o Note: Mercantile contract time is of essence. Land contract, less likely to be time is of the essence.
o Argue both sides – material or minor breach
Divisible contracts
* Common law’s version of installment contract
* For purposes of breach, each agreed equivalent operates as a separate contract.
What is the rule on minor breach and anticipatory repudiation?
If a minor breach is coupled with an anticipatory repudiation, the non-breaching party may treat it as a material breach (may sue immediately and stop performing).
What is the rule for performance under the UCC?
Under the UCC, perfect tender is required, which means the seller must deliver perfect goods at the right place and at the right time. If the goods or delivery fail in any way, the buyer can reject all, accept all, or accept a commercial unit and reject the rest.
o D was in breach and M could reject the goods.
- One way an offer can be accepted is by the shipment of nonconforming goods. When this happens, it is both an acceptance of the offer and a simultaneous breach of the same contract because the goods tendered fail under the “perfect tender” rule, so look for these issues to go together.
If the buyer rejects the goods, what does the seller have the right to do?
If the buyer rejects the goods, the seller may cure the defect by the time originally provided for performance if the seller gives:
(1) reasonable notice of the intent to cure; AND
(2) makes a new tender of conforming goods.
o NOTE: Buyer must accept or will be in breach of contract.
o NOTE: If the delivery was already late, they are NOT allowed to cure.
What is the exception to when the seller can cure even though the time for performance is past due?
The seller can cure after the time for performance is due if the seller reasonably believes the goods would be acceptable with or without money allowance, based on
(1) trade practices or prior dealings, OR
(2) seller could not have known of the defect despite proper conduct
What is the exception to the perfect tender rule?
Installment contracts (where deliveries made in separate lots at separate times)
What is the rule related to installment contracts and perfect tender?
A buyer can reject an installment only if:
(1) The nonconformity substantially impairs the value of the installment; AND
(2) The seller cannot cure the defect.
Example: If installment contract, and 1 out of 10 chairs in first shipment is scratched, buyer cannot reject.
When is it deemed that the seller breached on an entire installment contract?
The entire installment contract as a whole is deemed to be breached only if the nonconformity substantially impairs the value of the entire contract.
What is the seller’s right to reclaim?
If the seller learns that the buyer is insolvent after the buyer received the goods, the seller can tell the buyer to return the goods.
What are the buyer’s 3 responsibilities after rejecting goods in her possession?
(1) Not use the goods;
(2) Hold the goods with reasonable care for a reasonable time; AND
(3) If a merchant, buyer accept seller instructions as to goods (e.g., ship back, resell goods)
What are the 3 options a buyer has when the seller gives no directions on what to do with the rejected goods?
(1) Ship goods back to seller
(2) Store goods for the seller
(3) Resell goods for the seller
- If resale private, buyer must give seller reasonable notice of her intent to resell.
- If resells, buyer can receive expenses and commission, or if there is none, a reasonable commission not exceeding 10%
What is the rule on if the rejected goods are perishable or rapidly declining in value?
If the goods are rapidly declining in value or perishable, the merchant has an affirmative duty to act to prevent serious loss.
What can the seller do if the buyer wrongfully exercises ownership over rejected goods?
Sue the buyer for conversion.
Formula: Fair market value of goods at the time of conversion
What are the 5 situations in which the buyer is deemed to have accepted the goods?
(1) Buyer indicates goods conform
(2) Buyer keeps non-conforming goods
(3) Buyer fails to reject goods in reasonable time (e.g., 1-month plus)
(4) Buyer fails to notify seller of rejection
(5) Buyer takes action consistent with ownership
- NOTE: Paying up front for something does not mean we have accepted it yet, we have the right to inspect.
In non carrier cases, what is the correct form of payment?
Cash unless contract provides otherwise
In shipment contracts, when is payment due?
In shipment contracts, the payment is due when the goods reach the carrier.
In destination contracts, when is payment due?
In destination contracts, the payment is due when the goods reach the buyer.
If the seller learns the buyer is insolvent, what may the seller do?
If a buyer is insolvent, the seller may refuse to deliver except for cash, including payment for all goods previously delivered under contract.
o Example: Goods shipped and midway seller learns buyer insolvent. Seller demands immediate cash payment. This is OK.
What is the rule for checks?
Checks are OK unless the seller demands cash and gives the buyer reasonable time to get the cash.
o If the check is dishonored, the seller may (a) sue for the price, or (b) recover the goods.
- Installment Contracts
o The seller may demand payment for each installment if the price can be so apportioned, unless a contrary intent appears.
What is the buyer’s right to inspection?
Unless the contract provides otherwise, the buyer has a right to inspect the goods before she pays. Expenses of inspection are borne by the buyer unless the goods do not conform and are rejected.
What is the rule for cash on delivery related to inspection and the 2 times when there can be inspection prior to payment
If a contract provides C.O.D., cash on delivery, there is NO right to inspection prior to payment. Defective goods are not an excuse for non payment unless:
(1) Defect appears without inspection, OR
(2) There is fraud
What are the 4 situations in which a buyer may revoke their acceptance?
