Contracts

Question 1

Applicable Law: What law governs?

Answer 1

Common law is the transaction of services, employment, or real property. The Uniform Commercial Code is the transaction of goods. Goods are movable, tangible, and identifiable objects at the time of contract.

The Predominant Purpose Test is when the contract is involving both goods and services.

Question 2

Merchant

Answer 2

Under the Uniform Commercial Code, a merchant is one who:
1. deals in the sale of the kind
2. otherwise their occupation holds themselves as being knowledgeable and skilled in the particular goods handled in the transaction.
3. or to whom knowledge or skill may be attributed through employment of agent, broker, or other intermediator who by their occupation holds knowledge or skill.

Question 3

Offer

Answer 3

An offer is an outward manifestation of a present contractual intent, which is certain, and definite terms communicated to the offeree.

Present contractual intent= the offeror has to show certain terms not terms that show it is a joke “I will offer”
Definite Terms= Quantity, Time, Identity of parties, Price, Subject matter.
Communicated to offeree: Offeree must have knowledge or awareness of the offer.

Under UCC- missing terms are OK, just have quantity and show that parties intended to make a contract.

Question 4

Termination by offeror

Answer 4

The offeror may terminate their offer at any time unless their is an exception.
1. Option contract: if the contract is held open by consideration (even as nominal as $1) the contract must be held open for that specific amount of time.
2. Detrimental Reliance: if the offeree has foreseeable and reasonable relied on the offer and made substantial steps towards that reliance.
3. Unilateral Contract: When the offeree has already begun performance the offer must be held open for a reasonable time.
Death/Incapacity of offeror will not terminate offer.

Question 5

Termination by operation of law

Answer 5

Lapse of Time: Time is of the essence. If the offer specifies a date on which the offer terminates, then the offer terminates at midnight on that date. If the offer states a specified amount of days than the time runs from the time the offer is received.

Death/Insanity from either party: if a party had made an offer dies before acceptance, the offer is terminated automatically even if the offeree is unaware of the death of the offeror.

Question 6

Advertisement

Answer 6

The majority rule says that an advertisement is for the public to put an offer.

The minority rule says that an advertisement as an offer is arguable. If the advertisement shows who can accept and how to accept and leaves nothing further for negotiation than the advertisement may be an offer.

Question 7

Contract Elements

Answer 7

A contract is formed when there is
1. Mutual Assent- Offer and Acceptance
2. Consideration
3. No defenses to the contract formation

Question 8

Types of Contracts

Answer 8

1. Bilateral Contract is an exchange of mutual promises.
   Ex: A offers to sell his car to B for $5,000 and B promises to purchase A’s car at that price.
2. Unilateral Contract: Offer requires performance as the manner of acceptance.
   Ex: A promises to pay B $100, if B paints A’s house; B is not obligated to paint A’s house, but if B does than the contract is formed and A must pay B $100.
3. Quasi-Contract- This is not a contract, but rather a restitution remedy that prevents unjust enrichment
   Ex: Look for: 1. P has conferred a benefit to D; P reasonably expects to be paid, D knowingly accepted the benefit; and D will be unjustly enriched if P is not compensated.

Question 9

Revocation by offeror

Answer 9

An offeror may revoke her offer, which effectively terminates the offer and the offerees ability to accept if
1. there are unambiguous statements made from the offeror to the offeree
2. if the offeree becomes aware of offerors unwillingness or inability to contract.

Revocation by third party:
1. If a reliable 3rd party tells offeree that offeror can not perform and offerors performance is inconsistent w/ the K than this is a valid revocation.

Exception (Irrevocable offers)
1. Option K- A promise to keep an offer open, consideration is required.
2. UCC Firm Offer:
a. a merchant’s offer
b. signed
c. in writing
d. assures the offer will be held open is irrevocable
e. no consideration required.
3. Detrimental Reliance- reliance must be reasonable.

Question 10

Rejection by offeree

Answer 10

Rejection by offeree terminates the offer and the offeree’s power of acceptance.
Methods:
1. Express rejection: effective when received. Offeree tells offeror they are rejecting offer.
2. Counteroffer: terminates the original offer and becomes a new offer.
Counter offer made during an option period does not terminate power of acceptance.

