Contracts Flashcards
Contracts (Pneumonic) - Love For Dogs: Treat Every Rover Terrifically
L - Law (what law applies) F - Formation D - Defenses T - Terms E - Excuse for Non-Performance R - Remedies T - Third-Party Problems
Article 2 Applicability
Rule: Applies to sale of goods, goods are “moveable”, personal property
Common Law Applicability
Rule: Applies to all other contracts (outside of sale of goods)
i.e. services, construction, land sale, etc.
Contract
Rule: Legally enforceable promise
Express Contract
Rule: Contract created by the parties’ words (oral or written)
Implied-In-Fact Contract
Rule: Contract created by their conduct
Restitution (Quasi-Contract)
Rule: Protects against unjust enrichment whenever contract law yields an unfair result
(remedy of last resort)
Bilateral Contract
Rule: Offer than can be accepted in any reasonable method
Unilateral Contract
Rule: Offer can only be accepted by performance
Offer
Rule: An offer is a (1) manifestation of an intention to be bound (as judged by a “reasonable person”/ objective standard) (2) communicated to an identified offeree with (3) definite and certain terms
Advertisement
Rule: Ads are not an offer unless there is a quantity
Indefiniteness
Rule: If any of the terms are too indefinite, a contract cannot be enforced
Indefiniteness - Open Price in Sale of Goods K
Rule: Courts will read in a “reasonable” price for sale of goods (but not in common law)
Requirements Contracts
Rule: Even if quantity value is unknown, you may still contract to buy “all its requirements”
Exception: Must be reasonable, in line with prior demands
Termination (Step 2) and Methods
Rule: To end a contract prior to its full performance by either party
Methods
- Lapse of Time
- Revocation
- Rejection
- Death
Termination - Lapse of Time
Rule: An offer lapses after a stated term or after a reasonable time has passed
Termination - Revocation
An offeror terminates the offer
Rule: An offer can be revoked at any time prior to acceptance
Direct Revocation
Rule: Offeror indicates directly to the offeree that he has changed his mind about entering the deal
Indirect Revocation
Rule: Offeror engages in conduct that indicates they’ve changed their mind and the offeree is aware of the conduct
When an Offer Cannot be Revoked
- Option
- Firm Offer (Article 2)
- Foreseeable Reliance Before vs After Acceptance
- Starting to Perform a Unilateral Contract
Option - Irrevocable Offers
A promise to keep offer open that is paid for (consideration)
Note: An option contract is irrevocable for the time period stated, thus, not even buyer could revoke the offer within the specified time period (ex. by adding conditional terms)
Merchant’s Firm Offer (Article 2) - Irrevocable Offers
Rule: Merchant’s firm offer arises when a merchant offers to buy or sell goods in a signed writing that gives assurances to keep an offer open, then the offer is irrevocable for a reasonable time (if time not specified, cannot be irrevocable for more than three months)
- Must write in an offer to hold it open
- Note: Only the OFFEROR must be a merchant
Foreseeable Reliance Before vs After Acceptance - Irrevocable Offers
Rule: If there is a reasonable showing of reliance on the contract, then the offer is irrevocable
Starting to Perform a Unilateral Contract - Irrevocable Offers
Rule: In unilateral contracts, once performance has begun, offers cannot be revoked
(Note: Mere preparation to perform is not the start of performance)
Timing of Revocation
Rule: A revocation is effective on receipt (No Mailbox Rule)
Note: A written revocation of an offer is effective when it is received by the offeree, under common law, it is “received” as soon as it comes into the physical possession of the person addressed (or someone authorized to receive it, or when deposited in some place authorized for this or similar)
Rejection of Offers
Rule: An offer terminates when the offeree rejects it (an “inappropriate response”)
Note: counteroffers, conditional acceptances, additional terms
Counteroffers - Rejection
Rule: Counteroffers operate as rejections, but “mere bargaining” does not
Conditional Acceptance - Rejection
Rule: Conditional acceptances operate as a rejection and counteroffer
Conditional Acceptance (Acceptance Adding Terms/ Varying Offer: Common Law) - Rejection
Common Law Rule: Acceptance must mirror the offer “Mirror Image Rule”
If the offeree adds terms, it is a rejection
Mirror Image Rule
Rule: Under Common Law, acceptance must mirror the offer
Conditional Acceptance (Acceptance Adding Terms/ Varying Offer: Article 2) - Rejection
Rule: The offeree’s adding or changing a term does not prevent acceptance under Article 2
Exception: (included only if)
- Both parties are merchants
- Not a material change
- No objection to it within a reasonable time
Material Change (Article 2)
Contract term that would likely cause hardship or surprise
Exception: If the term is in the industry, it’s not material
Death - Termination of Offers
Rule: Death of either party before acceptance terminates a revocable offer
Note: Death does not automatically terminate a contract or an irrevocable offer
Acceptance (Step 3)
Rule: Assent to the terms of an offer
Language of Offer - Acceptance
Rule: Language of the offer may control the manner of acceptance
Starting Performance as Acceptance: Bilateral Contract
Rule: Starting performance is acceptance and carries with is an implied promise to finish the job
Unilateral Contract Signal
Signal: Offer “only by”
Starting Performance as Acceptance: Unilateral Contract
Rule: Starting performance is NOT acceptance and only completing performance is acceptance
Improper Performance as Acceptance
Rule: Improper performance is simultaneous acceptance and breach
Silence as Acceptance
Rule: Generally, silence is NOT acceptance
Exception: Custom creates duty to speak (i.e. you never said anything about not accepting/ accepting)
Accommodation (Common Law)
Rule: Notice to buyer that seller does not have conforming goods, buyer has a choice to accept or not
Timing of an Acceptance
Rule: Generally, acceptance is effective when mailed (Mailbox Rule)
Policy: Protects the offeree against revocation once they have mailed an acceptance
Acceptance vs Revocation and the Mailbox Rule
Acceptance is effective WHEN MAILED
Revocation is effective on RECEIPT
Exceptions to Mailbox Rule
- Offer States Otherwise
- Irrevocable Offer - No MB Protection
- Rejection Sent First, then Acceptance
Offer States Otherwise -Exceptions to Mailbox Rule
If offer states specific acceptance terms, then MB rule not valid
Irrevocable Offer: No MB Protection - Exceptions to Mailbox Rule
If irrevocable K: If acceptance is RECEIVED after irrevocable term, acceptance by MB rule is NOT valid
Rejection Sent First, then Acceptance - Exceptions to Mailbox Rule
If rejection is sent first, then original offer is void, and a contract does not exist. Whichever is received first controls. If acceptance received first, then accepted.
