Contracts Flashcards
1
Q
Bilateral Contract
A
- One consisting of the exchange of mutual promises; a promise for a promise
- Can be accepted in any reasonable way
2
Q
Unilateral Contract
A
Offeror requests performance rather than a promise
Offeror promises to pay upon the completion of the requested act by the promisee
A unilateral contract, which requires full performance, occurs in only 2 situations:
(1) when the offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance; and
(2) where there is an offer to the public, such as a reward offer
3
Q
Sale of Goods
A
Article 2 of UCC
Goods -> Anything movable when identified in a contract
4
Q
Common Law
A
Service contracts
Construction, real estate, land use, employment contracts etc.
5
Q
Who is a Merchant
A
One who regularly deals in goods of kind sold, or
Holds themselves out as having special knowledge or skill as to practices or goods involved
**ALL SALES OF GOODS = ARTICLE 2 OF UCC (whether merchants or not)
6
Q
Predominant Purpose Test
A
If a sale involves both goods and services, you will determine which aspect is dominant and apply the law governing that aspect to the whole contract!!
7
Q
The Offer
A
Creates a reasonable expectation to enter into a contract on the basis of the offered terms
Objective reasonable person standard is used when determining if it was an offer or not
**ADVERTISEMENTS ARE NOT OFFERS
8
Q
Acceptance
A
Assent to the terms of the offer
9
Q
Consideration
A
Bargained-for exchange of legal value
10
Q
Land Sale Offer Requirements
A
Price and description of the land
11
Q
Requirements Contract
A
Buyer promises to buy from Seller all goods Buyer requires
12
Q
Output Contract
A
Seller promises to sell to buyer all goods seller produces
It is assumed that parties will act in good faith; so, there cannot be a tender or a demand for a quantity unreasonably disproportionate to (1) any stated estimate, or (2) (in the absence of a stated estimated) any normal or otherwise comparable prior output or requirements
13
Q
Termination of Offer - Lapse of Time
A
Offer terminated if not accepted within reasonable time or within time period specified
Reasonable time to accept offer = 1 month generally
14
Q
Counter Offer
A
Counteroffer = Rejection
Counteroffer is an offer made by the offeree to the offeror that contains the same subject matter but differs in its terms
**Mere Bargaining ≠ Rejection
15
Q
Conditional Acceptance as Rejection
A
Conditional Acceptance = rejection + new offer!
- Also true under article 2 UCC!
Acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer
16
Q
Revocation
A
Generally, offers can be revoked at will by the offeror, even if she has promised not to revoke for a certain period of time
Offeror may revoke by directly communicating the revocation to the offeree
Ex. -> “I revoke my offer of May 25”
17
Q
Indirect Revocation
A
An offer may also be revoked indirectly if the offeree receives:
1. Correct information
2. From a reliable source
3. Of offeror’s acts indicating revocation
Ex. -> After the offeror offers to sell their car to the offeree, the offeree is told by a reliable 3rd party that the offeror just sold the car to someone else!
* If offeree does not know about the sale, it is NOT an effective revocation!
18
Q
Timing of Revocations
A
Revocations are effective upon RECEIPT
* NO MAILBOX RULE FOR REVOCATION!*****
19
Q
Option Contract
A
Offeree gives consideration (money) for offeror to not revoke offer for period of time
* Option contracts are irrevocable for the time period stated
o Even the offeree cannot validly revoke!
* The mailbox rule does NOT apply to the exercise of options
- Acceptance must arrive at the offeror for it to be valid!
20
Q
Merchant Firm Offer under Article 2 (sale of goods must be present)
A
- Merchant promises (only offeror has to be merchant) without consideration
- In signed writing
- Assurance/promise to keep offer open for time stated or reasonable time
o Enforceable up to 3 months
o A firm offer that states a period longer than 3 months is still firm for the first 3 months -> but will be unenforceable after the first 3 months
21
Q
Foreseeable Reliance
A
When the offeror could reasonably expect that the offeree would rely to their detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time
However, this usually is limited to those situations in which the offeror would reasonably contemplate reliance by the offeree in using the offer before it is accepted
* Ex. when a general contractor uses a subcontractor’s bid in making its own offer
22
Q
Beginning Performance in Response to True Unilateral Contract Offer
A
Start performance of unilateral contract offer = irrevocable offer!
