Contracts

Question 1

What is entrustment (UCC)?

Answer 1

Under Art. 2/UCC, with entrustmentan owner who entrusts goods to a MERCHANT who deals in goods of the kind (e.g. a dealer) has NO rights against a bona fide puchaser (BFP) if the merchant wrongfully sells the good

Question 2

When can K duties be delegated AND what are the rights of the obligee?

Answer 2

General rule: K duties MAY be delegated W/O consent of the person to whom performance is owed (the “obligee”) EXCEPTIONS: The K language cntrls (if delegation is prohibited, CANNOT delegate) If K prohibits assignment (this means NO delegation EITHER!) Special skill or reputation prevents delegation Rights of the obligee… Delegating party REMAINS liable to obligee (COMPARE w/ novation) A delegate WHO GETS CONSIDERATION is liable to the obligee (b/c this would make the obligee a 3d party beneficiary)

Question 3

What is a 3d party beneficiary AND what rights does she have?

Answer 3

3PB arrises when TWO ppl enter into a K intending to benefit a 3d party A 3PB is NOT a party to the K, but has RIGHTS b/c the K intended to benefit her An intended beneficiary has legal rights, BUT an incidental beneficiary DOES NOT Two types of intended beneficiary: (i) creditor beneficiary = is getting benefit b/c a debt is owed to him; OR (ii) donee beneficiary (more likely) = performance is given as a gift Recission and modifictaion of a 3PB K General rule = the promisor and promisee (orig parties to K) CAN recind or modify the K UNTIL the rights of the 3PB have “vested” Vested means the intended beneficiary has (i) MANIFESTED ASSENT to the K; (ii) brought SUIT to enforce K; OR (iii) has RELIED on the K (i.e. you an AFFRIMATIVE act) Once the rights of the 3PB have “vested”, the original parties NEED the consent of the 3PB in order to modify/recind the K NOTE: contrary language in the K cntrls! Liability The intended beneficiary CAN sue the original promisor for breach of K (privity is not necessary) NOTE: if the promisor (of benefit to 3PB) has breached K and can’t enforce performance (against promisee), NEITHER can 3PB The original promisee is liable to a CREDITOR beneficiary (b/c the creditor is owed somethin); DONEE beneficiary has no rights against original promisee (Of course) the original promisor is liable to the original promisee (EVEN IF 3PB is a donee beneficiary)

Question 4

What is anassignment?

Answer 4

Assignment = after two ppl make a K; LATER one (assignor) transfers his rights to a 3d party (assignee) The party who owes the duty to preform is the obligor The obligor is liable to the assignee, BUT ONLY IF (i) the assignor performs properly under K (no material breach); AND (ii) the obligor is AWARE of the assignment E.g. Batman Ks to provide security for Gotham for $200. Batman (assignor) assigns HIS RIGHT to pmt to Robin (assignee). NOW, Robin has the right to receive pmt from Gotham City (obligor) NOTE: w/ an assignment, two parties K and a 3d person shows up LATER; with a 3d party beneficary, the 3d party is PRESENT at time of K

Question 5

What’s needed for a validassignment AND what are the restrictions on assignment?

Answer 5

1) Must have language of PRESENT transfer YES: “I assign…” NO: “I promise to assign…” 2) Consideration or a writingis NOT required Gift assignments are valid BUT easily revoked Oral assignments are valid 3) Restrictions on assignment K language cntrls BUT distingush b/t a cl that PROHIBITS assignment from that which INVALIDATES assignments EVEN IF assignments are prohibited (“Rights under this K are not assignable”), a VALID assignment can exist (i.e. the assignee can sue the obligor) If language states that assignments are INVALID (“All assignments under this K are void”), then any assignment is VOID Cannot SUBSTANTIALLY change duties of the obligor NOTE: you can basically always assign pmt b/c it’s easy enough

Question 6

With multiple assignments, which assignee has rights? NOTE: NY Distinction

Answer 6

1) Gratuitous (“gift”) assignments are EASILY revoked by assignor (UNLESS there is detrimental reliance by the assignee from the obligor’s performance) The LAST gratuitous assignee PREVAILS over earily gratuitous assignees b/c the later gift assignmnet revokes the earlier one NY DISTINCTION: a gift assignment is IRREVOCABLE if embodied in a signed writing by the ASSIGNOR 2) Assignments for consideration are more DURABLE General rule: the FIRST assignee for consideration PREVAILS over all subsequent assignees (as well as gratuitous assignees) EXCEPTION: a later assignee for considertion prevails IF he (i) does not know about the earlier assignments; AND (ii) is the first to get pmt from or a jgmt againt the obligor

