Contracts

Question 1

acronyms for writing essay in order

Answer 1

Formation: ACD (all contracts don’t stink)

1. agreement
2. consideration
3. defenses to formation (misunderstanding, incapacity, mistake, fraud/misrepresentation, duress, illegality, unconscionably)
   - statute of frauds (enforceability)

statute of frauds: M SOUR

1. marriage
2. suretyship (unless paying off someone’s debt for own economic advantage)
3. one year (no possible way)
   - satisfied by: full performance (not part) by either side OR writing (parties & essential elements)
4. UCC (goods $500+) (custom-made goods exempted)
   - satisfied by signed writing (don’t need price, must mention quantity) OR judicial admission OR
   - merchants: failure to object to confirming memo within 10 days
5. real property (transferring interest, not building)
   - satisfied by signed writing OR part performance + 2/3 possession, payment, improvements to land

performance: PWCE (pizza with crawling
1. parol-evidence rule
2. warranties
3. conditions
4. excuse (impracticability, frustration of purpose)

Question 2

applicable law

Answer 2

*always start by discussing this

the UCC governs all contracts involving the sale of goods, and common law rules govern contracts involving services

mixed contract: when a contract includes both goods and services, whichever one predominates will determine the governing law (exception for divisible Ks)

merchants: in addition, special rules apply to merchants under the UCC. a merchant includes not only a person who regularly deals in the type of goods involved in the transaction, but also any business person when the transaction is of a commercial nature

Question 3

formation of contract

Answer 3

a valid contract requires offer, acceptance, and consideration

Question 4

offer

Answer 4

• an offer requires a promise, terms, and communication to the offeree
• promise: a statement indicating a present intent to enter into a contract

terms:

• CL: all essential terms must be provided (parties, subject matter, price, quantity)
• UCC: only essential term is quantity (don’t need price, court will gap fill other missing terms)
• requirement/output contracts don’t need quantity (buy/sell as many as need from specific person)

communication:

• the offer must be communicated to the specific offeree (she must know of the offer)
• ads generally are not offers unless specific & limit who may accept the offer (contest/reward offers)

unilateral/bilateral offer:

• bilateral contract: parties exchange promises, can be accepted by promise OR beginning of performance
• unilateral contract: offeror makes promise and offeree must perform (only accepted by complete performance)

*A “general offer” is an offer made to a large number of people, generally through an advertisement. A general offer can be revoked only by notice that is given at least the same level of publicity as the offer

Question 5

irrevocable offers

Answer 5

offers are generally revocable prior to acceptance, but can be irrevocable under certain circumstances:

1. CL option contract: an offer where offeror promises to hold offer open for certain period of time, offeree must pay consideration to offeror to hold offer open
2. UCC merchant’s firm offer: an offer in writing (signed by offeror) where offeror explicitly promises to hold offer open for certain period of time (max 90 days), no consideration required
   –> [A firm offer in a form prepared by the offeree, however, must be separately authenticated by the offeror to protect against inadvertent signing.]
   * option offers don’t expire upon death
3. unilateral K when offeree started performance
4. detrimental reliance: offeree reasonably & detrimentall relies on offer in foreseeable manner (general contractor/subcontractor K)

Question 6

termination of offer

Answer 6

1. revocation of offer:
   - can be terminated if offeror revokes offer prior to acceptance
   * either express or constructive revocation (offeree learns offeror has taken an action absolutely inconsistent with continuing ability to contract)
   - revocation is effective when received (mailed revocation not effective until received)
2. rejection by offeree
3. counteroffer by offeree
4. lapse of time
   - if not accepted within reasonable amount of time
5. death: if offeror dies before offer is accepted

Question 7

acceptance

Answer 7

acceptance is the objective manifestation by the offeree to be bound by the terms of the offer

bilateral or unilateral K:

• bilateral K can be accepted by promise OR beginning of performance
• unilateral K can only be accepted by complete performance

manner of acceptance

• any reasonable means of acceptance is allowed; unless the offer limits the means of acceptance
• silence is generally not acceptance unless 1. offeree has reason to believe offer could be accepted by silence, was silent, & intended to accept offer by silence, or 2. bc of previous dealings/pattern of behavior
• implied-in-fact contracts: communicate acceptance without writing or speaking; by gestures/actions (walking into haircut place and sitting in chair)
• if seller tries to accept by shipping the wrong goods, UCC treats this as acceptance plus breach (unless sent as “accommodation”
• under the UCC, if acceptance is conditioned upon the offeror’s assent to the offeree’s additional terms, then it is not an acceptance, but rather a rejection and counteroffer

Question 8

counteroffers & mirror image rule

Answer 8

CL: mirror image rule:

