Contracts Flashcards

Question

**How does a _Firm Offer_ operate under Article 2 of the UCC?** ## Footnote How is a firm offer created? (Hint: 3 ==\> FO + DR + PP) What is the duration of a Firm Offer?

Answer 1

_**a) A Firm Off**e_r requires express language specifically offering to sell and not to revoke. **_c) Detrimental Reliance_** that is Reasonable & Foreseeable: if an offeror makes a promise, and the offeree relies on that promise and acts reasonably in relying on that contract, and it was foreseeable conduct, then cannot revoke promise. ***c) Part Performance*** of an offer to enter a Unilateral Contract- if offeror states that acceptance of her offer is by performance, then once begun, cannot revoke. (Note: mere preparation is insufficient. BUT, if reasonable and foreseeable, then O is precluded from revoking offer) ***_d)_*** ***_Duration:_*** 3 month cap, therefore if writing states that offer is open for 6 months, it will be scaled back to 3. (if no time stated, then a reasonable time not to exceed 3 months)

Answer 2

A) Start of Performance as Acceptance- in a bilateral contract that doesn’t specify the manner of acceptance, the offeree can begin performance as a sign of their acceptance (intent to be bound) 1) Example: O offer P 5k to paint her house. P doesn’t respond, but starts painting O’s house. An agreement has been formed and P accepted when he started painting. 2) NOTE: If Unilateral K, (specifying performance as manner of acceptance), an offer can only be accepted by completion of that performance. (starting doesn’t equate acceptance) HOWEVER, O is precluded from revoking offer, and P must complete performance.

Answer 3

Improper Performance as Acceptance: 1) Serves as acceptance as well as breach of contract. Example: O offers P 5k to paint her house white. P paints house yellow. P has accepted, but breached oral contract. 2) Accommodation Exception (UCC Art. 2)- if Seller lets Buyer know why they are sending the wrong goods, then there’s no true acceptance by Seller and thus, no breach. i. Silence as Acceptance ==\> INVALID

Answer 4

* **_When Acceptance is Effective:_*** * *A) _MAILBOX RULE_**- acceptance is effective ***_when_*** MAILED. (protects an offeree who can rely on a contract formation once he mails his acceptance) NOTE: ***burden of loss is on the Offeror.***

Answer 5

* *B) _*EXCEPTIONS* to the Mailbox Rule:_** 1) **If the Offer provides otherwise** - “your acceptance MUST be received by Jan. 9” 2) **Irrevocable Offer**- If offeree pays consideration to Offeror to hold offer open to Jan. 9, and doesn’t send their acceptance till the 9th, and is received by offeror on 11th, then NO CONTRACT. 3) **A_cceptance, *then* Rejection Mailed_** - **MAILBOX RULE APPLIES** **if acceptance _sent *FIRST*_**, (effective), *followed by rejection* and *_rejection gets to offeror first_*, *followed by the acceptance*. Then _**acceptance will still be effective since it was mailed *FIRST***_, *as long as Offeror* ***_does not RELY_***on the *_rejection_*. 4) **_*Rejection*, then Acceptance Mailed_**- **NO MAILBOX RULE**.If offeree mails rejection ***_first,_*** it doesn’t matter. *Acceptance is _ONLY_ effective once received.*

Answer 6

Consideration is bargained for legal detriment ***_or_*** benefit. (not always $)

Answer 7

Consideration is bargained for legal detriment or benefit. (not always $) - so: 1) Steps: a) Find your promise breaker? b) Ask whether someone asked for something in return for their promise? c) What requested legal detriment did P sustain?

Answer 8

Consideration- bargained for legal detriment or benefit. (not always $) * *_Forms of Consideration_** * *a)** **Performance** – Doing something not legally obligated to do * *b)** **Forebearance** – ***Not*** doing something legally entitled to do * *c)** **Promise** to Perform * *d)** **Promise** to Forbear

Answer 9

**_Substitutes for Consideration_** A) Seals: NOT consideration for majority of states B) A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration. **_Example:_** D owes C $1,000. Legal action to collect this debt is barred by the statue of limitations. D writes C: “I know that I owe you $1000, I will pay you $600.” Is there ***_new_*** consideration for D’s new promise? NO.