Question 7

When has an offer been accepted? NOTE: NY Distinction

Answer 7

Yes, when… 1) When the the offer says so: the language of the offer cntrls E.g., the offer says “you can accept this offer by reporting for work on Monday”→you can only accept by showing up on Monday 2) Starting performance on a bilateral K: starting performance on a bilateral K is an implied obligation to FINISH NOTE: starting performance on a UNILATERAL K, is NOT acceptance (no obligation to finish!); ONLY finishing performance ISacceptance (REMEMBER: for MBE, once performance has begun, offeror CAN’T revoke offer; in NY, offeror can revoke up until completion) 3) Improper performance… Under common law is a SIMULTANEOUS acceptance AND breach Under Art. 2/UCC is SIMULATANOUS acceptance AND breach, UNLESS seller is sending the goods as an ACCOMODATION to buyer (this has to be made clear)→shipment is then a counteroffer (either the buyer accepts and pays FULL K price, OR she doesn’t and there are no damages) NOT, when… 1) Offeree remains silent (generally) E.g. “I’ll take your SILENCE as acceptance of this offer” TIMING…generally, acceptance is effective when MAILED (“Mailbox Rule”) NOTE: DOESN’T matter if the letter got lost in the mail; PROVIDED the letter was correctly addressed Compare with revocation by offeror, which is effective ONCE received by offeree EXCEPTIONS to Mailbox Rule Offer states otherwise (that the offer is effective once RECEIVED) Irrevocable offer, which must be RECEIVED by deadline Offeree sends REJECTION first, which makes it a RACE (i.e. whichever gets to offeror firstcntrl)

Question 8

What is thedifference b/t a bilateral K and a unilateral K?

Answer 8

Bilateral K: an offer can generally be accepted in ANY reasonable way (“flexible”) Unilaterl K: an offer can be accepted ONLY by performing (“inflexible”) 2 typical fact patterns: Offer expressly says can only be accepted by performance Offer of reward, a contest or a prize NOTE: Look FIRST to see if there is an agmt, THEN see if it’s legally enforceable

Question 9

What are the bodies of K law?

Answer 9

1) Art. 2 UCC: applies to a “sale of goods” “Goods” = movable, personal property Doesn’t MATTER if the parties are merchants or not In a “mixed K”, if goods are more significant, then UCC applies 2) K common law: applies to all other non-good Ks In a “mixed K”, if services are more significant, then common law applies On MBE: the lease of goods is classified as under COMMON LAW, but… NY DISTINCTION: 3) Art. 2A UCC: applies to a LEASE of goods (but NOT the lease of real property)

Question 10

What is the “duress” defense?

Answer 10

Ks induced by duress or undue influence are VOIDABLE and may be recinded by ∆ (the intimdated party) as long as NOT affirmed NOTE: normally ECONOIMC duress is rare, BUT withholding something someone needs IS economic duress if: (i) the party threatens to commit a wrongful act that would threaten the other K-ing party’s finances; AND (ii) there are no adequate means available to prevent the threatened loss (BASICALLY economic extortion)

Question 11

What is the “lack of capacity” defense? NOTE: NY Distinction

Answer 11

Categories = (i) minors; (ii)intoxicated; OR (iii) mentally incompetent General rule = an incapacitated ∆ MAY disaffirm the K (i.e. it’s VOIDABLE by ∆ ONLY) If there is IMPLIED affirmation (retaining the benefit ONCE (re-gaining capacity), then the K is no longer VOIDABLE An incapacitated party is liable for conferred NECESSITIES (e.g. food, shelter, clothing, medical care), but only for the reasonable value of the provisions (NOT the K price) NY DISTINCTIONS: 1) Certain Ks by infants CANNOT BE VOIDED Life insurance Ks by 14 yr olds + Educational loans by 16 yr olds + Realty K related to the marital home K involving artistic or athletic services 2) For mentally incapacitated Adjudicated incompetent→ K void Unadjudicated incompetent→ K NOT voidable UNLESS incompetent can restore other party to previous position

Question 12

What is the “misrepresentation/non-disclosure” defense?

Answer 12

Depends on TYPE of misrepresentation: 1) Fraudulent misrepresentation/non-disclosure: If one induces another into a K by using a fraudulent misrepresentation/non-disclosure, the K is VOIDABLE if there is justified reliance 2) Non-fraudulent misrepresentation/non-disclosure: If one party innocently misrepresents/doesn’t disclose, the K is VOIDABLE if there is justified reliance AND the misrepresentation is MATERIAL

Question 13

What is the “mistake” defense?

Answer 13

Two types of mistake… 1) Mutual mistake: if BOTH parties entering into a K are mistaken about a material fact that goes to the essence of the K, then the K is VOIDABLE by the adversely affected party BUT a mutual mistake as to value of an item is NOT considered material enough to be voidable 2) Unilateral mistake: if ONE party has a mistake, it’s generally does NOT render the K voidable EXCEPTION: if the nonmistaken party knew OR had reason to know of the mistake made by the other party, the K IS voidable by the mistaken party