MB rule invalid
Consideration
“Bargained-for legal detriment/ benefit”
Can be (1) a promise in exchange for a promise, or (2) promise for performance, or (3) promise for forbearance
Past Consideration
Rule: Past consideration is NOT consideration
Forbearance
Consideration can also occur for NOT/ refraining from doing certain things
Adequacy of Consideration
Rule: Adequacy of consideration is irrelevant
Contract Modification: Is there Consideration to Enforce the Modification
Under Common Law: New consideration is required to modify a contract, performing a preexisting duty is not enough
Exception: If third-party comes in, then is enforceable
Under Article 2: Consideration is NOT required to modify a contract for the sale of goods, but must have Good Faith
Pre-Existing Duty Rule
Rule: Under Common Law, new consideration is required to modify a contract, performing a preexisting duty is not enough
i.e. Someone asking for more money to do same thing they originally promised to do
Partial Payment of a Debt that is Due and Undisputed - Exception to the Consideration Rule
Rule: If there is partial payment of a debt that is due and undisputed, there is no consideration and it will not be enforceable
Time-Barred Debt as an Exception to the Consideration Rule
Rule: Written promise to pay a debt, collection of which is barred by the SOL, is enforceable, even without consideration
Promissory Estoppel as a Substitute for Consideration - Exception to the Consideration Rule
Rule: Foreseeable reliance may make a promise enforceable, even without consideration
(i) promise made
(ii) reasonable foreseeable detrimental reliance
(iii) justice requires enforcement
Note: Promissory Estoppel is the right answer only if there is NO consideration
Capacity (Lack Of) - Defenses
(a) Minors (under 18)
(b) Intoxicated
(c) Mentally Incompetent
Lack of Capacity Rule
Rule: An incapacitated defendant has the RIGHT to disaffirm the contract (does not have to)
Implied Affirmation After Gaining Capacity
Tip: Look for minor retaining the benefit under the contract after reaching 18 yrs old
Exception to Incapacity Defense
Rule: An incapacitated party is liable for necessaries (food, shelter, clothing, medical care), but only for their reasonable value, not the contract price
Defense: Ambiguity/ Misunderstanding
Rule: A contract will not be enforced if there is Material Ambiguity to the terms of the contract
Note: only if neither parties know or should have known
Defense: Mistake - Mutual Mistake About a Material Fact
Look to see if bargained for subject matter actually exists (i.e. fundamental mistake that would materially alter the contract)
Defense: Mistake - Unilateral Mistake
Rule: When only one party makes mistake, contract is still enforceable
Exception: Unless the mistake is obvious or palpable
- Other party knows or should have known of other parties mistake
Defense: Unconscionability
Rule: Under this doctrine, courts are empowered to refuse to enforce all or part of a contract
Two Tests:
(1) Unfair Surprise and Oppressive Terms - tested as of the time the agreement was made, by the court
Note: Now applicable to all contracts laws generally
Defense: Duress (Generally)
An actual or a threatened violence or restraint of a man’s person, contrary to law, to compel him to enter into a contract, or to discharge one
Defense: Duress (Elements)
(1) Bad guy - makes an improper threat
(2) Vulnerable Guy - no reasonable alternative
Defense: Statute of Frauds** - When is a Writing Required
General: Most oral contracts are enforceable, but only certain kinds of contracts need a writing to be enforced (that fall within SOF)
Defense: Statute of Frauds (Categories Pneumonic)
MY LEGS
M - Marriage Y - Year L - Land Sale E - Executor G - Goods ($500+) S - Surety
Defense: Statute of Frauds Categories - Marriage
Rule: Contracts in consideration of marriage are subject to SOF (i.e. pre-nup)
Exception: Cannot be solely a PROMISE to marry
Defense: Statute of Frauds Categories - Year
Rule: Contracts which cannot possibly be completed in one year or less are subject to SOF (watch for dates)
Exception: Lifetime deals are not subject to the SOF
Defense: Statute of Frauds Categories - Land Sale/ Transfer of an Interest in Real Property (Mortgage Contract)
Rule: Generally, Land Sales and Transfers of an Interest in Real Property are subject to the SOF
Note: the contract need only reasonably describe the subject matter; great specificity, such as a legal description, is not required
Note: Most transfers of interest in land over one year are subject to SOF (i.e. 2-year lease)
Note: Construction contracts not subject to SOF (i.e. building a fence on property)
Note: Equal Dignity Rule - Authorization by agent must be in writing, only if underlying deal is subject to SOF
Defense: Statute of Frauds Categories - Executor
Rule: Promises by executor of an estate to pay the estate’s debts from some other source of funds/ out of his own pickets, then are subject to SOF (not likely tested)
Defense: Statute of Frauds Categories - Goods ($500+)
Rule: Under Article 2, the sale of goods $500 or more are subject to the SOF
Note: Does not have to be more than $500
Note: All sales of goods, even under $500, are still subject to Article 2
Defense: Statute of Frauds Categories - Surety
