Contracts

Question 1

Unilateral Contract

Answer 1

Contract that results from an offer that expressly REQUIRES PERFORMANCE as the ONLY possible method of acceptance. (“My offer can only be accepted by . . .”)

Question 2

Bilateral Contract

Answer 2

Contract that is a PROMISE in exchange FOR PROMISE. Usually starts with an offer that is silent as to how it can be accepted.

Question 3

Quasi-Contract

Answer 3

A contract that is created as a result of UNJUST ENRICHMENT. Created if meets the requirements: (1) P has conferred a BENEFIT on D; (2) P reasonably EXPECTED to be paid; AND (3) D realized UNJUST ENRICHMENT if P not compensated. Measure of recovery is the value of benefit conferred, not the K price. The K price is a ceiling if P is in default.

Question 4

Governing Law

Answer 4

Contracts for the sale of goods are governed by Article 2 of the UCC. All other contracts are governed by the common law. If a sale involves both goods and services, courts apply the UCC only if the sale of goods is the predominant factor.

Question 5

Requirements of an Offer

Answer 5

An offer is an objective expression of intent to enter into a contract with certain and definite terms that are communicated to an offeree. (1) Need manifestation of intent to be bound immediately (words or conduct); (2) communicated to the offeree; (3) with DEFINITE and CERTAIN MATERIAL terms,

Under common law, the offer needs PRICE and DESCRIPTION, but the UCC does not require PRICE, only need to list quantity. If parties fail to agree as to price later on, a REASONABLE PRICE at the time of DELIVERY will be supplied by the COURT (gap filler) (4) No Vague or ambiguous material terms (“fair, appropriate, reasonable”)

Question 6

Advertisements as Offers

Answer 6

Advertisements are Generally NOT offers. Exception: Reward advertisement giving SPECIFIC QUANTITY and expressly indicating WHO can accept ARE OFFERS. (coat for $1, and carbolic smoke ball reward). A Response to request for info w/ CERTAIN and DEF terms COULD be enough for OFFER.

Question 7

Termination of Offer by Death

Answer 7

Death of Either Party AFTER the offer but BEFORE ACCEPTANCE terminates offer. Exception: irrevocable offers

Question 8

Termination Offer by Revocation

Answer 8

An offer can be terminate by (1) an Unambiguous statement by offeror to offeree of unwillingness or inability to K; (2) Unambiguous conduct by offeror indicating an unwillingness or inability to K that OFFEREE is AWARE of. (3) Indirect revocation - Offeree receives correct information from a reliable source of an offeror’s acts indicating revocation (offeree can still accept offer until she RECEIVES knowledge of the indirect revocation. Note: Multiples offers to different people ARE NOT REVOCATIONS

Question 9

Irrevocable Offers

Answer 9

(1) Option Ks: Offer CANNOT be revoked if 1. Offeror has made OFFER; 2. Promised NOT to revoke (or promised to keep offer “open”); AND 3. Promise is supported by PAYMENT or other CONSIDERATION. Separate consideration is not necessary if option is included as a term in a prior K.
(2) UCC Merchant Firm Offer*: an offer CANNOT be revoked for up to 3 MONTHS if 1. It’s an OFFER to sell GOODS; 2. It’s a SIGNED, WRITTEN PROMISE to keep offer OPEN; AND 3. Seller is a MERCHANT (anyone in business). 4. Doesn’t to be supported by other consideration, like CL. 5. If no time is specified on how long to keep the offer open, then the court will assign a reasonable time, no longer than 3 months
(3) Detrimental Reliance: Offer CANNOT be REVOKED if there is 1. RELIANCE that is 2. REASONABLY FORESEEABLE; and 3. DETRIMENTAL. Ex: If GC RELIES on bid of sub-Ker, the sub Ker’s bid acts as an IRREVOCABLE offer.
(4) UNILATERAL Ks and PART-performance: START of PERFORMANCE pursuant to an offer to enter into a UNILATERAL K makes that offer IRREVOCABLE for a reasonable time to COMPLETE performance. Mere preparation is NOT performance. Might qualify as RELIANCE though.