* The offeror must give the offeree a reasonable time to complete performance
**Mere preparation to perform ≠ start of performance
23
Q
Death
A
Death or insanity of either party will terminate an offer -> (unless the offer is of a kind the offeror could not terminate, such as, an option supported by consideration).
Death or insanity need not be communicated to other party
24
Q
Acceptance
A
An acceptance is a manifestation of assent to the terms of an offer
- Language of offer controls acceptance
25
Acceptance of Offer for Bilateral Contract
Unless an offer specifically provides that it may be accepted only through performance, it will be construed as an offer to enter into a bilateral contract and may be accepted either by a promise to perform or by the beginning of performance
26
Acceptance of Offer for Unilateral Contract
If an offer provides that it may be accepted only be performance (that is, an offer for a unilateral contract), note the following particular rules
Completion of Performance
o Unilateral contract is not accepted until performance is completed
Notice
o Generally, the offeree is not required to give the offeror notice that he has begun the requested performance but is required to notify the offeror within a reasonable time after performance has been completed
27
Acceptance under article 2
An offer to buy goods for current or prompt shipment may be accepted by either a promise to ship or by a shipment of conforming or non-conforming goods
28
Shipment of non-conforming goods
Shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of the contract unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation
An accommodation is considered a “counteroffer”
Buyer is not required to accept accommodation goods and may reject them
29
Battle of the Forms -> Additional terms and Article 2
Article 2 of UCC says that an offer for the purchase or sale of goods, an acceptance with additional terms is still an acceptance and a contract is formed
Offeree’s additional term not part of contract unless:
1. Both are merchants
2. It’s not material, and
* Material change causes hardship or surprise
* If the additional terms do material alter the contract, a contract is still formed, the
contract just excludes the materially altering language
Ex. Accepting but adding warranty clauses -> contract is still formed but
without the inclusion of the warranties
* Industry Custom ≠ material change
3. Offeror does not object
Under the knockout rule, conflicting terms are knocked out of the contract and gaps are filled by the UCC gap-filler provisions
30
Merchant's Confirmatory Memo
A merchant’s memo confirming an oral agreement that contains different or additional terms is also subject to the battle of forms provisions
31
Mailbox Rule
Acceptance effective when sent and upon dispatch! Not when received!!
o Upon dispatch is acceptance immediately!!!
Exceptions
- Mailbox rule applies UNLESS:
Offer states otherwise
Offer is irrevocable (like an option contract) -> Acceptance is effective when received by the offeror
Rejection sent first and then acceptance
32
Consideration
- 1. Bargained-for exchange between the parties; and
- 2. Legal value
A promise given in exchange for something already done does not satisfy the bargain requirement
Past consideration ≠ consideration
33
Pre-existing Legal Duty Rule
Under the preexisting legal duty rule, the promise to perform or the performance of an existing legal duty will not be sufficient consideration
- Need new consideration to modify common law contract
Exceptions
o New or different consideration is promised
o Unforeseen circumstances sufficient to discharge a party, or if the modification is fair and equitable in view of circumstances not anticipated when the contract was made
o The preexisting duty is owed to a third person rather than to the promisor
***No consideration needed to modify UCC sale of goods contracts
o All you need is good faith!
34
Discharge of Debts
No consideration for release of extra $$
o When the proposed consideration is in any way new or different (e.g., an alternative method of payment), there is usually sufficient consideration to change a preexisting duty, such as discharging an existing debt.
Ex -> You owe Mastercard $3,000. You and Mastercard orally agree that if you pay $2,000, Mastercard will forgive the rest of the debt. If you pay $2,000, can Mastercard recover the $1,000 balance? -> YES!
35
Promissory Estoppel
Promissory estoppel refers to the doctrine that a party may recover on the basis of a promise made when the party's reliance on that promise was reasonable, and the party attempting to recover detrimentally relied on the promise.
