Contracts Flashcards
Seven General Areas
- Applicable Law
- Formation of Contracts
- Terms of Contract
- Performance
- Remedies for unexcused nonperformance
- Excuse of nonperformance
- Third-party problems
Armadillos From Texas Play Rap Eating Tacos
Unilateral Contract
Results from an offer that expressly requires performance as the only possible method of acceptance
Acceptance is at the time the performance is done.
Bilateral Contract
All other offers. (will be on exam)
Usually offer is silent as to method of acceptance.
Bilateral Unless what?
- Reward, prize, contest
2. offer expressly requires performance for acceptance
Quasi Contract
Equitable Remedy
**When contract law amounts to unfairness.
What parts of the law are we responsible for?
- Common law
2. UCC articles 1 and 2
Common Law
General Rules Only
Articles 1 and 2
Article 1, common law contracts applies to sale of goods UNLESS displaced by particular provisions.
Article 2 applies to contracts that are primarily for sale of goods.
What to look for?
- type of transaction
- subject matter of transaction (goods, tangible, personal property)
**No revised article 2
Applicable Law Review on Topics
- Real estate - Common Law
- Services Contract - Common Law
- Sale of Goods - UCC 2
What about mixed deals? What is the test?
General Rule: All of nothing/ depends on the more important part.
Exception: if contract divides payment, then apply UCC to sale of goods party and common law to the rest.
Article 2A of the UCC
Applies to leases of goods.
Not leases of land.
NOT ON EXAM PROBABLY.
Definition of A contract
An agreement that is legally enforceable.
Two possible questions?
Look first for an agreement.
Second, determine whether the agreement is legally enforceable.
Overview of Agreement Process on Bar
In looking for an agreement, what for:
- The initial communication (offer)
- What happens after the initial communication (termination of the offer?)
- Who responds and how she responds (acceptance)
**The question will ask about one of these time stages.
Offer
One person’s (offeror) MANIFESTATION of willingness to contract.
Focus on what was understood. Not what was intended.
**look for words of commitment by that person.
Problems to look for an Offer
- Content
2. Context
Problems in Content for an Offer
- Missing price terms in sales contract.
- Sale of real estate - price and description required
- Sale of goods - no price requirement
- Vague or ambiguous material terms not an offer under either common law or UCC
- Appropriate, fair, reasonable (LOOK FOR THESE WORDS) THEY ARE VAGUE - Requirement Contracts/ Output Contracts:
- A contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyer’s requirements or seller’s output.
Requirement or Output contracts
Not vague or ambiguous and are valid.
Requirement: Buyer commits to buying to X
Output: Seller commits to selling to X
What about increase of requirements?
Buyer can increase requirements so long as the increase is in line with prior demands.
TEST:
No “unreasonable disproportionate” limitation on increases.
Unreasonable disproportionate - 3x as much. Just compare.
Problems in Context for an Offer
General Rule: An advertisement or price quotation is NOT on offer.
Exceptions to the General Rule of Context.
- An advertisement can be a unilateral offer if it is in the nature of a reward.
- An advertisement can be an offer if it specifies quantity and expressly indicates who can accept.
- Price quotation can be an offer if sent in response to an inquiry.
Second Possible Agreement Issue: Was the offer terminated? Methods of Termination
- Lapse of time
- Death of a party prior to acceptance
- Words or conduct of offeror - revocation
- Words or conduct of the offeree - rejection. (indirect rejects
Lapse of Time
Time is state or reasonable time has lapsed.
Look for the facts of dates. Going to be about a lapse of an offer.
Death of a Party Prior to Acceptance
General Rule: Death or incapacity of either party after the offer, but before acceptance, terminates offer.
Exception: Irrevocable offers
Offeror Revocation
Two ways:
1. Later unambiguous statement by offeror to offeree of unwillingness or inability to contract.
OR
- Later unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of.
- *This is a two party case. There must be both parties present.
- *Unambiguous change of mind by the offeror.
What offers are irrevocable?
- Option
- UCC “Firm Offer Rule”
- Reliance
- Unilateral Contract
Irrevocable Option
An offer cannot be revoked if the offeror has not only made an offer but also:
1. promised not to revoke or keep open
AND
2. This promise is supported by payment or other consideration (option).
- *An option is an offer + 2
- *No ceiling of time
Common Law Rule
Irrevocable Firm Offer Rule (bar certainty)
An offer cannot be revoked for up to three months IF:
1. Offer to buy or sell goods
2. Signed, written promise to keep the offer open
AND
3. Promising Party is a merchant.
- *Only for sale of goods
- *Maximum time of 3 months
Merchant
A person in business.
Exception: COME BACK TO THIS
Irrevocable Reliance
An offer cannot be revoked if there has been: 1. Reliance that is 2. Reasonably foreseeable AND 3. Detrimental
- *Usually a construction problem.
- *When you see BID, you can almost take it as a given as an OFFER.
- *When the supplies cannot be returned.
Irrevocable Unilateral Contract
The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete perfomance.
- Unilateral/Performance - starting makes irrevocable
- Unilateral/Mere Preparation - does not make irrevocable. ANY DOUBT GO WITH THIS ONE.
- *Red Flag - “O’s offer states that it can be accepted only by performance”
- Offer -> Only By
Irrevocable Words or Conduct of the Offeree Indirect Rejection
Three ways
- Counter offer
- Conditional Acceptance
- Additional terms to a common law contract.
Indirect Rejection by Offeree Counter Offer
Generally terminates the offer and creates a new offer.
Where a counteroffer has been made there is no express contract unless that counteroffer has itself been accepted.
Counteroffers need to be distinguished from bargaining.
Bargaining does not terminate the offer. (Will you accept?) (if a question response)
Counteroffers do not terminate options.
Indirect Rejection by Offeree by Conditional Acceptance
A conditional acceptance terminate the offer.
Common Law: rejects and becomes a counteroffer that can be accepted by conduct.
UCC: Reject
Look for:
"I accept \_\_\_\_\_\_\_"
- if
- only if
- provided
- so long as
- but
- on condition that.
Indirect Rejection by Offeree by Addition Terms to a Common Law Contract (Mirror Image Rule)
Rule: Can’t add or change anything. Mirror Image
Under a Common Law: a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance.