Question 10

Termination of Offer by Rejection

Answer 10

The offeree can reject an offer and terminate the offer by (1) Lapse of Time (2) Counter offer (3) Conditional Acceptance (4) Additional Terms

Question 11

Counter Offers

Answer 11

Counter offer KILLS the offer and becomes a NEW OFFER. Mere bargaining is okay: if response ends with an inquiry/question mark, probably bargaining. Exception – Option Ks: counter-offer DOES NOT terminate option K

Question 12

Conditional Acceptance

Answer 12

A response to an offer with the word “accept” followed by one of these phrases: “if,” “only if,” “provided,” “so long as,” “but” or “on condition that.” CL: CONDITIONAL acceptance KILLS offer, becomes NEW OFFER. TERMS of new offer become PART OF K if ACCEPTED. UCC: If there’s CONDITIONAL acceptance, no contract has been formed. If offeree accepts by performance and offeror pays, a contract is formed but the NEW terms ARE NOT a part of the K.

Question 13

What happens when an offeree adds additional terms in response to an offer?

Answer 13

CL (Mirror Image Rule): Response to an offer that simply adds new terms is treated like a COUNTEROFFER (rather than an acceptance).

UCC (Battle of the Forms**): Response to an offer that simply adds new terms (and isn’t a conditional acceptance) is treated as an ACCEPTANCE. The Additional term is part of K if: (1) Both parties are merchants; (2) Additional term is NOT “material” (Material = change a party’s risk or remedies available, like a disclaimer of liabilities; Non material = a custom in the trade) (3) Additional term is NOT objected to by offeror. If not a merchant, the added/diff terms are mere proposals to modify that do not become party of the K unless the offeror expressly agrees.

Question 14

Acceptance

Answer 14

Acceptance is a manifestation of assent to the terms of the offer.

Valid acceptance of a UNILATERAL K requires: 1. Performance and 2. Notice within a reasonable time after performance is complete. Exception: Notice NOT required if offeror waived notice, or offeree’s performance would NORMALLY come to the offeror’s ATTENTION within a reasonable time.

Valid acceptance of a BILATERAL K requires: (1) an offeree with the POWER to ACCEPT; (2) UNEQUIVOCAL acceptance; (3) COMMUNICATION of acceptance through starting performance or verbally. Silence usually not acceptance unless commercially reasonable to think silence was acceptance because of prior dealings or trade practices or if offeror was justified in expecting a negative reply and silence was deceptive.

Question 15

Methods of Acceptance of an Offer

Answer 15

If the method of acceptance is not dictated on the offer, can accept the offer in the following ways:

(1) Offeree’s Full Performance: Full performance is ALWAYS acceptance.
(2) Offeree Begins Performance: Bilateral K: START of performance is acceptance. Treated as implied promise to finish. Unilateral K: START of performance is NOT acceptance. Need COMPLETION OF PERFORMANCE. Offeree can walk off the job and not be bound.
(3) MAILBOX RULE: Acceptance is GENERALLY effective WHEN MAILED (properly posted), even if lost in mail. Exception: The offer states acceptance in specific time/manner which overrules the mailbox rule. Does NOT apply to irrevocable offers of Option Ks. Acceptance is effective upon RECEIPT when it’s an OPTION deadline. If offeree’s rejection is mailed BEFORE his acceptance is mailed, then the first one RECEIVED wins. If offeree send an acceptance, then a rejection, the acceptance is effective
(4) UCC: Offer to Buy Goods for Current or Prompt Shipment May be accepted by either a promise to ship OR by shipping conforming or non-conforming goods
(5) UCC: If seller sends Non-Conforming Goods in response to offer, this is an ACCEPTANCE creating a contract AND a BREACH, UNLESS the seller sends non-conforming goods and includes an EXPLANATION with the wrong goods, it’s considered a COUNTER OFFER and no contract is created. B can then accept or reject.

Question 16

Consideration

Answer 16

Consideration is a BARGAINED-FOR EXCHANGE INVOLVING LEGAL VALUE. Forms of consideration include (1) • Performance: doing something you’re not legally obligated to do (2) Forbearance: NOT doing something you’re allowed to do (legally obligated to, but don’t). (3) Promise to perform or forebear.

Past consideration is NOT consideration unless EXPRESSLY REQUESTED by promisor, OR in response to an emergency with EXPECTATION of payment by promisee, or if a material benefit was conferred on the promisor and the benefit was not intended as a gift.