= promise + performance
Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing.
A promise is enforceable if necessary to prevent injustice if:
o 1. The promisor should reasonably expect to induce action or forbearance, and
o 2. Such action or forbearance is in fact induced
Promissory estoppel is only the right answer if there is NO CONSIDERATION
o First go through consideration analysis and layout rules
Bargain for exchange and legal value
o If not there -> then go promissory estoppel
36
Incapacity - Minors
o Minors generally lack capacity to enter into a contract binding on themselves
o Contractual promises of an adult made to an infant are binding on the adult
Disaffirmance
A minor can choose to disaffirm a contract any time before (or shortly after) reaching the age of majority
If an infant chooses to disaffirm, they must return anything that they received under the contract that still remains at the time of disaffirmance
Retaining benefits after gaining capacity = Implied affirmation
Few months/reasonable time
Exceptions
Necessaries
* Items necessary for subsistence, health, or education
* A minor may disaffirm a contract for necessaries but will be liable in restitution for the value of benefits of received
37
Incapacity - Mental Incapacity
o One whose mental capacity is so deficient that they are incapable of understanding the nature and significance of a contract may disaffirm when lucid or by a later appointed legal representative
o Contract is voidable
Liable for necessaries like minors
o Any attempted contracts by an incapacitated person who is under a guardianship are void
38
Incapacity - Intoxication
Intoxication = voidable promise if the other party had reason to know of the intoxication
Intoxicated may affirm the contract upon recovery
There may be recovery for necessaries furnished during the period of incapacity
39
Duress and Undue Influence
Elements of Undue Influence are:
o (1) undue susceptibility to pressure by one party, and
o (2) excessive pressure by the other party
Contracts induced by duress or undue influence are voidable and may be rescinded as long as they are not affirmed
Generally taking advantage of another person’s economic need is not duress, but withholding something someone wants or needs will constitute economic duress if:
(1) the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and
(2) there are no adequate means available to prevent the threatened loss
40
Mutual Mistake as to Existing Facts
If parties entering into a contract are mistaken about existing facts relating to the agreement, the contract may be voidable by the adversely affected party if:
o Mistake concerns a basic assumption on which the contract is made
o Mistake has a material effect on the agreed-upon exchange; AND
o Party seeking avoidance did not assume the risk of the mistake
41
Unilateral Mistake
If only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a contract.
But, if the non-mistaken party knew or had reason to know the mistake made by the other party, the contract is voidable by the mistaken party
No relief unless obvious mistake!
o Ex. 10 plumbers submit bid for $10,000 to do plumbing for a new school. 1 plumber submits $1,000 bid. School excepts $1,000 bid. This is clearly a unilateral mistake, and the school cannot do this! Relief for the plumber who made the mistake!
42
Unconscionability
- Unfair surprise and
- Oppressive terms,
- Test when contract formed
43
Statute of Frauds - Types of contracts
MY LEGS
- M – Marriage
- Y – Year
- L – Land Sales
- E – Executors
- G – Goods for $500+
- S – Sureties
- Any other oral contracts are perfectly fine and enforceable!!
44
Marriage
Contracts where marriage is consideration
o Ex. I’ll buy a car if you marry my son!
Does not include promise to marry!
45
Contracts that cannot be completed in one year
Contracts impossible to complete in 1 year
o The date runs from the date of the agreement and not from the date of performance
o Thus, a contract for one month of service that is to begin 13 months in the future must satisfy the Statute to be enforceable.
Time of actual performance does not matter
o Ex. Project was supposed to be 10 months but actually lasted 14 months -> you’re safe! SoF does not apply
A promise to “employ until I die” or “work until I die” is not within the Statute because it is capable of performance within a year – a person can die at any time
A contract to employ an individual for 3 years is within the SoF and needs to be in writing!