UCC Article 2 (No Mirror Image Rule): Seasonal expression of acceptance: A fact pattern in which terms is:
1. Offer to buy or sell goods
AND
2. A response with additional or different terms.
Two Questions Raised Under UCC Article 2 Addition Terms
- Is there a contract?
2. Is the additional term a part of the contract?
UCC Article 2 Additional Terms: Is there a contract?
A response to an offer that adds additional or different terms, but does not make the new terms a condition of acceptance, is generally treated as an acceptance.
Seasonal expression of acceptance.
**Whether or not merchants does not matter here.
UCC Article 2 Additional Terms: Is the additional term a part of the contract?
The additional term is not a part of the contract UNLESS both parties are merchants.
EVEN IF, the additional term is not a party of the contract if the additional term is “material” or if the additional term is objected to by original offeror.
Third Possible Agreement Issue: Acceptance of an offer
Look at the offer for information about how the offer was accepted and who accepted.
- Method of Acceptance
- Accepting Party
Method of Acceptance
Offeror can control:
1. the method of acceptance.
OR
2. the time that a distance acceptance is effective
OR
3. Whether the offeree must give notice that it has been accepted by performance.
Bar Exam Three Fact Patterns of Acceptance
- The offeree starts to perform.
- Distance and delay in communications (Mailbox Rule)
- The seller of goods sends the “wrong” goods.
Bar Exam Three Fact Patterns of Acceptance: The offeree starts to perform.
Three characteristics. First, verbal offer, Second, no words in response, and Third, start of performance.
General Rule: The start of performance is acceptance. Implied promise to perform and so there is a bilateral contract.
Exception: Start of performance is not acceptance of unilateral contract offers. Completion of performance is required and that is the only way to accept
Bar Exam Three Fact Patterns of Acceptance: Distance and Delay in Communications
Four Rules:
- All communications OTHER THAN ACCEPTANCE are effective only when received.
- revocation, etc.
- Acceptance is generally effective when mailed (mailbox rule)
- If a rejection is mailed before an acceptance is mailed, then neither is effective until received.
- You cannot use the mailbox rule to meet an option deadline.
Facts to look for:
1. People dealing from different cities.
2. They are not up to date on technology (Mail)
3. Differing Communications
- when effective (Apply four rules)
4.
Bar Exam Three Fact Patterns of Acceptance: The Seller of Goods sends the “wrong” goods (OFTEN TESTED)
General Rule: Acceptance and breach
Exception: Accommodation (i.e., explanation), counter off and no breach.
- “Will this do”
Who can accept contracts?
- A person who knows about the offer at the time she accepts.
- Who is the person to whom it was made.
Exception: Options being assigned.
Can offers be assigned?
NO
Can options be assinged
Yes unless otherwise provided in the option.
Formation of Contracts: Legal Reason for Not Enforcing Agreement
- Lack of consideration or a consideration substitute for the promise at issue
- Lack of capacity of the person who made that promise;
- Statute of Frauds;
- Existing laws that prohibit the performance of the agreement;
- Public Policy
- Misrepresentations
- Nondisclosure;
- Duress;
- Unconscionability;
- Ambiguity of words of agreement;
- Mistakes at the time of the agreement.
Legal Reason for Not Enforcing Agreement: Lack of Consideration or a Consideration Substitute
Legal Reason for Not Enforcing Agreement: Lack of Consideration or a Consideration Substitute
Consideration is the terms of the agreement
Bar Exam Strategy:
- Identify the promise breaker.
- Ask whether that person asked for something in return for her promise.
- No consideration if not in exchange for something.
- Look at the person who is trying to enforce the promise and ask what requested legal detriment that person sustained.
What are possible consideration issues?
- Bargain for
- Legal Detriment
- Promise as consideration
- Adequacy of Conseration
Most Likely:
- Past Consideration
- Pre-existing contractual or statutory duty rule (Common Law)
- Part Payment as consideration for release, i.e., promise to forgive balance of debt.
“Bargained For”
Asked for by the promisor IN EXCHANGE for her promises.
Consideration fact patterns have people doing stuff that they were asked to do.
“Legal Detriment”
Did the person have legal detriment.. Relied on money
Promise as Consideration
Promise for Promise
General Rule: Promise can be consideration for another Promise
Exception: Illusory Promise - you reserve the right to terminate without commitment. LOOK UP THIS SHIT - almost always the wrong answer. Any kind of detriment it is not illusory.
Adequacy of Consideration
Not relevant in contract law
Past Consideration
General Rule: NOT consideration
Exception: Expressly requested by promisor and exception of payment by promisee.
Pre-Existing Contractual or Statutory Duty Rule
- Common Law Approach
2. UCC Approach
Pre-Existing Contractual or Statutory Duty Rule: Common Law Approach
General Rule: Doing what you are already legally obligated to do is not new consideration for a new promise to pay you more to do merely that.
The new consideration is required for contract modification.
Exceptions:
- Addition to or change in performance
- Unforeseen difficulty so severe as to excuse performance.
- Third Party Promise to pay.
Pre-Existing Contractual or Statutory Duty Rule: Common Law Approach: UCC Art. 2
Does not have a pre-existing legal duty rule.
New consideration is not required to modify a sale of goods contract.
Good faith is the test for changes to an existing sale of goods contract.
Part Payment as Consideration for Release, i.e., Promise to forgive balance of debt.
Key is whether debt is due and undisputed.
If debt is due and undisputed, then part payment is NOT consideration for release.
Due and Undisputed
Due - time to pay or past time to pay
Undisputed - no disagreement to the terms.
What are Consideration Substitutes?
A promise is legally enforceable even though there is no consideration if there is one of the following consideration substitutes:
- A written promise to satisfy an obligation for which there is a legal defense (SoL) is enforceable without consideration.
- Promissory Estoppel (detrimental reliance)
- Seals
Promissory Estoppel
Elements:
1. Promise
2. Reliance that is reasonable, detrimental, and foreseeable,
AND
3. Enforcement necessary to avoid injustice.
Consideration vs. Promissory Estoppel
Consideration is where they were expressly requested to or not to do.
Promissory Estoppel are about people doing stuff they were not asked to do.
Seals
If your state still recognizes seals as a consideration substitute, you state supplement will so state.
Wax emblem, fixed to the parchment. Not on MBE.