• acceptance must mirror the terms of the offer
• any changes/additions to the terms constitutes a rejection of the original offer and is a counteroffer

UCC 2-207: acceptance (or confirming memo) with changes/additions is valid acceptance

additional term only comes in if:

1. both parties are merchants
2. new term doesn’t materially alter the deal
3. initial offer didn’t expressly limit acceptance to its terms, &
4. offeror doesn’t reject/object within reasonable time to new term

different term: knockout rule:

• majority: knock out both different terms; neither term governs & general gap-filling provisions of UCC will apply
• minority: initial offer controls the terms

Question 9

mailbox rule

Answer 9

acceptance is valid when placed in the mail

exceptions:
1. offeree sends something else first (rejection, counteroffer)
2. other types of communications (revocations, rejections) - mailbox rule doesn’t apply if offer is revocable
3. option Ks (if there’s an option contract or firm offer, acceptance is valid when received and must be received before offer expires)
4. unclear whether applies to other media

Question 10

consideration

Answer 10

requires a bargained-for change in the legal position btw parties. most courts find consideration if there’s a detriment to the promisee, regardless of the benefit to the promisor. a minority of courts look to either a detriment or a benefit, not requiring both
*gift promises & conditional gifts are not consideration

legal detriment: can take the form of a promise to do/not do something, or performance/refraining from performance

adequacy of consideration: court will look at adequacy of consideration (e.g. monetary value of items being exchanged), pretense is insufficient

*past consideration is not consideration

• illusory promise: no consideration if promise to sell “if you feel like it”
• there must be a way for promissor to breach
• satisfaction Ks are not illusory
• consideration can be promise not to sue if good faith belief in claim or uncertain law
• no consideration required for promise to pay a debt after SOL has run

Question 11

consideration-related issues
-gift
-preexisting duty rule
-past consideration
-promissory estoppel

Answer 11

1. gift: a gift from one party is not supported by consideration (receiving party not suffering legal detriment:
2. preexisting duty rule: promise to perform preexisting legal duty is not consideration bc promisor is already required to perform (no additional legal detriment)
3. past consideration: a legal detriment incurred in the past does not constitute consideration bc it was not bargained for and it was not in exchange for a legal detriment in return
   -BUT modern trend for moral consideration/material benefit rule: a promise not supported by consideration may be enforceable if it is made in recognition of a significant benefit previously received by the promisor from the promisee.
   –>This rule does not apply if the promisee conferred the benefit as a gift to the promisor.
   –>The court may also reduce the amount of money owed under the promise if it is disproportionate to the benefit conferred by the promisee.
4. promissory estoppel (consideration substitute): if a promise is made by a party, but no consideration provided by both sides, promise still enforceable if certain conditions are met:
   a. promisor should reasonably expect the promise to induce reliance,
   b. the promisee takes detrimental action in reliance on promise, and
   c. injustice can be avoided only by enforcement of the promise
   - -> the damages awarded under promissory estoppel are usually limited to reliance damages (money spent on reliance of the promise)

*A charitable subscription—i.e., a written promise to contribute money or property to a charitable institution—is enforceable on promissory-estoppel grounds without proof of detrimental reliance or substantial injustice. All that is needed is proof that the promisor reasonably expected to induce reliance on the promise.

Question 12

defenses to formation overview

Answer 12

1. misunderstanding
2. incapacity
3. mistake
4. fraud/ misrepresentation/ nondisclosure
5. duress (economic & undue influence)
6. illegality
7. unconscionability

Question 13

mistake

Answer 13

a belief that’s not in accord with a present fact

mutual mistake: allows adversely affected to rescind if:

1. there is a mistake of fact, existing at the time the deal is made,
2. the mistake relates to a basic assumption of the contract and has a material impact on the deal, and
3. the impacted party did not bear the risk of mistake
   - reformation: the parties can ask a court to reform the K and rewrite it to reflect the correct elements

unilateral mistake: allows adversely affected party to rescind if:

1. she can prove all elements of mutual mistake, and
2. either:
   a. mistake would make contract unconscionable, or
   b. the other side knew of, had reason to know of, or caused the mistake

Question 14

misrepresentation
(& fraud in the execution + non disclosure)

Answer 14

party must show:

1. misrepresentation of a present fact (not opinion, at the time of contracting)
2. that is material OR fraudulent (intentional), and
3. that is made under circumstances in which it is justifiable to rely on the misrepresentation

fraud in the execution: trick someone into signing something they don’t even know is a contract

nondisclosure: other party doesn’t learn the truth about something, but now you just remain quiet
- usually you don’t need to tell other side about all material facts related to deal
- exception: special relationship or active concealment