Answer 10

**_Promissory Estoppel as a Substitute for Consideration:_** A) Requires **Promise** B) **Detrimental** reasonable **Reliance** on the Promise C) **Reliance** was **Foreseeable** **_Ex:_** L leases bldg to T. L sends T a letter promising to renew the lease without a rent increase. T paints the building. Notwithstanding her promise and T’s painting the house, L increases the rent. T sues L for breach of contract? Is T’s painting the building “consideration”?

Answer 11

**Consideration Issue:** **_Lack of Consideration_** or a Substitute for It- A) “Bargained For” B) **_Promise as Consideration_**- There was an agreement btw S & B for sale of her stereo. S agrees to sell her stereo to B for $100. B now refuses to pay. S’s promise to sell her stereo was consideration for B’s promise to pay C) _Adequacy of Consideration_ 1) Not relevant in contract law – mere peppercorn is enough. 2) **“Past” Consideration** is ***_NOT_*** **valid consideration**- ***_you cannot bargain for something that has already been done_***. a) ***_Example:_*** Ap save’s Lisa’s life. Homer is so grateful that he promises to pay Apu $3000. Homer changes his mind. Is there consideration for Homer’s promise so it is legally enforceable? NO b) **_Exception:_** Expressly requested by promisor and expectation of payment by promissee i) Homer sees Lisa in danger and askes Apu to save her, ***_knowing_*** that Apu _would expect to be paid_. After Apu saves Lisa, Homer promises to pay Apu $3000 – Is this promise legally binding? YES.

Answer 12

**_“Pre-Existing Duty Rule”_** applies to **Contract Modifications:** ***_The General Rule:_*** Doing what you are **already legally obligate to do** ***_is not new_* consideration** for a new promise to pay you more to do merely that existing duty. **Under common law new consideration is required** for contract formation **_Explanation of Rule:_** You need new consideration to modify a K. If a person already agrees to a price for their services, then demands additional $, but doesn’t give anything extra for it, then no consideration, and other party is not obligated to pay extra. (only applies to original contracting parties) **_NOTE:_ New consideration can be an ever so slight change of terms.**

Answer 13

Under the **Pre-Existing Duty rule.**.. You need ***_new consideration_*** to modify a K. If a person already agrees to a price for their services, then demands additional $, but doesn’t give anything extra for it, then no consideration, and other party is not obligated to pay extra. (only applies to original contracting parties) New consideration can be very slight.

Answer 14

**_Exceptions_**: 1) **_Addition_** to or **_change_** **_in performance_** = new consideration 2) ***_Unforseen Difficulty:_*** If the promise to pay more comes after the discovery of previously not foreseen difficulty/impediment = new consideration 3) **Third Party Promise to Pay = *_new consideration_.***

Answer 15

***_UCC Art. 2 (sale of goods)_*** - only need **_GOOD FAITH_** to modify contract. **_Example:_** S contracts to sell grits to B for $1000. Subsequently, s tells B that it cannot deliver the grits for less than $1,300. B promises to pay the extra $300. S delivers the grits. Is there new consideration for B’s promise to pay $300? YES; Is that new promise nonetheless legally enforceable? YES – If made in Good Faith.

Answer 16

**Promise to pay debt barred by Statute of Limitation** Promises **IN WRITING** to pay a debt that is barred by SOL ***_is enforceable_***. **Example**: A owes VISA $2500, however, legal action to recover debt from A is barred by SOL. Nonetheless, A writes VISA saying “I owe you $2500. I will pay you $2000.” A’s promise to pay VISA is legally enforceable since it was in writing.

Answer 17

Defendant’s Lack of Capacity to Contract: • Minor (under 18) * intoxicated, * mentally incompetent

Answer 18

* An incapacitated D has the right to disaffirm (avoid) the K. * **_Exception:_** HOWEVER, an incapacitated D can impliedy reaffirm a K by retaining the benefit of the contract without complaint ***_after_*** **gaining capacity**. Implied Affirmation has 3 Requirements: 1) D lacked capacity at time of agreement 2) D later gains capacity 3) D retained benefit of K without complaint. a) An incapacitated D is liable for necessaries (food, shelter, clothing, or medical care), but only on a quasi-contract basis. (reasonable value of service, not K price)