CL Preexisting Duty Rule: Performing / promising to perform an EXISTING legal duty is INSUFFICIENT CONSIDERATION for a NEW PROMISE to pay you more to do merely that. Under CL, need NEW CONSIDERATION for such K modification. Exceptions: 1) NEW or DIFFERENT consideration is promised. (i.e. alternative form of payment); 2) Unforeseen circumstances severe enough to EXCUSE performance 3) The pre-existing duty is owed to a 3rd PARTY rather than the promisor. 4) 3rd PARTY promises to pay. 5) Honest DISPUTE as to the duty or amount owed. 6) Promise is to ratify a voidable obligation 7) UCC: just need good faith for modification. Do not need new consideration to modify a sale of goods K. GOOD FAITH is the test for changes to an existing sale of goods K.

If debt is due and undisputed, then part payment is NOT CONSIDERATION for release. If debt is NOT YET DUE or DISPUTED, then EARLY payment IS new consideration for RELEASE of debt.

Question 17

Formation of a Contract WITHOUT consideration

Answer 17

A promise is legally enforceable, even WITHOUT consideration, if there is a consideration “substitute” such as

1) Obligations with Legal Defenses: a WRITTEN promise to SATISFY AN OBLIGATION for which there is a LEGAL DEFENSE is enforceable WITHOUT new consideration. Ex: D owes C 1k. Legal action to collect this debt is barred by SoL. D writes to C, “I know I owe you 1k, I’ll pay you 600.” Is there new consideration? NO. D isn’t asking for anything in return for promise. Can C enforce the new 600 promise? YES.
2) Promissory Estoppel: DETRIMENTAL RELIANCE is a sufficient substitute for consideration if there is 1) A Promise, 2) Reliance on that promise that is reasonable, detrimental, and foreseeable, and 3) Enforcement is necessary to avoid injustice.

Question 18

Parole Evidence

Answer 18

Parole evidence includes 1. Words of parties 2. That came during/before the final agreement was put in writing 3. That are oral or written.

Parol evidence is NOT admissible for modifying or contradicting terms in the contract (Reformation: equitable action to modify written K to reflect actual agreement) regardless if its partially or completely integrated, meaning the written contract was intended to be the final and complete writing.

Parol evidence IS admissible for:
(1) To determine whether there was a MISTAKE in putting the agreement into writing (e.g. clerical mistake) (2) to prove fraud, duress, misrepresentation, regardless of partial or complete integration. (3) If sue for rescission, and not reformation, ADMISSIBLE to show FLAW IN BARGAINING PROCESS (4) To Explain a vague term in the written deal, regardless if partial or complete integration (5) to ADD TERM to deal if The written agreement was only a PARTIAL INTEGRATION; and The additional terms would ordinarily be in a SEPARATE agreement.

Question 19

Integration

Answer 19

Integration: written agreement that court finds is the FINAL agreement. This triggers the PER. Whether new terms are integrated or not depends on the intent of the parties.

Partial integration: written and final, but not complete. When parties intend other matters to be subject of separate agreement. (usually wrong answer)

Complete integration: written, final, and complete. (usually wrong answer).

Merger clause: K clause that says “this is the complete and final agreement.” (highly PERSUASIVE, but not conclusive.)

Question 20

Conduct and Course of Performance as Contract Terms

Answer 20

Words of parties aren’t only source of K terms. Conduct can be source as well. Hierarchy…

1st: Course of performance – same people same K, what the parties to the current contract had already been doing under THIS contract
2nd: Course of dealing – same people, different but similar contract. Look to what the same parties did in the past contracts
3rd: Custom and usage – different people, but similar Ks. Look to what the industry custom is and how a term is defined in similar INDUSTRY contracts

Question 21

Risk of Loss (UCC)

Answer 21

Risk of Loss Issue arises when goods are damaged or destroyed after K has been formed, but before buyer receives his goods, and neither are at fault. If risk of loss is on BUYER, he must pay full K price for LOST or DAMAGED goods. If risk of loss is on SELLER, then buyer has no obligation to pay, and there’s possible liability on the seller for non-delivery.