Question 15

undue influence

Answer 15

occurs when a party unfairly persuades the other party to assent to a contract

this can occur in certain relationships where the innocent party is susceptible to persuasion

Question 16

duress

Answer 16

when a party is improperly threatened and has no meaningful choice but to agree

(Economic or physical)

Question 17

incapacity

Answer 17

certain parties are considered to be incompetent to enter into a contract:

1. minors: under 18
2. mentally ill
   - can’t understand nature & consequences of actions, or
   - can’t act in reasonable manner in relation to transaction (if other side knows/has reason to know)
3. intoxicated people (if other side knows/has reason to know)

if make K with incapacitated person:

• contract is voidable: incapacitated person can disaffirm
• but still liable for necessities that they contract for (housing, food, clothing)
• party without capacity can ratify deal by keeping benefits of K after capacity is obtained

Question 18

misunderstanding

Answer 18

1. parties use a material term that is open to two or more reasonable interpretations
2. each side attaches a diff meaning to the term, &
3. neither party knows, or should know, of the confusion

Question 19

illegality

Answer 19

a court will not enforce a contract that involves illegal consideration or performance

*but a contract entered in furtherance of an illegal act (that’s not itself illegal) will still be enforced

*A party to an illegal contract may recover restitution damages if that party conferred a benefit on the other party and (1) was justifiably ignorant of the facts that made the contract illegal, (2) was less culpable than the other party, or (3) withdrew before the contract’s illegal purpose was achieved and did not engage in serious misconduct.

Question 20

unconscionability

Answer 20

a court will not enforce a contract that is so unfair, no reasonable person would agree to it

if a court finds unconscionability, it can refuse to enforce the entire contract, or strike the unconscionable portion of the contract, or limit the unconscionable terms

procedural unconscionability:

• bargaining process leading to formation of K is unfair
• e.g. if party is in superior position and takes advantage of this position

substantive unconscionability:

• occurs when actual terms of the contract are unfair
• there must be a significant showing of unfairness in the contract to find this

Question 21

statute of frauds

Answer 21

approach to SOF:

• determine whether the SOF applies to the K
• if SOF applies, determine whether the requirements (written, signed by party to be charged) are met
• if requirements are not met, discuss exceptions (part/full performance, estoppel)

types of contracts SOF applies:

• marriage (prenup)
• suretyship (if main purpose in agreeing to pay off another’s debt is for the surety’s own economic advantage, then not in SOF world)
• contracts (usually for services) that cannot be performed within one year of making (impossible)
• sale of goods (UCC) for $500 or more, and
• real property (interest in)
• leases of less than 1 year are usually not in SOF world

requirements:

• there must be a writing signed by the person to be charged (the person against whom enforcement is sought) that contains the essential terms of the deal
• the writing does not have to be a formal contract (can be letters/receipts) and multiple writings can be put together to meet the requirements, as long as they reference each other

*important: the writing does not have to exist at the time of the promise; it can be created after the promises are made and still meet the SOF

Question 22

exceptions to SOF

Answer 22

*if SOF is not met, a court will still enforce the contract in limited circumstances

1. contracts (usually for services) that cannot be performed within 1 year of making
   - full performance has occurred
2. UCC sale of goods $500+
   - if full performance by party seeking to enforce (goods fully delivered/paid for), K fully enforceable
   - if part performance (part of purchase price paid), K enforceable to the extent the money has been paid
   - no writing required if K involves specially manufactured goods for buyer (satisfies when makes substantial beginning toward manufacture)
   - confirmatory memo: both parties are merchants, one party sends confirmatory memo to other who knowingly receives it & doesn’t respond within 10 days; K enforceable against receiving party, even if it didn’t sign the memo
3. sale of land
   - part performance: if K involves the sale of land, K enforced if at least 2 of 3 acts have occurred:
   a. purchaser pays part or all of purchase price,
   b. purchaser takes possession of land, or
   c. purchaser substantially improves the property
4. estoppel (applies to all K types)
   - if a party reasonably and detrimentally relies on a promise made by the party to be charged, a court may enforce the K, despite the failure to meet the SOF

*equal dignity rule: need signed writing to authorize an agent to form a K that’s within SOF world

Question 23

modification

Answer 23

after a valid K has been formed, any change to terms is a modification, both parties must agree

CL: modification must be supported by consideration

• watch out for offers to pay more money to complete on time (pre-existing duty rule)
• exceptions: 1. change in performance, 2. third party promising to pay, or 3. unforeseen difficulties that would excuse performance
• unless destroy original K before enter into new one lol