(1) Goods substantially impaired and buyer believed would be cured
(2) Buyer assured the goods would be cured
(3) Seller assured that the goods were conforming.
(4) Buyer had difficulty in discovering the defect
Must a buyer cover?
No. A buyer may cancel the contract and cover. However, the buyer may also simply seek damages
the measure of damages is the difference between the market price and the contract price.
What is the rule for risk of loss and merchants not using a carrier?
The risk of loss passes only when the customer takes physical possession of the goods.
For non merchants not using a carrier, what is the rule on risk of loss?
Risk of loss passes only when the seller makes tender of delivery
o Example: Parties agree buyer will pick up noon. At noon, risk of loss passes to buyer (assuming seller had goods ready by then)
Define shipment contract.
In a shipment contract, the seller must ship to the carrier but does not have to deliver the goods to a particular location.
In a shipment contract, when does risk of loss pass to the buyer?
When the shipment is delivered to the carrier
o Example: If goods are damaged in transit, risk of loss is on the buyer.
What are the sellers 4 duties in a shipment contract?
(1) Make reasonable contact with the carrier
(2) Deliver goods to carrier
(3) Promptly notify buyer that goods shipped; AND
(4) Provide buyer with any documents needed to take possession of the goods.
o If not specified between shipment and destination contract, the contract is a shipment contract.
Define a destination contract and when the risk of loss passes to the buyer.
Under a destination contract, the seller ships and delivers the goods to a particular destination.
o Rule: Risk of loss passes to the buyer when the buyer receives delivery.
Example: If goods are damaged in transit, risk of loss is on the seller.
Under the deliver term F.O.B., where does risk of loss pass to the buyer?
The risk of loss passes to the buyer at the named location.
o Example: If shipment contract, the FOB ______ will be a sellers location, which means the risk of loss passes to the buyer there. If destination contract, the FOB ______ will be a buyer location, which means the risk of loss passes to buyer upon delivery at their place.
The term F.A.S. is used by boat shipments. When does risk of loss pass to buyer?
The risk of loss passes to the buyer once the goods are delivered to the dock.
When does risk of loss pass in the case of defective goods?
If a buyer has the 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.
How is risk of loss treated when there is revocation of acceptance?
If the buyer rightfully revokes acceptance, the risk of loss is treated as having rested on the seller from the beginning.
o Note: Revocation of acceptance is only rightful if it occurs “before any substantial change in condition of the goods” due to buyer.
- Sale/Return Contracts
o Defined: Buyer takes goods to resell them but may return them if she is unable to resell them
o Rule: Treated as an ordinary sale and the above rules apply.
o Rule: If goods returned to seller, risk remains on the buyer while the goods are in transit.
Under ‘sale on approval’ contracts, when does risk of loss pass to the buyer?
Risk of loss does not pass to the buyer until she accepts the goods and return is at the seller’s risk. Acceptance is
(1) failure to return, OR
(2) failure to notify seller of intention to return within the required time
What happens when the goods are destroyed before the risk of loss passes?
If goods just after the time of contract formation are destroyed and before risk of loss passes to the buyer, the contract is avoided and the seller’s performance is excused.
- Example: Encyclopedia burns in man’s house before buyer picks it up. Buyer has no avenue, she should have purchased insurance (special property interest).
What are the 5 warranties?
(1) Express
(2) Implied warranty of title
(3) Implied warranty against infringement
(4) Implied warranty of merchantability
(5) Implied warranty of fitness for a particular purpose
When is an express warranty created?
Under the UCC, an express warranty is created when any seller makes an affirmation of fact or promise, or uses a sample or model. Express warranties cannot be disclaimed.
o Examples
Description (this ring is 24 carat gold)
Duration (this computer is guaranteed for 2 years)
Sample/Model (the product will work like this sample)
You say something is a car, and you deliver it with no wheels, engine. Breach despite several disclaimers
What is the rule on values and opinions?
A statement relating to the (a) value of the goods, or (b) the opinion of the goods, does not create an express warranty.
Example: “You will like this” is not a warranty.
Example: “Honda is better” is not a warranty.
Example: “This car is in top condition” is a warranty.
What 2 issues could go together with a Warranty?
PER
Unconscionability
- Exam Tip: Parol evidence rule could prevent buyer from introducing verbal evidence of express warranty, but buyer can argue the writing was not a complete expression or that the disclaimer is unconscionable.
o Parole evidence rule will likely bar evidence of a warranty (oral conversation prior to a full agreement)
Note: * Reliance on warranties is normally assumed
Define the implied warranty of title.
Any seller of goods warrants that the title is good, rightful, and that there are no liens or encumbrances that the buyer is aware of.
Define the warranty of infringement and nuance on customer specifications.
A merchant seller warrants that the goods are delivered free of any patent, trademark, copyright or similar claim, but a buyer who furnishes specifications must hold the seller harmless against such claims.
What happens if the merchant breaches and the buyer is sued for infringement?
If the merchant breaches, and the buyer is sued for infringement, she must give the seller prompt notice or she loses her right to any remedy.