4 rules to determine who has risk of loss (follow in order of availability):

1st: Look to the agreement of the parties to see if it allocates risk to buyer or the seller. (won’t see this on bar)
2nd: If risk is not allocated, the breaching party is liable for any loss, even if the breach is unrelated to the loss.
3rd: Check if there was Delivery by common carrier: If it was a SHIPMENT contract, shipper completes obligations when goods are shipped, and Buyer bears risk of loss during shipment. If it was a DESTINATION contract, seller only completes delivery of goods when they reach their destination of the buyer, and seller assumes Risk of loss during shipment.
4th: Catchall rule. If Seller is a MERCHANT: Risk of loss is with Seller until RECEIPT of goods by Buyer (shifts to B when B is in physical possession). If Seller is NOT a merchant: ROL is with Seller until he “tenders” goods to buyer at location (Tender = makes goods available, i.e. telling buyer where stuff is and how to get it)

Question 22

3 Warranties of Quality

Answer 22

(1) Express Warranties: Look for words that promise or describe / state facts, or use of samples/models. Distinguish from opinion based sales talk, more subjective. Express warranties cannot be disclaimed. Limits to remedy for breach are okay only if they are not unconscionable.
(2) Implied Warranty of Merchantability*: When a person purchases goods from a MERCHANT in the business of selling goods of the type sold, there’s an implied warranty in the K that the goods are fit for the ordinary purpose for which the goods are used.
(3) Implied Warranty of Fitness for a Particular Purpose: (1) buyer has a particular purpose; (2) buyer relies on seller to select suitable goods; AND (3) seller must know or have reason to know of the purpose and reliance.

Question 23

Limitations on Warranty Liability

Answer 23

(1) Disclaimers: K provision that seeks to eliminate IMPLIED warranties is VALID, but CANNOT contract away EXPRESS warranties. Disclaimer Must use CONSPICUOUS language of disclaimer or key words like “AS IS”, “WITH ALL FAULTS”. A reasonable person should notice it
(2) Limitation of remedies: provision that doesn’t eliminate warranty but sets limits or amounts on remedies for breach of the warranty, unless the limitation is UNCONSCIONABLE. Limitation on personal injury warranty liability is prima facie unconscionable.

Question 24

Common Law Substantial Performance

Answer 24

Under Common law, The parties have a basic duty is to SUBSTANTIALLY PERFORM all that is called for in the K, meaning it meets the essential purpose of the contract.

Minor Breach: If one party substantially performs, but performance is defective, this is a minor breach. Result: other party must still pay or otherwise perform. Can sue for damages.

Material Breach: If one party does NOT receive substantial benefit of the bargain this is a material breach. Result: non-breaching party is EXCUSED from obligation, and damages are recoverable under quasi-K (unjust enrichment). “Time of the Essence” clause - if the language is construed as time is of the essence, then failure to meet the performance deadline constitutes a material breach and the other party is excused from obligations under the K, BUT if there is no clause saying time is of the essence, then failure to perform by the time stated in the K is a minor breach. However, non-breaching party may be excused if there is an unreasonable delay in performance.

Question 25

UCC Perfect Tender Rule

Answer 25

UCC requires that both delivery and condition of goods must match EXACTLY (100%) to the terms promised in the K. If No Perfect Tender, the buyer has the option of REJECTING some or all of the goods, unless curing is available, installment K and minor impairments can be adjusted, or B accepts the goods.

(1) Rejecting the Goods: If goods are less than perfect, B can either
1. Reject all the goods and sue for damages OR 2. Reject some of the goods that are non-conforming, retain some of the goods, and SUE for damages. If B chooses to reject, B must (1) seasonably notify S; (2) Hold the goods for S; AND (3) Follow S’s reasonable instructions.

(2) Curing the Goods: In some instances, a seller who fails to make perfect tender will be given a “second chance,” an option of curing. Not every seller has this option, and buyers cannot compel sellers to cure. If time for performance has expired (S is too late), S cannot cure, unless he has reasonable grounds for believing that the improper tender would be acceptable based on prior deals. If time for performance has NOT expired (S is early): S has until the date of expiration to cure / make his delivery perfect.
(3) Installment K: Installment Ks require or authorize delivery of the goods in separate lots to be separately accepted. B can REJECT an installment ONLY when there is substantial impairment to the point where imperfection cannot be cured. Minor impairments can be adjusted. An entire contract cannot be rejected unless that impaired installment that affects the entire contract, not just that one installment
(4) Acceptance of Goods: Once accepted, goods cannot be later rejected. Payment without opportunity for inspection ≠ acceptance of goods. Implied Acceptance: if B keeps goods without inspection/objection for more than 1 month, it’s implied acceptance of goods.
(4a) Revocation of Acceptance of Goods: B MIGHT be able to change mind if… (1) Nonconformity substantially impairs the value of the goods; (2) There is excusable ignorance of grounds for revocation, or there’s reasonable reliance on seller’s assurance of satisfaction; AND (3) Revocation is within a reasonable time after discovery of non-conformity.