UCC: modification doesn’t require additional consideration as long as modification is entered into in good faith by both parties
*a provision prohibiting oral modifications to a sales contract is valid under the UCC

SOF: if the modified K falls within the SOF, it must be in writing (unless exception)

Question 24

accord & satisfaction

Answer 24

the parties to an earlier K agree that performance will be satisfied instead by the completion of a diff performance

the “accord” is the new performance

the “satisfaction” is the excusal of the initial performance obligation (the diff performance is completed by the other party)

if the accord is not performed, the other side can sue on either the original obligation or the new promise

*consideration is met: the party performing diff performance is incurring a legal detriment; the party agreeing to accept diff performance is giving up right to dispute original K and sue for breach

*Where the new consideration is worth less than what was agreed to in the original contract, it will be sufficient only if:
-there is a good-faith dispute as to the amount owed OR
-the new consideration is of a different type than what was owed under the original contract (e.g., goods in lieu of cash).

*Under an accord and satisfaction, a party can fulfill its contractual obligation by rendering different performance than the one initially promised. This can be accomplished through a negotiable instrument (e.g., check) if three conditions are met:
1. the obligation is unliquidated (i.e., uncertain in amount) or otherwise in dispute
2. the obligor, in good faith, tenders the negotiable instrument with a conspicuous statement that the instrument is tendered as full satisfaction of the obligation and
3. the obligee obtains payment of the instrument (e.g., by cashing the check).

Question 25

parol evidence rule

Answer 25

under the PER, extrinsic evidence of oral or written communications prior to the written contract are generally inadmissible for contradicting the terms of the contract

integration
-first, court will ask if writing in question was intended to be final agreement (does it integrate) the terms of the K

• if K is not integration (not final agreement), PER doesn’t apply
• total integration: if the writing contains all the terms of the agreement, total agreement & no parol evidence is admissible
• partial integration: if the writing contains some of the terms of the agreement, it’s a partial integration and parol evidence is admissible as long as it’s consistent with the writing (doesn’t contradict any of the terms)
• determining total or partial integration: court will look at the words in the K to determine if the parties intended for it to be a total/partial integration
• -> merger clause: if K has a merger clause stating that K is final & complete understanding of the parties, it’s likely to be total integration
• -> also ask whether under circumstances, extrinsic term would’ve naturally been omitted from the writing (then may be introduced if doesn’t contradict writing)
• -> UCC is more forgiving, presumes writing is partial integration (unless parties would’ve certainly included term or is merger clause)

Question 26

exceptions to PER

Answer 26

• remember: the PER doesn’t prohibit evidence of modifications or statements made AFTER the contract was written
  1. will not bar evidence relevant to a defense against contract formation (duress, mistake, fraud, etc)
  2. ambiguity & interpretation: evidence is admissible for purposes of interpreting or clarifying an ambiguity in the contract
  3. collateral deal: evidence of a separate deal btw the parties is admissible, if the deal is not part of the written contract
  4. UCC: evidence of usual performance and dealing btw parties is admissible
  5. condition precedent: evidence of a condition precedent to the existence of the contract is admissible

Question 27

performance of the contract overview

Answer 27

*after determining the existence of a contract and the terms of the contract, the next issue is the performance of the contract

• promise or condition
• discharge of duty to perform

Question 28

condition overview

Answer 28

a condition is an event that must occur before a party’s contractual right or obligations are created, destroyed, or enlarged (if condition not met, may be no K at all)

conditions can be express or implied

condition precedent: condition must occur before other party has obligation to perform

condition subsequent: if condition occurs, duty to perform will be excused

Question 29

express condition

Answer 29

conditions expressed (written) in K itself 
-"on condition that"

express conditions must be strictly satisfied unless excused

preferred approach is objective standard of satisfaction, but for aesthetic taste use subjective standard

can waive condition by words or conduct or if other party wrongfully interferes/hinders occurrence of condition

Question 30

implied condition

Answer 30

the constructive condition of exchange (CCE): one party’s performance is conditioned on the other side’s performance

CL:
-substantial performance satisfies the CCE (if not willful)

-divisibility: if K is clearly divisible, will be broken into mini-Ks for purposes of determining if there has been substantial performance

UCC:

• requires perfect tender (except if K changes default rule or installment Ks)
  1. perfect goods
  2. perfect delivery
• revocation of acceptance: buyer may revoke acceptance of the goods if goods seem ok when delivered but defect is discovered within reasonable time
• seller’s right to cure: if seller fails to tender perfect goods & time is left on K or seller had reasonable grounds to believe buyer would accept replacement, buyer must give seller chance to cure
• delivery:
• -> default is one delivery of goods
• -> UCC allows for installment contracts. buyer can reject specific delivery that’s not perfect only when there’s substantial impairment in installment that can’t be cured. Buyer must pay upon each delivery unless the price cannot be apportioned.