A promise to “answer for” (guarantee) the debt of another person
Exception: A mere promise to pay money is not a surety
Note: Usually wrong answer when on the exam
Contract Modification & Interaction with SOF
Rule: The modification must be in writing ONLY IF the contract as modified (not the original contract) is within the SOF
Exception: Contracts may write in terms that prohibit oral modification
Note: Under common law, oral modifications are not enforceable
SOF - What is an Adequate Writing
Note: Depends on nature of writing
Article 2 Sale of Goods:
(1) Must contain a quantity and (2) be signed by the party to be charged with breach
Common Law: Writing must have (1) all “material” terms and (2) be signed by the D
Exceptions to Statute of Frauds (i.e. Where a Writing is NOT Needed)
Rule: These exceptions to SOF are carved out where there is less chance of fraud
1) Land Sale/ Real Property Exceptions
2) Full Performance of Service K Satisfies SOF, but Part Performance Does Not
3) Sale of Goods for $500 or More (Article 2 SOF)
Exceptions to Statute of Frauds - Land Sale/ Real Property Exceptions
a. Leases of One Year or Less: Legislative exception to protect tenants
b. “Part Performance” of Real Estate K (need TWO of three)
(i) some payment
(ii) possession
(iii) improvements
Exceptions to Statute of Frauds - Full Performance of Service K Satisfies SOF, but Part Performance Does Not
Rule: Writing not needed to satisfy SOF if full performance of the contract has occurred
Exceptions to Statute of Frauds - Sale of Goods for $500 or More (Article 2 SOF)
Rule: In conditions of an oral agreement, ____ is not subject to the SOF
a. Goods Accepted or Paid for by Buyer
b. Custom-Made Goods
Need to show a “Substantial beginning” to satisfy
SOF—i.e., that the goods are custom-made/not suitable for sale to others
c. Judicial Admission—Satisfies SOF
If a defendant admits under oath that they had a deal,
then will lose their SOF defense
d. Merchants’ Confirmatory Memo***
One party can use its own signed writing to satisfy
the SOF against the other party if:
(i) Both parties are merchants;
(ii) Writing claims agreement & has quantity;
and
(iii) There is no written objection within 10 days
Exceptions to Statute of Frauds - Suretyship
Note: The “Main Purpose” Exception takes us outside the SOF
Rule: If the sureties main purpose of the promise is to benefit ones’s self, then the SOF can be enforced against the party
Battle of the Forms
Rule: Battle of the Forms provides that the proposal of additional or different terms by the offeree in a definite and timely acceptance is effective as an acceptance.
- It lists specific rules for determining what terms are included in a contract when the terms of acceptance do not match the terms of the offer
Exception: Unless the acceptance is expressly made conditional on assent to the additional or different terms
Note: Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants (and if it materially alters the contract). If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract, and they do not become part of the contract unless the offeror expressly agrees
Knockout Rule - Conflicting Terms
Rule: Between merchants, some courts will apply the knockout rule when different terms are included (i.e., conflicting terms are knocked out and replaced by gap-filling terms under the UCC)
UCC Language on Additional Contract Terms Between Merchants
Rule: Under the UCC, if both parties to a contract are merchants, additional terms in an acceptance will be included in the contract unless (i) they materially alter the original contract; (ii) the offer expressly limits acceptance to the terms of the offer; or (iii) the offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received
Timing of Rejection
Rule: Rejections are effective when received
Exception: Mailbox Rule (note MB rule does not apply if offeree sends a rejection, followed by an acceptance and rejection received first)
Simultaneous Acceptance and Revocation
Rule: If simultaneous acceptance and revocation of an offer occurs, the outcome would turn on the court’s determination as to whether revocation letter had been received before or after the letter of acceptance was subject to the MB rule
Options Contracts and the MB Rule
Rule: The mailbox rule does not apply to option contracts, and the acceptance under an option contract is effective only upon receipt
Revocation
Rule: Words or conduct of the offeror terminating the offer
Rejection
Rule: Words or conduct of the offeree rejecting the offer
Termination by Operation of Law
1) Destruction of subject matter of the contract
2) Supervening illegality of subject matter of contract
3) Death or insanity of either party
Parol Evidence Rule - Generally
When parties intend that a writing is the final expression of their bargain, no prior (oral or written) or contemporaneous (oral) expressions are admissible to vary the terms of the writing
Gap-Fillers: Article 2
Rule: If missing, Article 2 provides: price (reasonable at time of delivery), place of delivery (seller’s business), time of shipment (reasonable), time for payment (receipt of goods), and assortment (buyer’s option)
Breach of Contract - Perfect Tender Rule (UCC Article 2)