Legal Reason for Not Enforcing Agreement: Lack of Promissor’s Lack of Capacity
Legal Reason for Not Enforcing Agreement: Lack of Promissor’s Lack of Capacity
Who lacks capacity to contract?
- Infant
- Mental incompetents (doesn’t understand)
- Intoxicated persons if other party has reason to know.
Consequences of Incapacity
- Right to disaffirm by person without capacity;
- Implied affirmation by retaining benefits after gaining capacity (ratification)
- Quasi-Contract Liability for Necessaries
Consequences of Incapacity: Right to Disaffirm by Person without Capacity
The Defendant who lacks capacity can disaffirm.
The Plaintiff’s capacity is not in question.
Consequences of Incapacity: Ratification after Retaining
Person retains the benefit from the time of infancy into the time of having capacity.
Consequences of Incapacity: Quasi Contract Liability for Necessaries
A person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter, but that liability is based on quasi-contract law, not contract law.
Quasi-Contract
DEFINE THIS
Legal Reason for Not Enforcing Agreement: Statute of Frauds
COME BACK HERE so heavily tested.
Very objective and you need objective proof
To satisfy you need: 1. Performance OR 2. A writing signed by the defendant. OR 3. Judicial Admission OR 4. Estoppel
Four Contracts Within the Statute of Frauds
- Promises to Answer for the Debts of Another (surety)
- Service Contract not “capable” of being performed within a year from the time of the contract.
- Transfers of Interest in Real Estate (with exception of leases of year or less)
- Sale of goods for $500 or more.
Objective Proof of Statute of Frauds
Proof other than just testimony that a contract exists.
Statute of Frauds: Promises to Answer for the Debts of Another (Surety)
“Answer for” is not merely a promise to pay someone else’s debts, but rather a promise to pay another person’s debts only if that person does not herself pay.
**Look for a GUARANTEE
Exception: “Main Purpose” - if the main purpose of the obligation allegedly guaranteed was to benefit the guarantor, then not even that guarantee is within the Statute of Frauds.
Statute of Frauds: Service Contract Not “Capable” of Being Performed within 1 Year
Statute of Frauds applies to:
- Specific time period, more than a year
- Specific time, more than a year from the date of contract.
Statute of Frauds does not apply to:
- Task (nothing said about time)
- Life (work for rest of life)
**Termination option is irrelevant. Because the test is whether it could be PERFORMED WITHIN A YEAR
“Capable”
Theoretically possible with unlimited resources;
Ignore what actually happens;
Key is what might have happened with unlimited resources
Statute of Frauds: Transfers of Interest in Real Estate (with exception of leases of year or less)
“Transfers of” - must be an transfer of an interest.
Can be an easement, any interest of property.
Lease must be more than 1 year.
Statute of Frauds: Sale of Goods for $500 or More
Only thing you need to look for is $500.
How is the Statue of Frauds Satisfied?
Objective Proof:
1. Performance
AND
2. Writing
Process of a Statute of Frauds Claim
- > An agreement within the Statute of Frauds
- > Defendant files a motion to dismiss or a motion for Summary Judgment based on the Statute of Fraud Defense
- > The Plaintiff can still get her day in court by providing objective evidence to quell the concern of Fraud.
Satisfying Statute of Frauds by Performance Rules (5)
- Part performance satisfies the Statute of Frauds in transfers of real estate.
- Full Performance in service contracts by either party satisfies the Statute of Frauds.
- Part performance of a services contract does not satisfy the Statute of Frauds. **ALWAYS ON BAR
- Seller’s part performance of sales of goods contracts satisfy the Statute of Frauds to the extent of the part performance.
- Seller’s part performance of a contract for specially manufactured goods satisfies the Statute of Frauds as soon as the seller makes a “substantial beginning”
Performance Rule 1: Part Performance Satisfies the Statute of Frauds in Transfers of Real Estate
Requires two of the three:
- Improvements to the land;
- Payment
- Possession
Performance Rule 4: Seller’s Part Performance of a Sale of Goods Contract
Look to see if question is about delivered goods or undelivered goods.
Part performance satisfies Statute of Frauds to extent of part performance.
Performance Rule 5: Seller’s Part Performance of a Contract of Specially Manufactured Goods
If the contract is for the sale of goods that are to be specially manufactured, then the Statute of Frauds is satisfied as soon as the seller makes a “substantial beginning”
Substantial Beginning
The seller has done enough work that it is clear that what she is working on is specially manufactured, i.e., custom made or made to order.
Fact Pattern 85 on Page 26
TYPE THAT SHIT
Satisfying Statute of Frauds by Writing
Not every writings count.
Anything other than a Sale of Goods, it must meet the All material term test.
You need to look at who signed the agreement, IT MUST BE SIGNED BY THE DEFENDANT.
Contents of Writing Requirements of Non Sale of Good Contract
All material term test.
The writing must be signed by the defendant with a limited exception for transactions between two merchants where there is a delay in responding
Material Term
- Who the people are?
2. What they have agreed to do?
Contents of Writing Requirement of Sale of Goods Under Article 2
- Indicate that there is a contract for the sale of goods.
- Quantity term.
- In writing.
The writing must be signed by the defendant with a limited exception for transactions between two merchants where there is a delay in responding
Other Use of Statue of Frauds
- Written proof of authorization to enter into contract for someone else;
- Written proof of contract modification;
- Contract Provisions requiring written modification.
Written Proof of Authorization to Enter into Contract for Someone Else under Statute of Frauds
Written authorization is required:
- The Equal Dignity doctrine - Rules of Law require that the authorization must be in writing only if the contract to be signed is within the Statute of Frauds.
- If contract has a legal requirement to be in writing, the authorization must be in writing.
Written Proof of Contract Modification under Statute of Frauds
Two Steps:
1. Look at the agreement with the alleged change
AND
2. Determine whether the deal with the alleged change would be within the Statute of Frauds.
If the deal with the alleged change would be within the Statute of Frauds, then the alleged modification agreement must be in writing.
Contract Provision Requiring Written Modification under Statute of Frauds
Common Law: contract provisions requiring that all modification be in writing are not effective - ignore contract language.
Under UCC: contract provisions requiring written modification are effective unless waived.
Legal Reason for Not Enforcing Agreement: Illegality
If the subject matter is illegal, the agreement is not enforceable.