The seller may agree to bear expenses and satisfy any adverse judgment, but if so, the buyer must let the seller defend or lose any rights against him arising out of the breach.
Define the implied warranty of merchantability.
To be merchantable, goods must be “fit for the ordinary purpose for which goods are used.”
- Note: Applies only to merchants
- Note: Includes serving of food and drink for consumption on the premises
Define the implied warranty of fitness for a particular purpose? 3 elements of when it applies
A warranty of fitness for a particular purpose is implied whenever:
(1) Seller has reason to know of the buyer’s special purpose;
(2) Seller knows buyer relying on her judgment; AND
(3) Buyer relies.
Which warranties can be disclaimed?
Sellers can disclaim all implied warranties
What are the 2 ways to disclaim or waive a warranty?
(1) Buyer examines or refuses to examine
(2) Warranty conspicuously disclaimed (“as is”, “with faults”)
- Conspicuous Language
o Language obvious if in larger type than the surrounding text, contrasting type/font/color, OR set off by marks to call attention to it.
o Court decides whether a disclaimer is conspicuous.
o Examples include “As is” “With all faults”
What is the rule on a seller’s knowledge?
In all implied warranty cases, it makes no difference whether the seller knew of the defect; implied warranties are not based on negligence but rather on absolute liability.
What is the rule on failing of the essential purpose?
Under UCC, if a remedy fails of its essential purpose, the buyer can recover full damages (e.g., even if seller package says ‘remedy is only repair or part replacement’)
What is the covenant that is included in every contract?
- Implied Covenant of Good Faith and Fair Dealing
To whom do warranties extend
(1) any person in the family or in the household
(2) A guest in the house if it is reasonable to expect the guest would use the good and the guest suffers personal injury due to the breach of warranty
When may a company NOT limit damages awards to customers?
Damages may be limited except personal injuries related to consumer goods which are deemed prima facie unconscionable
What is the rule on disclaimers and limitations on damages? 2 things
Disclaimer or limitation on warranties must be:
(1) agreed to during the bargaining process; AND
(2) included on the outside of the package
(except for computer)
o Note: Company can get around this by stating something like ‘sale subject to conditions listed inside’
o Rule: Computer software that presents terms during installation process are upheld because purchaser can return software if he disagrees with conditions presented.
What are the buyer’s 3 options in case of a breach of warranty?
(1) Rescind the contract
(2) Revoke acceptance of the goods
(3) Sue for damages
What is the rule for calculating damages in a breach of warranty?
Difference in value of goods as warranted and value of goods as accepted, measured at the time and place of acceptance.
o Note: When there are special circumstances that show different amount, that is OK.
o Note: Buyer can recover appropriate incidental and consequential damages.
o The value is the goods accepted is deemed to be nothing, so the damages are the value of the goods as warranted (usually purchase price, but not always).
What is the rule on appreciation and depreciation on goods in the warranty process?
Appreciation and depreciation are a special circumstance, and the buyer’s damages will be the value of the good as dispossession, after it has appreciated or depreciated.
o Example: Buyer buys painting for $10K not knowing seller was fraudulent. Years later, learn it is unique and worth $100K, and original owner comes to get his painting. Buyer can collect $100K.
o Example: Buyer purchases used truck for $5K. Didn’t know it was stolen. Drives it for 5 years. When it gets impounded, is worth $4K. He can only recoup $4K.
Define a contract modification.
Under a contract modification, a new contract is immediately created, and the parties’ original duties are excused.
What are the consideration rules for modifications?
Under the common law, consideration for a modification is required unless there are extreme, unforeseen circumstances, and it is fair and equitable.
Under the UCC, consideration for a modification is not required, but there must be good faith.
When is no consideration required across the board in a modification?
When the modification is merely to correct an error in the original contract.
What is the rule on modification and whether a writing is required?
Modifications do not require a writing, unless it falls under the Statute of Frauds. Thus, modifications can be oral.
How are attempts to prohibit modifications treated under the common law?
Under the common law, even if a contract provides that a modification must only be in writing, oral modifications are still allowed.
How are attempts to prohibit modifications treated under the UCC?
Under the UCC, if a contract provides for no modifications, then modifications are not allowed.
In contracts between a merchant and non-merchant, what is the rule for when the contract specifies no oral modifications are allowed?
If a contract is between a non-merchant and a merchant, and the merchant’s form has a no oral modification provision, the provision will not be given effect unless it is separately signed by the nonmerchant.
Waiver rule for UCC
In the UCC, if the contract has a clause prohibiting oral modifications, but the parties agree to waive this, and then one party changes his mind but the other party has already acted detrimentally on reliance on the modification (done orally), the first party that changed their mind cannot retract the waiver. But if the other party did not change their reliance, the waiver can be retracted which would thus make the original contract enforceable (pre-modification).
What is the relationship between the PER and modifications?
The PER will never apply to bar modifications because modifications occur after contract formation and PER applies to evidence prior to or contemporaneous with the agreement.
If the modification is not valid because of a lack of consideration or lack of writing under Statute of Frauds, what should you raise?