Rule: Under the UCC, if goods or delivery fail to conform to contract in any way, buyer generally may reject all, accept all, or accept any commercial units and reject rest
Breach of Contract - Minor Breach (Common Law)
Rule: Minor breach occurs when obligee gains the substantial benefit of bargain so aggrieved party must perform, but right to damages
Breach of Contract - Material Breach (Common Law)
Rule: Material breach occurs when obligee does not gain substantial benefit of bargain so no duty to
perform, immediate right to damages and other remedies
Remedies - Specific Performance
Rule: If legal remedy (damages) is inadequate, court may order breaching party to perform (land and rare or unique goods)
Remedies - Damages (General)
Rule: Damages can be recovered only to the extent they can be proved with reasonable certainty and could not be avoided with reasonable effort
Reformation
Rule: Reformation occurs when a writing changed to conform to parties’ original intent if mutual mistake,
unilateral mistake and party knows of it and does not disclose, or misrepresentation
Rule of Contract Construction
Rule: Contracts are construed as a whole, words are generally given their
ordinary meaning, written or typed terms prevail over printed, custom and usage in
business and locale is considered, court will try to find contract valid, and ambiguities are
construed against the contract’s preparer
Parol Evidence Rule - Integration
Rule: Integration—final and complete expression
a. If incomplete (partial integration), evidence admitted to supplement
b. Merger clause (states agreement is complete on its face) is evidence of full
integration
Parol Evidence Rule - Evidence Outside Scope of the Rule May Be Admitted
Acceptable Evidence:
a. Evidence concerning validity (e.g., formation defects, conditions precedent)
b. Evidence used to interpret (words used are uncertain or ambiguous)
c. Evidence showing true consideration paid
d. Evidence in action for reformation
Exceptions to the Parol Evidence Rule
1) Correct a Clerical Error (e.g., a typo)
2) Establish a Defense Against Formation
3) Interpret a Vague or Ambiguous Term—Parol Evidence
Is Okay
4) Add to a Partially Integrated Writing—Parol Evidence Is
Okay
Partial integration = A final statement of the terms
included, but not a complete statement of all terms
agreed to
Parol Evidence Rule (P.E.R.)
Rule: Keeps out evidence of a prior or contemporaneous
agreement (either oral or written) that contradicts a
later writing
Parol Evidence Rule (P.E.R.) - Later Events
Rule: The Parol Evidence Rule is irrelevant. Parole evidence rule only looks at events that happened prior to the final writing
(if after, modification)
Conduct as Source of K Terms - Course of Performance
Rule: How parties performed under previous installments of this contract. Course of performance is the best evidence of what
the parties intended.
Conduct as Source of K Terms - Course of Dealing
Rule: What parties did under prior contracts with each other.
Conduct as Source of K Terms - Usage of Trade
Rule: What others in the trade do in similar contracts (less important than #1 and #2).
Seller’s Warranties of Quality
in a Sale of Goods (Article 2) - Express Warranty
Rule: Describe the goods, promise facts about the goods, showing a sample or model, but NOT an “opinion.”
Seller’s Warranties of Quality
in a Sale of Goods (Article 2) - Implied Warranties
- Implied Warranty of Merchantability
Implied Warranty of Merchantability
Rule: The goods are fit for their ordinary purpose.
Key Fact: Seller is a merchant who deals in goods of the kind
Implied Warranty of Fitness for a Particular Purpose
Rule: The goods are fit for buyer’s particular purpose.
Key Facts: (1) Seller knows buyer has a special purpose and (2) is relying on seller to select suitable goods
Note: Seller does not have to be any kind of a merchant at all
Limitations on Liability in a Sale of Goods - Disclaimers
Rule: A seller can disclaim implied warranties, but not express warranties.
Limitations on Liability in a Sale of Goods - Disclaimers (Magical Words of Article 2)
Rule: If using “as is” or “with all faults” to disclaim, may also expressly and outright as long as the language is conspicuous
Limitation on Buyer’s Remedies
General Rule: Seller can limit buyer’s remedies for breach of any warranty (express or implied) as long as the limitation is not unconscionable
Exception: Limiting buyer’s remedies for personal injury in the case of consumer goods is presumed to be unconscionable
Risk of Loss in Sale of Goods - (When goods are damaged before buyer gets them and neither buyer nor seller is to blame, who bears the
Risk of Loss): If Seller Bears Risk
Rule: Seller must provide new goods to buyer for no additional cost, or be liable for breach
Risk of Loss in Sale of Goods - (When goods are damaged before buyer gets them and neither buyer nor seller is to blame, who bears the Risk of Loss): If Buyer Bears Risk
Rule: Buyer must still pay the contract price even though
goods are destroyed
Risk of Loss in Sale of Goods - Hierarchy
- Agreement Allocates Risk: The agreement of the parties controls
- Breach: Breaching party bears Risk
- Delivery by Common Carrier**: Risk of Loss shifts to buyer when seller completes its “delivery obligations.”
4: Non-Carrier Cases: Risk of Loss depends on whether the seller is a merchant.