Question 26

9 Defenses to Contract Formation

Answer 26

(1) Defendant’s Lack of Capacity - Infant, Mental incompetence, intoxication
(2) Illegality
(3) Public Policy
(4) Misrepresentation
(5) Duress
(6) Unconscionabilty
(7) Ambiguity of terms
(8) Mistake of Fact
(9) Statute of Frauds

Question 27

Defendant’s Lack of Capacity to Form a Contract

Answer 27

(1) Defendant that is an Infant under 18 years old lacks capacity to form a contract. If there is a contractual promise, it is BINDING on the party with capacity, but Infant can disaffirm the contract any time before reaching the age majority, or affirm upon reaching adult age expressly or through conduct
(2) Defendant that lacks ability to UNDERSTAND the agreement lacks capacity to form a contract. Mental incompetent may disaffirm or affirm when lucid, recovered, or by legal representative.
(3) Intoxicated persons lack capacity to from a contract if the other party has reason to know the party is intoxicated. Once the intoxicated person has recovered, he can disaffirm or affirm the promise.

Question 28

Illegality Defense to Contract Formation

Answer 28

If SUBJECT MATTER of contract is illegal, the agreement isn’t enforceable. If subject matter is legal, but the PURPOSE is illegal, the agreement is ENFORCEABLE by the person who DIDN’T KNOW of the illegal purpose.

Question 29

Public Policy Defense to Contract Formation

Answer 29

Court may refuses to enforce K based on public policy. Examples: 1. Exculpatory agreement that exempts intentional or reckless conduct from liability. 2. A covenant not to compete without a reasonable restrictions. 3. Employee fired solely to deprive him of substantial commission (bad faith, lack of legitimate cause)

Question 30

Misrepresentation Defense to Contract Formation

Answer 30

Misrepresentation is a (1) False statement of “fact” made before contract; (2) by one of the contracting parties or his agent; (3) that induces the contract (4) No bad faith required.

Omission: A person’s failure to disclose of a fact may be tantamount to a misrepresentation of fact that allows rescission of the K if the person knows that disclosure of that fact would correct the party’s mistake with respect to a basic assumption of the K, and non-disclosure amounts to a failure to act in good faith.

Note: if facts ask if agreement can be RESCINDED, then that’s K law. If it asks about damages, it’s tort.

Question 31

Duress Defense to Contract Formation

Answer 31

When one party makes an IMPROPER THREAT that another party who MUST COMPLY WITH because there’s NO REASONABLE ALTERNATIVE.

Question 32

Unconscionability

Answer 32

Contracts that contain an (1) unfair surprise (2) or oppression (3) at the time the K was formed are unconscionable and allows court to refuse to enforce all or part of K. Extremely one sided due to superior bargaining power. Common examples: inconspicuous risk-shifting provisions, exculpatory clauses, etc. But good faith satisfaction clauses are not illusory / unconscionable

Question 33

Ambiguity in Words of Agreement

Answer 33

Parties that use a MATERIAL TERM that’s open to at least TWO REASONABLE ALTERNATIVES may be ambiguous if: (1) Each party attaches a DIFFERENT MEANING to the term; AND (2) NEITHER PARTY KNOWS or has reason to know that the term is open to at least two reasonable interpretations.
BUT, If a party KNOWS / HAS REASON TO KNOW of the possible DIFFERENT INTERPRETATIONS, he has a DUTY to CLARIFY. If he doesn’t clarify, a K is formed according to the ignorant party’s terms.