Exam Tip
* If the modification must be in writing and isn’t, the original contract stands and the modification is not enforceable. However, consider whether any facts give rise to an analysis of detrimental reliance as a way to enforce the modified contract. In addition, whenever there are communications that occur subsequent to contracting, briefly address why the PER does not apply in addition to the potential contract modification.
Define accord.
An accord is an agreement in which one party agrees to accept different performance to satisfy an existing duty. Consideration is required. Accord does not discharge the original obligation until the substitute performance is satisfied.
Example: I’ll discharge the money you owe me only if you do my yard for 1 year.
* If he doesn’t do the yard work, there is no satisfaction, and she can sue him for the original money he owes her OR she can go after the accord for him to do the yardwork.
Example: Because we agree your work wasn’t done right, let’s agree that I’ll pay you less money for the job than what we originally contracted for.
What is the rule for an accord and consideration?
Because accord is a separate contract, consideration is required. However, the consideration can be less than the original contract.
o Example: Man owns woman $700. Under accord, woman agrees to take TV worth $400 to fulfill the debt. This is OK.
* Bona Fide Disputes
o Rule: Under accord, consideration can be partial payment on a debt if there is a “bona fide dispute”.
o Example: Agreed to initially pay $10K, but work now bad so paying $4K
- Checks Tendered as “Payment in Full”
o Rule: If a monetary claim is subject to a bona fide dispute, an accord and satisfaction is satisfied by a good faith check that expressly states that the check is tendered in “full satisfaction” of the debt.
What are the differences between modifications and accords?
In a modification, the debt is excused immediately and the old contract can no longer be enforced.
In an accord, the debt is not excused until there is satisfaction, and both the old and new contract can be enforced.
Exam Tip
* “If…Then” Accord and satisfaction
What can either party do if a party breaches the accord or the original contract?
Sue the other party.
- Breach by Debtor
o Rule: If the accord contract is breached by the debtor, the creditor can sue on the original agreement or for breach of the accord. - Breach by Creditor
o Rule: If the accord contract is breached by the creditor, the debtor can either:
(1) Sue creditor on the original contract, OR
(2) Wait until the creditor is successful in first contact, and then sue creditor for breach of accord
Define satisfaction and its effect.
A satisfaction is the performance of the accord. Its effect is to discharge the accord contract and the original contract.
Define a novation.
A novation is an agreement where the two original parties agree to substitute a new party for an original one. The original party’s obligations are immediately excused.
Example: 3 friends. 1 friend passes his job to do the yard work to the friend. First friend no longer liable to do the work.
NOTE: No writing is required.
Define a release.
Under a release, contractual duties are discharged.
What is a Discharge by account stated and the requirement?
A discharge by account stated is a contract where both parties agree to a final balance between them. The parties must have had more than one prior transaction between them.
o Express or Implied
Implied Example: Cindy gives man check for $1K covering all previous transactions. Dave does not object within reasonable period of time. It will be held that there is an account stated.
What are the 3 ways to effectuate a release?
(1) Additional consideration
(2) A signed writing; OR
(3) Detrimental reliance by the offeror
What is discharge by lapse?
If both parties fail to perform their duties, and a long time passes, neither party will have a claim, because both parties obligations have been discharged by lapse.
o Example: Man buys widgets from woman. He doesn’t pay, she doesn’t deliver. 10 month later, she tries to deliver and then tell him he is in breach. Doesn’t work this way. Both parties obligations had discharged.
- Effect of Running of Statute of Limitations
o Bars suit but does not discharge the contractual duties.
In addition to the Statute of Frauds, what are 12 defenses?
(1) Statute of Frauds
(2) Ambiguity
(3) Unconscionability
(4) Incapacity
(5) Duress
(6) Undue influence
(7) Misrepresentation
(8) Fraudulent disclosure/concealment
(9) Impossibility
(10) Impracticability
(11) Frustration of purpose
(12) Mistake
(13) Illegality
Define the three situations and rules for ambiguity.
(1) Neither party knew of ambiguity: No meeting of the minds, no contract.
(2) One or both parties knew of the ambiguity: Contract, because of meeting of the minds, however contract construed in favor of unaware party.
Note: * Note: Under ambiguity, subjective test is applied.
What are the 3 requirements to unconscionability?
(1) Unfair surprise;
(2) Oppressive terms; AND
(3) Tested when contract formed.
o Procedural unconscionability (unfair process)
o Substantive unconscionability (unfair terms)
* Note: Foreseeability is not a relevant factor in an unconscionability inquiry.
* Issue cluster – Warranty term
What is not a factor in any unconscionability question and what issue can also be considered?
Foreseeability
Warranty
What are the 3 types of incapacity?
(1) Minors
(2) Mentally incompetent
(3) Intoxicated
Who can void the contract in incapacity defenses?
Only the incapacity party.
What are the 4 elements for a minor disaffirming a contract before or shortly after she reaches of age (18 years)?
(1) Disaffirms before or shortly reaching age of maturity;
(2) Contract must be disaffirmed as a whole;
(3) Infant must return everything that still remains; AND
(4) Infant liable for fair market value of any necessaries.