46
Land Sale Contracts
A promise creating an interest in land must be evidenced by writing.
o The writing must contain all essential terms, and the price is considered an essential term
This includes not only agreement for the sale of real property, but also:
o Leases for more than one year
o Easements of more than one year
o Mortgages and most other security liens
o Fixtures
o Minerals (or the like) or structures if they are to be served by the buyer
Construction Contracts are not necessarily within SoF
o Unless they are impossible to complete in 1 year :p
Equal Dignity Rule
o The authorization to enter into a contract on behalf of somebody else, like for an agent to sell your ranch, it must be in writing only if the underlying deal would have been subject to SoF
47
Executor Contracts
A promise by an executor or administrator to pay the estate’s debts out of their own funds must be evidenced by a writing
48
Goods for $500+
A contract for sale of goods for a price $500 or more is within the SoF and generally must be evidenced by a signed writing to be enforceable
o Quantity term AND
o That a contract has been made
- $500 = Writing required
- $501 = Writing required
- $499 or less = No writing necessary
- Article 2 applies to all sales of goods at any price
- Do not confuse applicability of SoF with applicability of Article 2
Exceptions
o SWAP
o S – Specially made goods
o W – Written confirmation by a merchant (merchant confirmatory memo)
o A – Admissions in Court
o P – Performance
49
Sureties
A promise to answer for the debt or default of another must be evidenced by writing
“If he does not pay, I will pay” -> language needed for a surety
50
SoF Exception - Contract Modifications
Modifications must be in writing only if modified contract is within Statute of Frauds
o If new contract falls under SoF -> get it in writing
o If new contract does not under SoF -> does not need to be in writing
Clause prohibiting oral modification
Unenforceable in common law contracts
Enforceable in Article 2 contracts
51
SoF Exception - Land Sales Exceptions
Lease of 1 year or less can be oral
Part performance of real estate contracts
o Payment, possession, improvement
o Need 2 of 3 things ^
Upon the seller's conveyance of the property to the purchaser, the seller can enforce the buyer's oral promise to pay
52
Service Contracts Exceptions
Full performance contract satisfies SoF
o Ex. Sesame Street orally agrees to employ Big Bird for 2 years for $50,000. Big Bird works for 2 years, but Sesame Street refuses to pay. Does Big Bird need a writing to satisfy the SoF?
No -> even though this is an employment contract for 1+ year, Big Bird fully performed
Reasoning -> full performance of contract ensures to Court that no fraud is happening
No part performance exception for service contracts
o What if Sesame Street fires Big Bird after only 3 months?
Yes, Big Bird needs a writing because Sesame Street will have a SoF defense
Always turn to restitution on exam like this because Big Bird worked 3 months… he should be paid for 3 months of work
53
Sale of Goods Exceptions
- Goods accepted
- Goods paid for
- Substantial beginning on custom goods
o Enough has been done to show that those goods are made to order, that they are custom made goods, and the seller cannot resell them to somebody else
54
Merchant’s Confirmatory Memo
- Both parties must be Merchants
- Agree to contract
- One party sends signed writing containing quantity terms in reasonable time after oral expression
- No objection by recipient within 10 days
55
Writing Requirement under SoF
Contract for Sale of Goods $500+ must have:
o Quantity term
o Defendant’s signature
Contract for services must have:
o All material terms (who? And what?)
o Defendant’s signature
56
Parole Evidence Rule
- Excludes evidence of
- Prior or contemporaneous agreements
- Contradicting final writing
***Bar tip-> Parole evidence can be oral or written!!
o Parole evidence only looks backwards at the stuff that happened before the final writing! Not after the final writing!
57
Exceptions to Parole Evidence Rule
Partially integrated writing
o Ex. -> Lease between Matt and I says nothing about sleeping arrangements. Matt claims that, before signing the lease, manager claimed to “throw in bridal suite for free” -> Matt can get this promise into evidence
Merger Clause
o Ex. “This contract is limited to the terms herein” -> complete integration! Parole evidence rule applies!
o Exam Tip -> “partial” vs “complete” integration is normally wrong answer on Exam… usually just a red herring -> does not usually matter
Defense against formation
o Formation defects (fraud, duress, mistake, and illegality) may be shown by extrinsic evidence!
Explain vague term
o Not contradicting writing, just interpreting the vague term!
