contracts Flashcards
express contracts
make them using language or writing
ex. i orally promise to paint your kia soul and you agree to give me $100
bilateral contracts
This just means a “promise for a promise”
Ex. I promise to decorate your house with cat pictures, and you promise to pay me.
If there is any doubt as to what a contract is, just assume it is bilateral.
implied contracts
They are based at least in part on conduct.
Ex. if you pump gas, you are paying for that. It’s an implied contract with the gas station based on your actions.
unilateral contracts
Promises for acts.
This means that the offer expressly requires performance to accept it.
An offer to the public
Ex. if someone finds my cat, Mr. Meow will get you $500.
Prizes, contests, and rewards… these are all offers to the public for performance.
An offer to a specific person
“This offer can ONLY be accepted by performance”
promptly shipped goods
Under the UCC, an order or offer to buy goods that are to be promptly shipped may be treated as either a bilateral or unilateral offer.
It can be accepted in two ways:
1. A promise to ship; OR
2. Actual shipment
Remember PS2 → Promptly Shipped offer → 2 ways to accept: promise to ship or actual shipment.
void contracts
Void contracts are those without any legal effect in the beginning (such as a contract to commit a crime)
voidable contracts
Voidable contracts are ones that a party can choose to make void (such as contracts by minors or those with mental illness.
creation of an enforceable contract
- offer
- acceptance
- consideration
- no defenses to formation
creation of enforceable contract - mutual assent
We need an offer (a promise) and acceptance before termination of the offer;
meeting of the minds
creation of an enforceable contract - consideration
1) bargained for exchange of something of legal value OR
2) a substitute for consideration (such as detrimental reliance, promissory estoppel, or good faith modification under the UCC)
creation of an enforceable contract - no defenses to formation
- Including lack of capacity (making the contract voidable),
- mistake,
- illegality (void contract), or
- specific performance.
GOAT NOTE: on the MBE itself, the best defense against someone in a contract action is almost always that no contract was formed. After that, you can look at things like incapacity, mistake, duress, fraud, illegality, statute of frauds, etc.
what does ucc article 2 apply to?
used for contracts that are for current and future sale of goods
what does common law apply to?
services, employment, and real estate
what happens where both goods and services are being offered?
It’s all or nothing.
You just have to look at the whole deal and decide what is more important: the goods, or the services.
GOAT TIP: predominant purpose test - look at what the payment is tied to. Is the larger payment primarily to the delivery of the goods or the completion of the services? When is the payment due, when the goods are delivered or when the service is performed?
Ex. if Goat sells you some copy machines and then the contract says “goat will also service them once a year” the predominant purpose here is the copy machines, not me servicing them.
what do we need to look at to determine when we have an offer?
- the language used
- the prior relationship of the parties
- the surrounding circumstances
- the custom in the industry
determining if we have an offer - the language used
Must be sufficiently specific to make it clear that the offeror intended to create a power of acceptance in the offeree.
determining whether we have an offer - the language used - LAND
must have a price specified and the land itself identified
determining whether we have an offer - the language used - GOODS
we need a quantity that is certain or one that we can determine with a formula.
A UCC sale of goods contract is still valid if there is a missing price term (NOT THE CASE FOR COMMON LAW CONTRACT FOR SERVICES)
Reasonable terms will be supplied by the court if those terms are consistent with the parties intent.
determining whether we have an offer - the language used - EMPLOYMENT
we need a definite time for these or they will not be enforceable.
an employment contract that lasts “forever” will simply be construed as “we can fire you whenever” … you can’t enslave someone
determining whether we have an offer - the language used - disqualifying terms
Your contract cannot say stuff like: “fair,” “appropriate,” “reasonable.” appropriate to who? We can only use words like “all,” “solely,” or “only”
are general quotations offers?
No
For a price quotation to be an offer, they must be in response to a specific inquiry by someone.
Price tags and quotes are more like invitations to deal, unless they are given in response to a specific inquiry.
common law contract for services
There will be no offer without a price term.
The Karen v Plumber Dilemma
If a party performs services for someone … but no price is discussed in advance … the court will substitute in the reasonable price UNLESS Karen was aware of the price beforehand.
Reasonable price UNLESS the requesting party was aware of the quoted price beforehand.
no quantity required examples
1. requirement contract - “i promise to buy all the muffins i require”
2. output contract - “i promise to sell you all the muffins i produce”
Remember, the buyer can increase the requirements they need in these contracts so long as the increase is moderate.
I can’t require 10 muffins every day for the year then require 100,000 muffins… but i can usually bump it up by 10%
Offer must actually be COMMUNICATED to the offeree for them to accept it.
You can’t just gain indirect knowledge of an offer and be like “yeah… i think that is my offer now. I accept =)” … yeah right.
different types of NOT offers
1. inquiries
not offers
“would you consider selling me your bracelet”
would I consider? no. you are just being nosy and trying to pick pocket me.
2. price quotations
not offers unless in response to someone SPECIFICALLY asking
3. statement of intention
not an offer
“i intend to sell you my cartier bracelet”
4. opinions
“i believe your new car is worth $75”
5. advertisements
These are not offers unless they are specific to price and quantity and indicate who can accept it and WHEN.
1 muffin for $1 = no offer
1 muffin for $1 until supplies last = offer
1 muffin worth $5, first come first serve = no offer. Nope, price too speculative.
1 muffin for $5, first come, first serve = offer.
conditional acceptance
“I’ll ONLY buy this computer if you throw in the Airpods”
this is a counter offer
inquiry
“Could you also throw in Airpods?”
You can still accept the offer after an inquiry, but you cannot accept an offer after a counter-offer.
terminating offers - operation of law
- destruction
- death
- supervening illegality
termination of offer - operation of law - destruction
If the subject matter of the contract is destroyed prior to acceptance (goods, property)… the offer is dead.
I offer you a muffin. The muffin blows up. No deal.
termination of offer - operation of law - death
Death or incapacity of either party will also terminate an offer.
If you die or don’t have legal capacity to enter into a contract .. you can’t enter into a contract.
EXCEPTIONS
Options contracts - if someone paid for the option, and the person on the other side dies … sorry … we paid for the option and offer is still alive.
Part performance of an offer when entering into a unilateral contract - if you offer me $500 to find Sparky then become legally incapacitated and i’ve already spent 47 hours trying to find Sparky, you are paying me that money fam if I find his ass. You’re not canceling on me halfway through the search for Sparky.
termination of offer - operation of law - supervening illegality
Let’s say that you have a contract for fancy fidget spinners you are ordering from Russia and your friend Jimmy was going to buy them from you.
The US has a trade ban on Russian imports.
Well… you and Jimmy are both excused from performance now.
The whole contract has become illegal to even do, through no fault of either party. Dead contract.
termination of offer - lapse of time
Offers can terminate through lapse of time.
If there is a particular time stated in the offer that says when it will expire, well, that’s the time it lapses.
If there is no time stated… it will expire in a reasonable time (which is usually around a month)
A unilateral offer (like a posted reward to capture an FBI most wanted person) will expire by lapse of a reasonable amount of time or by revocation (i.e. they took down the reward)
termination of offer - through words or conduct of the offeror
A girl in Brooklyn offered for me to stay at her place during the July cycle week for example. Then when i got there she began dating a famous chef and said “you can’t stay here anymore Goat, we can be friends though and you can try to win me over.”
The offer was retracted just like that.
When the conduct by the offeror unambiguously indicates a change of mind, and the offeree (me) is aware of it, we have to look at the actions of both the offeror and offeree.
Another example, if Jimmy offers to sell you his motorcycle and then you are golfing with Jimmy’s best friend and he says “yeah Jimmy just sold ME his motorcycle”
REVOKED.
Power to accept TERMINATED if you find out the subject matter of the offer has been SOLD.
Remember goats, revocation is effective at the time of receipt (vs when it is sent (like the mailbox rule)
Once the buyer accepts, however, it is too late for the seller to revoke.
limits to the offerors power to revoke
- options contracts
- firm offer rule
- detrimental reliance
limits to the offerors power to revoke - options contracts
This is when the offeror promises to keep the offer open and the offeree pays for the privilege of the offer being kept open.
I offer you a muffin for $10. You pay me $1 to keep the offer open for a week. Stays open.
If you did not give me any consideration, the offeree can revoke at any time.
But what if someone rejects an option before it expires or gives a counter-offer?
Nothing. You paid for that shit. You can still accept the offer you rejected so long as the offeror didn’t rely on it.
The options offer is your bitch for that week you paid for it.
Remember, an options contract that nobody paid money for? That is nothing. ILLUSORY. A false promise.
If someone says they won’t revoke their offer and nobody pays any money for it, THEY CAN STILL REVOKE.
limits to the offerors power to revoke - firm offer rule
We need a few things
- We must be dealing with the UCC sale of goods
- The offeror must be a merchant (someone who regularly deals in goods of a certain kind or someone with specialized knowledge of the business practices); AND
- A written and signed offer that PROMISES to keep an offer open for a certain period of time (it can be electronic signature, faxed, or emailed)
If those three elements are met, the offer cannot be revoked for up to three months and there is no need for consideration to make this offer firm.
Once we hit 3 months, it doesn’t necessarily terminate the offer, it just becomes revocable by Daddy merchant.
limits to the offerors power to revoke - detrimental reliance
An offer cannot be revoked if there has been detrimental reliance by the offeree.
But, remember goats, you can’t just RELY randomly with your crazy ass. The reliance has to be REASONABLY FORESEEABLE.
part performance of a unilateral contract - sparky situation
If there is part performance of a unilateral contract it won’t be revocable for a reasonable time in which the offeree could complete performance.
If they already started looking for your lost dog Sparky, you can’t just fuck around and cancel the offer my goats.
Simply preparing to look for your dog Sparky is not enough. You need to START looking.
But remember, part performance is NOT full acceptance of a unilateral offer.
In order to “accept” an offer to look for somebody’s dog sparky, you gotta find that fucking dog and bring them back.
part performance of a bilateral contract
In bilateral contracts though, part performance is actually acceptance of an offer, just not in our Sparky situations.
If Goat tells Rainbow Brown that he will pay him $100,000 if he designs a gorgeous goat figurine for him and Rainbow Brown starts working on it… even if Goat DIES… Goat’s estate can’t revoke the offer for a reasonable time since Rainbow Brown started working on it.
rejection by words or conduct - 3 types of rejection
1. express
expressly reject someone and tell them to fuck off with their offer.
2. counter offer
a counter offer does two things - terminates the offer and creates a new offer.
someone asking a question is not a counter offer, it is bargaining.
3. conditional acceptance
essentially counter offfers.
if i say “i accept if you love me” or “i accept on the condition that you throw in some new bose headphones”
Under both the UCC and common law, this terminates the offer and becomes a new offer.
acceptance
requires intent to be bound
Sometimes the bar exam will have a problem where someone offers a proposed deal and the other party says “i’ll try my best.”
No you won’t. Offer revoked.
If someone doesn’t have full intent to be bound by the terms of the offer, it isn’t a good acceptance and the offeror can revoke the offer.
can parties be bound contractually when they have reached an agreement in principal but they need to cook up the paperwork with their attorneys to make it official?
If we have MEETING OF THE MINDS and INTENT TO BE LEGALLY BOUND it doesn’t matter that we don’t have all the cute paperwork ready. I’m still coming for your ass in court if you try to go back on this deal.
mirror image rule
For an acceptance to create a valid, enforceable contract, it must exactly match the terms of the offer.
Any acceptance that adds additional terms is treated like a counter offer and NO CONTRACT is formed.
UCC doesn’t follow the mirror image rule.
ucc battle of the forms
UCC doesn’t follow the mirror image rule - it images a battle…. Of the forms.
We want people to be able to include new terms on a fast and loose basis.
What you need to remember:
Are you dealing with a contract with (2) merchants?
or a contract with either (2) non-merchants?
or (1) merchant and (1) non-merchant?
UCC battle of the forms - two merchants
now we actually have a contract and the additional term will become apart of the contract UNLESS
1. the additional term materially changes the contract
is this normal in our industry or are you doing some sneaky shit? if it’s not normal, it’s material.
2. it won’t become a contract between two merchants if the offer expressly limits acceptance to the offer’s terms.
It could say the “acceptance of this offer is clearly limited to the terms contained therein, don’t add any fucking bananas” then you can’t just add bananas… straight up. You add the banana, no contract.
3. it won’t become a contract between two merchants if the offeror objects to the change (within a reasonable amount of time)
Sometimes the bar exam tries to get cute with us and be like “Johnny sent Suzee two apples and snuck in an arbitration agreement” a year later Suzee sued on it. What is Johnny’s best argument?
His best argument is that she didn’t object within a reasonable time and also that the arbitration clause was not material.
two non merchants
when at least one party is a non-merchant, the common sense “suggestion” rule governs.
Imagine this - Goat (non-merchant) sends a contract to Kevin Tipcorn (non-merchant) for five avocados.
Kevin sends back his acceptance … but this fucker tries to sneak in a request for a banana too.
It’s an additional term. We still have a contract just without the banana.
The banana is simply treated as a proposal that can be separately accepted or rejected.
The banana isn’t automatic. It’s an invitation to have the banana.
Basically, we protect non-merchants from people trying to do weird shit to them like add in random additional terms.
merchants agreement changes overview
If a material term is added that alters the original bargain … it is not incorporated unless it is agreed to.
If it is not a material term, it is incorporated unless it is objected to.
when the term isn’t additional, but rather it is contradictory…
The UCC gets pissed.
If I send you a form for avocados and you don’t just add a banana, but you send me back a fucking dragonfruit contract, the court gets pissed and it’s time for the KNOCKOUT rule
The conflicting terms are thrown out and are replaced by “gap fillers” such as “reasonable price” if the price terms are conflicting.
The court can also look to things like industry norms to determine what to fill in when we have conflicting terms, so we knockout the conflict and patch it up with reasonable terms.
how do people accept offers?
offers can only be accepted by people who know about the offer.
offers cannot be assigned to other people
offers can be accepted by promises to perform.
Goat note: Unilateral offers like a prize are accepted when the person aware of the offer performs actions within the scope of the offer.
When the offer is for a unilateral contract … the beginning of the performance makes the offer temporarily irrevocable. So long as the CONTINUES TO PERFORM, THE OFFER CAN’T BE REVOKED UNTIL COMPLETION.
improper performance by seller of goods - accomodation
If a seller of goods just flat out sends the wrong goods, this is an acceptance and a breach simultaneously.