Rule: If the minor fails to disaffirm the contract within a reasonable time after reaching majority age, the minor will have affirmed the contract.
What is the rule for the mentally incompetent?
A contract between an adult and one who is mentally incompetent is voidable by the mentally incompetent but binding on the other party.
The person may affirm the contract during a lucid interval or recovery, even without judicial action.
If the person is under guardianship, any contract they signed is void.
liable in quasi-contract for necessaries furnished to them (reasonable value, not agreed upon price)
What are the 2 requirements to establish an intoxication defense in contract law?
(1) Party so intoxicated that he does not understand the nature of his promise; AND
(2) Other party had reason to know of the intoxication.
The intoxicated person may affirm the contract upon recovery but will be liable for reasonable value of any necessaries
What are the 3 types of duress?
Physical
Improper Threat
Economic
What are the 3 requirements for an improper threat in duress?
(1) Intent to inflict harm;
(2) Wrongful threat; AND
(3) No reasonable means to prevent threat.
o Note: Includes threats to family and threat to bring unfounded civil or criminal charges
Economic duress is usually not a defense unless what two requirements are met?
(1) Serious threat to property or finances; AND
(2) No adequate means to prevent the threatened loss.
What are the 2 requirements for undue influence?
(1) Excessive pressure; AND
(2) Against a vulnerable party.
Example: Elderly, ill
What are the 5 requirements for fraudulent misrepresentation?
(1) False assertion of fact;
(2) Knowledge of falsity;
(3) Intent to induce reliance;
(4) Reliance; AND
(5) Damages.
Note: P may be eligible to receive punitive damages.
What are the 4 requirements for non fraudulent misrepresentation?
(1) Non intentional;
(2) False assertion of fact;
(3) Reliance; AND
(4) Damages.
What are the 3 requirements of fraudulent nondisclosure/concealment?
(1) Nondisclosure of material facts;
(2) Duty to disclose; AND
(3) Reasonable reliance.
o Note: If you sign a contract without reading the details, and someone conceals a false price in there, you can still void the contract.
What is the trifecta of defenses?
- Impossibility
- Impracticability
- Frustration of Purpose
Define impossibility.
Impossibility occurs when a later, unforeseen event makes a party’s performance impossible. Each party is excused from their duties. Restitution may be sought.
Note: Judged by an objective standard
- Examples: Destruction of contract subject matter, illegality, death of necessary person, destruction of subject matter, performance made illegal by government
Under impossibility, what is the rule on the death of a person?
If it is the death of a necessary person, contract discharged.
If services can be delegated, the contract is not discharged.
Insufficient: increase in cost
- Hiring Someone Else to Get It Done
o Example: D can’t fly because of bad engine through no fault of his own. He could have gotten another plane, so there is no excuse and he has fully breached. Compare to D can’t fly because of bad weather, and no one else can. Then, D is excused.
What is the rule on temporary impossibility?
Temporary impossibility suspends contractual duties; it does not discharge them. When performance once more becomes possible, the duty “springs back” into existence.
Other notes:
o Specificity
Rule: The destruction of subject matter will render the contract impossible only if it is not possible to get another item to fulfill the contract (e.g., if Kia blows up in delivery, can get another Kia. Compare to if someone buys my very car, and car blows up, duties discharged due to impossibility).
o If Risk of Loss Has Already Passed to Buyer
Context: Land purchases; UCC sale of goods
* Example: fire destroys book, fire destroys house
Rule: Seller may enforce contract and buyer has to pay.
What is the rule on contracts to build and acts of nature?
Contractor’s duty to construct is not discharged by destruction of the work in progress. So long as destruction was not caused by contractor, courts will extend the time to perform.
- Note: Renovation of a building that is destroyed is impossible.
- Note: The builder does not get any money back for materials the builder put into the original building before it was destroyed because the contractor is responsible for destruction of the premises under construction prior to completion.
If impossibility comes up, what alternative theory should you pursue? Also use in partial performance in impossibility
Quasi contract
restitution
Define impracticability - 2 requirements
Impracticability occurs when
(1) Extreme unforeseen difficulty/expense; AND
(2) Nonoccurence was a basic assumption of the parties.
- Examples
o Shortage of raw materials caused by war, strike, embargo, local crop failure, unforeseen disasters, unforeseen shutdown of major supplier
o Insufficient: Significant increase in expense of performance
Example: Flu causes meat price for Burger King to double. This is NOT enough to excuse Burger King.
Increases of costs of over 50% have been held to be insufficient.
Under impracticability, if the seller can only partially perform, what must he do?
Allocated his deliveries among customers and notify buyers of the delay and reduction. OK for him to add new customers not already under contract.
Under impossibility if the buyer receives notification of seller dividing goods up, what 2 options does buyer have?
- Refuse delivery
- If deficiency impairs entire contract, rescind contract.
Define frustration of purpose
Frustration of purpose occurs when the purpose for entering the contract is destroyed by events unforeseen to both parties.
Under mistake, what is another issue to bring up?