If the subject matter is legal, the agreement is enforceable if the plaintiff did not have reason to know of the Defendant’s illegal purpose.
Legal Reason for Not Enforcing Agreement: Public Policy
Courts can refuse to enforce because public policy.
Look for an exculpatory agreement that exempts intentional or reckless conduct from liability or a covenant not to compete without a reasonable need or reasonable time and place limits.
Legal Reason for Not Enforcing Agreement: Misrepresentation
Look for:
1. A statement of “fact” before the contract,
2. By one of the contracting parties or her agent;
3. That is false
AND
4. Induces the contract.
No wrongdoing required for material misrepresentations.
Not enforceable
- *Every word matters,
- *you’ll see “innocent or honestly”, don’t let it mislead you these matter.
Legal Reason for Not Enforcing Agreement: Nondisclosure
Generally, a person making a contract has no duty to disclose what she knows.
Wrongdoing requirement for nondisclosure as a defense.
Look for fiduciary-like relationship or concealment.
Legal Reason for Not Enforcing Agreement: Duress or Undue Inluence
- Physical duress
- Economic duress
- Undue influence
Elements of Economic Duress
- “bad guy” - improper threat which is usually threat to breach existing contract;
AND
- “vulnerable guy” - no reasonable alternative.
Most Common Example of an Economic Duress
D has a contract to supply 1000 pounds of kosher grits to P for Chanukah sales in 2013. D refuses to perform this contract until P agrees to buy 4000 pounds of cheese grits in 2014. P has not other source of kosher grits and so agrees. D delivers the kosher grits. Can P get out of the agreement to buy 4000 pounds of cheese grits in 2014?
Yes it is duress
Legal Reason for Not Enforcing Agreement: Unconscionability
To basic tests:
- Unfair surprise and oppressive terms are
- tested as of the time the agreement was made
- by the Court
Legal Reason for Not Enforcing Agreement: Ambiguity In Words of Agreement
There will be no contract IF:
1. Parties use a material term that is open to a least two reasonable interpretations,
AND
2. Each party attaches different meaning to the term,
AND
3. Neither party knows or has reason to know the term is open to at least two reasonable interpretations.
**There is likely are boats with the same name.
Legal Reason for Not Enforcing Agreement: Mistake of Fact Existing at Time of Contract
- Mutual, Material Mistake of Existing Fact;
2. Unilateral Mistake of Material Fact;
Mutual, Material Mistake of Exiting Fact
Relief for mutual mistake only if both parties are mistaken (not just uncertain) about existing facts (mistake is different from uncertainty).
Even then, no relief for mistake if the person seeking relief bears the “risk of mistake”. LOOK FOR THIS LANGUAGE IN AN ANSWER
- The person who asserts that defense bore that risk of mistake.
Contract Law: MISTAKES DONT MATTER, MIS-REPRESENTATIONS DO
Mistake vs. Misrepresentation
A mistake is where both parties understand a wrong idea on their own.
A misrepresentation is made by someone with knowledge
Unilateral Mistake of Material Fact
Generally, courts have been even more reluctant to allow a party to avoid a contract for a mistake by only one party.
There will be relief for situations in which the other party had reason to know of the mistake, i.e., PALPABLE MISTAKE.
Why do mistakes not matter?
Risk of the mistake.
Bearer of risk can void the agreement.
Third Issue: Terms of the Contract
Third Issue: Terms of the Contract
What about when word of the parties are not in the written contract?
Parole Evidence is used.
Triggering Facts of Parole Evidence Rule
- Final Written Contract
2. Earlier Words of One or Both Parties
Policy Behind Parole Evidence Rule
The underlying premise is that the final written version of a deal is replaces earlier agreements, negotiations and conversations.
Bar Exam Approach to Parole Evidence Rule
Think as if they are evidence questions:
1. The issue is whether evidence is admissible
AND
2. Admissibility often depends on the purpose for which the evidence is to be introduced.
Vocabulary of Parol Evidence
- Integration - do we have a written final agreement
- Partial Integration - written and final but not complete
- if term appears in a multiple choice answer it is probably wrong
- Complete Integrations - written, final, complete
- if term appears in a multiple choice answer it is probably wrong
- Merger Clause
- Persuasive but not inclusive
- Parol Evidence
What is considered parol evidence?
- Words of the party (or parties)
- Before integration, i.e. before agreement was put in written form
- Oral or written
Five Parol Evidence Fact Patters
- Changing/contradicting terms in the written deal;
- Mistake in integration, i.e., clerical mistake;
- Defenses, i.e., getting out of a written deal;
- Ambiguity, i.e., explaining term in the written in the deal;
- Adding to the Written Deal;
Changing/Contradicting Terms in the Written Deal
Evidence of earlier agreements cannot be considered for the purpose of contradicting the terms in the written contract.
Not admissible.
Mistake in Integration
A court may, however, consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration, i.e. a mistake in reducing the agreement.
Defense
The parol evidence rule does not prevent a court form considering evidence of earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of the agreement, such as misrepresentation, fraud, or duress.
Ambiguity
The parol evidence rule does not prevent a court from considering evidence of earlier agreements to resolve ambiguities in the written contract.
Adding to the Written Deal
The parol evidence rule prevents a court from considering evidence of earlier agreements as a source of consistent, additional terms unless the court finds;
1. That the written agreement was only a partial integration;
OR
2. That the additional terms would ordinarily be in a separate agreement.
**Only place where integration matters.
Unnecessary Qualifier
Random shit like the day of the week that contracts are entered into..
Be looking for these because it makes it wrong.
Conduct
Conduct can also be a source of contract terms.
Don’t ignore
Forms of Conduct
- Course of Performance
- Course of Dealing
- Custom and Usage
Course of Performance
Page 37
Course of Dealing
Page 37
Custom and Usage
Page 37
UCC For Terms in Sales of Goods Contracts
- Delivery obligation of seller of goods if delivery by common carrier.
- Risk of Loss
- Warranties of Quality
Delivery obligation of seller of goods if delivery by common carrier.
- Shipment Contracts
- Destination Contracts
- Determining whether contract is a shipment or destination contract;
Shipment Contracts
- Get the goods to a common carrier
- Makes reasonable arrangement for delivery
AND - Notifies the buyer.