-A buyer must retain rejected goods for a reasonable time to allow the seller to reclaim them. In the absence of other instructions, the buyer must sell the goods on the seller’s behalf only if (1) the buyer is a merchant, (2) the goods are perishable, and there (3) is no local agent to whom the goods can be returned

Question 31

excuse of condition

Answer 31

1. waiver:
   - party can waive condition by words or conduct, as long as condition isn’t material to the K (then waiving party has duty to perform)
2. wrongful interference:
   - if a party hinders the other party’s performance and interferes with occurrence of condition, condition will be excused & wrongful party has duty to perform
3. estoppel:
   - if a party indicates it won’t enforce a condition and other party reasonably relies on this, the party will be estopped from later enforcing the condition

Question 32

discharge of duty to perform (excuses) overview

Answer 32

in certain circumstances, a promisor party’s duty to perform will be discharged, regardless of whether there is a promise or condition involved

• impossibility/ impracticability
• frustration of purpose

Question 33

impossibility/impracticability

Answer 33

an unforeseeable event occurs, making it impossible for the party to perform

common fact patterns:

• performance becomes illegal after K performed
• subject matter of K is destroyed
• services K with “special person” the performing party dies/is incapacitated
• dying doesn’t normally excuse liability on K that has been made unless something special about person performing
• something that just makes performance more expensive than expected will not normally excuse performance
• the nonoccurence of the event must have been a basic assumption at the time of the contract and the party seeking discharge was not at fault

Question 34

frustration of purpose

Answer 34

performance can still occur, but an unexpected event arises that destroys the party’s purpose for creating the contract

*very rare

similar to impracticability, the nonoccurence of the event must have been a basic assumption at the time of the contract and the party seeking discharge was not at fault

Question 35

anticipatory breach/repudiation

Answer 35

promisor clearly & unequivocally indicates through words/actions it will not perform

*does not apply when all of the performance is completed and just waiting for payment

non-breaching party can:

1. treat repudiation as breach of K & sue immediately, or
2. wait for breach to occur & then sue for breach

retraction: can retract repudiation of K unless other party
1. commenced a lawsuit
2. acted in reliance on repudiation (materially changed position)

UCC: reasonable grounds for insecurity about other side’s performance allows you to demand an adequate assurance of performance (& suspend your own until received)

• must be in writing
• a failure to provide reasonable assurances within a reasonable time (must not exceed 30 days) can be treated as a repudiation

Question 36

breach of K

Answer 36

if a duty to perform does exist and has not been discharged, a party’s non-performance is a breach

CL:
-material breach: failure to substantially perform means other side may withhold own performance & pursue remedies for breach
(a breach is material when the nonbreaching party does not receive the substantial benefit of its bargain)

-minor breach: breaching party substantially performed but not fully, non-breaching party entitled to pursue remedies for minor breach but still must perform under K

UCC: perfect tender, seller must strictly perform all obligations or be in breach

*doctrine of material breach applies to installment Ks

Question 37

remedies overview

Answer 37

remedies compensate the non-breaching party for actual economic losses

• expectation damages
• consequential damages
• reliance damages
• incidental damages
• mitigating damages
• restitution
• specific performance
• equitable relief

Question 38

expectation damages

Answer 38

normal way to calculate damages in contracts

goal: put injured party in same economic position as if K was performed

compare value of performance without breach to value of performance with breach

must be foreseeable & non-breaching party must be able to prove amount with reasonable certainty

In construction contracts, the general measure of damages for a contractor’s failure to begin or to complete a building project is the difference between the contract price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for the delay in completing the construction.

*sometimes cost-to-complete damages will dramatically overcompensate P, so as long as breaching party acted in unintentional manner, so get diminution in market value damages

Question 39

consequential damages

Answer 39

reasonably foreseeable damages other than expectation damages that are related to the breach of K (e.g. loss of profit)

1. foreseeability: damages must be natural & probable consequence of the breach or contemplated by the parties at the time K was formed
   - Hadley rule: unforeseen consequential damages not recoverable unless breaching party had some reason to know about possibility of them
2. causation: P must show damages were caused by D’s breach; if damages would’ve occurred without D’s breach, there can be no recovery
3. certainty: P must prove dollar amount with reasonable certainty. when amount of money is too speculative (e.g. new business), court won’t award consequential damages
   * consequential damages can be excluded in K (unless unconscionable)