Question 34

Mistake of Fact

Answer 34

A Mutual Mistake is a defense to contract formation when (1) Both parties are MISTAKEN as to ASSUMPTION of FACT; (2) Assumption of fact has MATERIALLY ADVERSE effect on agreed upon exchange; AND (3) Adversely affected party DIDN’T ASSUME THE RISK of the mistake. Note: mistake in value is generally not a defense, except where parties rely on a 3rd party, since mistake is not material, so contract is still enforceable

Unilateral Mistake (i.e. only 1 party makes mistake): generally insufficient to make K voidable, a contract still exists. Exceptions:  K is voidable by mistaken party when…
(1) the mistake is Obvious / Palpable mistake and the NON mistaken party KNEW or SHOULD HAVE KNOWN of the mistake (save for errors as to value or quality)

Question 35

Statute of Frauds

Answer 35

SOF is statute designed to prevent fraudulent claims of the existence of a contract by requiring the claimant have proof that a K exists before the claimant gets its day in court. Proof required to satisfy the SOF is generally proof of either (1) PERFORMANCE; or (2) a WRITING, SIGNED by party asserting SOF defense

To satisfy SOF through writings:

(1) COMMON LAW: writing must contain ALL material terms such as parties, obligations, consideration (like price), SIGNED by the party to be charged
(2) UCC: writing must contain 1. QUANTITY of goods 2. SIGNED by party to be charged (i.e. sued). Exception: Confirmatory Memo can be used to satisfy SOF even if defendant did not sign if (1) BOTH PARTIES are MERCHANTS**; (2) there’s a SIGNED writing with a QUANTITY term; (3) the person who receives the writing FAILS to RESPOND within 10 days of receipt.

Contracts that MUST comply with SOF include (MYLEGS)

1) Marriage: promises to marry someone in return for something
2) Year: Service contracts not capable of being performed within ONE YEAR of the agreement can be satisfied by FULL PERFORMANCE by EITHER party. Thus, if only part performance, there’s an SOF defense, and the contract is not enforceable. BUT, there may be QUASI-K recovery if there’s unjust enrichment.
2) Land: 1. Part performance by the buyer satisfies SOF (2 out of 3 of payment, possession, or improvements to the land), or 2. Conveyance of the land by itself satisfies SOF
3) Executor agreements: Executor promises to answer for estate debts out of his own pocket
4) Goods sold for $500 or more. 1. For Ordinary goods, PART PERFORMANCE of sale of goods K satisfies the SOF, but only to EXTENT of the goods that were delivered. 2. For Specially manufactured goods, then SOF is SATISFIED as soon as seller makes “SUBSTANTIAL BEGINNING” (i.e. the seller has done enough work that it’s clear what he is working on is specially manufactured / custom made and can’t be resold in business)
5) Surety: Guarantees to pay for the debts of another if the debtor cannot pay
(6) Modifications that bring the contract under SOF category must be in writing
(7) Equal Dignity Rule: If an underlying K is WITHIN SOF, then authorization for someone to enter into a K on behalf of someone else MUST BE IN WRITING.

Exception: No SOF requirement needed if there is a JUDICIAL ADMISSION, or statement made by made in a JUDICIAL SETTING, ADMITTING that he entered into an AGREEMENT with the plaintiff

Question 36

Contract Formation

Answer 36

Contract formation requires mutual assent (usually offer and acceptance) and consideration on both sides. Consideration is a bargained-for exchange of legal value.

Question 37

7 Excuses for Non-Performance of a Contract

Answer 37

If there is non-performance of a contract, a party may have an excuse for the non-performance such as:

(1) Improper Performance
(2) Non-occurrence of a condition
(3) Other Party’s Anticipatory Repudiation
(4) Insecurity
(5) Later Agreement
(6) Unforeseen Event

Question 38

Excuse due to Improper Performance

Answer 38

Under Common Law, the Material Breach Rule states that DAMAGES can be recovered for ANY breach, minor or material. However, only a MATERIAL breach by one party EXCUSES the other party from obligation. If there is substantial performance, the breach is NOT material and the performance is not excused. Factors to determine materiality of breach include (1) Amount of benefit received (2) Adequacy of compensation (3) Extent of party performance (4) Hardship to the breaching party (5) Negligent or willful behavior of the breaching party (6) Likelihood that the breaching party will perform the remainder of the K. However, if it is an installment contract, material breach rule applies PER PERFORMANCE.

Under the UCC, the perfect tender rule states that a less than perfect tender gives buyer the option of REJECTING some or all of the goods + damages. If rejecting the goods, there is an excuse due to improper performance.