In a shipment contract, the seller completes its delivery obligations before delivery is complete
Destination Contracts
The other possibility is that the contract is a destination contract, which means that the seller does not complete its delivery obligation until the goods arrive at the destination.
Determining Whether Contract is a Shipment or Destination Contract
Most contracts with delivery obligations are shipment contracts.
If you see FOB (free on board) followed by the name of a city
- if city is not where seller is - Shipment Contract - other city - Destination Contract.
Risk of Loss Issue Arise Where?
- After the contract has been formed, but before the buyer receives the goods,
- The goods are damaged or destroyed
AND - Neither the buyer nor the seller is to blame.
What are the possible consequences in a risk of loss problem?
If the risk is on the buyer, he has to pay the full contract price for the lost of damaged goods.
If the seller has the risk of loss, no obligation on the buyer and possible liability on the seller for nondelivery.
What are the risk of loss rules?
Do rule #1, if it does not apply, then #2 and if it does not apply, then #3 and so forth
Four Rules:
- Agreement: agreement of the parties controls.
- Breach: breaching party is liable for any UNINSURED loss even though breach is UNRELATED to problem.
- Common Carrier Delivery: risk of loss shifts from the seller to buyer at the time the seller completes its delivery obligation. **FAVORITE TESTED
- “Catch-all”
**TITLE is irrelevant. If in a sale of goods question, an answer has “TITLE”, treat this at a wrong answer.
“Catch-All” Risk of Loss Rule
The determining factor is whether the seller is a merchant.
Risk of loss shifts from a merchant-seller to the buyer on the buyer’s “receipt” of the goods;
Risk of loss shifts from a non-merchant seller when he or she “tenders” the goods.
BUYER BEING A MERCHANT IS IRRELEVANT
Receipt
Possession of the article or goods.
Tender
Seller makes goods available
Warranties of Quality
- Express
- Implied Warranty of Merchantability
- Implied Warranty of Fitness for a Particular Purpose
Three facts to look for:
- Sale of goods
- Buyer has the goods
- Buyer is unhappy with the quality of the goods
Express Warranties
Look for words that promise, describe or state facts.
Distinguish from sales talk which is more general, an option.
Or, look for sample or model.
**Not an opinion.
Implied Warranty of Merchantability
When any person buys any goods from any merchant, a term is automatically added to the contract by operation of law - that the goods are fit for the ordinary purpose for which such goods are used.
Merchant means a person who sells goods of that kind.
Triggering Fact of Implied Warranty of Merchantability
Seller is a merchant WHICH HERE MEANS IT DEALS IN GOODS OF THAT KIND
Warranty in a Warranty of Merchantability
Goods are fit for ordinary purposes.
Implied Warranty of Fitness for a Particular Purpose Triggering Facts
Buyer has particular purpose; (MOST IMPORTANT)
- when told this, be aware of warranties
Buyer is relying on seller to select suitable goods;
Seller has reason to know of purpose and reliance
Warrant in a Warranty of Fitness for a Particular Purpose
Goods fit for particular purpose
Limitations on Warranty Liability
- Statue of Limitations;
- Privity;
- Buyer’s Examination of the Goods;
- Disclaimer e.g., there are no warranties.
- Limitation of Remedies
Limitations on Warranty Liability: Statute of Limitations
There is a four-year statute of limitations
AND
Generally the statute starts running on possible warranty actions when the “tender of deliver is made,” not when the buyer learns that the product is defective
Limitations on Warranty Liability: Privity of Contract
Plaintiff made a contract with the Defendant
Limitations on Warranty Liability: Buyer’s Examination of the Goods
Look for a fact pattern that tells you that the buyer has examined the goods.
There are no implied warranties as to defects which would be obvious on examination.
Limitations on Warranty Liability: Disclaimer
Contract language that eliminates warranties:
1. Express Warranties generally cannot be dislciamed.
- Implied Warranties of Merchantibility and Fitness can be disclaimed in EITHER of the following ways; TESTED ON THIS ONE
- Conspicuous langues of disclaimer, mentioned merchantibility
OR
- “AS IS” OR “WITH ALL FAULTS”
**bar exam certainty
**Does not have to be conspicuous
**Only effects implied warranties
Limitations on Warranty Liability: Limitations of Remedies
Does not eliminate warranties, simply limits or sets recovery for for any breach of warranty;
- Possible to limit remedies even for express warranties;
- General Test is unconscionability
- Prima Facie unconscionable if breach of warranty on consumer goods causes
Fourth Issue: Performance of Article 2 Contract
Fourth Issue: Performance of Article 2 Contract
Six Concepts of Performance of Article 2 Contract
- Perfect Tender
- Rejection of the Goods
- Cure
- Installment Contracts
- Acceptance of Goods (Important)
- Revocation of Acceptance of the goods
Perfect Tender
Need to know three things:
- Only applies to sales of goods; (Article 2)
- Does not mean that the seller’s performance must be perfect; rather, the goods and the delivery must conform to the contract terms;
- A less than “perfect tender” by the seller generally gives the buyer the option of rejection of the delivered goods, so long as the buyer acts in good faith.
**Triggers possibility of Rejection of the Goods
Rejection of the Goods
Need to know Four things:
1. You need to be able to distinguish rejection of an offer from rejection of the goods;
- If the seller does not meet the perfect tender standard, the buyer has the option to retain and sue for damages OR reject “all or any commercial unit” and sue for damages;
- The buyer must take reasonable care of the rejected goods and should not continue to use rejected goods.
- This rejection alternative is limited by cure, installment contracts and acceptance.
Cure
In some instances, a seller who fails to make a a perfect tender will be given a “second chance,” an option of curing.
- Seller’s reasonable ground to believe would be acceptable, perhaps with a money allowance
- Look for information in the question about prior deals between that buyer and seller
- Time for performance has not yet expired
**Note that a seller does not always have the opportunity to ‘cure’, and that the buyer cannot compel the seller to cure.
Installment Contracts
One were the agreement requires or authorizes:
- delivery of the goods in separate lots
- to be separately accepted
The buyer has the right to reject an installment only where there is a substantial impairment in that installment that can’t be cured.
**Be sure to know the difference between
1. entering into an installment salkes contract that provided for multiple deliveries and acceptances
AND
2. Buying something on credit and paying for it monthly
Acceptance of Goods
Obvous
Importance of Acceptance
If the buyer accepts the goods, it cannot later reject them.