Risk of Loss in Sale of Goods: Delivery by Common Carrier
Possibility 1: Shipment Contract** - Seller must get the goods to a common carrier, make delivery arrangements, and notify buyer
Note: F.O.B. followed by seller address= free on board, Shipment Contract
Possibility 2: Destination Contract - Seller must get the goods all the way to a specific destination (usually, where buyer is located)
Risk of Loss in Sale of Goods: Non-Carrier Cases
Risk of Loss depends on whether the seller is a merchant
(1) Merchant-Seller: Seller bears Risk of Loss until buyer takes possession of the goods.
(2) Non-Merchant-Seller
Risk of Loss Passes Sooner: Buyer bears Risk of Loss
once seller “tenders” the goods (makes them available to buyer)
Performance of Common Law Contracts
Rule: Performance does not have to be perfect, can be substantial performance
Performance of Common Law Contracts: Substantial Performance
Rule: Substantial performance is all that is required [i.e., a
party cannot commit a material breach]
Performance of Contracts for a Sale of Goods (Article 2)
- Perfect Tender Rule
- Option to Cure (“Second Chance”)
- Installment Contracts
- Buyer’s Acceptance of Goods
- Buyer’s Revocation of Acceptance of the
Goods - Consequences of Rejection/Revocation of
Acceptance - Buyer’s Obligation to Pay
Performance of Contracts for a Sale of Goods: Perfect Tender Rule
Rule: Seller must deliver perfect goods in the right place at
the right time.
If tender is not 100% perfect, buyer has the right to
reject the goods
Performance of Contracts for a Sale of Goods: Option to Cure
Rule: A seller who fails to make perfect tender may have an option to cure.
Whether seller has that option usually depends on
whether the time for performance has expired
a. Time Has Not Expired
Seller has the option to cure
b. Time Has Expired
Seller does not have an option to cure unless there is
“reasonable grounds” for thinking that her improper
tender would have been acceptable
Performance of Contracts for a Sale of Goods: Installment Contracts = Substantial Impairment Rule
General: Installment contracts requires or authorizes seller to deliver in separate installments (otherwise, seller must deliver the goods in a single delivery)
Rejection Under Installment K: Perfect Tender Rule does NOT apply to installment contracts, so it’s harder for buyer to reject. Buyer may reject only for substantial impairment
Performance of Contracts for a Sale of Goods: Buyer’s Acceptance of Goods
Implied Acceptance**: Buyer keeps goods after having an opportunity to inspect them
Consequences of Buyer’s Acceptance: Once buyer accepts (even if by passage of time), it’s too late for buyer to reject, but buyer can still get damages for seller’s breach
Performance of Contracts for a Sale of Goods: Buyer’s Revocation of Acceptance of the Goods
General Rule: A buyer cannot revoke acceptance of goods.
Exception: (1) If the non-conformity substantially impairs the value of the goods (2) and was difficult to discover (i.e., it was a latent defect)
Performance of Contracts for a Sale of Goods: Consequences of Rejection/Revocation of
Acceptance
- Return: Buyer can return the goods at seller’s expense.
- Refund: Buyer can get back any money buyer has paid.
- Damages: Buyer can get damages for breach of contract
Performance of Contracts for a Sale of Goods: Buyer’s Obligation to Pay
Rule: Cash unless otherwise agreed
Note: A check is okay, but seller can refuse it. But that gives buyer an additional reasonable time to come in with the cash
Excuse for Non-Performance: Other Party’s Breach
Rule: May provide an excuse depending on the nature of
the contract
Excuse for Non-Performance: Other Party’s Breach: Sale of Goods (Article 2)
Rule: If seller’s performance is not perfect in every respect [“Perfect Tender Rule”], buyer has pretty much free reign.
3 options:
1) reject all,
2) accept all, or
3) reject some and accept the rest
Note: Buyer can still get damages
Excuse for Non-Performance: Other Party’s Breach: Common Law Contracts
- Damages Rule: Injured party can recover damages for any breach of contract, whether the breach is material or not
- Excuse Rule: Only a material breach provides an excuse to suspend innocent party’s performance
Note: If benefit is conferred, breaching party may still receive restitution
Note: Divisible Contract: K able to be broken down (i.e. paid $250 for each room painted)
Excuse for Non-Performance: Anticipatory Repudiation
Rule: Anticipatory Repudiation provides an excuse, unless the repudiation is retracted
Note: Repudiation can be retracted so long as they have not been relied upon yet
Excuse for Non-Performance: Failure to Give Adequate Assurance (Article 2)
Rule: A party with reasonable grounds for being insecure about the other party’s performance may, IN WRITING, request adequate assurance that the other party will perform in accordance with the contract
Note: cannot rewrite deal or request specific type of assurance
Excuse for Non-Performance: Later Agreements Excusing Original Obligations
- Rescission
- Modification
- Accord/ Satisfaction
- Novation
Excuse for Non-Performance: Later Agreements Excusing Original Obligations - Rescission
Rule: Rescission is a mutual agreement to cancel the contract
- Rescission occurs when (1) contract voidable/rescinded if mutual mistake of material fact,
(2) unilateral mistake that other party knew or should have known or extreme hardship,
(3) misrepresentation of material factor, or
(4) duress, undue influence, illegality, incapacity, or failure
of consideration
Excuse for Non-Performance: Later Agreements Excusing Original Obligations - Modification
Rule: A modification is an agreement to replace an existing contract with a
new one.