Question 40

incidental damages

Answer 40

damages that arise when the non-breaching party is trying to remedy the breach

e.g. cost of storing rejected goods, finding new buyer, or finding replacement vendor

Question 41

mitigating damages

Answer 41

non-breaching party must take reasonable steps to reduce damages from breach
-seek replacements/substitutes for goods/services

if party refuses to mitigate, the law will calculate damages as if the party did mitigate

if paying party breaches in partially completed building K, builder can’t continue to work job bc would be “running up damages”
-expectation damages = contract price - amount already paid - amount that would be needed to finish the job

Question 42

reliance damages

Answer 42

goal: to put party in same economic position it would be if K had never been performed in the first place

damages that non-breaching party incurs in reasonable reliance upon the promise that the other party would perform

*cannot recover reliance & expectation damages; must choose btw them

Question 43

restitution overview

Answer 43

goal: give P an amount equal to economic benefit P conferred on D
* sometimes equals reliance damages, but it need not (can get more)

allows non-breaching AND breaching parties to recover damages under an unjust enrichment theory (not based on K)

• non-breaching party
• breaching party
• quasi-contract (implied in law K)

Question 44

non-breaching party restitution

Answer 44

arises when non-breaching party partially performed K & then other party breaches. non-breaching party seeks restitution damages for benefit conferred to breaching party. if breaching party doesn’t pay restitution damages, it’ll have been unjustly enriched by non-breaching party’s performance

non-breaching party can’t seek restitution if it has performed all of its duties & the only performance due from other party is payment under K (expectation damages instead)
-non-breaching party can seek damages based on the value of the benefit conferred on the other party

amount measured by reasonable value of what it’d cost breaching party to obtain benefit from another source, or increase in breaching party’s wealth (e.g. increase in value of land) from having received the benefit

Question 45

breaching party restitution

Answer 45

if party has not substantially performed, it will be in breach of K & cannot recover under K.

however, if non-breaching party has benefited from the breaching party’s performance, the breaching party can recover for the benefit conferred minus the damages the non-breaching party is entitled to

Question 46

quasi-contract (implied in law contract)

Answer 46

in certain situations, where there is no enforceable K, or a K doesn’t exist at all, a court will award restitution damages on the basis of quasi-contract

elements:

1. P must confer a measurable benefit on D
2. P acted without gratuitous intent (intended to be paid) &
3. it would be unfair to let D retain the benefit bc D had opportunity to decline benefit but didn’t, or P had reasonable excuse for not giving D such an opportunity
   - e.g. emergency so P couldn’t consult with D

Question 47

specific performance

Answer 47

equitable relief is exception, not norm in contract law

non-breaching party can ask a court to order breaching party to perform the K

1. there must be a valid contract (offer, acceptance, consideration)
2. terms of K must be certain/clear
3. non-breaching party has satisfied any conditions precedent (or condition has been excused), so breaching party’s performance is now due
4. money damages are inadequate (items are unique, e.g. land, pieces of art, antique car)
5. it’s feasible for court to enforce & supervise breaching party’s performance (won’t require people to perform service contracts)
   - rarely Lumley doctrine: prohibit performing similar service for competitor
6. no defenses exist: no SP if breaching party can assert defenses of laches or unclean hands
   - laches: non-breaching party waited unreasonably long time to seek SP & delay prejudiced breaching party
   - unclean hands: non-breaching party itself engaged in unethical/immoral acts relating to the K

Question 48

equitable relief

Answer 48

replevin: allows P to recover specific goods or items in dispute (unique goods)

injunction: orders breaching party to stop doing something or not do something
1. immediate & irreparable harm will occur w/o injunction
2. no adequate remedy at law (unique)
3. likelihood of success on the merits
4. balance the equities
5. no defenses (laches, unclean hands)

Question 49

warranties overview

Answer 49

a warranty is a promise about a term of the contract that explicitly shifts the risk to the party making the promise

• express warranty
• implied warranty of merchantability
• implied warranty of fitness for a particular purpose

*you can disclaim all warranties

Question 50

express warranty

Answer 50

a promise that affirms or describes the goods and is part of the basis of the bargain is an express warranty unless it is merely the seller’s opinion

the use of a sample or model creates an express warranty that the goods sold will be like the sample

Question 51

implied warranty of merchantability

Answer 51

this warranty is triggered only when the seller is a merchant dealing with the goods at issue

warrants that the goods are fit for ordinary commercial purposes

merchant can disclaim this warranty with very conspicuous language & “merchantability”
*can be oral

Question 52

implied warranty of fitness for a particular purpose

Answer 52

triggered when a buyer relies on a seller’s expertise to select a special type of good that will be used for a special purpose

warrants that the goods will satisfy this special purpose

a non-merchant can extend this warranty by implication, as long as buyer relies on any seller’s expertise

can be disclaimed, conspicuous language “as is”
*must be in writing and conspicuous so a reasonable person would notice it