Showing of true consideration
o Will not bar extrinsic evidence showing the “true consideration” paid (such as evidence that the consideration stated in the contract was never paid)
Subsequent Modifications
o Parol evidence can be offered to show subsequent (before) modifications of a written contract
Correct clerical error
o Correcting a typo
58
Course of Performance
Parties’ conduct under prior installments of the current contract
59
Course of Dealing
Parties’ conduct in prior contracts
60
Trade Usage
Industry norms parties are aware of
61
Gap Fillers
If other terms are missing from agreement, Article 2 has gap-filler provisions to fill in missing terms
Price
- If nothing is said of price, price is left open, or price to be fixed by some 3rd party standard -> Reasonable price at the time of delivery
Place of delivery
- Usually is the seller’s place of business if they have one, otherwise, it’s the seller’s home
Time for shipment or delivery
- Shipment/delivery is due within a reasonable time
Time for Payment
- Payment is due at the time and place at which the buyer is to receive the goods
62
Express Warranty
Any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, sample, or model is part of the basis of the bargain
Exception
o Puffing -> a statement relating merely to the value of the goods, or a statement purporting to be only the seller’s opinion or commendation of the goods, does not create an express warranty
63
Implied Warranty of Merchantability
Implied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are fit for ordinary, foreseeable purpose (merchantable)
The seller’s knowledge of the defect does NOT matter -> implied warranties are based on absolute liability NOT negligence!
64
Implied Warranty of Fitness for Particular Purpose
- Any seller, merchant or not
- Buyer comes in with special purpose
- Seller knows of special purpose
- Seller picks out goods fit for buyer’s special purpose
- Buyer relies on the seller’s suggestion
65
Warranty of Title and Against Infringement
Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting
A merchant seller regularly dealing in goods of the kind sold also automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims
66
Disclaimers of Warranties
Sellers can disclaim implied warranties only!
o CANNOT disclaim express warranties!
Magic words
o “As is”
o “With all faults”
o Implied warranties disappear and are disclaimed!
Must be conspicuous! (Written so that a reasonable person would notice it!)
o “NO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS”
67
Risk of Loss - Noncarrier Case
If the seller is a merchant, risk of loss passes to the buyer only when they take physical possession of the goods
If the seller is not a merchant, risk of loss passes to the buyer upon tender of delivery
68
Risk of Loss - Carrier Case
A carrier case is a sale in which it appears that the parties intended the goods to be moved by a carrier (ex. When you order a book from a website, UPS, FEDEX)
Risk of loss shifts from seller to buyer when seller completes its delivery obligations, NOT when actual delivery occurs!
69
Shipment Contract
(1) Seller delivers goods to common carrier,
(2) Arrange for delivery, AND
(3) Notifies buyer
= Risk of loss passes to buyer on delivery to carrier (even though they do not have possession yet!!)
Exam Tip** -> assume shipment contract on bar exam unless indicated otherwise!!
70
Destination Contract
- Seller must deliver goods to buyer’s location!
- = seller keeps risk of loss longer!
71
FOB
Free on Board, followed by City Name?
Risk of losses passes to the buyer at the named location!
Seller bears the risk and expense of getting the goods to the named location!
FOB, followed by SELLER’S city **normally the case on exam**
Shipment contract! Seller must follow elements and then risk of losses passes to buyer on delivery to carrier!
72
Performance at Common Law
A party’s basic at common law is to substantially perform all that is called for in the contract
o Meets contract’s essential purpose
73
Performance under Article 2
Generally, requires a perfect tender – the delivery and condition of the goods must be exactly as promised in the contract
74
Buyer’s Implied Acceptance
Buyer keeping goods after having reasonable opportunity to inspect -> held as an acceptance even though they may not have expressed acceptance!!
General rule is month after delivery -> implied acceptance
75
Promise
A promise is a commitment to do or refrain from doing something
If a promise is unconditional, the failure to perform according to its terms is a breach of contract
76
Conditions
Limit obligations created by contract language
Magic words to conditions!
“if”
“as long as”
“until”
“when”
“provided that”
“on the condition that”
Expressed conditions must be perfectly satisfied!!!
o No substantial performance rule for express conditions!