A modification takes effect immediately (i.e., excuses original obligations immediately).
Excuse for Non-Performance: Later Agreements Excusing Original Obligations - Accord/ Satisfaction
Rule: An accord is an agreement to accept a different performance in future satisfaction of an existing duty.
- The duty is suspended by the accord, but is not excused until the accord is satisfied (performed)
Exam Tip: Whether you have a modification or an accord and satisfaction depends on the timing—is the underlying
obligation excused right now (modification) or only later on (accord/ satisfaction)
Excuse for Non-Performance: Later Agreements Excusing Original Obligations - Novation
Rule: A novation is an agreement to substitute a new party for an existing
one.
Note: Everyone must be aware of the substitution or it is a delegation (delegation does not excuse contracting party’s liability)
Impossibility as an Excuse
Rule: Under common law, impossibility is a later unforeseen event that makes performance impossible may provide seller with an excuse for breach.
Under Article 2, the doctrine is called impracticability
Impossibility as an Excuse: Destruction of Something Necessary for Performance
Rule: Under the Common Law, destruction of subject matter of K provides an excuse for non-performance
Rule: Under Article 2, destruction of subject matter of K provides an excuse for nonperformance BUT:
- Risk of Loss - A seller who bore risk of loss when goods were damaged or destroyed is excused by impracticability
- Unidentified Goods - Seller is excused only if the goods that were damaged or destroyed had been “identified to the contract” i.e. set aside for sale to the buyer
Impossibility as an Excuse: Death/Incapacity of Essential Person as an Excuse
Rule: Not just any person; must be someone special/ essential for performance
Impossibility as an Excuse: Supervening Governmental Regulation
Rule: New laws or regulations passed that make performance of the contract illegal or impossible
Impossibility as an Excuse: Increase in the Cost of Seller’s Performance =
NO Excuse
Rule: In cases where the cost of seller’s performance increases, this is not an excuse
Frustration of Buyer’s Primary Purpose
Rule: If the essential purpose of the contract is undermined and BOTH parties were aware of the intended use, then it is excused
Failure of an Express Condition
Rule: Failure of an express condition unsatisfied is an excuse to contract (express must be STRICTLY/ PERFECTLY satisfied/ complied with
- Language in a K - Limits obligations created by other
contract language, but does not create an independent obligation
- Note: Express conditions do not create obligations
Note: Look for words like “if,” “as long as,” “when,” “provided that,” “on condition that” and “unless.”
Failure of an Express Condition: Satisfaction Clauses
Rule: “Satisfaction” is measured by a reasonable person standard unless the contract deals with art or matters of personal taste (where buyer must be satisfied)
Types of Express Conditions
- Condition Precedent**: Rule - An event that must occur before performance is due
- Condition Subsequent: Rule - An event that cuts off an existing duty
Excusing a Condition
Rule: Occurrence of a condition may be excused by the later action or inaction of the person protected by the
condition
- Failure to Cooperate - Failing to cooperate excuses the condition and can no longer rely on the protection
- Waiver - Waiver is voluntarily giving up protection
Note: can retract waiver for future payments if not relied upon yet
Non-Monetary Remedies
- Specific Performance
2. Unpaid Seller’s Right to Reclaim Goods (Article 2)
Non-Monetary Remedies: Specific Performance
Rule: SP is an equitable remedy, available only if monetary damages are inadequate to compensate the injured party.
Availability of specific performance depends on the nature of the contract -
1) land
2) goods
3) services
Specific Performance: Real Property/Land Sale
Rule: Specific performance is generally available because real property is considered unique (even if it’s boring land)
Note: All** land is unique
Specific Performance: Sale of Goods (Article 2)
Rule: Under Article 2, specific performance is available only if the goods are unique or there are “other proper circumstances”
Specific Performance: Personal Service Contracts
Rule: Specific performance is not available in service contracts, but injunctive relief may be
Non-Monetary Remedies: Unpaid Seller’s Right to Reclaim Goods (Article 2)
General Rule: Not available under Article 2
Note: Seller may have rights under bankruptcy law
Exceptions:
(1) If buyer was insolvent when it received the goods
and seller makes a demand within 10 days after buyer received them
(2) Seller can reclaim goods at any time if buyer misrepresented its solvency to seller in writing within three months before delivery
Note: Buyer still has to have the goods at point of reclamation
Monetary Remedies
- Expectation Damages
Monetary Remedies - Expectation Damages
Rule: Put an injured party in as good a position as full performance, “compensating” for lost expectation.