3. Conditional acceptance- terminates the original offer and becomes a new offer.
   ex: offer for lawn mowing service; offeree says “I’ll accept if you also trim the hedges” this is a new offer and original offeree is now the offeror.
4. Acceptance with additional terms
   Common Law: Acceptance must mirror the offer; acceptance with additional terms creates a rejection and counter offer.
   UCC- depends on whether both parties are merchants
   a. K involving non-merchants- terms of offer govern, k is formed, but additional terms are excluded and considered mere proposals to modify K
   b. Both parties are merchants- additional terms become part of the K unless certain exceptions apply.

Question 11

Acceptance

Answer 11

An acceptance is an unequivocal assent to the terms of the offer.
Notes:
An offeror is the master of the offer and can dictate the manner by which an offer can be accepted.
Common Law- Mirror image rule- acceptance must mirror the offer’s terms, it can not add new terms.

UCC-
1. Acceptance w/ additional terms (both merchants) is valid Except:
a. when additional terms materially change the offer
b. offer expressly limits acceptance to the offer’s terms
c. offeror objects within a reasonable time after notice of new terms.
2. Acceptance w/ additional terms (involving a non-merchant) contract is formed without additional terms.
3. Acceptance by prompt shipment- a merchant may accept an offer to buy goods by either:
a. providing a promise to ship goods (usually in writing)
b. promptly shipping conforming goods
shipment of non-conforming goods is an acceptance, but also may rise to a breach.

Question 12

Mailbox Rule

Answer 12

Offers and acceptances transmitted via vail or other similar methods become effective upon dispatch or receipt. The mailing must be properly addressed and include proper postage.

if offeree send both a rejection and acceptance, the first to arrive is controlling.

Question 13

Acceptance by performance

Answer 13

An offer may accept by partial performance (for bilateral contracts) and full performance (for unilateral contracts), unless acceptance is limited by terms of the offer.

Unilateral K- Complete performance required
Offeree is not required to complete performance and failure to complete performance is not a breach of K b/c a contract was not formed.
Notice of performance- offeree is not required to give notice upon start of performance, but must notify offeror within reasonable time of completion

Bilateral K- partial performance gives rise to acceptance
Offeree must make offeror aware of acceptance.
Offers requiring acceptance by promise:
An offer requiring acceptance by promise may still be accepted by performance if
1. offeree begins performance; and
2. offeror knows offeree has begun performance.

Question 14

Consideration

Answer 14

Consideration is a bargain for exchange of legal value between parties; there must be a benefit to promisor and a detriment to promisee.

Invalid consideration:
1. promises of gifts or conditional gifts
2. illusory promises: a promise where there is no obligation to perform.
ex: A promises to do B’s chores if he has time; A is not actually obligated to do anything; thus no consideration

Bargain-for-exchange
the promise must induce the detriment and the detriment must induce the promise.
a. Detriment- an obligation to do or refrain from doing something one would not otherwise be obligated to do or refrain from doing.
b. past or moral consideration- a promise to perform a pre-existing duty or obligation generally does not constitute consideration.
Exception: if a debt would be enforceable absent some technical defense a new promise that is in writing or partially performed is enforceable.

Past Consideration is no Consideration- promises made in return for acts or events that have already taken place are unenforceable for lack of sufficient consideration.

Substitute for Consideration
1. Promissory estoppel: If a donative promise induces reliance by the promisee in a manner the promisor should have reasonably expected, the promise is enforceable (detrimental reliance)

Question 15

Defenses to Contract formation (enforceability)

Answer 15

1. Statute of Frauds
2. Lack of Capacity
   a. Infancy
   b. mental illness
   c. Intoxication
3. Duress- threat
   Duress may be asserted by
4. Illegality- Goes against public policy
5. Misrepresentation- There is a Misrepresentation when it fulfills the elements of an untrue assertion made fraudulent or material and is justifiably relied on.
6. Unconscionability
   a. Procedural
   b. Substantive
   7.Mistake
7. Misunderstanding: Where there is ambiguity concerning terms of the contract

Question 16

Incapacity

Answer 16

Infancy: a party lacks capacity based on infancy until the beginning of the day before their 18th birthday.

Mental illness or defect:
1. a party is unable to reasonably understand the nature and consequence of the transaction.
2. Party is unable to reasonably act and the other party has reason to know of the party’s condition.