Question 14

What is the “no consideration” defense? NOTE: NY Distinction

Answer 14

Consideration = a “bargained for exchange”/”legal detriment”; a person can bargain for a promise, performance OR forbearance Past (moral) consideration (a promise given in exchange for something already done) ≠ real consideration! NY DISTINCTION: Past/moral consideration IS valid consideration IF it’s expressly stated in a signed writing and performance can be proven Adequacy of consideration is IRRELEVANT if there is a bargain (quid pro quo) Illusory promises are NOT enforceable (e.g. We agree that I can buy as many widgets AS I WANT for $100 each”; the quantity amt is TOO indefinite) K modification (common law vs. Art. 2/UCC) Common law: NEW consideration is required between ORIGINAL parties to modify a K [Preexisiting Duty Rule] NY DISTINCTION: don’t need NEW consideration if a signed writing embodies the modification Art. 2/UCC: consideration is NOT REQUIRED to modify a K, just need to show good faith Partial pmt of an EXISTING debtis not valid consideration (e.g. “I’ll pay $x in return for forgiving balance”); BUT… Time-bared (SOL) debt: a written promise to pay a debt which has been barred by SOL IS enforceable even w/o consideration EXCEPTION = Promissory estoppel FORSEEABLE reliance by promisee may make the promise enforceable even w/o consideration This is a “last resort” remedy by the ct

Question 15

What is the “public policy” defense?

Answer 15

K can be VOID if violates public policy… 1) Covenant Not-to-compete: a ct will invalidate or narrow a convenant not to compete that operates as a restraint of trade, depending on… Scope of convenant (duration and geography): the farther in location and the longer in duration, the more likely void Need for convenant (uniqueness of services provided): top chef vs. bus boy 2) Exculpatory clause: can ltd liablity for negligence, BUT NOT gross negligence OR intentional torts

Question 16

What is the “unconscionability” defense?

Answer 16

2 types… 1) Substantive: the TERMS are inherently unfair given relative bargaining pwrs (e.g. indentured servitude) 2) Procedural: the agmt PROCESS was unfair (e.g. sneaky terms in very small print) NOTE: generally “unconscionability” is NOT valid; act must “shock the conscience”

Question 17

What are the 8defenses against formation of a K?

Answer 17

1) Lack of capacity(making the K voidable) 2) Duress (economic or physical) 3) Misrepresentaioninducing Agmt 4) Mutual mistake of a material fact at time of agmt 5) No consideration 6) Public policy 7) Unconscionability 8) Statute of Frauds (SOF)

Question 18

What is the difference b/t express K and implied-in-fact K?

Answer 18

Express K = created by the parties’ WORDS (oral or written) vs. Implied-in-fact K = created by the parties’ CONDUCT

Question 19

What are the 4 ways anoffer can be terminated?

Answer 19

1) Lapse: an offer lapses after a STATED TERM or a REASONABLE TIME has passed 2)Revocation (by offeror): an offer terminates once the offeror revokes the offer (before acceptance by offeree) 3) Rejection (by offeree): an offer terminates when the offeree rejects it (via inappropirate response) 4) Death: death of EITHER party before acceptance terminates a revocable offer, BUT NOT an irrevocable offer (i.e. an option)

Question 20

What are the 3 waysan offeree reject an offer (termination)?

Answer 20

Rejection = an offer terminates when the offeree rejects it (by an inappropriate response) 1) Counteroffer: a valid COUNTEROFFER acts as a rejection by offeree (e.g. Offeree: “I will pay no more than X”) NOTE: mere bargaining does NOT act as a rejection 2) Conditional “accpetance”: is not an acceptance at all! It’s a rejection and counteroffer 3) Acceptance with an additional term added by offeree: common law and Art. 2/UCC differ Common law: acceptance must MIRROR the offer (the Mirror Image Rule), otherwise it’s a rejection via counteroffer Art. 2/UCC(Battle of the Forms): w/ the sale of goods, the offeree’s adding term DOES NOT prevent acceptance Art. 2 Offeree’s term IS included ONLY IF: both parties are MERCHANTS; the offer DOES NOT expressly ltd acceptance to the terms of the offer there is NO MATERIAL CHANGE (i.e. material = likely to cause hardship or surprise to offeror; NOTcustomary in industry); AND offeror DOES NOT OBJECT w/in a reasonable time Otherwise, the K is formed w/o the offeree’s addt’l term (which has to has to be expressly accpeted by offeror)

Question 21

What is restitution (a quasi-K)?

Answer 21

An equitable remedy that protects against UNJUST ENRICHMENT Restitution is the remedy of LAST result Recovery in restitution is the REASONABLE VALUE of the benefit conferred (NOT the K price)