Question 53

UCC method of tender/delivery

Answer 53

tender at seller’s place of business:
-if the goods are to be tendered at the seller’s place of business, then the seller just needs to give the goods to the buyer

shipment contract (FOB seller’s place of business): seller must take three actions to satisfy perfect delivery:

1. get the goods to a common carrier
2. make arrangements for delivery, and
3. notify the buyer

destination contract (FOB buyer's place of business):
-seller must get the goods to the buyer's business and notify the buyer

Question 54

UCC risk of loss

Answer 54

arises when there’s a goods contract followed by damage or destruction of the goods before the buyer receives them. who bears the loss?

1. have parties dealt with the problem in the contract?
   - if so, their agreement will control
2. has either party breached (typically another part of K)?
   - if so, breaching party bears risk of loss
3. if no breach and goods are being shipped:
   - shipment K: risk of loss during delivery rests with the buyer
   - destination K: risk of loss with seller
4. in all other cases, ask if seller is merchant:
   - if so, risk of loss stays with seller until buyer receives the goods
   - if not, the risk of loss moves to the buyer when the seller tenders the goods

Question 55

novation

Answer 55

when BOTH parties agree that a substitute person will take over the contractual obligations

if there’s a valid novation, then original promisor will be excused from performance

Question 56

lost volume profits

Answer 56

if the paying party breaches, then normally the selling party needs to mitigate by reselling the goods or services to another person

but if the seller is a retailer who sells this type of product all the time, the seller might try to argue for LVP (had plenty others to sell)

Question 57

liquidated damages

Answer 57

stated in K as explicitly negotiated amount due upon breach

courts will only award punitive liquidated damages if:

1. amount was reasonable at the time of contracting, and
2. actual damages from breach would be uncertain in amount and difficult to prove

*A liquidated damages clause, which allows the seller to retain the buyer’s deposit if the buyer breaches the contract and refuses to purchase the property, is enforceable so long as the deposit bears a reasonable relation to anticipated damages. A deposit of no more than 10% of the purchase price is typically deemed reasonable.

Question 58

right of reclamation

Answer 58

when unpaid seller tries to reclaim goods that were sold on credit when buyer is insolvent

1. buyer is insolvent at time of receipt of goods,
2. seller must demand return of goods within 10 days (or reasonable time if buyer misrepresented solvency in writing within 3 months before delivery)
3. buyer still has the goods

Question 59

third-party beneficiary K

Answer 59

intended beneficiaries have the right to sue, but incidental beneficiaries do not

to determine if intended or incidental, ask whether initial counter-parties (promisor & promisee) intended to convey enforcement rights to the third party in the event of a breach

a creditor beneficiary is when promisee strikes a deal with the promisor in order to repay some earlier debt to the third party (can sue)

a donee beneficiary when no pre-existing obligation but promisee clearly intends to confer a gift of enforcement on third party

Question 60

revoking third-party rights

Answer 60

third parties will not lose enforcement rights if:

1. beneficiary detrimentally relies on the rights (promissory estoppel),
2. beneficiary manifests assent to the contract, or
3. beneficiary files lawsuit to enforce K

*promisor can assert any contract defense against the third party that he would be entitled to assert against the promisee

Question 61

assignment & delegation overview

Answer 61

assignment: transfer of rights under a K
delegation: transfer of duties under K

Question 62

assignment

Answer 62

almost all contract benefits can be assigned, in whole or part, unless K explicitly prohibits or invalidates assignments

if K states rights are not assignable, you must determine whether K prohibits or invalidates assignments

• if K prohibits assignments (“not assignable”): assigning party has breached when he makes the assignment, but the third party can still recover from the guarantor
• if K invalidates assignments (“assignments are void”): third party cannot recover

if someone assigns the same rights twice:

• if rights are assigned without consideration, assignment is generally revocable and last assignment controls
• if rights assigned for consideration, first assignment for consideration is typically irrevocable and will hold
• -> exception: later assignment will take priority if second assignee doesn’t know of initial assignment and is first to obtain payment/judgment

*gratuitous assignment of K rights terminates when assignor dies (but still have to make payments)

Question 63

delegation

Answer 63

when a party to a K “outsources” her duties under the K

generally acceptable, as long as K doesn’t prohibited delegation and as long as other party doesn’t have some special interest in having a specific individual occur

delegatee generally not liable for breach unless she receives consideration from the delegating party