And the buyer might be entitled to remedies for the breach, unless we have the legendary accommodation
If I order 200 blue goat figurines from you, then you bring me red goat figurines with a note that says “sorry, no more blue figurines, here are red goals as accommodation”
This is a notice of accommodation.
What are my remedies for this accommodation?
I can
1) accept the shipment of red goats and pay the list price; or
2) reject it with no remedy.
An accommodation is treated as a counteroffer with no breach.
There are no damages because there is no contract.
It’s just a counteroffer.
When we send the wrong goats with an accommodation, that is a counter offer.
improper performance -acceptance by promise
When a seller accepts an order by a promise, they can’t mail the wrong goods with the damn accommodation.
That is a total breach and the imperfect tender rule will apply.
You can’t lie to me and say you are shipping the right shit, then ship the wrong shit. Don’t lie to me, just actually send it with an accommodation, otherwise you are in breach!
acceptance - silence
silence is NEVER acceptance.
You actually have to take some affirmative action, even if that is just nodding your head or giving a thumbs up UNLESS
1.I have told you that my silence should be construed as acceptance; OR
- For years that is just how we’ve been doing things. We are stoic. I always accept with silence. If we have been doing it like this, now I need to inform you affirmatively that silence is NO LONGER ACCEPTANCE.
mailbox rule
Acceptance sent by mail is effective when you put the damn thing in the mailbox. The moment you dispatch it …. You’ve accepted.
Limitations of mailbox rule
1. When it comes to OPTIONS contracts, acceptances are not effective until they are received by the offeror
2. If the offer says “acceptance is only to be effective when received,” no mailbox rule will apply here.
Rejection and revocation are only effective when received
mailbox rule - double mailbox - acceptance and then rejection
Whichever arrives first wins: Acceptance - Rejection → K (ARK)
When we send an acceptance first then a rejection next, a contract will be formed UNLESS the rejection arrives first and is relied upon by the offeror.
EXCEPTION
Offer given, acceptance mailed, rejection mailed, offeror receives rejection first and relies on it, then offeror receives acceptance = NO CONTRACT
mailbox rule - rejection and then acceptance
Whichever arrives first controls - Rabbits Avoid Foxes → Rejection Acceptance First controls
So if the rejection is mailed first and THEN acceptance is mailed → whichever one arrives first controls.
Offer, rejection, acceptance, receives rejection, receives acceptance, NO CONTRACT. He received rejection first.
mailbox rule - revoked or not?
Remember, an offeror’s revocation of an offer is not effective until the offeree receives it.
If you mail your offer, then decide against it, and mail your little revocation, and the offeree accepted before he receives your revocation, CONTRACT FORMED.
Offer, revocation by offeror in mailbox, acceptance by offeree in mailbox, offeree receives revocation → CONTRACT.
mailbox rule - the revocation gets to our offeree before he gets to the mailbox
Offer, revocation, receives revocation, tries to send acceptance = NO CONTRACT FORMED.
If you can stuff that acceptance into the mailbox before the offeror’s revocation gets to your doorstep, you’re good.
If you get that revocation before you can get your greasy hands into the mailbox … keep crying.
implied in fact contracts
Contracts created by conduct are just as valid as those created by words.
An implied in fact contract is one in which each party’s promise is INFERRED from their conduct or actions.
Two things for an implied in fact contract:
1) mutual intent to engage in the contract AND
2) mutual intent to be bound
Basically, one party does something and then knows the other party EXPECTS TO BE PAID MONEY.
If each party knows (or SHOULD know) that the other party will interpret their conduct as an agreement to enter into a contract, voila, we have an implied in fact contract.
Ex. Hailing a taxi or calling an ambulance is an implied promise that you will actually pay for the ride once you take it.
quasi contracts
Implied in LAW contracts occur when there is NO meeting of the minds and NO mutual assent to engage in the contract, but one party got unjustly enriched.
Can arise when a plaintiff confers a benefit on a defendant and reasonably expected to be paid… and the defendant would be unjustly enriched if the plaintiff was not paid.
These aren’t governed by any type of contract law, they are governed by EQUITY.
Anytime the proper application of the contract rules would produce an unfair result, we have to look at whether a quasi-contract was formed.
Ex. let’s say a physician runs into a neglected and abused child and takes him into his house and gives him $5,000 worth of medical services.
Well, there wasn’t a contract here.
But the physician can still possibly recover the value of the medical services from the parents under quasi contract theory.
Be careful, the contract price is NOT the measure of recovery in quasi-contracts
You will get the reasonable value of the benefit conferred ONLY
GOAT NOTE: restitution or quasi contract is only available for TOTAL breach, not partial breach.
indefiniteness and absence of terms
there won’t be a contract if the parties terms are found to be too indefinite, but the courts get around this in a few ways
missing terms
- UCC - gap fillers for price, time of shipment, place of delivery, time of payment, and more
BUT MUST HAVE QUANTITY AND SUBJECT MATTER OF THE GOODS STATED.
land = must have price of land
employment = must list salary
- Common law - so long as the parties have shown a willingness to enter into a contract… the court will try to fill any holes with reasonable terms.
some holes are too large to be filled
consideration
What we need to separate the boys from the men, the promises from the legally binding contracts.
It shows evidence of mutual agreement, distinguishes gifts from contracts, and helps us see that each party is getting something of value.
Courts don’t look at the adequacy of consideration, but will not accept sham consideration.
Ex. can’t give someone $10 for $20 million dollar home.
You can’t make a gift into a contract by giving someone a dollar.
The possibility of value is fine for consideration
So long as there is a possibility of value in a bargained for act, the consideration doesn’t NEED to ultimately materialize for the original contact to be valid.
Ex. a group of siblings all agree that when their mother dies, they are going to split whatever their mother leaves them evenly… this is valid consideration
Even if the mother dies and leaves them nothing.
Consideration can also be performance (or a promise to perform), which is just a fancy way of saying you are going to do something you are not legally required to do… or it can be forbearance (or promise to forbear) which is just NOT doing something you are legally entitled to do.
Promising not to sue someone when you can sue them is consideration.
consideration tricks
1. gratuitous promise
you can’t give someone something for nothing
2. the grandma (conditions are not consideration)
grandma calls her grandson and says “you can have my car if you fly from california and pick it up from my house in nebraska”
flying is NOT considerration, it was just a CONDITION.
HOWEVER - if grandma asks grandson to come get car and spend time with her, she is getting something.
3. past consideration
If you cleaned my house a week ago .. then I said “wow, you did an incredible job, I am going to give you $100”
This is almost never allowed as consideration. It isn’t bargained for, I’m just giving you a gift in recognition of something you did in the past.
4. material benefit rule
Only in some states and only kicks in when someone actually EXPECTED to get consideration and requested it beforehand.
output contracts
Goat will sell all of the apple vision pro goggles he makes to apple
Seems illusory, what do they have to do on their side?
I am obligated to use my best efforts to make as many goggles as they need, and they are obligated to use their best efforts to sell and market my products as best as they can.
Consideration = implied promises on both sides to use our best efforts.
requirements contract
apple agrees to buy from goat all of the apple vision goggles they require
Apple must now use their best efforts to promote the sale and use of goat’s goggles and goat must use his best efforts to make all the apple vision goggles they require.
If apple’s business fails and they go bankrupt, this is a violation of bad faith.
However, if apple tries to buy them somewhere more cheaply or doesn’t try to market them, this IS a violation of bad faith.
consideration substitutes
- promissory estoppel
- written promise to pay debt barred by the statute of limitations
consideration substitutes - promissory estoppel
This is simply when someone makes a promise and causes someone else to rely on the promise to their detriment.
Reliance must be foreseeable.
To have promissory estoppel we need
1) a promise
2) reasonable, foreseeable, and detrimental reliance, and
3) enforcement necessary to avoid injustice.
Damages for promissory estoppel action will only be out of the pocket expenses the person spent when relying.
The whole theory is that you shouldn’t be able to fuck someone over with a fake promise and make them rely on it.
So if someone makes a bullshit promise like “I’m going to give you a million dollars when you retire from our office, you’ve been such a great worker”
No consideration here, just a random ass promise.
But then your employee goes out and relies on it, the man relied, and if the enforcement of the promise is necessary to avoid injustice, courts will sometimes use promissory estoppel as a consideration substitute.
consideration substitutes - written promise to pay debt barred by the statute of limitations
We want to encourage people to pay their debts.
Once a debt passes the statute of limitations, we don’t actually need to pay it.
If we have a legal obligation that is no longer enforceable under the law, a new promise to fulfill the old obligation will be enforceable even without new consideration.
It just has to be in writing.
bids with contractors
If someone takes time and expense to prepare a subcontractor bid for a general contractor… and you promise them they will win if they are the lowest… well… that’s consideration and they have a strong argument that you are bound to select them if you get the contract.
criss cross problem
“Yeah, I promise to give you some flowers when I see you!” then the other person promise they will bring that person some chocolates, and they both show up empty handed, ITS NOT A CONTRACT.
Just gratuitous promise.
It has to be bargained for consideration.
Saying “i’ll give you flowers BECAUSE you are giving me chocolates,” that would work
nice guy creditor problems
A debtor will owe a creditor $1,000 due on January 1st.
Everyone agrees that the debt is $1,000, undisputed.
January 1st comes and goes
Nice guy creditor says “as long as you pay me on march 1st… i won’t sue you”
He then does a nice guy attack and sues the debtor on February 1st. Is this valid?
YES - you aren’t allowed to get something for nothing!
Now if the debtor agreed to not declare bankruptcy… this would be valid consideration on his side.
modifications - common law
we love to promote the strict meaning of the agreement
modifications - UCC
loves to be chill and promoting the fluidity of commerce
lazy gazebo dilemma
Johnny was supposed to build a house AND gazebo for a landowner for $100. Johnny got way too tired after building the house and didn’t really know how to build a gazebo.
So the owner of the house agrees to still pay Johnny the $100 and says Johnny doesn’t have to build the gazebo (oral modification)
Then afterwards, as the landowner surveys his land, and how empty it looks without the gazebo, he cries, and sues Johnny.
Johnny says “oh no he agreed I didn’t have to build the gazebo, I am going to win this lawsuit.”
He is dead fucking wrong.
Under the common law a modification needs consideration to be valid.
pre-existing duty rule under common law
fireworks explode above
It says that performing or promising to perform an EXISTING LEGAL DUTY YOU ALREADY HAD TO DO IS NOT CONSIDERATION BECAUSE THERE IS NO LEGAL DETRIMENT.
Another something for nothing situation.
Exceptions - Fireworks. Explode. Above = Fair, Equitable, (not) Anticipated.
Myth of Goatyphus
You pay me $100 to walk to the top of a mountain, but then halfway thru I see a bigass immovable boulder that I have to push to get to the top of the mountain, I’d be like, “wait, $100 for this?? I’m going to need $500, this got way harder.”
SO LONG AS THE MODIFICATION IS BASED ON UNANTICIPATED CIRCUMSTANCES AND IS FAIR AND EQUITABLE IN VIEW OF THOSE CIRCUMSTANCES, CONSIDERATION IS NOT NEEDED TO MODIFY THE CONTRACT.
promise to ratify a voidable contract is also sufficinet for new consideration
Little Johnny Lexus
Little Johnny goes into the Lexus Dealership when he’s just a little kid. He signs up for that new 2024 GX because it’s looking clean. He is making his payments on time boss baby style.
Until he turns 17 and realizes one thing… I signed that contract when I was 6. It’s voidable. I can get out of it.
If Johnny promises to ratify the contract once he turns 18, the Lexus dealership may agree to give him a way lower payment.
ucc modifications
Good faith requirement
So long as the modification is made in good faith and in observance of reasonable commercial standards and fair dealing, it will be allowed to change
GOAT NOTE: written contracts may be modified by subsequent oral agreements.
part payment as consideration in exchange for a promise to forgive debt situation
If a debt is undisputed and everyone agrees on a number, partial payment is NOT consideration for release of this debt.
When the debt is disputed, part payment is consideration for release.
illusions
An illusory contract is a contract where only one party is bound.
We need commitment on both sides of a contract.
5 illusions on the MBE
1) an unrestricted right by one party to cancel a contract
I can’t have a contract between me and you saying you will bring me apples every week on monday for $10 … but you can cancel it WHENEVER THE HELL YOU WANT. ILLUSORY!!!
2) a contract for love and affection
3) requirements and output contracts
MAYBE illusory
It is valid to say “all the goat figurines i require” or “all the goat figurines you produce,” HOWEVER “all the figurines I want” or “all the figurines you want to sell me” = ILLUSORY
4) no profit requirements contracts are illusory
There was a contract where the dude only had to buy from the seller when the market price rose above the contract price.
So if the market went up to $6 and the K price was $5, he only bought them. He basically locked in the seller to a forever loss contract…. ILLUSORY.
5) satisfaction contracts are fine and NOT illusory
These are valid because the promisor can’t say it is not to their satisfaction for no reason, they are constrained by good faith.
accord and satisfaction
And remember, the dispute doesn’t have to be FACTUALLY CORRECT… it just has to be in GOOD FAITH for you to do an accord and satisfaction.
So rainbow brown invited goat to a party at his mansion to play the piano.
The contract was simple, “goat is to play 10 piano pieces throughout the night and rainbow brown will give goat $100,000”
Goat had a few drinks and his hooves aren’t able to place on the piano.
Rainbow says WTF you idiot
Goat says this is ridiculous, my playing was beautiful.
Thus, we have an honest and good faith contractual dispute.
Rainbow Brown continues on “alright here’s the deal, people have been drinking and they didn’t notice, just play old McDonald had a farm and I’ll give you $1,000 and let you stay at the party.” Goat says, you got yourself a deal.
VOILA - the parties have formed an executory accord
An accord is a new agreement by the parties to an already existing obligation to accept a DIFFERENT promise instead of the original promise, with consideration on both sides!
Goat promised to 1) play a new piece of music not listed under the original contract, and 2) to accept less payment than he was originally entitled to under the original contract. In return, Rainbow Brown, because he honestly and in good faith believed the Goat breached him, agreed not to sue.
To satisfy the accord,
Goat plays the new piece and rainbow gives the $1,000, they both satisfy the accord as they both done what is required of them under the new agreement.