**Bar exam question -> condition that is really really really close to being performed perfectly, but just short of it -> not valid!
Failure of a contractual provision that is only a condition is not a breach of contract
o Conditions ≠ promises
Conditions may be excused by action or inaction of person protected by condition
77
Anticipatory Repudiation
Occurs if a promisor, prior to the time set for performance of their promise, indicates that they will not perform when the time comes
o Early statement of non-performance!
- (must be fucking clear)
Repudiations can be retracted if NOT relied on!
o If relied on -> cannot be retracted!
78
Failure to Give Adequate Assurance
Party may ask for assurance other party will perform (IN WRITING)
o Assurance not received = anticipatory repudiation
Ex -> (I probably won’t be able to perform but we’ll see)
Cannot use adequate assurance provision to rewrite contract or demand certain assurance!
o Only entitled to adequate assurance
o Cannot make contract with supplier and then have supplier demand you pay in cash instead of credit! Cash is adequate!
79
Accord and Satisfaction
Agreement to accept different performance to satisfy existing duty
The accord, taken alone, will not discharge the prior contract; it merely suspends the right to enforce it in accordance with the terms of the accord contract
Satisfaction is the performance of the accord agreement
**EXAM TIP**
- Modification: Debt excused immediately
- Accord and Satisfaction: Debt excused later
Bar Exam will ask -> is there any basis for excuse?
o “if… then…” = accord and satisfaction
80
Novation
Agreement to substitute new party for existing party
o A novation will serve to discharge the old contract
Elements
1. A previous valid contract
2. An agreement among all parties
3. The immediate extinguishment of contractual duties as between the original contracting parties; AND
4. A valid and enforceable new contract
81
Impossibility/Impracticability
Later unforeseen event makes party’s performance impossible
o Will excuse a party’s performance
For this rule to operate, the impossibility must be “objective”; that is, the duties could not be performed by anyone!
“Subjective” impossibility will not suffice (that is, where the duties could be performed by someone but not the promisor)
Death or Incapacity
o Death or incapacity of essential person to contract excuses performance
o A contract is not discharged by the death or incapacity of the person who was to perform the services if the services are of a kind that can be delegated
Subsequent Destruction of Contract’s Subject Matter or Means of Performance
o Contract’s subject matter destroyed or the designated means for performing the contract are destroyed -> performance excused
o A contractor's duty to construct a building is not discharged by destruction of the work in progress
o BUT the total destruction by an act of nature of a renovation in progress discharges the contractor's duties by impossibility
82
Sales of Goods under Article 2 and Impracticability
Risk of Loss
o Seller who bore the risk of loss when goods or damages are destroyed are excused by impracticability
Test for impracticability
o Extreme and unreasonable!
Seller will be discharged to the extent of the impossibility or impracticability
o Shortage of raw materials or inability to convert them into seller’s product because of contingencies such as war, strike, or unforeseen shutdown of a major supplier = excused
***Increase in cost ≠ excuse -> BAR EXAM TIP! Do not excuse people for this!
83
Frustration of Purpose
- Both parties understood the central purpose
- Performance excused if contract’s essential purpose undermined
84
Minor Breach - Common Law
Minor breach if the oblige gains the substantial benefit of their bargain despite the obligor’s defective performance
o Minor breach does not excuse nonbreaching party’s performance
Must perform and then go after damages!
**If breach is minor, performance is substantial
85
Material Breach - Common Law
Oblige does not receive the substantial benefit of their bargain
o No performance or substantial performance
o No benefit of bargain to non-breaching party
o Contract ended
o Counter-performance discharged
**If breach is material, performance is not substantial
86
How to determine substantial performance? This is also the test to determine a material or minor breach!