Answer 19

An incapacitated D can impliedy reaffirm a K by retaining the benefit of the contract without complaint after gaining capacity. Implied Affirmation has **3 Requirements**: 1) D lacked capacity at time of agreement 2) D later gains capacity 3) D retained benefit of K without complaint. a) **NOTE**: An incapacitated D is liable for necessaries (food, shelter, clothing, or medical care), but only on a quasi-contract basis. (reasonable value of service, not K price)

Answer 20

**A contract fails if made under duress:** **A)** **Duress** - cannot threaten physical harm, no K formation. * *B)** **“Economic Duress”**- cannot threaten someone to buy extra goods if they only want what they ordered from you. 1) Someone threatens to breach an existing K unless he gets a better deal. 2) The buyer makes a new agreement b/c he desperately needs to get the first deal done. 3) There is no alternative source for product.

Answer 21

**_Misrepresentation_** - if seller includes a **“_material_” mispresentation** which ***_induced_*** buyer to act, even if made honestly & innocently, ***_no valid K_***.

Answer 22

Bilateral Mistake of Fact in Existence at Time of Agreement A) Mistake must concern a “material” portion of the K (the heart). B) Mistake as to market value of a product is NOT considered material. A bilateral mistake of fact in existence at the time of the agreement voids a contract.

Answer 23

**Unilateral Mistake of Fact** If Buyer is mistaken and believes painting is a Warhol, ***_but_*** *Seller does NOT believe it*, ***_and_*** is **_NOT_** aware that Buyer does, then the agreement is enforceable. **_However,_** if seller i**s aware** of Buyer's mistaken belief, or has reason to be aware of Buyer's mistaken belief, **_then_** the agreement **_is NOT enforceable_**.

Answer 24

**Public Policy:** Covenants not to compete: **look to NEED & SCOPE** of convenant) 1) **Scope includes reasonableness of time limitation and geographic limitation.** * *_Example:_** Tavern on the Green requires all employees to sign a contract that prohibits them from working at another restaurant in NYC for 90 days. a) Since employment K, must assess whether there is a reasonable business need. b) Here, maybe reasonable as to chefs, but not buss boys

Answer 25

**Exculpatory Clauses** - eliminates contract liability) A) Party may contract away liability for negligence in appropriate circumstances, but CANNOT contract away liability for intentional torts or gross negligence. B) **_Example:_** Builder contracts that he will not be liable for damages caused by negligence of his contractors. This clause is enforceable.

Answer 26

**Unconscionability**- oppressive terms or unfair surprise at time of agreement. A) Substantive- where terms themselves in K are unfair B) Procedural- form contracts, fine print and legalese.

Answer 27

Statute of Frauds: • “Within the Statute of Frauds" means the Statute of Frauds (SoF) applies . Under the Statute of Frauds, a contract must be in writing to be enforceable if it falls into the following criteria: (MYLEGS)

Answer 28

Under the Statute of Frauds, a contract must be in writing to be enforceable if it falls into the following criteria: (MYLEGS) 1) **M**arriage, 2) Year 3) **L**and 4) **E**xecutor 5) Guarantee 6) Sale of Goods of $500 or more

Answer 29

• **_Analysis:_**Is the contract wthin the SOF? – * *_1) 5 kinds of Ks covered..._** * *(a) Surety/Guarantee:** “Promises to answer for (guarantee) the Debts of another” (the court is skeptical that one would do this so want’s proof) * *(b) Contracts by executor** to “answer for personally” (i.e. personally guarantee) the debts of the decedent * *(c)** Promise in consideration of **Marriage** * *(d)** Service K’s with ***specific time*** of performance ***greater than a year*** * *(e) Xfer of real estate** interest (with the exception for leases of a year or less) * *(f) Leases of goods for more than $1000 accumulatively** * *2) If so, is the SOF satisfied (with either…)?** (a) Writing (b) Proof of Performance * *3) Is there a SOF Defense?**

Answer 30

Surety- (promise to answer for the debt of another if debtor does not pay)- limited to guarantees. A) NOTE: “Main Purpose” Exception- **if the main purpose of the guarantee is to benefit the guarantor, t_hen its NOT w/in SOF_.** Example: Debtor owes Creditor $1000. The debt owed is for paint used to pay Guarantor’s house, thus for his benefit and ***_NOT_*** required to be in writing.