Question 39

Excuse Due to Non-Occurrence of Express Condition

Answer 39

An express condition is promise made after a contract is formed that must be met in order for performance of the obligations to occur (if, only if, provided that, so long as, subject to, on condition that). Generally, if an express condition does not occur, all remaining K obligations are excused.

Exceptions: (1) Person who benefits from the condition may waive the condition and the performance is not excused. Consideration to waive a material condition is required if the waiver was made before the condition failed to occur. Consideration is not required for an immaterial condition if the other party relies on that waiver of the condition. (2) if the party protected by the condition HINDERS or PREVENTS occurrence of the condition, then the condition is ELIMINATED and the K MUST be performed.

Question 40

Excuse due to Anticipatory Repudiation

Answer 40

Anticipatory repudiation occurs when a promisor, before the time of performance is due, makes an UNAMBIGUOUS statement or conduct indicating that the repudiating party will not perform. The statement must be made PRIOR TO the time performance is due.

If neither side has performed, the non-repudiating party is EXCUSED the from their duty to perform and can IMMEDIATELY sue for damages based on breach of contract. • Sue for damages based on BREACH.

If the non-breaching party has already finished performance completely, then he must wait until the repudiating party’s performance is due to sue for damages because the repudiation can still be withdrawn and the repudiating party can perform. On the other hand, if the non-repudiating party has relied on the repudiation, then the repudiation cannot be withdrawn.

Question 41

Excuse due to Failure to give Adequate Assurances for Insecurity

Answer 41

Insecurity occurs when one party makes an AMBIGUOUS statement or acts in a way that indicates that the party will not perform. The non-repudiating party is EXCUSED from performance if

1. there are reasonable grounds for insecurity;
2. there is an unmet demand for adequate assurance; AND
3. it is commercially reasonable to stop performance.

If defaulting party regains willingness or ability to perform, then must communicate this clearly to the innocent party in order to retract the insecurity.

Question 42

Excuse due to Later Agreements

Answer 42

(1) Mutual Rescission: Obligations of both parties under a contract may be excused by an express agreement between the parties to rescind the original agreement if 1. performance is still remaining and 2. there is “meeting of the minds”
(2) Accord and Satisfaction: An accord is a signed written agreement to accept different performance from the prior obligation. The original obligations under the contract remain in effect until new deal is actually performed/satisfied. If the accord is NOT satisfied, the non-breaching party can sue on EITHER the ORIGINAL obligation, OR the ACCORD (but not both).
(3) Modification: an agreement between the parties to accept a different agreement to satisfy the existing obligation. If parties agree to modify their contract, consideration is usually found to exist where the obligations of both parties differ. The old obligation is excused immediately as soon as the new deal is made
(4) Novation: an agreement by both parties to an existing contract to substitute in a new party. Requires assent of all parties. The party who is replaced is excused.

Question 43

Excuse by Later Unforeseen Event

Answer 43

The performance of duties under the contract (other than the duty to pay money) can be excused under 1. Impossibility = performance is objectively impossible, cannot be performed by ANYONE (subsequent law makes it illegal, death of a special/specific person to complete performance, but destroyed building or increase in price does not create impossibility), 2. Impracticability = performance can only be done with extremely unreasonable expense or difficulty, or 3. Frustration of purpose = purpose of K cannot be met, and both parties knew of the central purpose for the contract (subsequent law makes the purpose of the contract illegal)

In order for the performance to be excused, (1) An event must occur after contract formation BUT before completion of performance; (2) The event must be unforeseen, and neither party assumed the risk; AND (3) The event makes performance impossible, commercially impracticable, OR frustrates the purpose of the performance.

Question 44

Types of Damages

Answer 44

1) Expectation damages (default rule): put P in the economic position he would’ve been in if the K had been PERFORMED.
2) Reliance damages: put P in same economic position as if K had NEVER HAPPENED. (allowed when expectation damages are too speculative)
3) Restitution damages (compensating P by looking at D): put D in same economic position as if K had never happened (to prevent unjust enrichment); give profits to P.
4) Incidental Damages: costs incurred in dealing with breach/finding replacement. (i.e., costs of storing rejected goods, finding replacement in services K). ALWAYS recoverable. Incidental damages don’t have to be foreseeable to be recoverable
5) Consequential Damages: damages arising from P’s special circumstances and reflect losses over and above expectation damages. Recoverable if foreseeable by D at the time of the K and could not reasonably have been prevented by cover. If buyer is in the business of reselling goods, the seller is deemed to have knowledge of the resale.
6) Liquidated Damages: liquidated damages can be given only if damages were difficult to forecast at time K was made; AND the forecast was reasonable. Penalties are not enforceable.