Question 22

When is an offer revocable (and irrevocable)? NOTE: NY Distinction

Answer 22

General rule = an offer can be revoked any time before acceptance by… DIRECT revocation (the offeror indicates DIRECTLY to the offeree that he has changed his mind about the deal) INDIRECT recovation (the offeror engages in CONDUCT that indicates that he’s changed his mind AND the offeree is aware of this conduct) 4 EXCEPTIONS where an offer CANNOT be revoked… 1) Option: an option is a promise to keep the offer that is PAID FOR A promise is not enough to keep an offer open, EVEN if in writing (unless it’s a Firm Offer) NY DISTINCTION: a signed written promise NOT to revoke is enforceable even w/o pmt 2) Firm Offer (Art 2/UCC): in a SALE OF GOODS, if a merchant promises in a signed writing to keep an offer open, the offer is IRREVOCABLE for a maxium of 90 days (3 months) OR, if not specified, a reasonable ≤ 90 days (3 months) NOTE: the terms “merchant” and “signed” are broadly defined under Art. 2/UCC No consideration is necessary to support this offer 3) Foreseeable Reliance Before Acceptance (Promissory Estoppel): when it’s REASONABLE that the offeree would RELY on the offer to her DETRIMENT, AND the offeree DOES rely, then the offer will be held IRREVOCABLE for a reasonable length of time This is RARE esp if offeree can easily accept before detrimentally relying Ct. will step in only when the”interests of justice require it” 4) Partial performance on Unilateral K: an offer for a unilateral K (acceptance by performance) becomes irrecovable once performance ACTUALLY begins NY DISTINCTION: Offeror can revoke a unilateral K all the way up until performance has been COMPLETED Mere preparation is NOT partial performance and can’t stop revocation under this exception (but MAY be irrevocable under promissory estoppel) TIMING: a revocation is effective ONLY WHEN it is received by the offeree

Question 23

What agmts are w/in the statute of frauds (SOF)? NOTE: NY Distinction

Answer 23

“MY LEGS” 1) Marriage: a promise where the consideration is marriage (e.g. offering something of value in exchange for marriage like a prenup) 2) (Peformance NOT w/in one) Year: a promise that cannot be performed w/in 1 year from time agmt is MADE NOTE: lifetime Ks (“I’ll work to I die”) are NOT w/in this category [NY DISTINCTION: lifetime Ks DO fall w/in SOF] if a K’s performance is THEORETCIALLY possible w/in 1 yr then it’s outside the SOF (doesn’t matter that performer is lazy) 3) Land: a promise creating an interest in land must be evidenced by a writing (real property, fixtures, mtgs, greater than1YRleases or easements, etc) NY DISTINCTION: In a principal/agent rel., when dealing with an “interest in land,” the agent must be authorized in writing (or the principal must ratify) 4) Executor (or Administrator): a promise by executor to PERSONALLY pay estate debts (from own funds) 5) Goods (for $500 or more): a K for sale of goods (UCC) ≥$500 NY DISTINCTION: in NY under Art. 2A/UCC, the LEASE of goods for ≥$1000 must be in writing (don’t be tricked by monthly price for a YEARLY K) 6) Suretyship: the promise to answer for defaulted debt of ANOTHER NOTE re K modification: must be in writing ONLY IF the K AS MODIFIED(not original K) is w/in the SOF If not req’d to be in writing, MAY be orally modified, UNLESS UNDER THE UCC, the K says no oral modification (NOTE: under common law, the K cannot prohibit oral modication) NY DISTINCTION: additional agmts that MUST be in writing (w/in SOF) 1) Assignment of an insurance policy 2) A promise to pay a DISCHARGED debt 3) An agmt to pay a finder’s fee/broker’s commission (EXCEPT to an atty, auctioneer, OR licensed RE broker)

Question 24

What is a satisfactory writing p/t SOF? NOTE: NY Distinction

Answer 24

Depends on the type of agmt… 1) Sale of Goods (Art. 2/UCC): Must contain (i) aQUANTITY term (# OR good faith requirements); AND (ii) be SIGNED by the would-be ∆ (the breaching party) 2) Lease of Goods (Art. 2A/UCC) [NY ONLY]: Must state (i) that it’s a LEASE (including rental pmts, # of pmts, and duration); (ii) AND must be SIGNED by the would-be ∆ (the breaching party) 3) ANY other K: Must conatin (i) ALL MATERIAL terms (who/what); AND (ii) be SIGNED by the would-be ∆ (the breaching party)

Question 25

What are the 4 ways a party can satisfy theSOF w/o a writing? NOTE: NY Distinction