Intoxication:
1. other party has reason to know that by reason of intoxication, the party is unable to reasonably understand the nature and consequence of the transaction or is unable to reasonably act in relation to the transaction.

Consequences of incapacity
Right to disaffirm: a person who lacked capacity to contract may disaffirm the contract, which renders it void.

Implied affirmation (Ratification): a contract can be enforced against an infant at the time of contract formation if she had since gained capacity and retained benefits from K.
Look for:
1. agreement entered into before capacity.
2. capacity has since been gained; and
3. benefits have been retained.

Infant liability for necessities- infants are legally obligated to pay for necessities
- liability is based on quasi-k, so infant cannot be sued for breach (b/c there is not an enforceable k)

Question 17

Statute of Frauds

Answer 17

Contracts subject to Statute of Frauds require special proof of their existence. Failure to satisfy statute of fraud requirements may result in an invalid k.

Methods of satisfying SOF
1. Signed writing- a writing containing the signature of the party to be charged. (the party asserting the SOF defense)
a. UCC- signed writing not required if:
- both parties are merchants; and
-the parties asserting SOF receives a signed writing memorializing the agreement and its essential terms; and
- failed to respond w/in 10 days of receipt.

2. Performance- may satisfy SOF
   - Service k- only full performance satisfies the SOF
   -Sale of goods K- delivery of goods satisfies SOF
   a. custom-made goods- SOF satisfies once seller makes a substantial beginning toward performance.
   -Real Estate- part performance by the buyer satisfies SOF if buyer has done 2 of the following 3
3. full or part payment
4. possession of property
5. substantial improvements to property.

Question 18

Contracts within the Statute of Frauds

Answer 18

If a contract is within the SOF, it must satisfy SOF requirements to be valid.
Contracts w/in the SOF
1. Marriage K- promises ,made in consideration of marriage
2. Services k unable to be performed w/in 1 year
-SOF does not apply to lifelong k or k that say nothing about time of performance - both are typically capable of being performed w/in 1 year
3. Land sale k- transfer of property interest including leases for terms greater than 1 year.
4. Executor promises- promises for executors/administrators to personally answer for the debt of a decedent’s estate.
5. Goods $500 or more-
6. Suretyship- promises to pay the debt of another unless party is paying that debt to satisfy their own needs.

Question 19

illegality, misrepresentation, duress, and unconscionability

Answer 19

Illegality- look for an illegal subject matter or purpose for the contract.
illegal subject matter- k is not enforceable.
-legal subject matter but illegal purpose- k only enforceable by one who did not know about its illegal purpose.
-legality is based on existing law at the time of k formation.

Misrepresentation (fraud) - false assertions, concealments or misstatements about material facts before k formation
- k will be voidable if A induces B into a K by misrepresentation and B relies on the misrepresentation.

Duress- includes both economic and physical duress.
- Duress= wrongful act or threat that overcomes a party’s free will
- ks induced by physical duress are void.
-ks induced by non-physical coercion or threats are voidable by the coerced or threatened party.

Unconscionability- courts may refuse to enforce all or part of a k that is unfair or oppressive to one party based on unfair bargaining and or unfair substantive terms.
- Arises with adhesion ks, exculpatory clauses for intentional acts, etc.
-Look for an absence of meaningful choice by the disadvantaged person.

Question 20

Misunderstanding and mistake

Answer 20

A k may be found to be unenforceable or void/voidable where there was a significant misunderstanding or mistake during k formation.

Misunderstanding- ambiguity concerning terms of the k
- neither party aware of ambiguity- no k formed unless both parties intended the same meaning.
- One party aware of ambiguity- k formed.
- k enforced according to the intention of the unaware party.
- ex. if A knows B misunderstands but A remains silent, k enforced according to B’s understanding.
- Both parties aware of ambiguity- no k formed unless both parties intended the same meaning.

Mutual Mistake- both parties are mistaken about an underlying factual assumption at the time of k formation.
- k is voidable by an adversely affected party if:
1. both parties are mistaken concerning a basic assumption of fact;
2. mistake materially affects the agreed-upon exchange; and
3. adversely affected party did not assume risk of the mistake.

assume the risk:
1. parties agreed to allocate the risk of the party
2.the court allocated a risk b/c it is reasonable under the circumstances.
3. party knew that they had limited knowledge and treated it as sufficient knowledge.