If the accord is not satisfied (if goat doesn’t play old mcdonald) Rainbow could sue on either the accord OR the original contract.
The accord suspends the other party’s rights to enforce and must be supported by different consideration. And then performance of the accord results in satisfaction - which discharges both the accord and the original contract!!!!
difference between modification and accord and satisfaction
Revolves around what agreement you can sue under.
A modification just immediately replaces the old agreement with a new one. The parties can now ONLY sue each other under the new modified agreement.
The accord is kind of a conditional offer, it’s like “hey here’s some new shit you can do, but if you don’t it, well, I can still you under the old contract”
defenses to enforceability
- incapacity
- duress
- undue influence
- mutual mistake
- misrepresentation
- illegality
- unconscionable contracts
defenses to enforceability - incapacity
infants
a minor who lies about their age may be estopped form voiding the contract later on.
If the infant doesn’t void the contract in a reasonable time when they reach the age 18, they will be bound by it (a reasonable time is usually 6 months in most jurisdictions)
intoxicated people
Lack capacity if they are unable to understand the nature of the transaction (but the other side must have a reason to know they are fucked up)
mentally incompetent
contract with those under legal guardianship are not just voidable, they are fully void.
public record - you should’ve known
when it comes to necessaries food, clothing, shelter, medical, etc) a person lacking capacity who enters into a contract for necessaries can’t simply void them. They will be liable for the reasonable value of the necessaries under a quasi-contract theory.
defenses to enforceability - duress
physical compulsion duress.
Anytime a victim is forced through a threat of direct physical violence to sign a contract against their will, it will be VOID.
improper threat coercion
It is when someone makes an improper threat against you to coerce you into signing a contract.
An improper threat is one that a person has “no legal right” to make → it is almost always a threat that is tortious or criminal conduct against the plaintiff.
economic pressure AND econonmic threat
“I am your boss. I will fire you from your job if you don’t sell me your new motorcycle and I will make sure you go bankrupt.”
defenses to enforceability - undue influence
Undue influence is not about improper threats, it is about dominance and submission.
Undue influence = when a relationship has a dominant person or a “trusted person” and that person abuses their dominance or trust for their own purposes to induce another to enter into a contract.
Essence of this is really just unfair persuasion of a dominant party on a weaker party which results in the weaker party being pressured to act against their own interest.
Need to look at the relationship between the parties.
defenses to enforceability - mutual mistake
1) goes to the basic assumption of the contract
2) it has a material adverse effect on one of the pairtes
3) it was not foreseeable (or it could be consciously ignorant)
Plain English: If both of you thought some shit was true WHEN you made the contract… and if both of you had KNOWN that it was different… you wouldn’t have done the contract… it’s voidable by the party that got screwed over in the deal.
situation #1 neither party is aware what the fuck the term means (mutual mistake)
If the parties use a material term that is open to at least two reasonable interpretations… and EACH party attaches a different meaning to the term… and NEITHER party has reason to know the meaning attached by the other…. NO CONTRACT. VOIDABLE
situation #2 one party isn’t aware of the meaning of the term, the other party is.
when only ONE party is mistaken about the facts relating to an agreement, the mistake will not prevent formation of a contract.
The only way… I repeat the only way you can rescind a contract based on unilateral mistake if YOU WERE THE ONE THAT FUCKED UP IS IF:
The other side had reason to know of your mistake or knew of your mistaken belief
situation #3 - unilateral mistake induced by fraud = voidable misrepresentation
situation #4 slip of the pen, slip of the tongue
If both parties agree that the contract should include something that it does not, the court will simply exercise reformation to change the contract to reflect what the parties wanted.
defenses to enforceability - misrepresentation
A misrepresentation makes a contract voidable when one party induces another party into a contract, and the innocent party relies on what the sneaky party says
FRADULENT AND OR MATERIAL
the misrepresentation can be innocent too, as long as it is material.
scenario #1 - the fraudulent misreprsentation
Goat was showing his home to a perspective buyer and says “this home is not flammable. And no it is not made of hay, don’t be ridiculous. It is just a little dusty and old. A good power wash will fix it.”
Just downright fraudulent misrepresentation
Goat is asserting something he KNOWS to be true.
scenario #2 - misrepresentation by concealment of facts
Switching an odometer, placing a carpet to conceal termite damage, hiding cracks in the wall that would expose shitty foundation… all concealment and all will render the contract voidable.
scenario # 3 - a nonfraudulent misrepresentation will also render a contract voidable
This is when someone asserts information that they don’t actually know to be untrue… and it induces a reasonable person into entering a contract with them.
defenses to enforceability - illegality
If the subject matter of a contract is illegal.. The contract is simply VOID.
But, if the contract has an illegal purpose, it will be VOIDABLE against the party who HAS the illegal purpose.
defenses to enforceability - unconscionable contracts
this is a question of law for a judge.
Courts look to:
1) unfairness in the bargaining process
Unfair surprise , Pressure , Party A knew Party B was weak in some meaningful way and STRUCK at this weakness.
2) oppression of one party
Terms are so harsh that they “shock the conscience”
Procedurally effed up - (Goat trying to sell this man dying of thirst a bottle of water in the desert) and substantively unconscionable (a single bottle of water for one fucking million dollars - wtf)
covenants not to compete
For these just know the key word is: reasonable
(i.e. time limits you can’t work for competitors must be reasonable).
Also know the services must be unique.
Can’t put a Burger King employee on a covenant not to compete.
In terms of exculpatory clauses (contract provisions that relieve a party of damages) - they are allowed for negligence (so long as the terms are conspicuous)… but they are not allowed for intentional torts obviously.
Sometimes you sign these when you go into amusement parks and that type of thing. That’s fine.
You can’t waive liability if someone intentionally beats the shit out of you though.
statute of frauds
Under the Statute of Frauds, certain agreements must be in writing and signed by the party who it will be forced against to prove that they were made.
The writings must:
* reasonably identify the subject matter of the contract
* indicate that a contract has been made
* and state within reasonable certainty the essential terms of the promises.
Writing doesn’t have to be a signed contract, just anything that acknowledges the contract
what types of contracts require a writing under the state of frauds?
MYLEGS
1. marriage
2. can’t be done in one year
ex. goat i promise to pay you 10,000 dollars in 2 years = NOT REQUIRED because you can pay me back in less than a year.
lifetime contracts = NOT REQUIRED becuase you could die tomorrow.
3. land
any transfers of interest in land of a term more than one year.
4. executor
promises by an executor or administrator of an estate to pay the obligations of an estate from their own funds.
5. goods over $500
exception: SWAP
S - specially manufactured goods
W - written confirmation of oral agreement between merchants
A - admission in a pleading that a contract for goods existed
P - partial payment or delivery that has been made and accepted
6. surety
when someone is promising the debts of another.
main purpose exception: if guaranteeing the loan PRIMARILY BENEFITS the promisor… we are not worried about the Statute of Frauds and no writing is required.
But when you are guaranteeing the loan for YOURSELF… well… it’s a whole different story. No writing required. Just pay the damn loan if you want to pay it.
can we ever satisfy the SOF without a signed writing?
yes
1. in a services contract, full performance by either party will satisfy the SOF
2. in a real estate contract, partial performance by the buyer if 2 out of 3 are met: partial payment, possession, buyers improvements of real estate.
parol evidence rule
Bringing in evidence of the words of the parties, WRITTEN OR SPOKEN, that happen BEFORE or during the time the agreement gets integrated.
partial integration = no merger clause = you can supplement or add shit, but you can’t clearly contradict a term in the written contract
full integration - merger clause = The writing is BOTH FINAL as to ALL the terms it recites on the sheet of paper AND
COMPLETE, meaning the sheet of paper is a FULL, EXHAUSTIVE, FINAL, AND EXCLUSIVE RECITATION of all their hopes and dreams about this contract. NO OUTSIDE ANYTHING.
exceptions to parol evidence
- conditions precedent exception
- collateral agreement exception
- course performance exception
- explanation exception for ambiguous terms
- formation defect exception
- slip of the pen exception
exceptions to parol evidence - conditions precedent
Parol evidence is allowed when you are bringing in evidence to show that the effectiveness of the agreement was subject to an orally agreed on condition.
If something had to happen to trigger this contract into existence, “the car must pass the inspection before I buy”
Written agreement says “Mr. Meow agrees to buy Goats car for $9000”
However, Mr. Meow then claims this little conversation happened beforehand
“I will only buy this POS for $9000 if it passes an inspection first”
If it was orally agreed that something would trigger the contract into existence or not, then it gets in.
exceptions to parol evidence - collateral agreement exception
You orally agree to remodel my kitchen, we put that into a written contract, then you say “i’ll also landscape your yard”
This gets in because it
1) doesn’t contradict the direct terms of the written contract (about kitchen remodeling) and
2) it is not so closely related to the main contract such that it would be natural to include this in the main contract.
If it’s not directly connected to the main K, like building a home with a side oral deal to landscape, it comes in.
exceptions to parol evidence - course performance exception
When the contract is for the sale of goods, a contract can be explained or supplemented by evidence of course of performance, trade usage, or course of dealing.
We can use these to explain ambiguities and uncertain terms.
Useful in UCC contracts to figure out what the parties meant.
exceptions to parol evidence - explanation exception for ambiguous terms
So long as we are not adding or changing the contract, we can bring in evidence which explains the terms.
Even if a written contract is COMPLETELY INTEGRATED, parol evidence can still get in to interpret, clarify, or explain a term in the contract.
Some terms are confusing. We need to explain them with parol evidence.
parol evidence exception- formation defects
Fraud, duress, undue influence, incapacity, mistake, illegality.
Parol evidence of ALL of this can be brought in to show the contract wasn’t validly formed in the first place. It’s important we allow this to stop the scammers and city girls.
Fraudsters and scammers can’t trick us into signing away all of our bitcoin and not expect the evidence to come in.
parol evidence - slip of the pen exception
Courts can always consider parol evidence when we have a little typo.
what does parol evidence NOT apply to?
SUBSEQUENT MODIFICATIONS or agreements (either oral or written) AFTER THE CONTRACT AT ISSUE.
It only applies to evidence BEFORE or DURING the making of the contract, NOT AFTER.
All modifications that happen AFTER, get in.
when will oral modifications will not be enforceable in two little situations?
1) If the original contract says any modification must be made in writing;
2) If the modification causes the contract to fall into statute of frauds territory (orally modifies a contract for goods for $400 to $600)
when is conduct of the parties relevant?
1) explain the words of the contract AND
2) fill gaps
what three subjects should all be used together when they don’t contradict each other?
1. express terms - king of the jungle. beat boilerplate language.
2. course of performance- how they done shit before this contract. same contract and same people.
3. course of dealing - how they done shit in previous dealings. same parties but different contract
4. custom and usage of trade - do what’s considered industry norm, yo.
All about evidence involving different people in the same industry with the same types of contracts.
If a custom is widespread… and everyone should know it… it will apply to both people even if they are not technically “in the industry” i.e. a baker’s dozen IS ALWAYS 13 MY GOATS.
IF ONE PERSON ISN’T IN THE TRADE AND ONE IS - IGNORANT PERSONS TERM CONTROLS IF THE OTHER SIDE KNOWS THE IGNORANT PERSON DOESN’T KNOW WHAT THE HELL THEY’RE TALKING ABOUT
gap fillers
gap fillers are used by the courts in situaitons wher certain terms are not included in a contract for the sale of goods.
So if the price in a contract is: Not specified; Left open; or To be fixed by some standard the parties haven’t set yet…
The court will gap-fill this to a reasonable price at the time of delivery
If the time of delivery isn’t listed
It’ll be delivered in a reasonable time
If the place of delivery isn’t listed
Delivered to sellers place of business or seller’s home, since the seller has control over the goods. Issues relating to the goods and quality can be better managed at the seller’s place of business before he ships the fucking things out.
Time for payment isn’t listed
Time and place at which the buyer receives the goods
self delivery obligations
We have two different types of common carrier contracts(this is just a fancy word for a contract where we are shipping some shit to someone else)
The important part is figuring out when the RISK TRANSFERS FROM SELLER TO BUYER
Aka who pays for it if the goods get fucked up.
1. shipment contracts
When the seller gets the goods to a common carrier, makes reasonable arrangements for delivery, and notifies the buyer, the risk transfers to the buyer.
2. destination contract
The risk of loss if the goods blow up does not transfer until the goods reach the buyer.
identifying goods
the person who buys goods obtains an insurable interest in goods as soon as they are identified to a contract.
they are identified when they put shipping labels on them.
conditions / how they are different from contract provisions
Conditions are simply acts or events that must be complied with in a contract.
If they are not complied with, someone will not have to perform the contract.
Different from contract provisions
Failure of a contract provision = breach
Failure of a condition = relieves a party of the obligation to perform
Ex. “I’m not going to ship you the ‘dark side of dolphins’ theatrical cut documentary unless you notify me beforehand of the shipping instructions”
No notification = no shipping
It’s a condition
If the condition is not met, i will not perform for you.
express performance conditions
An express condition is a mutually agreed upon term that says that a party doesn’t have to perform if an event occurs or fails to occur.
Courts always honor these express conditions unless they are wildly unfair.
Express Condition Buzz Words
“If” “subject to” “provided” “in the event that” “on the condition that” “so long as”
Express conditions can only be satisfied by FULL and STRICT compliance with the terms of the condition.
The failure of an express condition is a breach of contract if there is no reasonable effort made to satisfy the condition in the first case
Plain English: If you don’t even fucking try to get a bank loan you can’t be excused from performance for failure to satisfy the express condition.
one instance where we don’t need strict compliance
Satisfaction Contracts
When it comes to contracts based on personal satisfaction …a condition will be satisfied if a reasonable person would approve.
If Rainbow Brown pays Goat to paint his house “subject to Rainbow Brown’s approval of Goat’s work” … this is a personal satisfaction contract.
Now this is kind of tricky but you have to understand that painting this house is not a fully personal taste matter, although it might seem to be.
The rule is that satisfaction usually means reasonable satisfaction of a person in the same shoes as the contracting party.
If an expert painter would have been satisfied… Rainbow Brown must pay Goat.