Note: Expectation damages are the general rule
Monetary Remedies -
Common Law Expectation Damages
Rule: Under the common law, measured by the value of the contract had it been performed
Reliance: Return to pre-contract status-quo (not expected profit, but make no worse off)
Restitution: Measured by the value of the benefit conferred
Monetary Remedies -
Article 2 Expectation Damages
Rule: Under Article 2, awards expectation damages
Monetary Remedies -
Article 2 Expectation Damages: Buyer’s Damages if Seller Breaches (Three Options)
- Cover Damages: Cover Price Minus Original Contract Price, used if buyer covers in good faith [this is the usual measure]
- Market Damages: Market Price Minus Contract Price,
used if buyer doesn’t cover in good faith or doesn’t
cover at all - Loss in Value: Value as Promised Minus Value as
Delivered is used if buyer keeps non-conforming goods
Monetary Remedies -
Article 2 Expectation Damages: Seller’s Damages if Buyer Breaches (Four Options)
- Resale Damages: Contract Price Minus Resale Price, used assuming seller resells in good faith [usual measure]
- Market Damages: Contract Price Minus Market Price, used if seller does not resell in good faith or does not resell at all
- Contract Price: If Seller Cannot Resell the Goods
- Lost Profit: If Seller Is a Lost Volume Dealer***
Monetary Remedies - Punitive Damages
Rule: Punitive damages are not available. Punitive damages are NOT awarded for breach of contract because the purpose of contract damages is to
compensate, not punish
Monetary Remedies - Liquidated Damages Clause
Rule: Liquidated damages are upheld if damages:
1) Were difficult to estimate at the time of the contract, and
2) Are a reasonable forecast of probable damages, BUT
3) Cannot operate as a “penalty”
Note: Lump sum damages are not likely enforceable, throw it out as punitive, note, can still be awarded expectation damages, or reliance (don’t give aggrieved nothing)
Monetary Remedies - Incidental Damages
Rule: Incidental damages are always recoverable, and are costs to the injured buyer or seller of transporting/
caring for goods after a breach and of arranging a
substitute transaction. These are always recoverable
Note: Does NOT have to be foreseeable, not a part of the rule
Monetary Remedies - Consequential Damages
Rule: Consequential damages must be reasonably foreseeable to the breaching party at the time the contract is formed
(=indirect results from breach)
Note: Reasonably foreseeable applies here, and not to incidental
Note: Unavailable to seller’s under Article 2
Note: Chatty rule, show foreseeable at the time of formation (tell seller what you’ll be missing out on)
Monetary Remedies - Avoidable Damages (Duty to Mitigate)
Rule: Avoidable Damages occur when an injured party cannot recover damages he could have avoided (“mitigated”) with reasonable effort
Note: Subtract this value
Third-Party Issues - Entrustment (Article 2)
Rule: An owner who entrusts goods to a merchant who
deals in goods of the kind (i.e., a dealer) has no rights
against a bona fide purchaser (BFP)
Note: On bar exam, BFP often wins
Third-Party Issues - Third-Party Beneficiary
General Rule: Two people enter a contract intending to benefit a third-party, third-party can sue
Third-Party Issues - Third-Party Beneficiary: Intended Beneficiary
Rule: IB (usually named in contract), is a person who is not party to a contract, but has rights under the contract because it was intended to benefit
Third-Party Issues - Third-Party Beneficiary: Promisor
Rule: Promisor is the party who promises to perform for the third-party
Third-Party Issues - Third-Party Beneficiary: Promisee
Rule: Promisee is the party who secures the promise
Third-Party Issues - Third-Party Beneficiary: Promisor’s Liability To the Third-Party Beneficiary
Rule: Promisor only has liability to intended beneficiary who has the right to enforce the contract (not incidentals)
Third-Party Issues - Third-Party Beneficiary: Promisor’s Liability To the Promisee
Rule: Promisor has liability to the Promisee
Third-Party Issues - Rescission and Modification of Third Party Deals
General Rule: The promisor and promisee can rescind or modify the
contract until the rights of the 3rd party have “vested.”
If Reliance Occurs: Rights vest and cannot cancel without consent unless contract otherwise provides
Exception: Contrary language in the contract controls
Third-Party Issues - Assignment of Rights to a Third Party (Generally)
Definition: Two people make a contract; later, one (assignor) transfers his rights to a third party (assignee).
The party who owes the duty (typically to pay
the third party) is the obligor.
Third-Party Issues - Assignment of Rights to a Third Party
Rule: Occurs when a contract has a (1) Third-Party Beneficiary and (2) Assignment
Example:
Batman contracts to provide security for Gotham City for
$200,000. Batman (“assignor”) then assigns his right to
the payment to Robin (“assignee”). Robin has the right to
receive payment from Gotham City (“obligor”).
Exam Tip: In an assignment, two parties enter a contract and a third
person (the assignee) appears later on. With third-party
beneficiary, all three persons are present from the start.
Third-Party Issues - Assignment: Valid Assignments**
Rule: Valid assignments must have language of
PRESENT transfer**
Third-Party Issues - Assignment: Consideration
Rule: Consideration is not required to make a valid assignment
Third-Party Issues - Assignment: Restrictions on Assignments
Rule: Contract Language Controls. Distinguish a clause that “prohibits” assignment from one that completely “invalidates” assignment
Exam Tip: If it’s a close call, opt for prohibition over invalidation, therefore, assignee can still collect if she did not know of
the prohibition.
Third-Party Issues - Assignment: Substantial Change**
Rule: Assignments cannot substantially change duties of obligor
Third-Party Issues - Obligor Liability to Assignee After the
Assignment
Rule: Obligor has to pay assignee or can sue directly
Exception: Not applicable if assignor did not perform under the contract
Exception: Only liable once made aware of the assignment
Third-Party Issues - Multiple Assignments: Who Will Collect
- Gratuitous (“Gift”) Assignments
2. Assignments for Consideration
Third-Party Issues - Multiple Assignments: Gratuitous (Gift) Assignments
Rule: Last in Time - The last gratuitous assignee prevails over earlier gratuitous assignees because a later gift assignment revokes an earlier one
Gratuitous (“Gift”) assignments are easily
revoked.