One way street.
Payment and Acceptance (FAVORITE ?)
Payment without opportunity for inspection is not acceptance.
What is the significance of failing to reject?
Rejection must be timely.
Failure to reject after the buyer had reasonable time to reject is acceptance.
What is the significant of retention as acceptance?
Effect of buyer’s keeping goods is implied acceptance
**Look for Buyer’s keeping the goods without objection; more specifically look for a fact patter that states when buyer first received goods and when buyer first complained to seller.
Revocation of Acceptance of the Goods
In limited instances we allow this.
Effect of Revocation
Page 45
Requirements for Revocation of Acceptance
- Non-conformity substantially impairs the value of the goods,
AND - Excusable ignorance of grounds for revocation or reasonable reliance on seller’s assurance of satisfaction
AND - Revocation within a reasonable time after discovery of nonconformity.
Comparison of Rejection of the Goods and Revocation of the goods
Rejection:
- Timing - early, before acceptance
- Standard - Generally, perfect tender
Revocation:
- Timing - later, after acceptance
- Standard - Substantial impairment (really bad wrong)
Both:
Other Requirements - 1. seasonably notify seller
2. hold the goods for seller
3. follow reasonable seller instructions
Consequences - 1. Goods back to seller
2. No buyer payment obligation.
Fifth Issue: Remedies for an Unexcused Non-Performance
Non-Monetary Remedies (In Rem)
- Specific performance/injuction
- Seller’s Reclamation from an insolvent buyer of goods;
- Entrustment
Specific Performance
Generally going to be the wrong answer on the bar.
Equitable Remedy: look for adequacy of remedy at law or unclean hands, or other parties’ equities.
1. Contracts for sale of real estate
2. Contracts for sale of goods: UNIQUE Goods:
- antiques, art, custom-made, or other circumstances.
- Not the same thing as expensive.
3. Contract for Services:
- No specific performance, possible injunctive relief.
Seller’s Reclamation From an Insolvent Buyer of Goods
UCC BIG POINT ON EXAM
No general right of an unpaid seller to get its goods back.
Key Facts:
1. The buyer must have been insolvent at the time that it received the goods,
AND
2. The seller demands return of goods within 10 days of receipt (reasonable time rule if, before delivery, there had been an express representation of solvency by the buyer;
AND
3. The buyer still has goods at time of demand.
How does the bar test the 10 day rule?
Multiple dates will be given.
Make sure you go 10 days from receipt.
Entrustment
The owner makes the choice to entrust the person who stores or repairs.
They end up selling it.
The person gets the article and the Owner has to go after the person the entrusted.
Money Damages
Policy: Compensate Plaintiff, not punish defendant
Money Damages Vocabulary
- Expectation
- Incidental
- Consequential
- Avoidable
- Certainty
- Reliance
- Liquidated
Measure of Money Damges
- General Approach
2. Damages Rules for Sales of Goods
General Approach: Expectation Protection
Money damages are based on protection of the expectation bases.
People who contract expect no breach.
What to look for?
1. Look to facts for dollar value of performance without breach
2. Look to facts for dollar value of performance with breach;
AND
3. Compare the two to determine the amount of damages.
Bar Exam Money Damages Answer
First word is COMPENSATE. The purpose of contract damages is to compensate the Plaintiff.
Second word is EXPECTATION. The various money damages rules compensate the non-breaching party but protecting her expectation.
Third word is SAME DOLLAR POSITION AS IF NO BREACH. This means our goal is to put the Plaintiff in the same dollar position as if there has been no breach.
What about profits from the contract?
GO BACK AND LOOK UP. They are expectation damages.
Damages Rules for Sales of Goods
Part 7 Article 2: puts the innocent party where it would have been had been had the contract been performed.
Expectation
Three Relevant Facts: 1. Who breached? 2. Who has the goods, AND 3. Was there a later "replacement" deal
Damages Rules for Sales of Goods: Damages for Seller’s Breach
- Seller breaches, buyer keeps the goods
(FMV if perfect) – (fair market value as delivered OR cost of repair) = damages - Seller breaches, seller has the goods:
(Market Price at time of DISCOVERY of breach – contract price) OR (Reasonable replacement price – contract price)
**Whichever is greater
”–” -> Minus
Damages Rules for Sales of Goods: Damages for Buyer’s Breach
- Buyer breaches, buyer keeps the goods:
(contract price) - Buyer Breaches, seller has the goods:
(Contract Price - Resale unless seller cannot resell in which case the seller can recover the contract price and in some situations provable lost profits.
LOOK AT HYPO 150 ON PAGE 50 Lost
LOOK AT HYPO 150 ON PAGE 50
Lost Profits
- Am I doing 149 where the answer is 0
OR - Am I doing 150 where the answer is provable lost profits
**Look for regular inventory “off the rack”
Additions and Limitations to Money Damages
- Incidental
- Consequential
- Less Avoidable Damages
Incidental Damages
Cost incurred in dealing with the breach such as costs of storing rejected goods in a sale of goods or finding a replacement in a service contract
ALWAYS RECOVERABLE
Consequential Damages
Damages limited to damages arising from Plaintiff’s special circumstances and recovery of consequential damages is limited to sitatuations in which the Defendant had reason to know of these special circumstances.
SPECIAL CIRCUMSTANCES is the KEY
Less Avoidable Damages
No recovery for damages that could have been avoided without under burden on Plaintiff.
Burdens of pleading and proof on Defendant.
UNLIKELY ANSWER ON BAR EXAM
Less Damages that Cannot Be Establish with Reasonable Certainty
Look for a pattern involving a services contract and plaintiff engaged in new business or a new business activity.
- something that hasn’t been done.
Consider reliance recovery as an alternative to expectation.
Liquidated Damages
Contract provisions regarding damages as a fixed AMOUNT or METHOD.
Tests:
1. Damages were difficult to forecast at time contract was made.
AND
2. Provision is a reasonable forecast.
If there is a range it will probably
Sixth Issue: Excuse of Non-Performance of Contract Because of Something That Happened After Contract Was Made
Sixth Issue: Excuse of Non-Performance of Contract Because of Something That Happened After Contract Was Made
Overview of Excuse of Non-Performance
Look for information in a fact patter about:
- Nonperformance of contract
AND - Something happened after the Contract
Excuse of Performance Because of the Other Guy’s Nonperformance
P contracts to paint O’s house on Saturday for $1000.