Unliteral Mistake- one party makes a mistake concerning facts of an agreement, usually arises with computational errors.
- Unilateral mistakes will not prevent k formation.
Exception: mistaken party may void k if mistake is material and non-mistaken party knew/ should have known of mistake.

Question 21

Parol Evidence Rule

Answer 21

Under the Parol Evidence Rule, evidence that is extrinsic to a written k is inadmissible to supplement or contradict the written k.
- Applied if the writing is a complete integration- parties must intend the writing to express their final agreement.
Parol Evidence Rule bars evidence of:
- Negotiation before k becomes integrated.
- Agreements before k becomes integrated (oral or written)
- Exception- extrinsic evidence may be allowed if either:
a. agreement was only partially integrated, or
b. additional terms would ordinarily be in a separate agreement.

Parol Evidence Rue does not apply to, or bar admission of:
- Agreements (oral or written) made after the writing
-evidence necessary to determine if there was a mistake in the process of reducing an agreement to writing.
- evidence concerning a party’s defense based on misrepresentation, fraud, or duress.
- evidence used to resolve ambiguities about the meaning parties intended to give particular terms in the writing.

Question 22

Delivery and risk of loss in UCC Contracts

Answer 22

Under UCC K’s, risk of loss issues arise when goods are lost or destroyed.

Goods shipped by common carriers- if goods are shipped by carrier risk of loss depends on type of k between buyer and seller.
Shipment K’s- seller only obligated to ship goods to buyer.
- sellers obligation satisfied when she delivers goods to common carrier and notifies buyer; risk of loss then passes to buyer.

Destination k’s- seller obligated to ensure goods reach buyer
- Risk of loss passes to buyer only when buyer takes delivery.

Non-common carrier deliveries- if goods are lost or destroyed by no fault of either party, below factors determines who assumes risk of loss:
1. prior agreement of the parties
2. breach- if one party is in breach, they are liable for any uninsured loss, even if unrelated to the breach.
3. Default- apply if the above factors inapplicable:
-Merchant seller- risk of loss shifts to buyer once he takes physical possession of goods.
-Non-merchant seller- risk of loss shifts to buyer upon delivery.

FOB (location)- signifies passage of risk of loss between parties
-seller bears risk and expense of getting goods to the named location, at which point risk passes to buyer
ex: A in Akron sells goods to B in Boise; K states FOB Boise; A is responsible for getting goods to Boise, then risk passes to B.

Question 23

UCC Default Terms- Warranties of Quality

Answer 23

The UCC contains provision establishing default warranties in every k governed by the UCC.

Implied Warranty of Merchantability- seller automatically warrants goods are fit for their ordinary purpose.

Implied warranty of fitness for a particular purpose- seller warrants that goods are fit for buyer’s purpose if:
1. buyer has a particular purpose
2. buyer relies on seller to select suitable goods; and
3. seller has reason to know of buyer’s purpose and reliance on seller

Express warranty- when seller makes promises or describes facts about a product or its use
-warranty will be breached if the product falls short of seller’s promise or description.

Limiting warranty liability by k
-Disclaimer- limits liability only for implied warranties.
a. “as is” or “without faults” language is enforceable
b. disclaimers will not limit liabilities for express warranties.
- Remedy limitation- limits recovery upon breach of warranty
-generally valid for all warranties, unless the provision is unconscionable (breach causes serious injury)

Question 24

Perfect Tender and Rejection of Goods

Answer 24

Under UCC K’s, seller’s performance must be perfect with respect to the goods delivered and the manner of delivery.
-Imperfect tender= seller sends defective/nonconforming goods

Imperfect Tender- buyer can retain or reject defective goods
-If seller’s performance is not perfect, buyer can either
a. retain goods delivered and sue for damages, or
b. reject some or all goods and sue for damages.

Rejection for imperfect tender- buyer must
1. notify seller of rejection in a reasonable time.
2. hold the rejected goods using reasonable care; and
3. give seller reasonable time to arrange for removal of goods
- if seller gives no information regarding removal, buyer can return the goods to seller, store the goods for seller, or resell the goods on behalf of seller (for seller’s profit.)