Answer 25

Even though these are SOF categories, we DON’T need a writing when… Real Property 1) Leases of ONE YEAR or LESS (legislative exception to ensure that short-term leases are NOT invalidated by SOF) 2) “Part Performance” Exception: Requires TWO of THREE of the following: buyer is in POSSESSION of the property; buyer made SOME PAYMENT; buyer made IMPROVEMENTS to the property NY DISTINCTION: SOF also not applicable when there has been part perfromance of a lease agmt One-year duration prong 1) “Full performance” exception: if the full performance of a service K, no need to be evidenced by writing NOTE: partial performance is NOT sufficient; would THEN need evidence of writing Sale of Goods ≥ $500 (Art. 2/UCC) 1) Goods accepted OR paid for by buyer: SOF satisfaction ONLY applies to goods accepted OR paid for, NOT the whole K! NOTE: if the K goods CANNOT be apportioned, then partial pmt satisfies SOF for WHOLE good 2) Custom-made goods: if custom made goods are NOT suitable to anyone else, AND seller made a substantial start to perform, then DON’T need a writing to satisfy SOF 3) ∆ Admission of K in judicial proceeding: if ∆ admits that there is a Kin a deposition, testimony, pleading, etc, then DON’T need writing to satisfy SOF 4) Merchant’s confirmatory memo: ONE party can use its own SIGNED writing to satisfy SOF against the OTHER party(would-be ∆)… …IF: BOTH parties are MERCHANTS; the writing claims AGREEMENT/has QUANTITY; AND there is no WRITTEN objection w/in 10 DAYS Typical fact pattern: 2 merchants agree over the phone AND one sends a written confirmation, which can be used against other party if it defaults Suretyship 1) “Main purpose” exception:if the g’tor gets pecuinary gain from the surety, then it’s NOT w/in SOF and there’s no need for a writing NY DISTINCTION: NY doesn’t recognize the main purpose exception, so you’d STILL need a writing signed by would-be ∆

Question 26

What is an offer?

Answer 26

Offer = a manifestation of an intent to be bound Advertisments, generally are NOT OFFERS(!), but rather invitations to submit an offer EXCEPTION: where the ad specifies a quantity term, then it’s likely an offer Open price term (except for real estate K) is OK as the ct can read a “reasonable” price into K Open quanity term isOK under Art. 2/UCC for Requirement Ks; PROVIDEDthe requrements don’t UNREASONABLY vary as to take seller by surprise

Question 27

What is the parol evidence rule (“PER”)? NOTE: NY Distinction

Answer 27

PER keeps out evidence of a PRIOR or CONTEMPRANEOUS agreement (either oral OR written) that contradicts a later writing NOTE: a PER problem REQUIRES a writing, so if the fact pattern involves an oral agmt, it’s a SOF problem, NOT a PER problem EXCEPTIONS (where evidence gets in)… 1) to correct a CLERICAL ERROR (e.g. a typo) 2) to establish a DEFENSE against formation (e.g. fraud, duress, mistake, illegality, CONDITION PRECEDENT by extrinsic evidence) 3) to interpret a VAGUE or AMBIGUOUS term (but NOT for a term that has a plain/ordinary meaning) 4) to supplement/add to a PARTIALLY integrated writing (a final stmt of the terms included, but not a COMPLETE stmt of terms agreed to, e.g. a lease for the ballroom that says nothing abt bridal suite) NOTE: if there is a “merger clause” then this strengthens the PRESUMPTION that agmt is complete but is not conclusive NOTE: the PER has NOTHING to do w/ what happens AFTER an agmt is reduced to writing; so such info MAY NOT be kept out [this is a modification, so there may be a consideration or a SOF issue (if oral)]

Question 28

How is conduct relevant to K interpretation?

Answer 28

Conduct can… 1) Explain words in the K 2) Fill gaps in the K Order of importance of conduct: 1) Course of performance: what parties have done under THIS K; this is the BEST evidence 2) Course of dealing: what these parties have done under PRIOR Ks with each other 3) Usage of trade (custom): what is the custom in the INDUSTRY in similar Ks; this is the furthest removed from the K

Question 29

In the sale of goods (Art. 2/UCC), what are the 3 types of seller warranties?

Answer 29

1) Express warranty: a seller is LIABLE for breach of an express warranty, which can be created by… (i) stmts of fact; (ii) promises; (iii) description of the goods; (iv) use of a sample or model product (i.e. you DON’T have to use the word “warranty”) BUT NOT opinions/general subjective stmts (e.g. “all our products are top quality”) NOTE: art appraisals = opinion too In order for stmt to = an express warranty, it must be a “basis of the bargain” (i.e. if the buyer COULD have relied on the stmt) 2) Implied warranty: TWO types… Implied warranty of merchantability = warranty that the goods are fit for their ORDINARY PURPOSE Key fact: Seller needs to be a “dealer” (i.e. a merchant(and ONLY a merchant) who has SPECIALIZED knowledge abt the PARTICULAR goods in the trxn) Implied warranty of fitness for a PARTICULAR purpose = a warranty that the goods are fit for a PARTICULAR PURPOSE Key facts: Seller (i) KNOWS the buyer has a special use for the good; AND (ii) buyer is RELYING ON THE SELLER to pick out goods suitable for that use NOTE: ANY seller can make an implied warranty of fitness, merchant or not! LIMITATIONS on warranties… 1) Disclaimers: a seller CAN disclaim an implied warrant, BUT CANNOT DISCLAIM an express warranty To disclaim an IMPLIED warranty, K must provide “magic words” (i.e. “as is”; OR “with all faults”)OR by CONSPICUOUS disclaimer To disclaim merchantability, must use the word “merchantability” in disclaimer (NOT the case with fitness) 2) Ltd of Buyer’s Remedies: a seller CAN LTD a buyer’s remedies for breach of ANY warranty (express OR implied) if the ltd is NOT UNCONSCIONABLE EXCEPTION: ltd buyers remedy for PERSONAL INJURY is presumed unconscionable (rebuttable)

Question 30

In the LEASE of goods (Art. 2A/UCC), what are the types of LESSORwarranties?