P does not paint the house.
Obviously, O does not have to pay P
O is excused from performing because of P’s nonperformance
Excuse of Nonperformance Because of the Other Guy’s Saying it is Not Going to Perform (Anticipatory (Early) Repudiation)
Early Breach
- Unambiguous
- Excuse
- Time of Recovery
- Retraction of Anticipatory Repudiation
(ALWAYS ON BAR)
Anticipatory Repudiation
An unambigous statement or conduct:
- that the repudiating party will not perform
- made prior to the time that performance was due.
Causes Excuse
Anticipatory Repudiation Time of Recovery
General Rule: Early breach gives rise to an IMMEDIATE claim for damages for breach unless the claimant has already finished her performance.
Exception: If you’ve finished work before breach, you have to wait until you’re paid.
Retraction of Anticipatory Repudiation
It can be withdrawn so long as there has not been a material change in position by the other party.
If the repudiation is timely retracted, the duty to perform is reimposed but performance can be delayed until adequate assurance is provided.
Excuse Because of Insecurity About Whether the Other Guy is Going to Perform
UCC only! Sale of goods
Insecurity caused by uncertainty
If the words or conduct of one party gives:
1. Reasonable grounds for insecurity of performance;
AND
2. Written demand for adequate assurance;
AND
3. Commercially reasonable to stop performance.
Excuse Because of Improper Performance
- Article 2 and Perfect Tender Rule
2. Common Law and Material Breach Rule
Article 2 and Perfect Tender Rule of Improper Performance
REVIEW THIS RULE
Common Law and Material Breach Rule of Improper Performance
- First, damages can be recovered for any breach;
- Second, only a material breach by one guys excuses the other guy from performing a contract governed by Common Law;
- Third, whether a breach is material is a fact question;
- Fourth, if there is a substantial performance then the breach is not material.
IF the breach is material, THEN the performance was not substantial
Substantial Performance
Opposite of material breach.
Three Types of Common Law Breach
- Material breach because of the quality of performance;
- Major screw up
- Material breach because of the quantity of performance;
- Common Law Contract
- Person breaches after doing only a part
(less than HALF)
- Divisible Contract Corollary Exception
Divisible Contract Exception
In a “divisible contract” there can be a contract law recovery for substantial performance of a divisible part even though there has been a material breach of entire contract.
ON THE BAR, look at whether price is stated as a lump sum or on a per performance basis.
LOOK AT 169 IS ON EXAM
LOOK AT 169 IS ON EXAM
Excuse Because of Nonoccurrence of an Express Condition
- What is an express condition;
- How can you identify an express condition;
- How can an express condition be satisfied;
AND - How can an express condition be excused.
What is an express condition and how can express conditions be identified?
- Language in the CONTRACT;
- Limits obligations created by other contract language
Triggering words:
- IF
- PROVIDED THAT
- SO LONG AS
- SUBJECT TO
- IN THE EVENT THAT
- UNLESS
- WHEN
- UNTIL
- ON CONDITION THAT
What is the standard for determining whether an express condition has occurred, i.e., been satisfied?
General Rule: Strict compliance is required for “satisfaction” of a condition.
Exception: Condition of personal satisfaction of one of the parties - honest and good faith dissatisfaction.
- Reasonable person standard
What is the difference between Conditional Acceptance and Express Condition?
Conditional Acceptance is words from one party responding to an offer.
Express Condition is LANGUAGE IN THE CONTRACT.
How can an express condition be eliminated so that its nonoccurrence does not affect performance obligations?
- Waiver
2. Prevention
Waiver of Express Condition
Identify the person who benefits from or is protected by the express condition.
Then look for a statement by that person giving up the benefits and protection of the express condition.
Prevention of Express Condition
Look for the person protected by the express condition hindering or preventing the occurrence of the express condition.
What is the difference between conditions precedent and conditions subsequent?
Different Facts: PAGE 59
Same Law:
Excuse by Reason of a Later Contract
- Rescission
- Accord and Satisfaction (substituted performance)
- Modification (substituted agreement)
- Novation
Rescission
The key is whether performance is still remaining from each of the contract parties (executory).
Accord and Satisfaction
Things to know
- What an accord and what a satisfaction is?
- Accord questions will have an agreement by the parties to an already existing obligation to accept a different performance in satisfaction of the existing obligation.
AND
2. The effect of making of the accord
AND
3. The effect of getting no satisfaction
- If the new agreement (the accord) is performed (satisfaction), then performance of the original obligation is excused. - If the accord is not performed, then the other party can recover on either the the original OR the accord.
****LOOK FOR NEW AGREEMENT THAT SAYS “IF” AND “THEN”
Modification
An agreement by parties to an existing obligation to accept a different agreement in satisfaction of the existing obligation.
Mere making of a substituted agreement excuses.
Novation
An agreement between BOTH parties to an existing contract to the substitution of a new party, i.e., same performance, different party.
Three parties
Who is liable after Novation?
Novation excuses the contracted for performance of the party who is substituted for OR replaced.
How is delegation different from Novation?
Novation requires the agreement of BOTH parties to the original contract, and excuses the person replaced from any liability for nonperformance.
Delegation does not require the agreement of both parties and does not excuse.
Excuse of Performance by Reason of a Later, Unanticipated Event
Bar Exam Analysis on this point:
- Which party is arguing that her performance is excused;
- What her performance is;
- Whether post-contract occurrence affected her ABILITY to perform, not just the COST of her performance.
**More often than not, the answer will be that the occurrence does not effect the ABILITY but just the COST.
Types of Excuse of Performance by Reason of a Later, Unanticipated Event
- Damage or destruction of subject matter of contract;
- Death AFTER contract;
- Subsequent Law or Regulation
Damage or Destruction of Subject Matter of Contract Rendering Excuse
Common Law: Follow the bar analysis to see if the ABILITY is effected by the occurrence.
- Look at what the performance is.
Article 2: If sale of goods do risk of loss first.
- Risk of loss on the buyer - buyer pays - Risk of loss on seller - buyer does not have to pay and for seller to be excused it must a SPECIFIC GOOD not a generic good that can still be acquired.