Installment K’s- where delivery of goods occurs in separate lots.
-Rejection- buyer can only reject a delivery installment if:
1. defect substantially impairs the installment; and
2. defect cannot be cured.

• Rejection is limited to the defective installment, not the entire k
• buyer can only cancel entire k due to a defective installment if the installment substantially impairs the entire k’s value.

Question 25

Perfect tender and Acceptance of Goods

Answer 25

Under UCC K’s, buyer does not officially accept until goods are delivered and she has an opportunity to inspect and or notify seller.

Acceptance of goods occur if either:
a. buyer, after a reasonable opportunity to inspect the goods, indicate to seller that goods conform or that she will keep them despite nonconformance
-payment w/o an opportunity to inspect is not acceptance
-if buyer accepts goods, she cannot later reject them
b. buyer fails to reject or notify seller of rejection within a reasonable time (no more than one month.)

Revocation of acceptance
-Buyer generally cannot reject goods once she has accepted
-Exception: buyer can revoke acceptance within a reasonable time after discovering a defect if the defect substantially impairs the good’s value and either:
a. buyer accepted goods on the reasonable belief that defect would be cured and it has not been, or
b. buyer was excusably ignorant of defect or reasonably relied on seller’s assurance that goods conformed.

Question 26

Perfect tender and seller’s ability to cure

Answer 26

If buyer has notified seller of imperfect tender (delivery of nonconforming goods), seller may have an opportunity to cure.

Seller can cure if:
1. Seller gives buyer notice of intent to cure and time for performance has not yet expired.
- Seller must give buyer reasonable notice and deliver conforming goods.

2. Seller had reasonable grounds to believe nonconforming goods sent would be acceptable
   -Reasonableness is usually based on seller’s prior dealings with buyer.
   -Seller will have additional reasonable time period to tender conforming goods.

Note- buyer cannot compel seller to cure

Question 27

Substantial Performance

Answer 27

Under common law k, if one party has substantially performed, the other party is obligated to perform and complete performance.

Requirements:
-“substantial” is usually considered at least halfway complete.
-less than perfect performance by one party does not excuse the other party from his obligation.
Thus, substantial performance by A obligates B to perform; but B may seek money damages for the difference between the performance rendered and the performance expected.

Note- look for substantial performance issues in construction k’s or other similar service k’s

Question 28

Material Breach

Answer 28

Material Breach occurs when one parties failure to perform under the k substantially deprives the other party of the benefit they bargained for

Rule concerning common law material breach:
-Material breach by one party excuse performance by the other
-Substantial breach does not equal material breach
- materiality of breach is a question of fact (and thus less likely to be tested on the MBE)
-Damages are recoverable for any breach

Timeliness of performance
-Failure to perform by the time stated in a k is not material breach if performance is rendered within a reasonable time after the time stated.
Exception- “time is of the essence” clauses
-if timely performance is essential, failure to perform by that time is a material breach.
-arises if one party indicates as a term of the k that performance by a given date is essential

Note- Material breach rule does not apply to UCC K’s

Question 29

Conditions

Answer 29

Conditions are agreed upon limitations on performance in a k
- Conditions make an obligation to perform contingent on the occurrence of some specific event or condition.

Condition v promises- failure of a promise lead to breach, whereas failure of a condition relieves a party’s performance obligation.

Types of conditions:
1. Conditions can be implied or expressed
- often indicated by words such as “only if” “provided that”, “until” “so long as” “subject to” “if”

2. Conditions precedent- conditions must occur before performance due; non-occurrence excuses performance.
3. Condition subsequent- condition that occurs after performance has begun and excuses further performance.

Excuse of condition- parties must strictly comply with conditions, but substantial performance of the condition may suffice if it fulfills the condition’s purpose.
- a person who is protected or benefitted by a condition may make statements that constitute a waiver of the condition or estop the condition from being enforced.

Question 30

Insecurity

Answer 30

Insecurity is the prospective inability to perform as demonstrated by a party to a k.
-Arises if A gives B reasonable grounds for insecurity or uncertainty (by words or conduct) as to whether A will perform under the k
-Grounds for insecurity or uncertainty must be reasonable.