Satisfaction contracts dealing with non-artistic shit like an architect constructing a house or a painter painting a house = objective standard (if a reasonable person would approve, YOU APPROVE, you fucking scammer)
Discretionary matter of personal taste
If Rainbow Brown contracts with Goat to paint his portrait for $10,000 in the style of Jean-Michel Basquiat subject to Rainbow’s approval of the work… this is a discretionary matter of personal taste
Rainbow Brown could just be like… “what the fuck is this? I’m not paying for this. I don’t look like this” EVEN if an art expert would have approved of the quality of this portrait of him.
How could anyone in the world say Rainbow Brown was satisfied when he indeed was NOT in his heart satisfied?!?!?
But the court draws a fine-line between the aesthetic beauty of a portrait and the operative fitness and mechanical utility of a house being painted.
Satisfaction contracts dealing with art or personal taste = subjective standard (can disapprove for any reason)
Just remember the overall rule that you need good faith dissatisfaction if you are trying not to pay in personal satisfaction contracts.
Remember: Failure to comply with a condition results in an excuse, not breach. No performance needed by the other side if you don’t comply with the condition.
But what if Goat just didn’t do a goddamn thing?
He sat and watched Ricky and Morty for 47 hours straight and didn’t even try to get the loan?
Not allowed
when a condition is meant to protect one party
If a condition is meant to protect ONE PARTY … the other party can’t back out because there wasn’t strict compliance with the condition.
Let’s say Goat wants to buy Rainbow Brown’s house. It is his dream house. The house he had wanted his whole life. They drew up an agreement.
The agreement provides that Goat will purchase the house only if he can get a loan at an interest rate of 10%.
And lo and behold… he gets the loan approved but for 11% and NOT 10%.
So he said to Goat “The agreement was conditioned on you getting a loan with a 10% interest rate… sorry - you didn’t meet the express condition. You got an 11% interest rate loan so even though you have all the money ready to buy… I don’t have to perform. Good luck finding property elsewhere!”
THE CONDITION WASN’T EVEN THERE TO PROTECT RAINBOW BROWN… IT WAS TO PROTECT GOAT TO MAKE SURE HE DIDN’T GET ROPED INTO BUYING A FUCKING HOUSE WITHOUT A GOOD INTEREST RATE ON HIS LOAN
constructive conditions
Some conditions are not expressly stated in the contract… they are fucking invisible and the law creates them to avoid injustice
The only constructive condition that the bar exam has a 23% boner for is the fact that performances that can be rendered at the same time are due simultaneously
If Goat is selling his Lamborghini to Rainbow Brown, and the agreement is silent as to when payment is to be tendered… a constructive condition will obligate Rainbow to pay Goat at the time Goat delivers the Lamborghini to Rainbow Brown.
Write this next rule down or I will be furious with you: When one party’s performance requires a period of time… THE PARTY WHO HAS TO DO THE THING THAT TAKES TIME MUST COMPLETE IT BEFORE THEY GET PAID.
In service contracts, the constructive condition states that the SERVICE is to be done before payment is made.
The Bar Exam problem will say something like this:
Rainbow Brown and Goat agreed that Goat would build Rainbow Brown’s house for $1,000,000. (nothing stated in the contract about progress payments)
Goat will lay the foundation and then demand a progress payment of $5,000 before he keeps going.
Nope. Not going to happen. Nothing listed about progress payments in the contract = he must COMPLETE the work before he gets those green rectangles son.
conditions precedent
This just means a condition must occur before performance is due.
These are events or things which must happen BEFORE there is a right to performance.
If they don’t happen, people don’t have to perform.
Ex.
Kevin Tipcorn can use Goats porsche if it is sunny next week.
Not sunny. No porsche.
TRIGGER PHRASES
Provided that
On the condition that
If
Subject to
The failure to perform will NOT be a breach if the condition is not met. It’s an excuse for performance.
Courts sometimes decide a condition precedent is bullshit and the contract still must be performed if we have another holy trinity:
(1) the condition is small (not material);
(2) it is impracticable for the condition to occur; and
(3) the forfeiture that will be suffered is substantial if performance is excused.
conditions concurrent
Condition to occur at same time performance is due
I.e. you can use my tractor so long as you keep it filled with gas.
conditions subsequent
When a contract is enforceable until something happens
Condition cuts off already existing duty
I.e. you can use my tractor UNTIL you graduate from farming school (once you graduate, the contract becomes unenforceable.
You can buy my house unless zoning is changed
Once zoning is changed, contract is unenforceable. You cannot buy my house anymore.
doctrine of prevention
Doctrine of prevention states that a party must refrain from conduct that hinders or prevents the occurrence of an express condition.
This would be like in our earlier problem about Goat getting the 10% interest rate loan… if the seller called the loan place and told them not to give Goat the loan lol
YOU CAN’T PREVENT A FUCKING CONDITION
THEN USE IT AS AN EXCUSE FOR NON-PERFORMANCE
THAT IS CRAZY TO ME YOU WOULD EVEN ATTEMPT SUCH A THING
So let’s say the NCBE starts pursuing RICO charges against Goat Gang and their associates on r/GoatBarPrep
And they put out a reward out for $5,000,000 to anyone who can provide information that would lead to the capture and prosecution of Goat himself
So it came to be that u/BarExamKillerBee, Goat’s trusted assistant, went forward to give information on Goat and betray him. He was working with the NCBE all along. He never wanted to be a bee or support our goals on the Pasture.
So they captured Goat… but then they decided they loved his content and did not choose to prosecute him.
u/BarExamKillerBee was furious. They did not give him the money because the condition of prosecution was not satisfied.
But wait a second… those idiots were in control of the condition all along and they themselves prevented it from happening lmao
THEY STILL OWE HIM THAT MONEY
excuse of conditions
As we said earlier, the court will excuse non-occurrence of a condition if it wasn’t material and not enforcing performance will cause a BIGASS loss to one side
But sometimes a court will excuse a condition because the person protected by the condition just…. well…. didn’t give a fuck
Conditions almost always benefit one party.
99% of the time, they benefit one party.
And a contracting party can waive a condition which is for their benefit.
The only little caveat is that they would be bound by the waiver if the other party had reasonably, foreseeably and detrimentally relied on that waiver. If the other party had NOT relied on it… they could retract it.
Let’s get into an example:
Let’s say we have a deadline for you to build my house by January 1st
On January 5th the house isn’t done so I say “don’t worry about the deadline, I like how it looks… just keep working hard. I’ll pay you anyway”
There we go. Waiver. Spotted in the wild.
A waiver is based on a statement that occurs after a condition was supposed to occur (in this case, the deadline).
In this scenario, I could retract it right after I said it to you… but if you keep working until January 20th… well…. now you’ve relied on the waiver and I can’t retract it. I am paying up.
So while a waiver is based on a statement (NOT just silence) that occurs after a condition is supposed to occur, an estoppel is based on a statement that a protected party gives before a condition was supposed to occur that excuses it
Example: Let’s say you are supposed to build a house for me by January 1st, the same situation as before.
If on December 20th I say “Don’t worry about that whole January 1st deadline… just have it done in a reasonable time. I just want it to look beautiful!”
You rely on this and slow down the construction to make sure everything is done beautifully.
On January 2nd I sue you
You ask me why I did this after I told you it was okay to slow down and make sure everything was beautiful
My response: it is what it is
I will not be allowed to do this through the doctrine of excusal by estoppel
When a party that is protected by a condition waives it by making a statement beforehand, and the other party relies, the protected party will not longer be protected by this condition.
WAIVER = AFTER
ESTOPPEL = BEFORE
ucc perfect tender
A seller is obligated to make timely delivery of perfectly conforming goods (perfect tender)
Article 2 says that a seller is required to deliver goods that exactly meet the terms of the contract in terms of quantity and quality.
ucc imperfect tender
When a seller promplty ships non-conforming goods.
It is an acceptance, but it is also a breach.
So it’s an acceptance and breach UNLESS the seller notifies the buyer within a reasonable amount of time that the non-conforming shipment is offered only as an accommodation -> then it will not be a breach, it will be a counter-offer
What can a buyer do after imperfect tender??
1. Accept the whole shipment
2. Reject the whole shipment
3. Accept any units they want and reject the rest, paying the contract price for the accepted units
So when a buyer rejects goods they are entitled to a refund of any payment (obviously they get the money back).
But if the seller doesn’t give them a refund, they must:
1. Follow reasonable instructions from the seller about what to do with the goods; OR
2. If they don’t get any instructions on what to do with the goods… they have to make a reasonable effort to sell the goods and apply the proceeds to what is owed to the seller (minus expenses incurred while selling them)
And REMEMBER… if the buyer ACCEPTS non-conforming goods… they must pay the actual price of the non-conforming goods (minus any damages they suffered from not getting the full shipment)
If you ordered three ostrich eggs for $300… if only one showed up (imperfect tender)… you’d still have to pay $100 (the bar exam sometimes tries to trick you by giving you a wrong answer choice saying you have to pay fair market value only…. no)
And one final note… sometimes… the seller can actually cure his little “imperfect fuck-up” by sending conforming goods later on… but…
The seller can cure ONLY if the time for performance has NOT expired yet
If you fuck the milk up (the imperfect tender), and performance isn’t due YET…. you can still send the good milk. That is the metaphor I want you to remember
If the time for performance HAS expired… the seller cannot cure UNLESS… I repeat… UNLESS the seller would have some reason to believe that improper tender would be acceptable to this buyer (maybe the buyer had accepted improper tender in the past)
The buyer would have a duty to allow this if the seller could get them the right goods in a “reasonable time”
YOU CAN CURE UP TO THE TIME OF PERFORMANCE
IF PERFORMANCE IS DUE BUT THE BUYER IS A CHILL STONER AND HE WILL BE COOL WITH IT, YOU CAN SEND HIM NEW GOODS IN A REASONABLE TIME AFTER PERFORMANCE
installment contracts
If the contract either explicitly or implicitly requires installments in separate lots to be accepted separately… the contract will now be subject to the rules of installment contracts
Ex. It will say something like “the cookie factory contracted to deliver 100 pounds of cookies every Monday for 10 weeks in a row” … the contract will EXPLICITLY TELL YOU RANDOM SHIT IS BEING SHIPPED… AT DIFFERENT TIMES… IN A LITTLE PATTERN.
THAT’S AN INSTALLMENT CONTRACT.
SEPARATE SHIPMENTS, SEPARATE PAYMENT.
Under installment contracts it is hard to reject any single shipment under an installment contract. And it’s even tougher to get rid of the rest of the whole contract.
An installment contract is an exception to the perfect tender rule since a buyer only has the right to breach when there is a little something called substantial impairment of the installment or the whole contract
substantial impairment: One broken lava lamp out of a whole 20 car-load separate installment contract is DEFINITELY not enough to claim a substantial impairment on the value of the whole contract.
SPRING IS ALWAYS DELIGHTFUL
substantial impairment in an installment contract
substantial
impairment
accept
deduct
You can reject an installment only if the partial installment can’t be cured and is a substantial impairment.
But wait a second… forgive me. How will we know the defective installment caused a substantial impairment in the value of the contract or installment on F24?
The MBE will say something like:
The broken lava lamp caused a substantial disruption in Goat’s business.
You have to look at how important the goods that got fucked up were to the overall contract or individual installment.
If I run a cookie shop and you normally send me 10,000 cookies and I only got 9,800 cookies… yea that’s not substantial.
But if I run a custom wedding cake shop and I only sell three custom wedding cakes per month… and you forget to deliver me the special flour or something… I mean that could seriously fuck up one of my three cakes.
That’s a substantial impairment
acceptance UCC
a delay in rejection / advanced payment WITHOUT time for inspection the gods
delay in rejection: If you don’t say anything for a reasonable amount of time (the normal rule is one month) … you’ve accepted that shit.
But Goats remember… the bar exam kind of likes to test this whole inspection of the goods nonsense.
Advanced payment WITHOUT time for inspection of the goods is NOT acceptance.
So sometimes you can revoke the goods after acceptance in limited circumstances.
A proper revocation of acceptance will be considered a rejection.
requirements for revoking a good after accceptance
1) the defect substantially impairs the value of the goods AND
2) there was difficulty of discovering the defect (or a reliance on the assurance of the seller)
AND
3) there was a revocation of acceptance within a reasonable time after the discovery of the defect.
Imagine going to Best Buy and the sales rep is like “oh my God… yea this computer is just… OLED is an understatement… this fucker has an 8K screen. 6G? This is 6G+ and connected to Google Fiber Starlink. The screen makes you feel like you’re living in an alternate dimension. The functionality is gorgeous. But you can’t open it up in the store… you need to take it home first.”
So you’re like “Yea… I accept that Kyle. I can’t wait to check it out!”
Then you go home, take the laptop out of the box, and open it up:
Busted as hell…
you can obviously revoke this acceptance.
what do common law contracts require re: performance?
minor and major breaches
Common law contracts do not require performance… they only require substantial performance which just means there can be no material breach
Let’s take it back to the basics.
If one party substantially performs their little performance, like building a house or some shit… the other party has to perform with that cash money
A material breach by one party will excuse the performance of the other party.
A material breach of contract is a breach (a failure to perform the contract) that strikes so deeply at the heart of the contract that it renders the agreement “irreparably broken” and defeats the purpose of making the contract in the first place.
My Goats… a material breach must go to the very root of the agreement between the parties. If there is a material breach (or “total” breach), the other party can simply end the agreement and go to court to try to collect damages caused by the breach.
Example: If I order one of my famous Koenigsegg Jesko’s (I have three now)… and the brake caliper is blue instead of red… that’s not material. That’s a minor breach
What about time for performance? Is not performing the contract on time a material breach?
No it isn’t.
Failure to perform by the time stated in the contract is not a material breach, so long as the contract is performed in a reasonable time.
UNLESSSSSS the contract says “time is of the essence”
A minor breach will not excuse performance by the other party however
So what can the non-breaching party do if one side does a minor little breach but still substantially performs?
Non-breaching party remedies for the minor breach.
A minor breach will not excuse anyone from the contract.
If the breaching party substantially performs but still has a minor breach, they get the cost of their performance offset by any damages.
(contract price - cost to fix defect)
If the cost to fix the damages would be too steep though… you will just get the contract price minus the diminishment in market price.
What can the breaching party get when they commit a total breach? (also known as material breach)
When the breaching party materially breaches and gives me the pink Kia Soul instead of the Koenigsegg Jesko… well… there is no remedy under contract law for this big of a fuck up.
You would have to pursue it with our old trusty friend Mr. Quasi-Contract.
divisible contracts
A divisible contract is simply one in which the different parts of the contract are unrelated and can be divided.