Note: Promises to assign is not valid language of present assignment
Third-Party Issues - Multiple Assignments: Assignments for Consideration
Rule: First in Time -
The first assignee for consideration prevails over
all subsequent assignees as well as prior gratuitous
assignees.
Assignments for consideration are more durable (first one wins)
Exception: A later assignee for consideration prevails if he does not know of the earlier assignments and is the first to get payment from or a judgment against the obligor
Delegation of Duties to a Third Party (Generally)
Definition: Delegation is a transfer of contract duties, not a transfer of rights
Delegation of Duties to a Third Party
General Rule: Contractual duties may be delegated to another party without the consent of the person to whom performance is owed (the “obligee”)
Note: Consent NOT requires
Exceptions:
(1) Contract language controls
(2) Person with Special Skill or Reputation
Delegation of Duties to a Third Party: Exception - Contract Language Controls
Exception Rule: If contract states you cannot delegate, then you cannot delegate
Extra Exception Rule: If a contract prohibits assignment then it also prohibits delegation as well
Delegation of Duties to a Third Party: Exception - Person with Special Skill or Reputation
Exception Rule: You cannot delegate a contract for person with special skill or reputation
Delegation of Duties to a Third Party: Right of the Obligee
(1) Delegating Party Always Remains Liable
- Note: Compare/ contrast with novation**
(2) A Delegate Who Gets Consideration Is Liable
- Note: Creates third-party beneficiary obligations
Merchant’s Confirmatory Memo
Rule: A confirmatory memo is not an offer. It is a method of satisfying the Statute of Frauds in contracts between merchants. The confirmatory memo rule states that if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if:
(i) he has reason to know of the confirmation’s contents; and
(ii) he does not object to it in writing within 10 days of receipt
Remedies for Impossibility
Rule: If there is impossibility, each party is excused from duties that are yet to be performed. If either party has partially performed prior to the existence of facts resulting in impossibility, that party has a right to recover in quasi-contract for the reasonable value of his performance. While that value is usually based on the benefit received by the defendant (unjust enrichment), it also may be measured by the detriment suffered by the plaintiff (the reasonable value of the work performed)
Impossibility Test
Rule: Contractual duties are discharged where it has become impossible to perform them. The occurrence of an unanticipated or extraordinary event may make contractual duties impossible to perform.
Test
(1) If the nonoccurrence of the event was a basic assumption of the parties in making the contract, and
(2) neither party has assumed the risk of the event’s occurrence, duties under the contract may be discharged
Contractor Liability
General Rule: A contractor is responsible for destruction of the premises under construction prior to completion. Once the residence is completed, risk of loss shifts to the owner
UCC Performance for Particular Goods
Rule: Under the UCC, if a contract requires for its performance particular goods identified when the contract is made, and, before risk of loss passes to the buyer, the goods are destroyed without the fault of either party, the contract is avoided
Avoiding the Preexisting Duty Rule
The promise to perform, or the performance of an existing legal duty is not consideration. Thus modifying the original consideration, even slightly, is generally enough to avoid the rule.
Additional Rule: An alternative method of payment can suffice as sufficient consideration for a creditor to discharge an existing, undisputed debt (paying before maturity, paying to someone other than credit, paying in stock vs cash)
Preexisting Duty Rule: Third Parties
Modern Rule: Under the prevailing modern rule, the preexisting duty rule does not apply if the duty is owed to a third person
Traditional Rule: Traditionally, performance cannot be used as valid consideration for another promise, if a preexisting duty exists
Consideration for Modification - Modern View
Rule: The modern view permits modification without consideration if it is fair and equitable in view of unanticipated circumstances
Statute of Frauds
Rule: To satisfy the Statute of Frauds, there must be one or more writings that reflect the all essential/ material terms of the contract signed by the person sought to be held liable on the contract.
The Statute does not require both parties to sign, only the party to be charged.
Exception to the SOF: Merchant’s Confirmatory Memo
Rule: One party can use its own signed writing to satisfy the SOF against the other party if:
(i) Both parties are merchants;
(ii) Writing claims agreement & has quantity;
and
(iii) There is no written objection within 10 days
SOF - Sale of Land with no Purchase Price
Generally, under the Statute of Frauds, a promise creating an interest in land must be evidenced by a writing to be enforceable. A seller can enforce an oral land sale contract only if the seller conveys the property to the buyer.
Contract Modification - Common Law
Rule: Under Common Law, ew consideration is required to modify a contract, performing a preexisting duty is not enough
Exception: If third-party comes in, then is enforceable
Exception: Modern View: The modern view permits modification without consideration if it is fair and equitable in view of unanticipated circumstances
Contract Modification - Article 2
Rule: Under Article 2, Consideration is NOT required to modify a contract for the sale of goods, if there is good faith
ex. suffering serious and unanticipated changes
Other K Defenses
- Duress
- Misrepresentation
- Fraud
Good Faith
Rule: Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing
Duress
Rule: K can be voided for duress when a party’s assent to a contract is induced by an improper threat by another party that leaves the victim no reasonable alternative
Test: Withholding something can constitute duress if (1) the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances, and (2) there are no adequate means available to prevent the threatened loss