- Benefit received by non-breaching party
- Part performance by breaching party
- Hardship to breaching party
- Adequacy of damages
- Whether breach was negligent or willful
Time for performance
- Failure to perform within stated time ≠ material breach unless WHEN Time of essence
- ***When time is of the essence (a specific deadline is stated) and a party breaches = MATERIAL BREACH BREACH
87
Article 2 Sale of Goods - PERFECT TENDER RULE
if goods do not conform, buyer may:
o Reject entire shipment
o Accept entire shipment, or
o Reject in part, accept in part
88
Buyer's Acceptance of Goods
Buyer accepts goods if they:
o Indicate goods conform to contract
o Indicate they’ll keep nonconforming goods
o Fail to reject within reasonable time
o Fail to notify seller of rejection
o Act inconsistent with the seller’s ownership
89
Buyer's Revocation of Acceptance of Goods
A buyer may revoke acceptance if the goods have a defect that substantially impairs their value to the buyer AND:
o They accepted the goods on the reasonable belief that the defect would be cured, and it has not been OR
o They accepted the goods because of the difficulty of discovering the defects or because of the seller’s assurance that the goods conformed to the contract
Revocation must occur:
o (1) within a reasonable time after the buyer discovers or should have discovered the defects; and
o (2) before any substantial change in the goods occurs
90
Exceptions to Perfect Tender Rule - Installment Contracts
Buyer can reject installment if nonconformity substantially impairs value of installment
Contract breached if nonconformity substantially impairs entire contract’s value
91
Exceptions to Perfect Tender Rule - Anticipatory Repudiation
o Early statement of non-performance
o Repudiations can be retracted if not relied on
92
Exceptions to Perfect Tender Rule - Seller has right to cure
Seller has right to cure nonconforming goods within time for performance
o Seller may within the time originally provided for performance “cure” by giving reasonable notice of their intention to do so and making a new tender conforming goods that the buyer must than accept
A seller will probably be found to have had reasonable cause to believe that the tender would be acceptable if the seller can show that trade practices or prior dealings with the buyer led the seller to believe that the goods would be acceptable, or the seller could not have known of the defect despite proper business conduct.
93
What must contract damages be to be able to be recoverable?
**Contract damages must be foreseeable and ascertainable with reasonable certainty to be recoverable
- Damages are foreseeable if a reasonable person in the position of the breaching party would have known at the time the contract was made that the damages were likely to occur as a result of the breach
94
Expectation Damages
Put injured party in position they’d be in had contract been performed
For breach of contract, the injured party may be entitled to expectation damages
Contract damage awards must take into account costs avoided because of the breach!
95
Reliance Damages
- Available if expectation damages uncertain
- Return non-breaching party to status quo
o Precontract status quo
96
Restitution Damages
Measured by value of benefit conferred
97
Incidental Damages
Costs incident to breach
Always recoverable! Always add them in!
BAR EXAM TIP
o They will couple incidental with the word foreseeable
o WRONG ANSWER!!****
o FORESEEABILITY MATTERS ONLY TO CONSEQUENTIAL DAMAGES!
98
Consequential Damages
Recoverable if foreseeable at time of formation
***Consist of losses beyond those covered by the standard measure that reasonable person would have foreseen would occur as a result of that breach
99
Punitive Damages
NO PUNITIVE DAMGES IN CONTRACTS
100
Liquidated Damages Clause
Upheld if:
o 1. Damages difficult to estimate at contract formation
o 2. Amount reasonable
Proportionate to the harm!!
- If it looks like a penalty! -> INVALID!!
**EXAM TIP
o Invariable lump sum liquidated damages clause = INVALID
101
Entrustment
Merchant who ordinarily deals in goods of kind sells entrusted goods to BFP
Owner has no rights against BFP
Exam Tip**
o BFP always wins!!
102
Intended 3rd party beneficiary
Two parties’ contract to benefit 3rd party
Intended Beneficiary
- Named in contract
- Can enforce rights under the contract
Promisor
- Party who promises to perform for the 3rd party
- Promisor has same defenses against 3rd party beneficiary as against promisee
Promisee
- Party who secures promise
Incidental Beneficiary
- Do not have rights to enforce contracts
Promisor liability to Promisee
- Either promisee or beneficiary can enforce rights against promisor
103
Rescission and Modification of 3rd party deals
Contract can be rescinded/modified until beneficiary’s rights have vested
Vesting
- Beneficiary’s rights vest when learn of contract and rely on it
- Promisor and promisee cannot cancel contract after vesting unless:
o Beneficiary consents, or
o Contract provides otherwise
104
Assignment
- Two parties’ contract
- One party (assignor) assigns rights to third party (assignee)
o Not a 3rd party beneficiary situation!