Insecure party’s options:
A. Demand Adequate assurance, or
B. Suspend performance until adequate assurances are provided (if commercially reasonable)
- party may treat k as repudiated if adequate assurances are not provided.
-ex: A agrees to buy leather sofas from B; after k formation, but before delivery is due, A learns that B sold vinyl sofas to other buyers who ordered leather and that delivery was late.
- A has reasonable grounds for insecurity and thus may utilize the above options.

Notes: distinguish from anticipatory repudiation, which involves a clear indication the other party will not perform; insecurity involves uncertainty regarding the other party’s performance.

Question 31

Anticipatory Repudiation

Answer 31

Anticipatory Repudiation arises when one party to a k makes it clear that he will not perform under the k; excuses performance by the other party.

Arises if one party to the k:
1. makes an unambiguous statement or conduct.
2. Prior to the time performance due
3. Which indicates he will not perform
ex: A hires B to remodel A’s kitchen. B is almost finished when A tells B she does not want the remodel and will not pay; B can treat k as breached, which excuses B’s obligation to continue working.

Note- distinguished from insecurity, which involves uncertainty by one party regarding the other party’s performance.
- by contrast, anticipatory repudiation involves clear demonstration by one party that they will not perform.

Effect of Anticipatory Repudiation- non-repudiating party’s duty to perform is excused; he may
a. treat the anticipatory repudiation as a total repudiation and sue.
b. suspend performance until performance is due and wait to sue.
c. treat repudiation as an offer to rescind and treat k as discharged, or
d. ignore repudiation and urge promisor to perform.

Question 32

Impossibility and impracticability

Answer 32

Performance on a k may be excused and discharged due to impossibility and impracticability if an unforeseen even occurs after k formation but before performance is compete.

Requirement to excuse performance- an unforeseen event, the non-occurrence of which was a basic assumption of the parties, must make completing performance either:
a. impossible- performance is objectively impossible, or
b. impracticable- performance is only possible with extreme and unreasonable difficulty or expense.

Common unforeseen events:
1. Substantial Damages or destruction k’s subject matter
-damage or destruction must not have been either party’s fault
2. Death- k obligations generally survive the death of a party, unless deceased party’s k obligations are non-delegable.
-usually only unique personal services are non-delegable.
3. Subsequent law or regulation (supervening illegality)
-if performance becomes illegal, excuse by impossibility.

Note- the MBE often uses impracticability to mean both impracticability and impossibility.

Question 33

Frustration of purpose

Answer 33

A party’s duty to perform under a k may be discharged if an unforeseen event occurs that undermines one or both party’s principal purpose for entering into the k.

Requirements- a k may be discharged if:
1. an unexpected event arises that destroy one or both party’s purpose for entering into the k.
-Whether performance remains possible after the event is irrelevant; issue is whether performance after the unforeseen event nullifies one or both party’s original purpose for the k
2. the unforeseen event is not the fault of the frustrated party, and
3. the non-occurrence of the event was a basic assumption of the k
-does not have to be stated assumption in the k.

Frustration of purpose v impossibility- distinctions is that impossibility concerns duties specified in the k, whereas frustration of purpose concerns the reasons a party entered into the k.

Ex: A landlord rents space to B restaurateur to open ice cream parlor, if the property is destroyed by an earthquake, A and B are excused from performing due to impossibility.
- however if the city passes an ordinance banning the sale of sweetened food, the k’s purpose is frustrated b/c A knew B intended to open an ice cream parlor.

Question 34

Rescission

Answer 34

Rescission of a k serves to discharge duties under the k
-occurs when parties agree to rescind their k
-agreement to rescind is itself a new, binding k supported by consideration.

Limitations:
Mutual rescission may be made orally
-Exception- writing required in the k to be rescinded is subject to sof or ucc.
Parties cannot rescind a k if the rights of a third party beneficiary have vested

Unilateral rescission- when one party wants to rescind the k
- usually only granted where there is a defense to k enforcement or formation
- as distinguished from mutual rescission, whereby parties agree to rescind a k, unilateral rescission often occurs as a court-ordered remedy where there is a valid defense to a k enforcement or formation.

Question 35

Modification and Novation

Answer 35

Modification occurs when parties change terms of the original k; novation is a new k that substitutes a new party into the original k.