The test for whether a contract is divisible is this:
* Each party’s performance is divided into two or more parts, and they each have equal little obligations.
Let’s say I want you to build two houses for me… on two different lots… for two different prices… one for $10,000 and one for $12,000
So you build the first one…
Then suddenly you just disappear and pursue a career in dentistry
Do I have to pay you for that one house you built?
I mean… you didn’t do half the shit I asked… this breach seems pretty…. substantial? Right?
NO.
I still have to pay $10,000 for the first house.
How will we recognize a divisible contract question on the bar?
They will start throwing out all these different prices
“Jimmy contracted with Bob to build his house. The bathroom was $35,000. The smaller bathroom was $12,000. The third tiny bathroom in the basement was $4,000.
The motherfucker Bob will just do the tiny bathroom and then disappear.
But he still gets that $4,000.
GOAT TRICK: a full house isn’t “divisible” if it’s all one price. Just because Bob builds the staircase AND a roof in one house doesn’t make it divisible.
Divisible = separate shit with separate pieces.
SUMMARY: look for construction contracts where everything is a different price. That’s divisible boo.
anticipatory repudiation
If a party repudiates before performance through either their words OR actions… I don’t have to pay shit. I don’t have to wait the additional 10 days until performance is due.
Suppose that Goat pays Rainbow Brown to design him a carriage in 30 days which can be hooked up to multiple goats so he can ride around the town and impress everyone.
After 20 days Rainbow Brown calls him and says “I regret forming this contract. It doesn’t make sense why anyone would want this. This is the stupidest idea ever Goat. I definitely will not perform and I will not help you design this.”
I can immediately treat this as a total breach.
I can terminate the contract, bring an action for breach, and contract with another party to make my goat carriage immediately.
I don’t have to wait the additional 10 days until performance is due.
But I may also sit still and wait.
Hoping Rainbow Brown has a change of heart and sees the beauty in creating a carriage like this. And as long as I sit there for those 10 days and silently wait… Rainbow can still retract his repudiation.
If, however, I don’t sit still… but I terminate the contract, and/or hire another party to substitute Rainbow to make my goat carriage, and/or bring a LAWSUIT against Rainbow for not making my goat carriage, and/or otherwise alter my position in RELIANCE on Rainbow’s repudiation… then Rainbow will lose his power to retract his repudiation
He will simply remain in breach until the time runs out my friends.
Usually on the bar exam someone will change their position by either (1) hiring someone else, or (2) purchasing a substitute good
Remember: Anticipatory repudiation can only arise when both parties actually have duties under a contract though. There can’t be an anticipatory repudiation… when no contract is formed yet lol
Anyway just remember we need -> CLEAR and unambiguous statement that the repudiating party will not perform made PRIOR to the time that performance is due by them. This excuses the other party’s duty to pay any money. It gives rise to immediate claim for breach. Can be reversed or retracted so long as there has been NO material change by the non-breaching party.
adequate assurances
Under the UCC… if a party truly has reasonable grounds to believe the other party will be unwilling to perform when performance is due… the party has a right to demand adequate assurances
FOR CONTRACTS INVOLVING THE SALE OF GOODS… the nervous Nancy party may IN WRITING demand adequate assurance that these lazy motherfuckers will perform
Goat-Note: This is a UCC provision but many courts have extended it to common law contracts too… so I’ll talk about both.
No this isn’t anticipatory repudiation my Goats. That is when we are SURE they are UNAMBIGUOUSLY NOT PERFORMING THEIR TASK
This is about DOUBT
requirements for adequate reassurances
WHEN WE HAVE DOUBTS we must:
1) make a DEMAND for assurances
2) the demand must be in WRITING
The non-ucc contracts allow it to be oral or written
3) the demanding party MUST have REASONABLE grounds for insecurity at the time of the demand that the other party will indeed perform.
The other party ONLY needs to respond if the demand is REASONABLE and JUSTIFIED
4) the stronger your grounds for doubt, the more you can demand… but you can’t just go NUTS and ask for a 100% deposit or something. This will be considered a repudiation bt your nervous ass.
5) under the UCC… an innocent party can SUSPEND their own performance until they receive adequate assurance of their performance from the other side… if they don’t, they can treat it as a repudiation.
reverse repudiation
You didn’t repudiate, but we checked your pockets and you ain’t got no bread.
Just remember unless someone is clear and unequivocal you must demand ADEQUATE ASSURANCES FIRST.
Reasonable and justified demand → 30 days for the other side to ponder upon this → or we are TREATING YO ASS as if you anticipatorily repudiated on us.
Remember… if someone just says “yea I might not be able to deliver your new Koenigsegg Jesko….” you have to demand REASONABLE assurances BEFORE YOU TREAT it as an anticipatory repudiation. The bar exam LOVES when people are coy and kind of meek and are like “yea… maybe…”
The bar exam loves to have a scenario where someone is being a pick-me and they’re like “maybe…. maybe I might not be able to perform. I guess this is just a pity hang-out. I’ll maybe just leave. I guess nobody cares about my performance. Nobody cares about a good performer with a good heart.”
You CAN’T treat that as a repudiation.
A mere request to cancel a contract is not an immediate repudiation either (but if they say they cannot perform unless you pay them more money… that’s a total breach)
good faith and fair dealing
In every single contract, there is an implied promise of good faith and fair dealing where both parties essentially promise not to do anything to injure the rights of the other party or block them from receiving the benefits of the contract
Parties to a contract can NEVER agree to NOT act in good faith lol
Imagine a contract that said “we agree to viciously fuck each other over”
If you deprive the non-breaching party of a benefit of the contract either (1) intentionally, or (2) by unintentionally acting in an unfair manner… you’ll violate the covenant of good faith and fair dealing.
In employee contracts - treating certain employee’s differently for no reason, improperly threatening to fire employee’s, terminations for unconstitutional reasons… these are all considered to violate the covenant of good faith and fair dealing.
Basically THREATS will always violate the covenant. There’s usually nothing in a contract that says “you can’t threaten me” …. but when people do, and the threat is related to the contract at issue… it’s usually a violation of good faith.
Example: I threaten to fire someone unless they waive a claim of hostile workplace environment against me.
Not allowed. Not good faith.
Lately the MBE likes to test little problems where someone will try to stop someone else from doing something in bad faith.
The contract might say “i’ll breed the puppies and you sell them for me.” then you don’t let the seller show anyone the puppies ever because you’re cuddling with them 24/7.
Bad faith prevention.
Can’t prevent your landlord from showing your apartment to other people.
Can’t wrongfully refuse to approve work that was done correctly.
Can’t fail to fix a price term for no reason if you both agreed you’d set that price later on.
Can’t fire someone for no reason.
express warranties
Fact or promise about goods; applies to merchants and non-merchants.
These are warranties made from words (facts or promises) about the goods.
These don’t have to be formal words (like ‘guarantee’ or ‘warranty’)… just that a reasonable buyer would regard the representation as providing assurance about an aspect of the product.
“This car has never been in an accident!”
“This car includes a brand new engine!”
This is not an opinion statement like “this car is great!” …
THAT’S NOT AN EXPRESS WARRANTY
Showing someone a sample or model is an express warranty through conduct.
The express warranty is basically treated like a contract term, it’s a binding promise that is treated like any other contract term.
implied warranty of merchantability
Says that goods are merchantable. Applies ONLY TO MERCHANTS.
When ANY person buys goods from a MERCHANT (a seller who deals in goods specifically OF THAT KIND)… an implied warranty of merchantability will automatically be added to the contract by operation of law
Goat-Note: Serving food and drink at a restaurant carries an implied warranty of merchantability. So if your sushi is fucked up… you can come for those people (I eat sushi 14x a week).
implied warranty of fitness for a particular purpose
It happens when a seller
(1) knows the particular purpose for which goods are going to be used by a buyer, and
2) the buyer is RELYING on the seller’s skill and judgment to select suitable goods.
Remember… when we say goods are merchantable… we are talking about goods that are generally acceptable
But what if I tell the merchant I want the finest umber colored shearling coat for my bi-annual trip to St. Moritz for an old money ski retreat
If the merchant (1) knows what I want, and (2) I am relying on his skill and judgment to select me the perfect shearling coat… yet he STILL recommends the North Face to me… he has breached the implied warranty of fitness for a particular purpose. I will sue.
disclaimers as warranties?
Express warranties CANNOT be disclaimed.
If a contract says: “the lord piano shearling coat has a lifetime warranty. We will fix it any time after purchase.”
And below that it says: “all warranties are disclaimed.
UMMM NO.
Express warranties cannot be disclaimed like this.
Implied warranties can be disclaimed
You can use language such as “as is” or “with all faults”
But the disclaimer must be conspicuous
(usually directly mentioning that it is disclaiming the warranty of merchantability, etc.)
You can also limit the damages of warranties by saying things like “the warranty liability shall be limited to $10,000” … and you can do this for both express and implied warranties.
The test is whether the limitation is unconscionable or not.
And one last point: you cannot limit remedies for personal injury related to your goods. You can’t have a warranty that is like “yea if this FitBit lights on fire and then sets you on fire… well… you can only get $12 for that.”
Nope.
A trick that the MBE will sometimes give you is two doofuses will be trying to put together a contract.
One will be a merchant. One won’t.
So the merchant will be like “I’m going to sell you a blender for $1,000”
The customer will be like “great! I ACCEPT. haha but it needs to have a warranty of merchantability. Thank you <3”
THIS WILL BE A DAMN ACCEPTANCE. THE WARRANTY OF MERCHANTABILITY IS ALREADY… IMPLIED… IN ALL THESE MERCHANT CONTRACTS.
risk of loss
Carrier contracts
seller has risk of loss until they deliver to carrier
Destination contracts
seller has risk of loss until they deliver to buyer.
Non-Carrier contracts
Where we aren’t shipping shit.
If the seller is not a merchant, the risk of loss passes to the buyer upon tender of delivery. Tender of delivery occurs when the seller makes the goods available to the buyer and notifies the buyer that the goods are ready for pick up. These rules may be modified if the contract is breached.
BOOM. Seller says “come pick up these fancy spices” RISK OF LOSS if they blow up passes to the buyer then.
If the seller is a merchant, risk of loss passes to the buyer when the buyer actually takes physical possession of the goods.
NAMP
Non-merchant
Available
Merchant
Possession
If a seller delivers non-conforming goods… the risk of loss REMAINS on the seller until the buyer either ACCEPTS or there is a cure.
If I buy 10 Seka-Ichi apples from you, But you send me 8 seka-ichi’s and two gasp honeycrisp apples… we’ve got a huge problem
So even if we HAVE a carrier shipment contract -> when the seller places the 8 seka-ichi’s on the truck… risk of loss shifts to me. But as to the TWO lowly honeycrisp apples… if these get stolen in transit by a honeycrisp apple thief (maybe a horse or something?) the risk remains with seller until there is acceptance of the honeycrisps or a cure.
frustration of purpose
Where two parties manifest a belief, to an absolute certainty… that something in the future will occur (like the parade here)… then it doesn’t occur.
This doesn’t render the contract voidable… it’s basically like a condition subsequent. It discharges the party who got fucked over from having to perform any unperformed future obligations.
Let’s say you dreamed of going to the Macy’s day parade since you were a little kid, So when you grew up you arranged to book a special hotel room which overlooked the parade. You told them you wanted to pay $10,000 for their “Special Parade Day Hotel Room” because it had such a beautiful view.
But the morning of the parade, when they were setting up the floats… disaster struck
A crazy person punctured all the floats
So the parade was canceled an hour before you were supposed to check-in.
This is an example of frustration of purpose
If I haven’t paid for the hotel yet… great! I don’t have to anymore.
If I had paid for the hotel… in whole or in part… I might be able to recover under… you guessed it… our stupid ass little friend restitution
Haha Goat that’s great! I get it! The parade!
But wait… that’s just a mutual mistake they had isn’t it? About the parade happening? So mutual mistake is frustration of purpose?
No… mutual mistake is not the same as frustration of purpose.
A mutual mistake is a mistake about a circumstance which existed AT THE TIME WE CONTRACTED
WE BOTH THOUGHT THE PRIZE GOAT WAS GOING TO BE ABLE TO FUCK AND CREATE MORE PRIZE GOATS… THEN WE FIND OUT HE’S STERILE
WE BOTH THOUGHT TREEACRE HAD TREES
Frustration of purpose is about some shit we think will happen in the future that doesn’t happen
Mutual mistake is some shit we thought existed in the present
Goat-Note: Frustration of purpose is not applicable in sale of goods contracts. These are only available in contracts where both parties have a purpose in mind… the purpose can’t just be the goods lol
impossibility
Let’s say that when Goat was about to check-in, the secret vandal popped the Barney float. And it crashed into Goat’s hotel and leveled it to the ground immediately.
It is now objectively impossible for this contract to occur. Goat cannot rent a room overlooking the parade… when the WHOLE HOTEL HAS EXPLODED
THE SUBJECT MATTER NECESSARY FOR THE CONTRACT IS DESTROYED
GOAT-NOTE: IF IT’S GOODS LIKE A BANANA THAT ARE DESTROYED… THAT’S NOT IMPOSSIBILITY… YOU CAN ALWAYS GET MORE FUCKING BANANAS
personal service contracts / impracticability
Measured by a subjective standard.
This is when only one party cannot perform because circumstances have arisen which make it extremely difficult and unreasonably expensive
Example: The winter storm of a CENTURY delays delivery of goods on time, delivery will be impractical
The circumstances must be UNFORESEEN at the time (a surprise government embargo, hurricane Katrina, etc.)
This will excuse a party from performance.
If a seller is only able to PARTIALLY perform… they still must perform up to that extent.
Example: If I have a shortage of goods… I still need to try and partially perform and apportion them among the customers I need to serve, even if I can’t serve everyone fully
If someone is hired to be a construction manager and he falls and breaks his legs… he technically still could be the construction manager… but impracticability will excuse his performance and he will not be in breach.
sickness
Sickness will excuse nonperformance of a personal service contract and a party may recover for their services rendered… so long as their sickness was NOT foreseeable
Temporary sickness will allow the other party to suspend performance… and then if the sickness goes on too long they may be able to cancel the contract.