- Assignee (3rd party) can enforce rights against party who owes duty (obligor)
Example
o Batman contracts to provide security for Gotham City for $200,000. Batman (assignor) then assigns his right to the payment to Robin (assignee). Robin has the right to receive payment from Gotham City (obligor)
EXAM TIP**
o Assignee is NOT original party to contract
105
Valid Assignment Language
Language of present transfer
o “I assigned”
o CANNOT SAY “Batman promises to assign” = invalid
No consideration needed (gift assignments OK)
106
Gift Assignments
- Easily revocable
- Last gratuitous assignee wins
- Making a 2nd gift assignment revokes the 1st gift assignment
First assignee for consideration wins over all subsequent assignees and previous gift assignees
107
Delegations
- Party to contract delegate duty to 3rd party
- Obligor can delegate duties without obligee’s consent
o To avoid this -> put in language in the contract to say NO DELEGATION!
- Prohibition against delegations = No delegations allowed!
- “No assignments” = No delegations
108
Avoidable Damages - DUTY TO MITIGATE (Memorize)
The non-breaching party has a duty to mitigate damages after a breach has occurred!
- party may recover expenses of mitigation
Damages that could have been avoided with reasonable effort are not recoverable!
109
Intended 3rd Party Beneficiary Rights Vest When...
1. Manifest assent to promise
2. Bring lawsuit to enforce promise
3. Materially changes position by justifiably relying on the promise
110
Intended 3rd Party Beneficiary Rights Vest When...
1. Manifest assent to promise
2. Bring lawsuit to enforce promise
3. Materially changes position by justifiably relying on the promise
110
Avoidable Damages - DUTY TO MITIGATE (Memorize)
The non-breaching party has a duty to mitigate damages after a breach has occurred!
- party may recover expenses of mitigation
Damages that could have been avoided with reasonable effort are not recoverable!
111
Duty under a contract
The duty of each party to render performance I impliedly conditioned on the other party rendering his performance or making a tender of his performance
112
Performance being excused?
In contracts not involving sale of goods, the condition of complete performance ma bye excused if the party has rendered substantial performance
113
Duty under a contract
The duty of each party to render performance I impliedly conditioned on the other party rendering his performance or making a tender of his performance
113
Performance being excused?
In contracts not involving sale of goods, the condition of complete performance ma bye excused if the party has rendered substantial performance
114
Performance being excused?
In contracts not involving sale of goods, the condition of complete performance ma bye excused if the party has rendered substantial performance
114
Duty under a contract
The duty of each party to render performance I impliedly conditioned on the other party rendering his performance or making a tender of his performance
115
Divisible Contract (MEMORIZE)
For contracts to be divisible:
1. performance of each party must be divided into two or more parts
2. number of parts due from each party must be the same and
3. performance of each part by one party is agreed on as the equivalent of the corresponding part
If a contract is divisible, a party who has performed one or more parts is entitled to collect the contract price for those parts even if it breaches the other parts
However, the non-breaching party has a cause of action for each of the unperformed units and may withhold counterperformance of those units
Divisibility contracts involve contract interpretation and generally turn on fairness
116
Duty under a contract
The duty of each party to render performance I impliedly conditioned on the other party rendering his performance or making a tender of his performance
116
Performance being excused?
In contracts not involving sale of goods, the condition of complete performance ma bye excused if the party has rendered substantial performance
117
Divisible Contract (MEMORIZE)
For contracts to be divisible:
1. performance of each party must be divided into two or more parts
2. number of parts due from each party must be the same and
3. performance of each part by one party is agreed on as the equivalent of the corresponding part
If a contract is divisible, a party who has performed one or more parts is entitled to collect the contract price for those parts even if it breaches the other parts
However, the non-breaching party has a cause of action for each of the unperformed units and may withhold counterperformance of those units
Divisibility contracts involve contract interpretation and generally turn on fairness