Reformation
Define mutual mistake
(1) Mistake concerns a basic contract assumption;
(2) Material effect;
(3) Whoever seeks relief did not bear risk.
Note: If you fail to investigate or know that you are making assumptions about the price, you have assumed the risk.
Define unilateral mistake
Mutual mistake elements and
(1) Unconscionable OR
(2) Other party knew or had reason to know of the mistake
Note: Errors in judgment are NOT sufficient for a claim.
* Example: Man buys car. He knows seller gave him way too low of price but says nothing. Contract is enforceable.
Example: Seller makes computational error. Unilateral mistake.
Example: Homeowner asks for construction bids. Gets 4. 3 of 4 all same number. Fourth one is 80 times less. Clear error. Unilateral mistake.
Note on agents: Bound by their actions. Apply regular mistake defenses.
What is an issue to raise with illegality?
impossibility
What is the rule on illegality and the exception
Supervening illegality discharges contract while illegal subject matter makes contract void.
exception
legal contracts entered into furtherance of illegal act (e.g., taxi) in which case contract is only voidable by person who:
(1) did not know of the purpose, OR
(2) knew but did not facilitate and the issue was not one of moral turpitude
What is the rule on recognition of illegal licenses and their ability to sue for damages?
(1) Revenue raising licenses. OK to sue and collect damages (vendor)
(2) Public protection licenses. Not OK to sue. (doctor)
Death
Death (arises after contract formation)
* Death of Necessary Person
o Rule: Death or physical incapacity of a necessary person discharges the contract.
* Death of a Non-necessary Person
o Rule: Death or physical incapacity of a non-necessary person, where services are the kind that can be delegated, will not discharge the contract.
Define rescission
Under rescission, the contract is cancelled. Each party must have some performance left on the contract. Restitution can be sought for any benefit conferred.
Define mutual rescission
Under mutual rescission, a contract can be discharged by an express agreement between the parties. The reason is immaterial absent fraud or duress.
Nothing else is required
Define unilateral rescission
Under unilateral rescission, there must be one of the following
(1) Offer of new consideration by the non-performing party
(2) Promissory estoppel
(3) Intent by offeree to make gift of performance
Note: Rescission agreement can be made orally unless contract says otherwise or subject to statute of fraud.
o Rule: For unilateral rescission to be granted, the party desiring the rescission must have adequate legal grounds
Examples: Mistake, misrepresentation, duress, failure of consideration, lack of capacity, illegality, undue influence
Note: If the other party does not want to rescind, the initial party may file an action in equity to obtain it.
o EXAM TIP
Impossibility, impracticability, and frustration of purpose are an issues cluster.
What are the 3 alternatives to enforcement?
(1) Promissory estoppel/detrimental reliance
(2) Quasi contract (implied in law)/restitution
(3) Past consideration plus subsequent promise to pay and moral obligation
What is the context and 3 requirements to promissory estoppel? What type of recovery?
Context: Defendant made a promise.
(1) Promisor made a promise with the intention that a reasonable person would act on it;
(2) Reasonable reliance;
(3) Substantial detriment; AND
(4) Unjust not to enforce promise.
- Note: Promise is expected to reduce reliance, unlike quasi-contract.
- Recovery
o Reliance damages (restore plaintiff to position she would have been in had the contract never been formed)
What is the context and what are the 2 requirements to a quasi contract?
Context: Defendant did not make a promise.
Restitution
(1) Enrichment without intent to make gift; AND
(2) Unjust for defendant to keep benefit without compensating plaintiff.
- Note: Also called an implied-in-law contract.
- Recovery
o Restitution damages (fair market value of benefit conferred)
What is the rule on moral obligation + later promise to pay?
a moral obligation is sufficient consideration to support a later promise to pay where the promisor received a material benefit, although there was no original duty on the promisor
What is the 2 requirement rule for reformation due to mutual mistake?
(1) Parties original agreement improperly documented; AND
(2) Document does not reflect their shared understanding.
Example: Clerical error about an already-agreed upon boundary line.
Note: Reformation not proper to correct a misunderstanding of terms, or to correct confusion (e.g., about the price)
What is the rule between reformation and misrepresentation?
The court will reform the writing to reflect the expressed intent of the parties
Note: Subject matter is not subject to reformation because then no meeting of minds
What is the rule between negligence and reformation?
Failure to read an agreement - reformation still allowed.
- Defenses
o If subject matter sold to a BFP, reformation not allowed.
Define specific performance
- Rule: Specific performance is an equitable remedy where the court orders the breaching party to perform under the contract. The remedy is only available if a legal remedy is inadequate.
- Specific performance can be ordered against either party, even where the breaching party is the buyer.
- Examples:
o Real property
o Unique property or other appropriate circumstances
Example: Inability to cover where goods not otherwise available on market
Example: Art work, antiques, and custom made goods = specific performance
What is the rule on specific performance and service contracts
o Rule: No specific performance is available for personal service contracts, because this would be similar to indentured servitude. However, an injunction may be obtained to prevent an employee from working for a competitor if the services contracted for are rare or unique.