Example: You’re a pickle ball instructor hired to teach a 10 week class and you miss the first four weeks… they can suspend your pay… then they can eventually cancel the contract on you because of the UNCERTAINTY and the need to hire someone else (especially if the replacement demands the full rest of the contract to begin working). Basically they have to wait and see and then can fire you if it becomes too impractical to keep you on.
Temporary impossibility = suspension of performance by the paying side UNLESS continued suspension becomes impractical… then they don’t have to pay shit.
But you can’t recover if you stop working because someone like a family member is sick.
Remember my Goats, once a contract has been rendered unenforceable or excused through something like impossibility or impracticality… and you have already performed a little bit… you need to ask for restitution for the work you have already done.
If you have been contracted to remove some boulders for example… and you tried for three days… then a mud-slide REMOVED the damn boulders… you must be PAID for those three days you tried… in restitution.
death
Death excuses non-performance and you cannot sue the estate if someone dies
HOWEVER, it only excuses the performance when the personal services are UNIQUE -> like if someone hires a SPECIFIC painter to paint a glorious Van Goat painting.
Not when the services are non-unique and therefore delegable -> performance will not be excused and the estate will have to pay for it.
free on board
a free on board contract is where the seller has the duty to deliver the goods on board ship at his own expenses for carriage to the buyer.
material breach
where the non-breaching party has an immediate right to ALL remedies for breach of the entire contract, including total damages.
after a material breach, the non-breaching party’s duty to perform is then discharged.
minor breach
non-breaching party can recover damages to the extent of the minor breach, but their duty of performance will not be discharged following a minor breach.
what will be treated as a material breach that is not on face a material breach…
a minor breach coupled with anticipatory repudiation.
a breach of action without any viable defenses…
leads to a cause of action (lawsuit)
what are the standard damages which are given as a breach of contract remedy?
compensatory damages
This is a fancy word for damages that put the non-breaching party in AS GOOD of a position as if the contract had been performed without a breach
The biggest issue with these compensatory damages is that they must be reasonably certain
And this makes sense… we want to put you in as good of a position as if the contract had been performed… not in a better position..
two standard measure of damages
- expectation damages
- reliance damages
expectation damages
Expectation damages are our baseline goal. This is goals for us.
They are meant to simulate the economic situation that the non-breaching party would be in by awarding them the value of the other party’s performance + incidental and consequential damages MINUS costs/loss avoided by not having to perform
Let’s say one summer I was hired as a ferris wheel operator in Gurnee, Illinois.
I was contracted to be paid $3,000 for working three months in the summer.
Anyway… one day into the job I was eating a brownie that my co-worker Charlie gave me
My boss thought it was a pot brownie, but it ended up just being a normal brownie.
So they fired me and hired someone else and wrongfully broke my contract.
So now I’m out $3,000.
And I have to drive my dumbass to Kahlahari Resorts where I get a job interview.
It is the only other nearby amusement park and costs me $100 in gas to get there.
My skills were only transferable in a very limited situation though… I was only good at operating ferris wheel machinery.
The waterpark job proved to be too complicated.
I didn’t get it.
So I ended up having to travel even farther to take a job at Safari World for only $500 for the remainder of the three months in summer. Brutal. They were running a sweat shop at this place, but I loved the work and my new outfit.
So what am I owed to simulate the economic position I would be in had I not been breached upon?
Well…
$3,000 (my original contract) is what I was owed before I was breached upon.
but I still ended up making:
$500 (my new contract) and I have to deduct this as mitigation
What we were promised (minus what we got) $3,000 - $0 = $3,000
PLUS (+) Other losses we incurred as a result of the breach: +$100 to drive
MINUS (-) Costs avoided by discontinuing performance (none lol I was a fucking ferris wheel operator)
MINUS (-) Loss avoided by mitigating losses (in this case, $500)
$3,100 - $500 = $2,600.
I’ll see you in court Six Flags.
reliance damages
Reliance damages reimburse expenses and losses incurred because someone breached you. A breaching party cannot recover on a theory of reliance.
when expectation damages are too speculative.
Let’s say famous designer ~Goat gets hired by Anna Wintour to unleash a completely untested ad campaign
~Goat was the creative director at Givenchy but he decided to leave and forge his own path in the industry
The campaign was simple yet profound by modern day standards.
It was simply titled: Capricorn Elegance
~Goat scoured every pasture in North America and Sweden to find the most aesthetic and gorgeous Goats to place on his ads.
Right before the launch of the campaign, Anna Wintour had already spent $1,000,000 in preparation of Capricorn Elegance -> by hiring new staff, buying new materials based on the influx of business it would bring, having Goat runway shows to bring interest in the brand, and hiring photographers from National Geographics….
Then, at the last moment, ~Goat caved from the pressure of PETA and cancelled the campaign.
He pulled out.
Anna was furious. She says the campaign, if launched, would have made Vogue $75,000,000. She demands expectation damages to simulate the position she would have been in had ~Goat not breached.
But we have one problem: no one had ever done a Capricorn Elegance campaign before.
The expected profits will be far too speculative, and we know that compensatory damages must never be speculative
So the court won’t give Anna the $75,000,000.
But what will they give her?
They’ll give her $1,000,000.
The money she already spent in reliance on the contract.
Reliance damages are simply the cost incurred by performing.
To determine reliance damages we ask ourselves “what money would the injured party have had if they didn’t act in reasonable reliance on the breacher’s promises?”
Anna would have had $1,000,000 more in her gorgeous pockets
So that is what we give her.
She relied on ~Goat’s promises and lost a Milly.
restitution
Restitution is used by a breacher or non-breacher to get the VALUE of a benefit conferred.
Suppose that before Goat breached his contract he did provide this single image to Anna Wintour, which she kept and used.
A party that materially breaches can still recover under a theory of restitution the amount of the benefit that their performance gave to the non-breaching party.
Restitution can be had in any type of contract. Just remember though… it typically will not apply when there is no contract. Parties are free to negotiate without any risk of liability if negotiations fail.
Restitution only applies when the breaching or non-breaching party has partially performed and conferred a benefit onto the other party… the moment they fully perform they are limited to damages under the contract.
I mean look… restitution requires a benefit. Reliance doesn’t. So if you told me I’m coming to the Super Bowl and I spent $40,000 buying Travis Kelce + TSwift jerseys… well… that didn’t really benefit anyone besides me. So I’d seek reliance.
Blah blah blah you get it my Goats, basically (the most common scenario in the MBE) is that you gave them a benefit, breached them, then you are entitled to recover the benefit IN EXCESS of the loss you caused as a result of your breach. You get the value of that image (virtually priceless in my eyes).
Quick side-note: restitution in a quasi-contract is simply called unjust enrichment or quantum meruit (latin for “this is what we deserve in our heart, give it to us or forever hold your peace… just as we have given ourselves to you”)
Anyway, to put it simply… ~Goat will recover for this single image under restitution… Anna Wintour can only recover against ~Goat under a theory of reliance (since she didn’t confer any benefit on him).
restitution example
Let’s do another example.
This one set at a prized high-end rabbit auction at Sotheby’s:
All the top rabbiteers and high-end rabbit dealers were present.
It was the mandatory billionaire pit-stop between the Monaco Grand Prix, Cannes Film Festival, and Art Basel.
Goat, of course, was there as well.
He had heard whisperings of a prized Holland Lop x Harlequin hybrid rabbit that was bred from a descendant of Farmer McGregor, the original owner of Peter the Rabbit
The bidding began at $55,000. Goat stood by patiently waiting to bid.
Goat won the rabbit at $1,500,000.
Goat puts a down-payment down of $100,000 to secure it before the payment is finalized.
In preparation for the arrival of the prized rabbit he builds a $40,000 rabbit enclosure
But Sotheby’s decides the rabbit is too beautiful. So they don’t deliver him to Goat.
Goat has to spend $2 million to get a comparable rabbit.
So the question on F24 will ask: which amount could be best described as restitution?
$100,000 (the down payment) we get the benefit we gave to the other party. That’s it.
The stupid-ass rabbit enclosure DID NOT CONFER A FUCKING BENEFIT ONTO THE SELLER LMAO. THAT WAS FOR GOAT’S OWN SICK DESIRES AND WOULD BE PART OF HIS EXPECTATION INTEREST, NOT RELIANCE
NO ONE WANTED GOATS WEIRD ASS TO RELY AND BUILD A RABBIT ENCLOSURE… TF. IN FACT IT SHOULD BE ILLEGAL TO BUILD A RABBIT ENCLOSURE LIKE THAT.
The $500,000 difference between the two prized rabbits DID NOT CONFER A BENEFIT ONTO THE SELLER. NOBODY ASKED YOU TO DO THAT.
THE ONLY BENEFIT THAT WAS CONFERRED ONTO THE SELLER….
restiution v reliance
restitution - the breaching party most often goes for - it is what you give.
reliance - the injured party goes for - it is what you spent.
Once again just remember the difference is that reliance doesn’t require a BENEFIT.All those stupid expenses Anna Winter spent didn’t really… BENEFIT designer ~Goat. So she went for Reliance. That $100,000 BENEFITTED Sotheby’s, so Goat went for restitution only on that. He may be able to recover the rabbit enclosure in RELIANCE.
incidental damages
awarded in addition to compensatory damages.
These are reasonably foreseeable damages which flow forth from the breach.
They aren’t directly caused by the breach, but are a secondary result of it!
special damages
are losses resulting from the requirements or needs of the non-breaching party which the breaching party AT THE TIME OF FORMING THE CONTRACT had reason to know of and which could NOT be prevented by cover.
The key to these damages is that both parties must be aware that this loss could happen to the non-breaching party OR if the damages are special and unique… the side who suffered the special and unique damages has the burden of proving they made their special little circumstance CLEAR TO THE OTHER PARTY at the outset.
It makes sense… I mean if you told them some weird shit was going to happen to you if they breached… well… they were on notice and should be liable for the weird shit as well.
So our rule is:
- Breaching party has to know of the reasonably foreseeable damages (an objective test)
- Breaching party does NOT have to foresee how big they will be, but needs to foresee the type of loss
- Damages have to be a probable result of the breach of contract
Then the plaintiff has to prove the damages with reasonable certainty (if the buyer doesn’t cover, this could stop them from getting certain consequential damages)
consequential damages example
So let’s say I contract with you to pick your grapes AS SOON AS POSSIBLE BEFORE A BIG STORM.
And we both KNOW this massive fucking storm is on the horizon.
Hurricane GOAT is off in the distance about to fuck this whole vineyard up.
But I still didn’t pick your grapes as the storm approached.
Even though I had Accuweather installed on my phone. We talked about the storm. I changed my weather setting from Cupertino California to Napa Valley and I was monitoring the weather situation as it unfolded.
So next thing I know the storm hits and destroys all your grapes
I am definitely paying out consequential damages for foreseeable lost profits on this. I was fully aware this crazy storm was about to come and fuck up your whole life.
Whereas if I’m one day late delivering to your dentist practice a Dyson air purifier… uh… nobody is getting consequential damages for that. I’m not aware that any lost profits or anything will flow from that.
common forms of consequential damages
the most common form of consequential damages is lost profits.
Other forms of consequential damages include property damage, personal injury, loss of use, loss of goodwill, and interest on money withheld by customers.
Attorneys fee’s are NOT consequential or incidental damages my Goats. Attorney’s fees are just seen as part of the game when it comes to this legal life.
And no… one party having a heart attack after they get breached is not foreseeable lmao… the MBE really tried to be slick with us.
what will the MBE say when they are trying to tell you consequential damages don’t apply
they will say one of the parties “did not know” something.
they’ll be like “yea they were late delivering the puppies, but they did not know the westminster puppy show was tomorrow.”
reasonable certainty standard for loss profits
Let’s say you are a new business who sells custom bespoke top-hats to rabbits
And you get MAJORLY breached by your tophat materials supplier.
You can’t just say “yea even though I started this business yesterday… if you didn’t breach me I would’ve made a million dollars… so when you breached me I should get $1,000,000 in damages as consequential lost profits”
How in the fuck did you calculate you would make $1,000,000 in a custom top-hat business for bunnies that no one else had ever done before?!
There is a reasonable certainty standard when it comes to lost profits for both established and new business and you need to provide evidence using:
(1) comparisons with similar businesses in your industry and their profits,
(2) economic or financial data, or
(3) experts to show what the profits would have been.
Otherwise your little fake “lost profits” for your bunny hat business will be SPECULATIVE. And you know damn well we are not fucking around with speculative damages out here in these Contracts streets.
incidental damages
These aren’t costs that flowed from the breach necessarily… these are costs you incurred dealing with the breach itself.
Incidental damages are DIRECTLY and IMMEDIATELY tied to the breach whereas consequential damages are secondary or indirect losses from the breach but are not DIRECTLY caused by it.
If a product is defective for example, the cost of shipping it back and obtaining a replacement are examples of incidental damages. Inspection, transportation, and care and custody of fucked up goods are incidental.
Incidental damages are ALWAYS, I repeat… ALWAYS recoverable.
article 2
basically tries to put the innocent party where they would have been had the contract been performed. Sound familiar? Article II is shooting for those EXPECTATION DAMAGES.
But here is the confusion… there is quite literally four different scenarios involving breach and they are all fucking different depending on whether the buyer breaches or the seller breaches… and whether or not the buyer or the seller keeps the goods.
- buyer breaches and buyer keeps the goods
- buyer breaches but seller keeps the goods
- seller breaches but buyer keeps the goods
- seller breaches seller keeps the goods
ucc article 2 - when the buyer breaches and keeps the goods (1/4)
Let’s say Goat buys ceramics because he loves the way they look.
The ceramics arrive in the mail.
But slowly yet surely… he realizes he doesn’t actually have any money to pay for these.
Yet they are so beautiful he decides to keep them anyway to continue staring at them.
So in this case the buyer (Goat) breaches and keeps the goods. What could possibly be the remedy here?
Okay everyone this one is fucking common sense.
The seller gets the exact contract price as a remedy.
ucc article 2 - buyer breaches… but the seller keeps the goods (2/4)
This one kind of makes sense too. Let’s say the buyer breaches… but the seller actually keeps the goods.
Let us proceed by way of example:
And so it came to be that Goat’s obsession with rabbits deepened in both scope and intensity.
He decided to contract to purchase vintage Trix cereal boxes for $10,000
But right as he was about to pay and the seller was about to ship the goods… Goat realized he didn’t have any money and actually liked Cinnamon Toast Crunch more because it had more sugar
The vintage cereal boxes dropped in market price from $10,000 to $8,000.