Modification-subsequent change to terms of a k.
1. Parties to a k agree to discharge original k terms to be modified
- does not discharge the entire original k.
2. Requirements:
a. mutual assent of the parties; and
b. consideration- generally found to be present b/c each party has limited her right to enforce the original k.
3. UCC- no consideration is required for a good-faith modification to a UCC k; but note that the modification must be in writing if it falls within the SOF.

Novation: parties agree to substitute a new party to perform
1. Parties enter a new k that substitutes a new party, who gets benefits and assumes duties that belonged to an original party to the k
2. Requirements:
a. all parties, including new parties, agree to a new k; and
b. new k extinguishes k duties between original parties
3. The original party is excused from performance and no longer has any k obligations or liabilities.

Novation v delegation- delegation does not require all parties’ agreement and does not excuse the delegator’s liability on the k.

Question 36

Accord and Satisfaction

Answer 36

Accord and satisfaction occurs when both parties to an existing agreement agree to accept different performance in satisfaction of the original, existing obligation.

Accord- agreement to accept alternative performance in satisfaction of the existing obligation.
- a new agreement to accept an alternative performance
Satisfaction- completion of the alternative performance.

Effect of accord and satisfaction- excuses the original obligation.
1. if accord is not satisfied, a party may sue on either the original obligation or the accord.
2. An accord suspends the original agreement until satisfaction
- parties cannot sue under the original agreement if there has been an accord.

Question 37

Third Party Beneficiary

Answer 37

A third party that benefits from a k entered into between other parties is a TPB
1. Intended TPB- parties to the k intend for TPB to benefit from the k
- TPB have rights under the k

2. Incidental TPBs- stands to benefit from k although not intended by parties to the k, has no rights under the k.

Determining TPB Status- whether a TBP is an intended beneficiary under the k is a question in fact; courts look at the following factors:
1. is TPB expressly designated in the k?
2. Does TPB directly benefit from some performance under the k?
3. Does TPB have rights under the k?
4. Does TPB stand in such a relationship to the promisee under the k that an intent to benefit the third party can be inferred?
- if most answered are yes than most likely is an intended TPB

TPB Characteristics
1. not parties to the k; TPBs are merely beneficiaries.
2. intended TPB’s have a right to sue for breach of k even though they are not parties to the k.
3. Creditor TPB’s- benefit is conferred based on a debt owed by the promisee to the k.
4. Debtor TPD’s- benefit is conferred gratuitously- gift.

Question 38

Rights of Third Party Beneficiary

Answer 38

In order to enforce rights under a k, a TPB’s rights must vest

Vesting of rights- occurs when the TPB either;
1. Accepts the benefits of the k in a manner requested by the parties to the k,
2. brings suit to enforce the k, or
3. detrimentally relies on the k

Enforcing the k
1. TPB can sue the promisor
- promisor can assert any of his own defenses
2. promisee can sue promisor at law and in equity for specific performance.
3. TPB can only sue promisee if TPB is a creditor beneficiary.

Question 39

Assignment

Answer 39

An assignment is a transfer of rights under a k to a third party after the k is formed.
1. Generally a party can assign rights and benefits under a k to a third party unless the k prohibits assignment
2. Consideration not required.
- an assignment given without consideration is considered a gratuitous (gift) assignment.

Common law limitations- common law bars any assignment that substantially changes the duties of the obligor
1. assignment of a payment is not a substantial change
2. assignment of rights to performance is a substantial change.

Contractual limitations on rights of assignments- ks may contain clauses that either prohibit or invalidate assignment of rights under a k.
-prohibiting assignment of rights- takes away the right to assign, but not the power to assign.
- an assignee can still enforce the assignment if he was unaware of the provision
-invalidating assignments- takes away both the right and power to assign.
-any assignment is invalid and unenforceable.

Question 40

Revocability & Enforcement of assignment

Answer 40

Revocability- A gratuitous assignment may be revocable, however assignments made for consideration are irrevocable.
- assignments for consideration- irrevocable.
-gratuitous assignments- revocable, unless:
1. obligor has already performed.
2. Assignee has received a written claim or tangible object signifying a right to collect, or
3. Detrimental reliance by assignee

Assignee right to sue- assignee can sue:
1. obligor for non-performance; and
-obligor can raise any defense to the k that he could have raised against the assignor.
2. Assignor for wrongful revocation of assignment or breach of an implied warranty
-assignor makes assignment with implied warranty that the right to assign was not subject to defenses.