What are the 3 requirements for covenants not to compete?
o Rule: Specific performance will be granted for a contract not to compete if:
(1) Covenant necessary to protect legitimate interest;
(2) Covenant reasonable as to geographic scope and duration; AND
(3) Covenant does not harm the public.
* Note: Sales of goods, you cannot force them to deliver. Sue for damages.
What are the 3 defenses a D can raise when being sued?
(1) Laches
(2) Sale to a BFP
(3) Unclean hands
Define laches
(1) P delayed too long in bringing about specific performance action; AND
(2) The delay caused prejudice against the breaching party.
Define the sale to a BFP defense
(1) Sold to another who purchased; AND
(2) For value and in good faith.
Define the unclean hands defense
P seeking specific performance is guilty of some wrongdoing in the transaction.
When does a seller have the right to reclaim? 2 requirements
(1) Buyer insolvent at time of receipt of goods; AND
(2) Seller demands reclamation within 10 days of buyer receiving goods
What is the exception to the right to reclaim from buyer?
If buyer misrepresented insolvency to seller in writing within 3 months before delivery, 10 day time limit is waived
o Note: If the buyer got rid of the goods, the right to reclamation is gone. So the only option is to sue for breach of contract (though collecting will be tough).
What are the 3 situations where the seller can stop delivery?
(1) Learns buyer insolvent
(2) Buyer breaches contract
(3) Seller waiting to receive assurances
In what 3 situations can the seller not stop goods?
(1) buyer has received goods
(2) buyer has received title
(3) notice that bailee is holding the goods for the buyer
If the seller has not made delivery after the buyer made partial payment, the buyer can replevy the goods in what 2 situations?
(1) Buyer may replevy the goods if
(1) seller becomes insolvent within 10 days after receiving buyers first payment, OR
(2) goods purchased for family, personal or household purposes
- In either case, the buyer must tender any unpaid portion of the purchase price to the seller.
Rule: Buyer may replevy undelivered goods from the seller if the buyer, after reasonable effort, is unable to secure adequate substitute goods (i.e., cover).
* Buyer Right to Specific Performance
o Rule: Under the UCC, buyers who cannot cover have their choice of replevin or specific performance.
Exam tip for remedies
Exam Tip - For all questions
* Give them expectation damages, consequential (if applicable), and incidental less any costs saved by not having to perform
* Apply limitations to damages including avoidance/cover
Define expectation damages
Expectation damages put the injured party in the position they would have been in had the contract been performed.
o Real Property: Difference between the contract price and the market price.
Abatement: Where the property measures less than the contract indicates, the court can abate the price commensurate with the actual property size.
o Cases of Damages Property—Lesser of Two Rule
P entitled to be made whole in the least expensive way: decrease in market value or replacement cost, whichever is less.
* Exception - Special purpose property: Property that has little value to anyone other than the owner is entitled to the cost of replacement.
* NOTE: If profits are uncertain, use reliance damages.
Define reliance damages
- Rule: Reliance damages are used when expectation damages are uncertain and serve to return the nonbreaching party to the status quo, as if the contract had never been entered into.
Define restitution
- Rule: The goal of restitution is to prevent unjust enrichment. Restitution damages are measured by the reasonable value of the benefit conferred by the plaintiff to the defendant
2 situations in which restitution can be sought
o Used when a contract is in play and has been breached
o Used when no contract exists
In this situation, restitution is called an action in quasi-contract or an action for quantum meruit
- Rule: An unjust enrichment claim cannot exceed the contract price given the work giving rise to the claim was already done and the only remaining obligation is the payment of the price.
Define incidental damages and the word they use to trick you
- Rule: Incidental damages are the costs incurred in dealing with the breach and are always recoverable.
- Examples:
o Transporting or storing the goods after breach
o Caring for the goods after breach
o Arranging for a substitute transaction
o Advertising to find buyer #2 - Top wrong answer: Coupling the words “incidental damages” with “foreseeable”
o This is a wrong answer
o Wrong answer will say: “Incidental damages are recoverable here because they are foreseeable.” Or “Incidental damages are not recoverable here because they are not foreseeable. BOTH of these are wrong answers.
Foreseeability does not matter with respect to incidental damages.
Define consequential damages, the only way you can recover them and the nuance rule on who can collect in UCC
- Rule: Consequential damages are recoverable if they are foreseeable at the time of contract formation.
- Example: Lost profits
- UCC
o Rule: In the UCC, only a buyer may obtain consequential damages.
o Be Chatty and tell your courier up front that you are losing $2K a day. Shipping company is liable for foreseeable damages.
What is the role on punitive damages in contract law?
- Rule: Punitive damages are not awarded in contract cases.
- Note: We only seek to make the plaintiff whole.
What are the 2 requirements for a valid liquidated damages clause?
What is the UCC nuance?