So what remedies are available in this scenario?
Well… think about it. We want to put the seller in the position they would have been in but for the breach.
If they were going to get $10,000…. and now they can only get $8,000 on the market… it would only be fair to give them $2,000.
Now what would happen if vintage cereal boxes SHOT UP in price to $15,000?! Well… now we wouldn’t give the seller anything! They are now in a better position than they would have been in without the contract, so we’re not giving them shit.
if he resells for less he should get the difference, if it’s more, he gets nothing.
lost value seller damages
So we need three things to happen to get LOST volume seller damages:
- Buyer breaches and seller keeps the goods
- The seller has an unlimited supply of goods
- The seller probably would have made another PROFITABLE sale in addition to the one you fucked him over on
Then the seller gets the difference between the LIST PRICE and the COST to the seller of the goods (AkA the PROFIT)
In summary, if the cheerio seller has UNLIMITED goods and I breach, I’m getting lost profits.
ucc article 2 - seller breaches and buyer keeps the goods (3/4)
Let’s say there is a beautiful Goat graffiti on the side of a wall in Berlin
Two men, believing it to be an original Banksy, cut it from the wall
They sell it to Goat for $50 million.
But then Goat finds out it is not an original Banksy.
It was stenciled in by a Shepherd.
A Shepard Fairey… a famous but much less well-known graffiti artist.
But Goat decides to keep the artwork anyway.
A jury finds that the price of the Shepard Fairey Goat was only $5 million at the time of delivery, not $50 million.
So what does Goat get?
We now have a situation where the seller has breached, but the buyer has kept the goods.
Goat gets $45 million.
The price of the graffiti if it had been “perfect” minus the Fair Market Value AS DELIVERED ($50M - $5M)
repair costs
are often a determination of what the value of the good would have been had tender been perfect…. but not always.
alright so let’s say someone sells you a car which is worth $100k. the car is fucked up when it arrives (it fell of a truck) so now the car is worth $20k. you take it to the shop to get fixed and spend $50k, but they can’t fully fix it, so now it’s worth $70k. How much do you get? $80k.
Repair costs are a good measure of what the good would have cost as warranted… but if repair costs FAIL to restore the good to its FULL glory… well… then you have to do an ADDITIONAL math problem and figure out how much more it would take to give the buyer the full value of what they originally wanted.
Honestly… just ignore the fucking repair costs if they don’t restore the damaged product fully and subtract what it should have been worth with what it was worth when it showed up.
FORGET THE FUCKING REPAIR COSTS
WE BOUGHT THE CAR FOR $100K
IT SHOWED UP LOOKING LIKE A $20K PIECE OF SHIT
$80K IS OUR DAMAGES.
IT’S THAT SIMPLE FOR US TO WIN MY GOATS.
ucc article 2 - seller breaches and seller keeps the goods (4/4)
Let’s say that Rainbow Brown sells Goat two rare figurines for $120,000
But Rainbow breaches.
He doesn’t deliver on time so there is not perfect tender.
Goat rejects the goods.
At the time of the breach, the market price for the rare figurines was $121,000 (some of the precious gems had gone up in price)
Goat went to cover and get new figurines for $122,000.
So what does Goat get? $1,000? Or $2,000?
Goat gets $2,000.
Goat will get the greater of:
[Market Price ($121K) - K Price ($120k)] = $1,000
vs. (whichever one is bigger)
[REASONABLE Replacement Price ($122K) - K Price ($120K)] = $2,000
HE IS GETTING $2,000. COVER PRICE OR MARKET DIFFERENTIAL PRICE -> WHICHEVER IS BIGGER.
SO LONG AS THE COVER IS REASONABLE AND NOT INSANE. HE CAN’T BUY SOME NEW FIGURINES FOR $200,000 LMAO.
THE SHIT HAS TO BE REASONABLE.
what if the seller breaches me on my dream house with my dream balcony?
Money damages would be inappropriate for this breach because I could never find a comparable patio. Real property is unique.
So Daddy Judge switches hats and he becomes a Chancellor of Grand Equity to correct this unfairness.
He will order the seller to convey the land to me. When goods and property are wildly unique, specific performance (forcing the seller to give you the shit or you put them in contempt of court and throw them in jail until they obey the order) may be the only remedy available.
Goat-Note: There is obviously no specific performance for personal services contracts… that would be slavery.
Remember, if specific performance is not available in a real estate contract - the measure of damages will be the difference between the sales price and the fair market value of the property on the breach date.
Also, they don’t do specific performance for construction contracts lmao. What would the court do - send out a fucking foreman with a hard-hat on to monitor the forced construction?
Not possible.
installment payment plans
The main thing you need to know about this is that if you miss a payment it is only considered a partial breach.
The non-breaching party will be limited to recovering the missed payment, not the entire contract price.
However, the contract itself may include an acceleration clause
What is an acceleration clause? This is basically something in the contract which says ‘if you miss a single payment, the entire fucking thing will be due immediately.” These are allowed.
employee / employer relations
wrongful breaches
EMPLOYER BREACH
So when we have a wrongful breach by an employer the employee will get the full contract price minus the wages earned elsewhere after the breach.
We talked about this earlier when I got that job at Safari World.
Remember -> Six Flags Job contract - New Contract + costs incurred in trying to mitigate the breach (unsuccessful interview).
Just a fancy way to say expectation damages.This is what happens when the employer breaches.
EMPLOYEE BREACH
When we have a wrongful breach by an employee the employee will simply have to pay whatever it costs to replace them. Usually… not very much if it’s a low-level job.
employee’s duty to mitigate
The employee must mitigate if they can, but they are not required to take other employment that is inferior.
Let’s say you’re the top Goat and CEO at the New York Stock Exchange making $22,000,000 per year and you get wrongfully fired.
You don’t have to try and mitigate your losses by becoming a janitor attendant at a jack off movie theater for $13/hour and bi-weekly pizza parties.
The new job should be similar in regards to location, pay, hours of work, type of responsibilities and status.
An employee who is breached up is EXPECTED to accept a comparable job if they are offered it, and if they aren’t… their losses will be REDUCED by the amount they could have earned accepting this comparable employment.
But if they DO take an inferior job by CHOICE… the amount they earn will still be offset against the damages in their contract action.
breach in real estate contracts
You will get the difference between the contract price and the fair market value of the property.
If the buyer expected to buy a property for $300,000 and the seller breached on him, and the fair market value for a property like that is $310,000… the buyer will get $10,000.
construction contracts - owner of house breaches
If the owner of the house breaches, the construction company usually gets the profits from the contract PLUS costs incurred to date
This makes sense. We want them to get the benefit of the bargain and also be compensated for all their costs.
Let’s say Goat told Rainbow Brown to build his house. Rainbow was going to make $5,000 on this project. Rainbow Brown puts $3,000 into materials to build it, including buying a BIGASS structural support beam.
Goat then loses his job and can’t pay.
Rainbow uses the support beam, worth $500, on another project.
What does Rainbow get?
Here’s the trick in these problems… just add the expected profits and the costs and then subtract the mitigated damages.
$5,000 (expected profit) + $3,000 (costs) - $500 (he used the bigass beam on another project and mitigated the damages) = $7,500
That makes sense!
Literally just look at the construction problems and think to yourself “what would I want to be paid if someone fucked me over in this situation” … it is a FOOLPROOF method to get an extra two points on the MBE.
The WHOLE remedies section can just be summarized by “make this as fair as possible in our minds.” You don’t need to know ANY law… just confidently look at the problem and think to yourself “okay… let’s say they fucked ME over on this. What would I want?!??!?!?!” … you will get the right answer EVERY time my Goats.
Random Goat-Note: If the OWNER breaches the builder does not have to mitigate… but they do have a duty not to increase their damages lmao
Sometimes the MBE will have a scenario where a motherfucker is building a bridge. Then the person paying for the bridge is like “yea I’m not paying for that” … THEN THE MOTHERFUCKING BRIDGE BUILDER WILL KEEP BUILDING THE BRIDGE
I REPEAT THE MAN WILL KEEP BUILDING THE BRIGDE
WHEN NO ONE WANTED HIM TO
IS ANYONE SEEING THIS SHIT IN THE SAMPLE PROBLEMS?
The builder says “okay yea… you just breached and won’t pay. Let me KEEP BUILDING THE FUCKING BRIDGE… BECAUSE I WANT MORE MONEY.
construction contracts when a builder breaches
Now if the builder breaches by completing the job incorrectly… the damages are the cost to comply with the original contract or diminution in market value
As we talked about in an earlier module… if the completion of the contract would be DISPROPORTIONATELY higher than the breach damages… the damages will be measured by the diminution in value not by the cost of completion (if it’s $47,000 to fix the land that the builder fucked up and it only lowered the market price by $300… the builder is only paying the $300)
And remember, the builder can always offset the costs of work performed to date to avoid unjust enrichment
three situations where a seller gets the contract price
the seller will only have an action for the contract price in three situations
1. When the buyer breaches and accepts the goods. We joked about this scenario earlier. If I contracted with you for $10 to buy apples… and then you just kept the fucking apples… can you imagine how pissed I’d be if you said “the fair market value of these apples is now $2” …
2. when the goods are lost or damaged after the risk of loss has passed to the buyer (this is relatively self-explanatory)
3. when the seller is unable after reasonable efforts to sell the goods.
proper measure of damages when someone is lending you money and they breach you
This is simple. It’s just the increased cost of borrowing.
If you got a loan at 10%.
Then you get BREACHED upon by the lending company
And then you get a loan at 8%… well… you’ll get the difference in cost over time between a loan at 10% and a loan at 8%.
You won’t get any crazy shit like lost profits because the lender has no reason to assume you won’t be able to hit up another sketchy loan shark and get a new loan (loans are available everywhere now)
liquidated damages
“to reduce or transform into money”
So essentially parties to a contract can provide for their own remedy for breach of contract.
They can “fix” the damages
And this can and will be enforced so long as it is not a penalty or unconscionable
So let’s run through a little example:
Let’s say Goat and Rainbow Brown are going to enter into a real estate contract with one another for $200,000.
The contract says that Goat will put down $2,000 at the time the contract is signed as “earnest money” that will be retained in the event of a breach.
What is “earnest money”?
“Earnest money” -> this is just a fancy phrase for some money you put down to say “Hey motherfucker… I’m earnest. I’m serious about this shit.” It is basically liquidated mothafucking damages.
So then Goat breaches. Can Rainbow Brown keep this?
Yes, he can. These are proper liquidated damages.
Liquidated damages are valid if:
They are reasonable in light of what the actual damages would probably be
If they are reasonable, the plaintiff receives liquidated damages.
If they are unreasonable and a penalty for breaching (like 75% of the contract price) the plaintiff will receive actual damages
punitive damages
Punitive damages are generally NOT recoverable for a breach, but they are recoverable for willful, wanton or MALICIOUS & PURPOSEFUL BREACHES BY THE DEFENDANT
IF THEY BROKE THE CONTRACT WILLFULLY
PURPOSEFULLY
MALICIOUSLY
We can spank them.
But the damages still have to be proportional when compared to the overall recovery.
If the ACTUAL DAMAGES are only $3… you won’t get PUNITIVE damages of $900.
nominal damages
Goat-Note: Sometimes nominal damages can be awarded as well just to prove a POINT. These are small, symbolic damages. Like when Taylor Swift got $1 from that dude who touched her at the photoshoot. Stay away from our Queen you creep.
is there pain and suffering damages in contracts?
And remember, there are no pain and suffering damages for contracts. We are only trying to compensate people for breach, not help them through their tears when they lose their GameStop money to Robinhood.
random rights of the breaching party
The breaching party can seek restitution (like we talked bout earlier) for benefits conferred.
In cases of divisible contracts the breaching party can recover a portion of the contract price for the work they completed.
Laches can be raised by a breacher as well. Laches refers to when a plaintiff takes TOO long to bring an action and it prejudices the defendant (the breacher)
Unclean hands is also something a breacher can raise if the party ASKING for relief has done something fucked up in relation to the contract and shouldn’t be allowed to recover. When one finger points FOUR fingers will point back at you my Goats. Always make sure your hooves are clean <3
rescission
Rescission is when a non-breaching party may sue for damages in law or in equity due to a mistake or misrepresentation of a material fact or for other grounds such as duress, illegality, undue influence, lack of capacity and failure of consideration
The remedy for rescission is to put each party into the position they were in prior to entering into the contract (just unwinding the whole thing basically)
If some weird illegal shit happens we are UNWINDING that whole damn thing like it never existed.
reformation
Reformation, on the other hand, changes a parties WRITTEN agreement to conform to their original understanding of it. It is basically when the court corrects a mistake.
If you and I have an agreement in writing and the writing does NOT reflect our original agreement because of a MUTUAL MISTAKE (maybe a typo or something or just a mistake on both of our parts)… the court will just take the writing and say “we are switching this shit around and changing it to reflect the original understanding of the parties”… that’s reformation. Kind of like fixing a little typo in Microsoft Word! (those fuckers really be charging a subscription now btw wtf)
But REMEMBER my Goats and GOATINAS… with a unilateral mistake -> reformation will be DENIED unless the non-mistaken party ACTUALLY knows about the mistake on the other parties behalf (and especially in instances of fraud where they CAUSED the mistake)
If Goat and Rainbow Brown have a contract to sell the pasture and Rainbow PURPOSEFULLY omits a provision saying Goat will retain 50 bundles of Hay… and Rainbow tells Goat ORALLY the contract includes the Hay provision…. the court will simply reform this AT GOAT’S request based on fraud from Rainbow Brown.
incidental beneficiary
when Theremin Repair breached on Goat, Walter Flannelshirt had no right to maintain an action against Theremin Repair as he was simply an incidental beneficiary.
Nobody intended for him to benefit from the contract, even though he may have benefited by hearing beautiful music later on.
intended beneficiary
intended beneficiaries need to actually vest.
if, when forming their contract, party A or party B has reason to understand that the other intends non-party C to benefit from the contract, non-party C is an intended beneficiary.
Now let’s talk about scenario #2 (where Walter pays for Goats Theremin to be tuned)
Theremin Repair understands that Walter is paying for this for Goat’s benefit.
But even if it just said “to fix Goat’s Theremin”… Theremin Repair, as a reasonable repair shop, would understand that this was intended to benefit Goat.