Question 41

Delegation

Answer 41

A delegation occurs when one party to a k (delegator) delegates the duties she owes to another party to the k (obligee) to a third party (the delegatee)
- obligor must generally accept performance from delegatee
-only duties may be delegates, whereas rights may be transferred to a third party via assignment

Liability- delegator remains liable for delegatee’s performance
- obligee may sue delegator for non-performance by delegatee
- obligee may only sue delegatee if the delegatee has assumed duties of the entire k.

Exceptions- duties are non-delegable if:
a. duties involve personal judgment and skill
b. delegations materially changes the obligee’s expectancy under th k
c. a party has placed special trust in the delegator, or
d. a contractual provision restricts delegation

Delegation v novation- novation arises when both parties agree that a substitute person will take over duties under the k, whereas a delegation occurs when one party independently decides to delegate duties to a third party.

Question 42

Standard money damages

Answer 42

Expectation damages- standard measure of money damages
a. put the parties in the same economic position as if the k had been performed.

Reliance damages- alternative measure of damages used when expectation damages are to speculative
a. designed to compensate p based on the value of her performance
b. puts the party in the same economic position as if the contract had never been formed.
A party can not recover both reliance and expectation damages.

Consequential damages- foreseeable losses indirectly resulting from a breach recoverable if:
a. damages are a foreseeable result of the breach; and
b. when k was formed. D had reason to know P would suffer special unpreventable or unexpected damages in the event of a breach
-UCC k’s only buyer can recover

Incidental damages- commercially reasonable expenses incurred by the non-breaching party in UCC k’s (cost of inspecting, returning, storing, reselling goods.

Question 43

Non-monetary remedies

Answer 43

In the even of a breach, certain non-monetary damages maybe available if money damages are unavailable or inadequate.

Specific performance- usually only available for k’s involving real estate or unique goods
-for service k’s injunction preventing breach of service k may be available.

Rescission- cancellation of a k
a. purpose is to restore the parties to their position before k was made
b. often arises where there is mistake, misrepresentation, duress, or some other defense to k enforcement or formation

Reformation- remedy whereby a k is changed so that it reflect the original intent of the parties
a. can arise where there is a mistake in k formation such that final k varies from prior written agreement of parties
b. can also arise where k is inaccurate due to some misrepresentation.

Reclamation- in UCC k’s, unpaid sellers may stop delivery or reclaim goods from an insolvent buyer
- unpaid seller can never reclaim goods from subsequent buyers.

Question 44

Restitution, Liquidated damages, and duty to mitigate

Answer 44

Restitution and liquidated damages are additional damage types that may be available.

Restitution damages- arise in quasi-k situations
a. applied if there is no enforceable k, but a party has been unjustly enriched.
b. awarded based on value of the benefit wrongfully conferred
c. party cannot recover both expectation damages and restitution damages.

Liquidated damages- agreed-upon k provisions that stipulate specified damages upon the occurrence of a breach
a. liquidated damages provisions are valid only if
- damages are difficult to project at the time of k formation; and
- the provision is a reasonable estimate of actual damages.

Duty to mitigate- all parties must mitigate damages
a. a party may not recover for avoidable damages.
b. D bears the burden of showing p’s failure to mitigate.

Question 45

Damages for UCC CONTRACTS

Answer 45

Breach by seller and buyer keeps goods:
-Damages= fair market value of perfectly delivered goods - fair market value of goods actually delivered
-Note: if seller breaches by delivering non-conforming but superior goods, buyer is not responsible.

Breach by seller and seller keeps or buyer returns goods:
-Damages= whichever of the following is higher.
a. fair market value of goods at the time of breach - k price, or
b. buyer’s cost of covering/replacing goods - k price

Breach by buyer and seller has goods
-Damages= either.
a. k price - market price at the time of delivery or
b. k price - resale price + provable lost profits

Lost profits- the seller can recover the lost profits from a buyer’s breach, even though she resold the item that was subject of buyer’s breach, if she can prove that she would have made a sale to the second buyer regardless of the first buyer’s breach

Note- incidental and consequential damages may be available.