Death AFTER Contract Excuse of Performance by Reason of a Later, Unanticipated Event
General Rule: Effect of death does NOT make a person’s contract obligations disappear.
Exception: Death of a party to contract who is “special” person excuses performance.
Special Person
Page 64
Subsequent Law or Regulation Rendering Excuse
- Later law makes performance of contract illegal - excuse by impossibility.
- still physically possible
- Later law makes mutually understood purpose of contract illegal - excuse by frustration of purpose.
***Both parties need to know.
Frustration of Purpose
Where the law gets in the way of the general purpose of the contract.
Seventh Issue: Third Party Problems
Seventh Issue: Third Party Problems
Those situations where people who did not contract has rights or duties under contracts they did not make.
Look for two parties contracting with the common intent of benefit to a third party.
**Life insurance
What we need to know about a 3rd person trying to enforce a contract as a 3rd Party Beneficiary?
- ID a problem as a third-party beneficiary problem;
- Use the vocabulary of third-party beneficiary law,
- Deal with efforts to cancel or modify a third-party beneficiary contract;
- Figure out who can sue whom;
- Assert any available defenses.
Third Party Beneficiary Problem
Two parties contracting with the common intent of benefit to a third party.
Vocabulary of Third Party Beneficiary Problems
- Third-Party Beneficiary
- Promisor
- Promisee
- Intended/Incidental
- Creditor/Donee
Third-Party Beneficiary
Not a party to the contract.
Able to enforce contract others made for her benefit.
Promisor
Look for person who is making the promise that benefits the third party
Promisee
Look for person who obtains the promise that benefits the third party
Intended/Incidental
Only intended beneficiaries have contract law rights.
Intent of the two parties to contract determines whether intended or incidental.
**Named in the Contract on MC questions
Creditor/Donee
Creditor must be a creditor before becoming beneficiary.
Donee is when there is nothing like that.
Third Party Beneficiary Problems: Who can sue whom?
- Beneficiary can recover from promisor
- Promissee can recover from promisor;
- General Rule: Beneficiary cannot recover from promisee
- Limited Exception: Creditor beneficiary can recover from promisee BUT ONLY on pre-existing debt.
Dealing with Efforst to Cancel or Modification
The test is whether the third party knows of AND has relied on or assented as requested.
If so, her rights have vested and the contract cannot be canceled or modified without her consent unless the contract otherwise provides.
Defenses in Third Party Beneficiary Problems
If the Third Party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee.
Things to know about a person trying to enforce a contract she did not make through assignment of rights
- What an assignment of a contract is;
- The vocabulary of assignment;
- The limitations on assignment;
- The requirements for assignments;
- The rights of assignee;
- How to deal with multiple assignments.
What is an assignment?
A transfer of rights UNDER A CONTRACT.
Two Separate Steps;
1. Contract between only two parties;
AND
2. One of the parties later transfers rights under that contract to a third party.
Assignment of Vocabulary
- Assignor
- Assignee
- Obligor
Assignor
Party to the contract who later transfers rights under the contract to another.
Assignee
Not a party to the contract. Able to enforce the contract because of the assignment.
Obligor
Other party to the contract.
Limitations of Assignment
- If there is a contract provision regarding assignment;
1. If there is nothing in fact patter about contract language regarding assignability
Limitations of Assignment: If there is a contract provision regarding assignment
If the fact pattern includes language of contract regarding assignability, determine whether the contract;
1. prohibits assignments
OR
2. Invalidates assignments
Prohibition Language of Assignment (ALMOST ALWAYS HERE)
Language of prohibition takes away the right to assign but not the power to assign, which means that the assignor is liable for breach of contract, BUT an assignee who does not know of the prohibition can still enforce the assignment.
**“rights hereunder are not assignable”“did not know”
Invalidation Language of Assingment
Language of invalidation takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee.
**“all assignment of rights under this contract are void”
Limitations of Assignment: If there is nothing in fact patter about contract language regarding assignability
Even if a contract does not in any way limit the right to assign, common law bars an assignment that SUBSTANTIALLY CHANGES the duties of the obligor;
- Assignment of right to payment (never substantial)
- Assignment of right to contract performance other than right to payment (usually substantial change on bar)
Requirements for Assignment
General Rule: Consideration is NOT required, but gratuitous assignment can be revoked.
Exception: If consideration is given to assignor for assignment, cannot be revoked.
Assignments: Who can sue whom?
- Assignee can recover from the obligor;
- Assignor for consideration CANNOT recover from obligor; (MOST LIKELY ASKED)
- Obligor has same defenses against assignee as it would
- Payment by obligor to assignor is effective until obligor knows of assignment. Similarly, modification agreements between obligor and assignor are effective if the obligor did not know of the assignment.
- Implied Warranties of Assignor in an Assignment for Consideration.
Implied Warranties of Assignor in an Assignment for Consideration.
In an assignment for consideration, the assignor warrants:
1. The right assigned actually exists;
2. The right assigned is not subject to any then existing defense by the obligor;
AND
3. The assignor will do nothing after the assignment to impair the value of the assignment.
What about multiple assignments?
- ALL gratuitous assignments - General Rule: Last assignee generally wins.
- Multiple Assignments for Consideration
- General - First assignee for consideration wins
- VERY Exception - Subsequent takes IF
- He does not know of the earlier assignment;
AND - He is the first to obtain:
- Payment
- A judgment
- A novation
OR
- Indicia of ownership (Four horsement rule)
- He does not know of the earlier assignment;
Things you need to know about Disputes Arising From a Person’s Performing a Contract She Did Not Make: Delegation of Duties
- What is a delegation?
- Relationship of assignment and delegation;
- Which duties are delegable
AND - What are the consequences of delegation?
**Deals with the burden of the performance.
What is a delegation?
Party to a contract transfers work under that contract to a third party.
Relationship of Assignment and Delegation
Page 73.
Assignment is a transfer of rights.
Delegation is a transfer of duty.
Which duties are delegable?
General Rule: Contractual duties are delegable.
Limitations: No permitted IF
1. Contract prohibits delegations OR prohibits assignments
OR
2. “Personal services contract” that call for VERY SPECIAL skills.
What about when the delegate doesn’t do the performance?
GOING TO BE ON EXAM
- Delegating party ALWAYS REMAINS liable.
2. Delegatee liable only if she receives consideration from delegating party.