Question 45

Expectation Damages for UCC Sale of Goods

Answer 45

If SELLER breaches by selling non-conforming goods

And B keeps the goods: B gets (FMV of goods if perfect – FMV as delivered).

And S keeps the goods: B can get… (FMV at time of breach – the K price); OR (Replacement/Cover price – K price).

If BUYER breaches through non-payment,

And B has goods: S can get K price.

And S has goods: S can get If seller doesn’t resell: (K price – FMV at time of breach); OR If seller resells: (K price – Resale price).

Lost profits for LOST VOLUME SELLER: If seller is lost volume seller (his supply of goods is unlimited and can sell to another seller), LOST PROFITS should be given for a breach. Other types of damages wouldn’t put seller in as good position as he would’ve been in if the buyer hadn’t breached. (i.e., could have sold TWO items!)
Requirements: (1) There was K to sell regular inventory; AND (2) Buyer breached; AND (3) Seller resold at same price.

Question 46

Duty to Mitigate Damages

Answer 46

Typically there is a duty to mitigate damages by finding a replacement, so there is no recovery for damages that are avoidable unless there was an undue burden on P to find the replacement or the replacement is not grossly incomparable to the original. Burden of proof and pleading are on D. Damages must be proven with REASONABLE CERTAINTY. P must prove losses were not speculative.

Question 47

Third Party Beneficiaries

Answer 47

INTENDED Third Party Beneficiary: K parties contracted for mutual benefit of the 3rd party. 3rd party is named in the contract, and is able to enforce the K that others made for his benefit despite not being a party to the K.

Incidental Beneficiary: someone who may benefit from the K but that is not the primary purpose of the K. No contract rights as an incidental beneficiary.

BEFORE vesting, the contracting parties CAN cancel or modify the K. Need mutual rescission. ONCE vested the third party beneficiary’s rights have vested, then the contracting parties CANNOT cancel or modify the K without TPB’s consent, unless the K says otherwise. TPB rights vest when the TPB either: 1. Learns and sues 2. Learns and detrimentally relies 3. Learns and assents

Question 48

Bona Fide Purchasers

Answer 48

A customer comes into a jewelry store and leaves her necklace with the merchant to be repaired. The merchant accidentally resells that necklace to a bona fide purchaser. That sale to a bona fide purchaser is valid if made in good faith, and the customer can only go after the merchant seller for recovery, not the BFP

Question 49

Assignment of Rights

Answer 49

Assignment is a TRANSFER OF RIGHTS under a K. Generally all contractual rights may be assigned unless it is a unique personal service or long-term requirements K. requirements to assign: 1) Must have PRESENT LANGUAGE
2) Consideration is NOT required, but if no consideration is given, the assignment can be REVOKED until completed

Limitations on assignment include: (1) Prohibition: language of K that takes away RIGHT to assign, but doesn’t take away POWER to assign resulting in the Assignor being liable for breach of K, but a valid assignment to an assignee who DOESN’T KNOW about the prohibition Look for words like “don’t, can’t.” (2) Invalidation: language of K that takes away both RIGHT and POWER to assign so that Assignor is liable for breach of K, and assignee CANNOT ENFORCE the agreement. Look for words like “null, void, no effect, no force.” (3) Common Law Substantial Change Limit: even if K doesn’t limit the right to assign, CL PROHIBITS an assignment that SUBSTANTIALLY CHANGES the DUTIES of an OBLIGOR (i.e. assignment of the right to K performance other than payment) (4) UCC allows assignment of requirements Ks if the assignee acts in good faith not to alter the terms of the contract

Question 50

Delegation

Answer 50

Delegation is when a party to a K transfers their duty to perform an obligation under a contract to a third party. All K duties are delegable UNLESS Contract prohibits delegations OR assignments (“no assignments clause” = no delegations or assignments); OR Contract calls for very special skills or person with VERY special reputation. If there is a breach, Delegating party will always remain liable until there is a valid novation, or unless the Delegatee receives consideration from delegating party.