Therefore, Goat… as an intended beneficiary rather than an incidental beneficiary can maintain an action against Theremin Repair.
intended beneficiarties need to actually vest.
Vesting is when the third party actually acquires contractual rights and can bring the lawsuit.
Why is vesting important you ask?
because prior to vesting, the promisor and promisee can modify or rescind the beneficiary’s rights under the contract. without the beneficiary’s knowledge or consent
So being an intended third-party beneficiary is nice, and it makes you feel like the prettiest girl at the dance… but to truly be the prettiest girl at the dance and get what you want (Jacob Elordi), your rights actually have to vest
when do intended third party beneficiaries rights vest? Four different types of vests:
knowledge is always a requirement
1. knowledge + manifesting assent
this would be like if the promisee sent a letter acknowledging the contract was for their benefit.
2. knowledge + detrimental reliance
self-explanatory. if they relied on it.
3. knowledge + sues to enfore
self-explanatory. they file a lawsuit.
4. knowledge + express term in the contract
this would be like in a life insurance policy if it says “bobs rights vest when carol dies”
when bar exam says a beneficiary “becomes aware” of a contract benefitting them.. they are setting that person up to be an intended beneficairy who can sue.
creditor beneficiary (type of intended beneficiary)
I call this rule the BBL -> beneficiaries are subject to defenses that could be made against their benefactors and it leads to loss
YOUR BENEFICIARY RIGHTS ARE MEASURED BY THE CONTRACT ITSELF
Let’s say Goat owes the bank $50,000 from a personal loan he took out
Unfortunately, the bank would not accept hay and rocks as payment. So Goat entered into a contract with a farmer. If Goat would pull his carriage for three months, the farmer would pay the bank $50,000 on Goat’s behalf.
So the bank is what we call a creditor beneficiary (a person whom a debt is owed by the promise! But this must be EXPLICITLY stated in the contract)
But let’s make it more complicated.
So Goat pulled the carriage, but only for two and a half months. So the farmer now will only pay the bank $40,000, instead of $50,000.
Is this allowed?
YES. PAY VERY CLOSE ATTENTION TO THIS RULE, THEY TEST IT ALL THE FUCKING TIME. IT IS THEIR FAVORITE TRICK
But remember, the promisor or promisee can ALWAYS defend themselves against a beneficiary lawsuit by asserting any claims they have against the other party AGAINST the beneficiary (like Farmer did)
the beneficiaries’ rights are limited by the contract
CONTRACT GETS FUCKED UP = BENEFICIARIES RIGHTS GET FUCKED UP
AND WHEN I SAY RIGHTS, I’M TALKING ABOUT THEIR RIGHT TO THAT CASH MONEY
donee beneficiary (type of intended beneficiary)
A donee beneficiary is someone who a promisee intends to benefit gratuitously (as a gift basically)
So let’s say that Goat promises a group of 10 people that if they jump into Lake Michigan on the coldest day of the year he will donate $100,000 to a Charity so they can pave the lakefront and build a parking lot there
Then let’s say the 10 people jump in Lake Michigan and Goat doesn’t donate the money to the charity.
They can SUE Goat to vest their rights, even though they were merely a DONEE beneficiary
difference between donee beneficiary and someone who receives a gratuitous promise?
Well, the donee beneficiary can actually ENFORCE their rights since it stemmed from a contract between two other people with consideration on both sides. A person receiving a gratuitous promise cannot enforce it since there is no consideration (the MBE tests this distinction in sneaky ways sometimes, so be AWARE)
difference between creditor beneficiary and donee beneficiary
After all that schizo rambling, the only real difference is this: A creditor beneficiary can sue everyone in the contract when he doesn’t get paid the full amount (bank could sue both Farmer and Goat), whereas a donee beneficiary can only sue the promisor (the parking lot charity could only sue Goat once the people jumped into Lake Michigan… not the people themselves if they didn’t jump in the first place)
assignment
an assignment transfers rights and benefits of a contract.
Contract rights are PROPERTY RIGHTS
I REPEAT CONTRACT RIGHTS ARE PROPERTY RIGHTS
AND WE CAN TRANSFER THEM THE SAME DAMN WAY WE’D TRANSFER A TINY HOME INTO SOMEONE ELSE’S NAME
WHEN A PARTY IS OWED A CONTRACTUAL RIGHT (LIKE A RIGHT TO BE PAID $100) AND MANIFESTS THEIR INTENT TO PRESENTLY TRANSFER THAT RIGHT TO A THIRD PARTY, THEY ARE SAID TO ‘ASSIGN’ IT
IT HAS TO BE A PRESENT FUCKING TRANSFER. NOT A PROMISE TO DO SOMETHING IN THE FUTURE ONCE YOU GET THE RIGHTS OR SOMETHING
IT’S A PRESENT TRANSFER, MEANING YOU HAVE TO HAVE THE CONTRAC RIGHTS NOW AND TRANSFER THEM PRESENTLY.
Let’s say Goat owes Walter Flannelshirt $100 by Friday
On Tuesday, Kevin Tipcorn hits up Goat and asks Goat to graze his pasture for $100. So Goat tells Kevin Tipcorn… “after I graze your pasture… can you just pay Walter Flannelshirt the $100 I owe him?”
Kevin agrees.
On Wednesday, Goat grazes the pasture.
So Goat and Walter meet up on Thursday and Goat says:
“Walter, I’m going to be out of town on Friday. The $100 I owe you on Friday will be paid to you by Kevin Tipcorn.”
Walter agrees.
Right there, in Walter’s presence, Goat texts Kevin Tipcorn and says “Kevin… as you know, you must pay me $100 for grazing your pasture. Please pay that amount not to me… but to Walter Flannelshirt at 123 Flannelshirt Drive.”
Goat turns to Walter and smiles and says “Kevin now owes you the $100, not me. The rights got assigned bitch”
So what happened?
Goat had a contractual right to receive $100 from Tipcorn, and he assigned it to Flannelshirt.
nuances with assignments
Nuance #1: An assignee gets the contract as it stands at the time of assignment.
Let’s say I get a $100 loan from the bank on January 1st.
I have to pay off $20 every month on the first of the month.
Then I ask to pay it on the 5th of each month. The bank says “okay you can pay on the 5th, but pay that shit off in Crypto currency now son.”
CONTRACT MODIFICATION ALERT. CONSIDERATION ON BOTH SIDES ALERT. WEE-WOO 🚨
Bank 1 sells the loan to Bank 2. Bank 2 now says “oh no… oh no… WE WANT THE PAYMENT ON THE 1ST. THAT IS WHAT WE WANT. THAT IS WHAT WE DESERVE IN OUR ASSIGNMENT”
sorry bank 2 you little bitch, you get the assignment as it stood when you got it. it got modified, you get a modified contract assinged to you, not the original one
assignments rapid fire
No consideration is required for an assignment.
Yes, an assignment can be oral or written.
Are assignments revocable? Well fuck yes they are UNLESS someone paid for it.
revoking assignments
Are assignments revocable? Well fuck yes they are. UNLESS SOMEONE PAID FOR IT.
Let’s say I agree to assign you my lease at my crib
So I let you stay in my church for the rest of the year and you pay me $5,000 for the privilege of the assignment. UNREVOCABLE.
Assignments also can’t be revoked when there has been detrimental RELIANCE.This whole fucking course should just be called detrimental reliance, it’s all these shitheads ever talk about
Let’s say you prepare for the assignment by fixing one of my serpent windows. It got smashed while I was doing an occult seance ritual. Well, now you’ve detrimentally relied and I can’t revoke the assignment.
notice
If NO NOTICE is given to the person who is SUPPOSED TO PAY… about your stupid new arrangement… they can just pay you. If you don’t tell them they now have to pay Kyle, they can just PAY YOU
If you DO TELL THEM the stupid ass contract got assigned, they now have to pay Kyle, and can’t just pay you.
Does that make sense?
THE ASSIGNEE CAN SUE THE OBLIGOR IF THE ASSIGNOR TOLD THE OBLIGOR ABOUT THE ASSIGNEE AND SAID THEY SHOULD PAY KYLE. That’s what the restatement says.
limitations on assignment
two situations
1. a prohibition on assignment in a contract
when a contract says some shit like “assignments are prohibited” or “this contract cannot be assigned” you can still assign it lol.
Yes I actually just said that. And that is something we are expected to know. Prohibitions on assignments take away the RIGHT to assign, not the POWER to assign
So the person who MAKES this assignment will be liable for breach of the contract, but the assignee who does not know of the prohibition can STILL enforce the assignment. Wild.
So if A and B contract with a prohibition on an assignment clause, and A assigns his right to payment to C… so long as C didn’t know about the prohibition, C can still enforce that assignment.
When it comes to goods contracts, a prohibition on assignments clause actually just means you can STILL assign shit, you just can’t delegate it.
2. an invalidation of assignment in a contract.
which makes the contract VOID upon assignment.
if you say something like “if there is assignment, this contract is void.” OR “if assigned, this contract has no effect”
we have a big fucking problem.
This language in the contract takes away both the RIGHT and the POWER to assign
The moment you do it, you have now gone into the void
This is full breach by the assignor and NO rights by the assignee (person who was supposed to get the benefit of the assignment), even if they innocently did not know about the invalidation making it void
when can we not assign?
When we materially increase the obligor’s burden or risk or impair the obligor’s chance of obtaining return performance
A brief example:
Let’s say a company agrees to insure my house against fires
The most fire resistant house in the universe.
I can’t just be like “haha great! I assigned the insurance right to crackhead jimmy’s house!”
CRACKHEAD JIMMYS HOUSE IS ALREADY ON FIRE.
I REPEAT. HIS HOUSE IS MADE OF FUCKING HAY… AND IT IS LITERALLY ALREADY ON FIRE AT THE TIME OF MY ASSIGNMENT.
I WOULD SAY THIS INCREASES THEIR RISK A BIT OF HAVING TO PAY OUT A CLAIM WOULDN’T YOU?
delegation
delegation transfers the duties and burdens of a contract (i.e. you have a duty of performance and you are getting someone else to perform it like a lazy bastard)
So generally, all contractual duties are delegable.
The law believes that a reasonable person would not care who weeds their garden, shovels their snow, plants their flowers, or sweeps their floors. It’s all just poor people, right? That’s what the restatement says.
But when are we not allowed to delegate?
This brings us into a very interesting situation.
1. Goat-Bron James
If someone had a contract with me (Goat-Brons agent) for Goat-Bron James to play for them, I couldn’t just send this guy to play:
We need Goat-Bron or nothing.
Delegations involving unique services or personalized skills are NOT allowed.
We can’t even delegate this shit to Michael Jordan.
The law understands that when reasonable people contract for musicians, poets, or basketball players… we want the actual PERSON we contracted for. So delegation is implicitly prohibited.
2. when the contract prohibits delegations or assignments
Prohibiting assignments ACTUALLY MEANS you prohibit delegations
CLAUSE PROHIBITING ASSIGNMENTS = PROHIBITS DELEGATIONS
CLAUSE PROHIBITING DELEGATIONS = PROHIBITS DELEGATIONS
3. where it changes the obligee’s expectation of what they are getting
Let’s say Goat has an Organic health food store called “Goat-to-Greens”
You decide to open up a FULLY hoof to table restaurant before the bar exam called: Case Closed Quinoa
So Goat agrees to meet all of your requirements for organic food so you can meet the demands of customers at Case Closed Quinoa
But then one day Goat gets tired of running an organic health food store. He longs to get back to his life of being a savage in the streets of Chicago. So he gets an idea…
He is going to delegate the contract to Crackhead Jimmy’s food store.
Remember Crackhead Jimmy?
After his house burned down he decided to open up his own health food store. But… it was a little different than Goat’s….
Nutty Naturals… at any given moment… had 6-14 raccoons actually living in the store. Crackhead Jimmy takes Tuesdays off and there is actually a raccoon who runs the store on Tuesdays.
So obviously we couldn’t delegate this shit. This would totally change what the receiving party was expecting.
Also Crackhead Jimmy may not even be able to meet their demand. Looks like he only has a few rotten jars.
So watch for situations where the chance of receiving similar performance gets significantly lower.
who is liable in delegation?
delegation - who is liable if things get fucked up
Well, the person actually delegating the duty is always liable.
The law kind of likes delegation… but still wants to make sure the original party doesn’t try to delegate something to someone who is less capable or reliable (cough… Crackhead Jimmy).
So the delegating party ALWAYS remains liable to the obligee.
But the obligee can ALSO sue the delegatee (is that what this fucker is called? these names are starting to seriously piss me off. The PERSON WHO IS DOING THE WORK FOR THE LAZY PERSON = THE DELEGATEE)
THE PERSON WHO IS HAVING THE WORK DONE.. CAN SUE THE LAZY FUCK WHO DELEGATED IT TO THE HARD WORKING PERSON
AND THE PERSON PAYING FOR THE WORK CAN ALSO SUE THE HARD WORKING PERSON WHO ACTUALLY TRIED TO DO IT BUT FUCKED UP THE JOB
IF THINGS GO WRONG IN A DELEGATION -> WE HAVE TWO PEOPLE WE CAN HIT WITH A LAWSUIT. THE DELEGATOR AND THE DELEGATEE
So the problem will go a little something like this:
Goat contracted to fix Chickenisha’s washing machine at her new home for a year. (Remember Chickenisha? She materially relied earlier and ended up getting the home and the $1,000,000)
So Goat delegates the duty to fix the washing machine Rainbow Brown.
Rainbow Brown then fucks up Chickenisha’s washing machine.
Who can Chickenisha sue for Rainbow Brown’s defective performance?
BOTH GOAT AND RAINBOW BROWN.
the only situation where we can’t sue the original delegator is when we have a NOVATION and relase the original delegator so they will not be liable
novation
A novation is just when all the parties get together and agree that the original party is not liable.
ALL THREE PEOPLE
IN A ROOM
AGREE
IN A NOVATION EVERYONE MUST AGREE TO RELEASE THE ORIGINAL PARTY
SOMETIMES THE BAR EXAM IS LIKE “JOHNNY DECIDED ONE DAY HE WOULD NOVATE HIMSELF WHILE HE WAS WATCHING T.V.”
UM…. NO.
WE NEED EVERY MOTHERFUCKER INVOLVED FOR THIS.
NOVATION = WE SUBSTITUTE A PARTY FOR A NEW PARTY
DELEGATION = WE ADD A PARTY