- Rule: A liquidated damages clause is upheld if:
o (1) Damages difficult to estimate at time of contract formation; AND
o (2) Amount is reasonable forecast of probable damages (not a penalty). - UCC Rule
o Rule: Even if the liquidated damages clause was not a reasonable estimate at the time of contract formation, it is valid if it is reasonable in light of the subsequent actual damages. - If No Actual Damages
o Rule: If no actual damages, liquidated damages still awarded.
o Note: A party may recover either liquidated damages, or, if not available, the actual damages, but not both. - If Clause Fails
o Rule: If requirements above not met, the provision fails and plaintiff will recover only those damages that she can prove. - Exam Tip: If you see a single lump sum figure that does not vary with the severity of the breach, throw this out as wrong answer. It is not proportionate to the harm.
- Tip: If liquidated damages clause gets struck as punitive, still seek damages for client! The person has been a victim of breach, so go for expectation damages. If he through it was X a day and he can prove it with reasonable certainty, he can get his actual expectation. If expectation uncertain, go for reliance damages.
What are the 4 limits to damages that should always be discussed?
Foreseeability
Certainty
Causation
Mitigation/Avoidable
In an employer breach, what is employee entitled to?
o Rule: Regardless of timing, employee is entitled to full contact price.
In an employee breach, what is employer entitled to?
difference in cost between new and former employee salary
- Employment at will
o Rule: A position characterized as permanent creates an employment at will relationship and may be terminated any time by either party for any reason.
What are the damages for a breach by an owner against a builder
- before construction
- during construction
- after construction
- before: prospective profits
- during: prospective profits + any costs incurred to date
- after: full contract price + interest
What are the damages for a breach by a builder against an owner?
o Before construction: amount above contract price that it now cost plus payment for delays
o During construction: amount above contract price that it now cost plus payment for delays
If completion would involve undue economic waste
* Value of what would have received minus what actually received
o Breach by late performance: If the builder completes performance, but is late, owner has right to damages for any loss incurred by not being able to use the property. However, if damages not easily determined or not foreseeable, can only recover interest.
What is the rule on economic waste?
Unless there is special significance attached to an item, court will not order a remedy that results in undue economic waste
When you go for expectancy damages, what other damages should you always go for?
Expectancy
Incidental
Consequential
In the UCC, what are the buyer’s 3 options (in case of seller breach)?
(1) Cover
Cover price - original price (most common)
(2) Market
Market price - contract price
(3) Loss in value
Value of goods promise - value of goods received
When is cover sought?
When is market damages sought?
When is loss in value sought?
o (1) Cover damages (most commonly sought)
Cover price – original contract price
* Note: Cover is only available when the buyer rejects the goods, and correct answer choice can say “the cost of purchasing compatible goods from another supplier”
* Note: Cover price does not need to be the best possible price he could get. As long as the buyer enters into a cover contract in good faith, you get difference between cover price and original contract price.
* Note: A buyer does not have to cover.
o (2) Market damages
Market price – original contract price
Used when:
* (1) Buyer does not cover at all; OR
* (2) Buyer does not cover in good faith.
Example: Seller walks out in breach. Buyer goes out and gets carpeting that is 10 times better and 10x more expensive to take advantage of seller. Buyer cannot recover what he paid for given he did not even cover in good faith. He won’t get 0 though. He gets market damages.
Note: A buyer does not have to cover.
o (3) Loss in value
Value of goods promised – value of goods as actually delivered
Used where buyer keeps non-conforming goods (doesn’t reject them)
What are sellers 3 options (in case of buyer breach)?
(1) resale (most common)
contract price - resale price
(2) market damages
contract price - market price
(3) contract price
only if seller can’t resell
o (1) Resale Damages (most common)
Contract price – resale price
Assumes seller resells in good faith
Note: No damages if you resell your car for the exact same price to second buyer.
o (2) Market Damages
Contract price – market price (at time of delivery)
Context
* (1) Seller does not resale the goods, OR
* (2) Seller does not resale the goods in good faith
Example: I originally have contract to sell it for $100, but then after buyer breaches, I go out and sell it for $1000 in bad faith. Seller cannot recover the $900 difference from first buyer. Seller has to resell goods in good faith. So seller is limited to market price.
o (3) Contract Price Only If Seller Can’t Resale the Goods
Example: Custom-made goods you can’t sell to anyone else. If buyer walks away, seller gets the full contract price.
Note: Buyer should still get the custom made good.
Define a lost volume seller and how to calculate damages.
Rule: If the seller’s supply is unlimited, he is a lost volume seller, and the lost profits measure is the measure of damages.
Note: Look for two people buying exact same item at exact same price, but with an unlimited inventory of boats, cars, etc.
Note: Resell damages here would be $0 because dealer sells same car for same price.
- In addition, the seller may also recover for incidental damages, but not consequential damages.
Define the doctrine of mitigation/avoidable consequences
Rule: The non-breaching party has the duty to mitigate. Damages that could have been avoided with reasonable effort are not recoverable.
Rule: A party may recover the expenses of mitigation.
UCC
* Mitigation does not apply to UCC
* However, seller cannot bring action for full contract price (rather than market price) unless goods cannot be resold at a reasonable price or were damaged or lost when the risk of loss was on the buyer.
Note: In employment, one only has to accept comparable employment. The duty is to take comparable employment.