Answer 31

Statute of frauds: a writing is necessary for… A) **Promise by an executor (estate rep) to use her own funds to pay estate taxes (must be in writing)**

Answer 32

Statute of frauds: a writing is necessary for… A) Promise in consideration of marriage (requires writing) 1) includes pre-nups and post-nups. 2) Oral promise to marry does NOT fall within SOF

Answer 33

Statute of frauds: a writing is necessary for… A) **_Service K_** **incapable/impossible of being fully performed within 1 year** from the date of agreement ***_requires writing_***. (look at what might have happened under terms, ignore what actually happens) 1) **Lifetime Ks- Under CL, don’t need to be in writing since person can die within first year.** 2) Specific Time Periods- if employer orally agreed to hire Tom for the next 3 years, then need writing, since duration is more than 1 year.

Answer 34

Statute of frauds: a writing is necessary for… A) **_Service K_ incapable/impossible of being fully performed within 1 year** from the date of agreement requires writing. (look at what might have happened under terms, ignore what actually happens) 1) **Lifetime Ks- Under CL, don’t need to be in writing since person can die within first year.** 2) Specific Time Periods- if employer orally agreed to hire Tom for the next 3 years, then need writing, since duration is more than 1 year.

Answer 35

Statute of frauds: a writing is necessary for… A) Transfer of interest in Real Estate of more than 1 year’s duration. 1) If L orally agreed to lease apt to T for one year, does NOT fall within SOF, since it’s a transfere of interest **_for 1 year or less._**

Answer 36

Statute of frauds: a writing is necessary for… ## Footnote A) Sale of Goods $500 or more- must be in writing

Answer 37

Statute of frauds: a writing is necessary for… A) Sale of Goods $500 or more- must be in writing

Answer 38

Statute of Frauds: ## Footnote Statute of frauds: a writing is necessary for… A) LEASE of Goods totaling $1000 or more - if R orally agrees to lease G a computer for $300/month for 1 year, then requires a writing b/c total lease value is $3600

Answer 39

Application of the SOF to contract modifications **(whether K as modified falls within SOF)** A) Oral Modification extending contract beyond 1 year. **Example**: T has a contract to rent an apt from L for 1 year. T alleges that L later agreed to extend the lease to 36 months. Now, contract as modified, is more than 1 yr in duration and falls within SOF.

Answer 40

Application of the SOF to contract modifications A) Oral v Written Modifications in Contracts: 1) Under CL, a clause that requires a modification to be in writing is NOT enforeceable. 2) Under UCC Art. 2 (sale of goods), such clauses ARE enforceable.

Answer 41

**Full Performance of Service Contracts** - once party fully performs, low chance of fraud, and so, no writing required. 1) **Example**: Friday’s orally agrees to employ Tom for 2 years for$ 50k payable at the end of the term. Tom works for the full 2 yrs. Friday’s then refuses to pay. Tom sues for breach of K. Friday asserts SOF defense. ***_Full performance takes Tom out of the SOF requirement of a writing_***, and Friday’s promise is enforceable. 2) **_NOTE:_** Part performance ***_will NOT excuse SOF requirement_*** of a writing. If Tom only worked for 2 months, then quit. Friday’s can refuse to pay and assert SOF defense. HOWEVER, Tom can still recover under quasi-contract for the reasonable value of his services.

Answer 42

Part Performance in Ks for the Transfer of an Interest in Real Estate: requires 2 of 3 things: 1) Partial Payment of purchase price 2) Buyer’s improvements to the property 3) Buyer’s possession of the property

Answer 43

**Part Performance in sale of goods:** A) Applies to goods delivered by Seller which Buyer refuses to pay for 1) **_Example_**: Seller and A-Rod had an agreement where A-Rod would purchase 50 bats for $100. Seller delivered all bats, and A-Rod keeps the bats, but doesn’t pay. Seller’s delivery satisfies the SOF, and is entitled to sue A-Rod for breach. NOTE: only applies to goods already delivered, not those that have yet to be delivered, or which Seller refuses to deliver. 2) Buyer already paid for goods, and Seller refuses to deliver. Full payment satisfies SOF and B can sue for breach.