Answer 30

THIS IS IN NY ONLY General rule: Same warranties under UCC/Art. 2A as under Art. 2 (i.e. express warranty, merchantability, fitness) EXCEPTION: a “finance lease” where a bank serves as a lessor (after buying from mnfr); here, the warranty is ONLY operating by original mnfr. Limitation on warranty are the SAME as with a sale of goods (Art. 2/UCC) (i.e. disclaimer OR ltd of buyer’s remedies)

Question 31

Who bears the risk of loss (ROL) in the sale of GOODS (Art. 2/UCC)?

Answer 31

Risk of loss = who bears the risk if goods are damaged/destroyed BEFORE buyer gets them? Risk = must still perform buy providing new goods (if seller bears) OR by paying K price nws loss (if buyer bears) HIERARCHY: look for the following things in the ORDER listed… 1) Agreement: the agreement of the parties cntrls as to who shall bear the ROL 2) Breach: the breaching party bears ROL, EVEN IF the loss is unrelated to the breach Defective goods: if buyer properly rejects them, the ROL does NOT pass to buyer until the goods are cured/accepted 3) Delivery by a common carrier (e.g. UPS): ROL SHIFTS to buyer when seller completes its DELIVERY OBLIGATION,WHICH depends on type of K… Shipment K: seller must (i) TRANSPORT goods to a common carrier; (ii) maker delivery ARRANGEMENTS; AND (iii) NOTIFY buyer HERE, buyer bears ROL even before he gets the goods A K is PRESUMED a shipment K, unless otherwise stated Destination K: seller must (i) TRANSPORT goods to a SPECIFIC location (usually, where buyer is located) LOOK for “Free on board” (FOB) often followed by city/place The ROL passes to the buyer AT the named location… If it’s “FOB [city where SELLER is located]”, then it’s a SHIPMENT K If it’s “FOB [any other city]”, then it’s a DESTINATION K 4) Non-carrier cases (e.g. buyer pick up or seller personal delivery): ROL depends on whether seller is a MERCHANT… Merchant seller: seller bears ROL until buyer takes POSSESSION of the goods Non-merchant seller: ROL passes to buyer ONCE seller makes the goods AVAILABLE to the buyer (i.e. the seller “tenders” the goods)

Question 32

Who bears the risk of loss (ROL) in the LEASE of GOODS (Art. 2A/UCC)?

Answer 32

THIS IS IN NY ONLY General rule: the ROL is on the LESSOR EXCEPTION: a “finance lease” where a bank serves as a lessor (after buying from mnfr); here, the ROL is on the LESSEE

Question 33

tIn the sale of GOODS (Art. 2/UCC), what is the perfect tender rule?

Answer 33

Perfect Tender Rule = if tender is NOT PERFECT, buyer may… 1) reject some OR all goods BUT…a seller who has failed to make perfect tender MAY have an option to cureIF (i) the time to perform has NOT expried (e.g. if seller tenders imperfectly EARLY, then he’d have opp to cure); OR (ii) past CONDUCT shows that buyer is flexible in taking imperfect goods (narrowly applied) Perfect Tender Rule does NOT apply to installment Ks (where K requires or authorizes delivery in separate installments), so buyer CANNOT readily REJECT an installment EXCEPTION: buyer may ONLY reject an installment for substantial impairment (i.e. a MAJOR fuckup) Consequences: can (i)return for refund; AND (ii) get damages 2) accept some OR all goods Once there is an ACCEPTANCE of the goods (expressly or impliedly), there CANNOT be a rejection of the goods (but buyer can STILL get damages for breach) “Implied acceptance” = the buyer KEEPS the goods AFTER having an opportunity to inspect the goods (TIP: look for long delay b/t receipt and complaint…MAY be implied acceptance) Generally an acceptance CANNOT be revoked UNLESS…the non-conformity(i) substantially impairs the value of the goods; AND (ii) the non-conformity was DIFFICULT to discover (i.e. it was a latent defect) Consequences: (i) obligation to pay seller; AND (ii) can seek damages A check is OK, but the seller CAN refuse it [NOTE: if check is refused, the buyer would have reasonable time to get cash if tender is at the deadline]

Question 34

What is the substantial performancerule (under common law) AND how does it relate to excuse AND damages?

Answer 34

Substantial performance: Under the common law, performance DOESN’T have to be perfect; if there issubstantial performance then any breach is NOT material Normally finishing late is NOT a material breach UNLESS the K or circumstances indicate that “time is of the essence” Excuse: ONLY amaterial breach(insubstantial performance) provides an EXCUSE (non-breaching party doesn’t have to perform) IF it’s animmaterialbreach, non-breaching party MUST STILL performand then sue for damages Damages to non-breaching party: the injured party can recover damages for ANY breach of K (whether it’s material or not) Breaching party recovery: If material breach leads to excuse, the breaching party can recover the reasonable value any benefit conferred thru RESTITUTION Divisible K: where pmt is to be made on PER UNIT basis, the breaching party can recover the K price for any unit for which he substantially performed

Question 35

What is anticipatory repudiation AND how does it provide an excuse?