Question 64

auctions

Answer 64

unless said otherwise, auction is with reserve: seller has right to withdraw item from sale any time before auctioneer announces completion of sale

when auctioneer knowingly accepts a bid by the seller or on her behalf, or procures such a bid to drive up the price of the goods, the winning bidder may avoid the sale or, at her option, take the goods at the price of the last good-faith bid prior to the end of the auction

• two exceptions:
  1. seller may bid at a forced sale, and
  2. seller may bid if she specifically gives notice that she reserves the right to bid

when bid is made contemporaneously with falling of hammer, auctioneer may, at his discretion, treat the bid as continuing the bidding process or declare the sale completed at the fall of the hammer

Question 65

The implied duty of good faith and fair dealing

Answer 65

the implied (in all contracts) duty of good faith and fair dealing, includes the duty not to hinder the other party’s performance and to cooperate when necessary

Question 66

Entrustment

Answer 66

Under the UCC, the entrustment of goods by the owner to someone who sells goods of that kind (i.e., a merchant) gives the merchant the power to convey good title. Good title can be conveyed to a buyer in the ordinary course of business—i.e., someone who buys goods:
-in good faith
-without knowledge that the sale violates the owner’s rights to the goods and
-from a merchant in the business of selling goods of that kind.

Entrustment includes any delivery and acquiescence to the possession of goods, regardless of conditions expressed between the parties.

*However, the owner may have a cause of action against the merchant (e.g., breach of contract, conversion).

Question 67

Assorted goods

Answer 67

When a contract for the sale of assorted goods does not specify who will choose the assortment, the UCC imposes a duty on the buyer to make that selection. If the buyer fails to specify the assortment of goods, then the seller can treat that failure as a breach—but only if the buyer’s failure to specify the assortment materially impacts the seller’s performance.

Question 68

Agreement under UCC

Answer 68

Under the UCC, a contract is formed if the parties intended to contract and there is a reasonably certain basis for giving a remedy—even if the moment of formation is uncertain.

Question 69

Auctions

Answer 69

The UCC has special rules for goods sold at auction. If goods are auctioned in lots, each lot represents a separate sale. Whether the goods can be withdrawn once the auctioneer calls for bids depends on the type of auction:

At a reserve auction—which is presumed unless a no-reserve action is announced—the auctioneer may withdraw goods from auction prior to completion of the sale

At a no-reserve auction—which must be specifically announced—goods cannot be withdrawn from auction after the auctioneer calls for bids unless no bid is received with a reasonable time

In either type of auction, a bidder may retract a bid until the auctioneer announces the completion of the sale (e.g., at the fall of the auctioneer’s hammer). However, the bidder’s retraction will not revive any earlier bids.

Question 70

Ways to discharge contractual obligations

Answer 70

FIRM SCAN

Full performance
Impossibility, impracticability, or frustration of purpose
Release (in writing only)
Mutual rescission
Substituted contract
Contract or covenant not to sue
Accord & satisfaction
Novation

Question 71

UCC place for delivery

Answer 71

When a contract is silent as to delivery, the UCC provides that the place for delivery is the seller’s place of business.

(However, the terms of an agreement may be supplemented by the parties’ course of dealing.)

Question 72

rejection of non-conforming goods, right to inspect goods & damages

Answer 72

Under the UCC, if either the tender or the goods is nonconforming, then the buyer has the right to accept or reject all of the goods. The buyer has the right to inspect the goods before deciding whether to accept or reject them. Payment does not constitute acceptance if there is no right of inspection before payment. A valid rejection requires the buyer: (1) give notice to the seller (2) within a reasonable time and (3) before acceptance. Upon a rightful rejection, the buyer is entitled to a return of any payments made on the goods.

Even when the buyer accepts nonconforming goods, the buyer may revoke that acceptance if (1) the nonconformity substantially impairs the value to the buyer, (2) the buyer accepted the goods before discovering the nonconformity, and (3) acceptance was reasonably induced either by the difficulty of discovering the nonconformity before acceptance or because the seller gave assurances that the goods were conforming.

When a buyer rejects goods or justifiably revokes their acceptance, the buyer may be entitled to recover not only the purchase price, but also expectation damages, as well as incidental and consequential damages. Expectation damages are calculated as the difference between the contract price and the market price. Incidental damages are those incidental to the seller’s failure to perform, such as the costs of warehousing or transportation. Consequential damages are losses resulting from the buyer’s general or particular requirements and needs which the seller knew or had reason to know of at the time of contracting.

*Here, the expert reported that the market price for an adequate computer was $3,200. The difference between that and what the father paid, $2,500, is $700. As there are no other incidental or consequential damages in these facts, the father is entitled to recover his purchase price plus $700.