Answer 35

Anticipatory repudiation (AR)occurs IF a promisor, prior to the time set for performance, indicates (unequivocally)that he will NOT perform when the time comes AR is a MATERIAL BREACH and serves as an excuse for the non-breaching party to end performance (AND sue the breaching party IMMEDIATELY) A breaching party CAN retract a repudiation AS LONG AS the non-breaching party didn’t RELY on that AR in trying to cover

Question 36

What is adequate assuranceAND how can it provide an excuse?

Answer 36

Adequate assurance: a party with reasonable grounds for being insecure about the OTHER party’s performance may request in WRITING adequate assurance that the other party will perform in accordance w/ the K If the OTHER party fails to provide adequate assurances that performance will be forthcoming, the innocent party CAN treat the lack of response as a repudiation and is EXCUSED from performance Retratction by violating party is possible IF communicated to innocent party

Question 37

What are the 4 forms of later agmts that will excuse performance?

Answer 37

1) Recission: an agmt by BOTH sides to cancel the K, which COMPLETELY excuses performance on the original K by either side NOTE: for a recission to be effective, EACH party MUST have at least SOME performance remaining (to provide consideration) 2) Modification: An agmt to replace an existing K with a NEW ONE; modification takes place immediately 3) Accord and Satisfaction: An ACCORD is an agmt to accept performance in FUTURE satisfaction on an existing duty; SATISFACTION is performance of the accord (e.g. Parties agree that if X mows Ys lawn for a year, THEN X’s debt to Y will be discharged) Modification vs. accord/satisfaction: the difference is WHEN the new agmt takes effect (now vs. in future) Accord, like a modification, req’s consideration (but it may be of lesser value that the original value SO LONG AS it’s a different obligation) Accord DOESN’T make the underlying obligation of original K go away; it just “suspends it” until a satisfaction The existing duty is extinguished ONLY WHEN the accord is satisfied A breach of an accord = can sue on EITHER original K OR the accord 4) Novation: an agmt to substitute a NEW party for an EXISTING party If NEW party doesn’t perform, CAN’T sue the old party (as they were excused) NOTE: Cf. Delegation of duties (i.e. where ONLY one of the existing parties agrees w/ a 3d party to take his place) whereREPLACED party can STILL be sued for non-performance

Question 38

What is impossibility (impracticability)AND how can it provide an excuse to performance? NOTE: NY Distinction

Answer 38

Impossibility = a later UNFORSEEN event that makes performance IMPOSSIBLE may provide an excuse (i.e. the K is discharged) Under Art. 2/UCC, known as impracticability 3 ways impossibility may provide excuse… 1) Destruction of something NECESSARY for performance Common law: destruction PROVIDES an excuse for non-performance Sale of goods (Art. 2/UCC): A SELLER(NOT the buyer) can be excused from performance ONLY IF: (i) the goods that were damaged/destroyed had been “identified in the K” (i.e. they were not fungible); AND (ii) the seller bore the ROL 2) Death/incapacity of an ESSENTIAL person (not just any person, but a “star employee”) NOTE: If the duty is delegable to a 3d party OR the incapacity is TEMPORARY, then it is NOT excused 3) Supervening GOVERNMENTAL regulation BUT usually NOT…an increase in the COST of the seller’s performance NY DISTINCTION: there is more FLEXIBILITY for increases in costs depending on the absolute amt of increase and the % increase

Question 39

What is frustration of primary purposeAND how can it provide an excuse to performance?

Answer 39

Frustration of primary purpose exists IF at time of K (i) BOTH parties know a specific purpose for K, which is(ii)then (unexpectedly)frustrated This EXCUSESperformance (e.g. rent apt to see parade which is then cancelled) even though performance is STILL possible

Question 40

What is anexpress conditionAND how can it provide an excuse to performance?

Answer 40

An express condition ltds obligation created by OTHER K language (does NOT create an independent obligation) STRICT COMPLIANCE with explicit condition is mandated, OTHERWISE performing party would have an EXCUSE (e.g. X Ks to buy a house,provided that it appraises for at least $1mm; if it appraises for $900k, X has an EXCUSE) Two types: (i) condition precedent (e.g. X agrees to do a certain act IF a condition is satisfied); (ii) condition subsequent (e.g. X agrees to provide a certain service UNTIL a condtion is satisfied) Key words:“if”; “provided”; “on condition that”; “so long as”; “unless”; “when”; “until” Satisfaction clauses: “satisfaction” is based on a REASONABLE person (objective), UNLESS the K involves artOR matters of personal taste where subjective std is allowed Excusing a condition: occurence of a condition may be excused by (i) the later action; OR (ii) inaction of the person who is protected by the condition Identify the person who is protected by the express condition AND see if they did anything to forfeit that protection, LIKE… Failure to cooperate: if the protectee does NOT cooperate in good faith, then the condition may be waived (e.g. good faith effort to obtain a mortgage in a house sale) Waiver: by the protectee

Question 41

What is specific performance AND when is it available?

Answer 41

Specific performance is an equitable remedy is ONLY available when damages are INADEQUATE to compensate the injured party Availability depends on type of K… 1) Real property: specific performance is the USUAL REMEDY b/c real property is considered unique (even though not really) NY DISTINCTION: if the vendor cannot deliver title b/c of a LATENT DEFECTthat he’s unaware of, then damages = down pmt + reasonable exps 2) Sale of Goods (Art. 2/UCC): specific performance is available ONLY IF the goods are (i) unique; OR (ii) there are “other proper circumstances” (e.g. an inabillity to buy substitute goods in the mkt) 3) Service Ks: specific performance is NOT AVAILABLE in service K, but injunctive relief may be (i.e. barring someone from doing something)

Question 42

When can a seller reclaim goods that were NOT paid for?

Answer 42

General rule = NOT available under Art. 2/UCC EXCEPTION 1: If a buyer (i) was insolvent WHEN it received the goods; AND (ii) seller makes a demand w/in 10 DAYS after buyer received them EXCEPTION 2: Seller can reclaim goods AT ANY TIME if the buyer misrepresented its solvency in WRITING w/in 3 MONTHS before delivery

Question 43

When are punitive damages available?

Answer 43

NEVER!! The purpose of K damages is to COMPENSATE, not PUNISH

Question 44

When will a liquidated damages clause be upheld?

Answer 44

The clause would be UPHELD IF: (i) it were DIFFICULT to estimate damages; AND (ii) the liquidated damages are a REASONABLE forecast of probabledamages (CANNOT act as a penalty) Reasonability under COMMON LAW, is measured from perspective of (ex ante) PROBABLE damages, and NOT (ex post) ACTUAL damages under Art. 2/UCC, is measured realtive to PROBABLE or ACTUAL damages (more flexible) If liquidated damages cl is struck down, π will get actual damages E.g. a fine of $100/day is more reasonable than a flat $20,000 as the latter is inflexibile and not based on extent of damages

Question 45

What are expectation damages AND how are the calculated under the common law?

Answer 45

Expectation damages put the injured party IN AS GOOD a position as full performance (i.e. the benefit of the bargain) Expectation damages are the DEFAULT measure of damages If expectation damages are too speculative (e.g. the profit level), then the π can get reliance damages for expenditures spent in reliance on the K (i.e. puts π in a position as if the K had NEVER existed) NOTE: an injured party CANNOT recover damages he COULD have avoided (mitigation) w/ reasonable effort

Question 46

What are expectation damages AND how are the calculated under Art. 2/UCC?

Answer 46

Expectation damages put the injured party IN AS GOOD a position as full performance (i.e. the benefit of the bargain) Expectation damages are the DEFAULT measure of damages CALCULATION Buyer’s damages 1) Cover damages (default) = cover price – K price Use this IF buyer covers in GOOD faith 2) Mkt damages = mkt price – K price This is used if buyer DOESN’T cover at all OR does so in bad faith NOTE: there is NO rule of mandatory covering in the UCC (mitigation) 3) Loss in value = value as promised – value delivered Is used in buyer KEEPS non-conforming goods Seller’s damages 1) Resale damages (default) = K price – resale price Use IF seller resells in GOOD faith 2) Mkt damages = K price – mkt price This is used if buyer DOESN’T resell at all OR does so in bad faith NOTE: there is NO rule of mandatory covering in the UCC (mitigation) 3) Lost profit (for volume dealer) = all the LOST profits from MISSED sale (even IF resells at same price, i.e. $0 resale damages) ONLY use IF, π is a “lost volume dealer” (i.e. can get virtually UNLTD supply of the good) NOTE: any ADDITIONAL profit made on the REPLACEMENT sale does NOT reduce the amt of profit damages owed to merchant from breaching buyer 4) K price = if seller CANNOT resell the goods (RARE!) E.g. custom made goods that cannot be resold to anyone else

Question 47

What are incidental damages AND how are the calculated?

Answer 47

Incidental damages = COST to the injured buyer/seller of transporting/caring for goods AFTER breach; AND of arranging a substitute trxn (e.g. a cover/resale)

Question 48

What are consequential damages AND how are the calculated?

Answer 48

Consequential damages = damages special to THIS π that were REASONABLY foreseeable to the breaching party (∆) at the time of the K NOTE: consequential damages are ONLY available under common law; they are not available under Art. 2/UCC to a SELLER (UNLESS”loss volume dealer” where he’d get the lost profit) Hadley v. Baxendale: the delivery ∆ and the π who needed the crankshaft delivered (∆ didn’t know that the package served an immediate purpose, so not foreseeable)