Answer 44

Judicial Admission in a pleading, testimony, or in response to discovery. A) **_Equal Dignities Rule_**- must have written authority to sign an agreement on behalf of another. 1) If underlying agreement falls within SOF, then need written evidence of authority. 2) If lease, check duration. If under 1 year, then no written authority required.

Answer 45

Satisfying SOF w/ a Writing A) Sale of Goods: (Art. 2) 1) Writing MUST contain QUANTITY term 2) Signed by the Party asserting SOF defense. 3) (no price term required for Art. 2)

Answer 46

**Between MERCHANTS:** no signature necessary by party asserting defense, as long as signed by ONE of the parties. 1) **Both** parties **must be merchants** 2) The writing **must confirm a prior agreement *_AND_*** **contain a quantity term** 3) There must be no response (failure to respond is proof of lack of fraud) **_Example:_** B, a merchant, sends S, a merchant, a fax: ‘This is to confirm our agreement that you will deliver 50 snow glows to us for $500.’ /signed/B. S gets the fax, but doesn’t respond. S asserts a SOF defense. Invalid defense, satisfies all requirements.

Answer 47

**Lease of Goods** (NY Art. 2A)- (a) Writing must **state** it’s a ***_LEASE_*** (b) Must include **Quantity** term (c) **Length** of the Lease (d) Rental **Payments** Plus all other prongs of SOF (and must include): **(a)** **Must contain ALL material terms** (***_WHO & WHAT)_*** ***Signed by D- Party asserting SOF defense***

Answer 48

Parole Evidence Rule: ## Footnote A) Prevents admission of prior evidence (oral and written) discussed by parties BEFORE they reduced the terms of their agreement to writing. (assumes latest version is more reliable then anything prior)

Answer 49

B) ***_EXCEPTIONS:_*** 1) To **correct** a **clerical error** (typo, transposing #s, etc) 2) **To establish a defense to the enforceability of an agreement.** a) • Admitting evidence for interpretation purposes to establish a party’s oral misrep. 3) To **explain terms** of a written K a) **_Example:_** Liz signs a contract to lease a ballroom at the Plaza. She claims the deal was for the Grand Ballroom, and has a fax sent before the contract supporting her claim. Admissible. 4) To **supplement a “partially integrated” writing** (a final statement of the terms included, but not a complete statement of all terms agreed to) a) NOTE: if a writing includes a merger clause stating that it is limited to the terms set forth herein, then CANNOT be supplemented.

Answer 50

C) Post K Evidence: Changing an agreement AFTER it has been reduced to writing (modification) 1) Rule never prevents evidence that occurs AFTER the contract is already reduced to writing.

Answer 51

**SOF vs Parol Evidence Rule:** * Parol Evidence Rule problem requires a writing to apply. * SOF problem involves an oral agreement.

Answer 52

**Conduct of the Parties (to interpret terms of a K)** A) **Course of Performance** - what the parties have done under this contract. B) **Course of Dealing** - what the parties have done under earlier contracts. C) **Usage of Trade** - what others in the trade do under similar contracts.

Answer 53

**Course of Performance** - what the parties have done under this contract

Answer 54

* *Course of Dealing** - what the parties have done under earlier contracts.

Answer 55

* *_Usage of Trade_** - what others in the trade do under similar contracts

Answer 56

**_Seller’s Warranties_** of Quality in a Sale of Goods under UCC Art. 2 1) **Express Warranties** (fact, promise, or description, but NOT opinion, such as, “This desk is oak”. 2) **Implied Warranty of Merchantability** a) Goods are fit for their intended, ordinary purpose 3) **Implied Warranty of Fitness for a Particular Purpose**

Answer 57

1) **_Express Warranties_** (fact, promise, or description, but NOT opinion.) a) “This desk is oak” b) “This computer is guaranteed for 3 years” c) “All parts are top quality” **==\>** **OPINION! Not express warranty.** d) The Seller’s use of a sample or model-**EXPRESS- if the goods are not exactly like the samples, then Seller is liable for breach of express warranty.**

Answer 58

**_Implied Warranty of Merchantability_** * *a) Goods are fit for their intended, ordinary purpose** * *b)** ***Seller MUST be a merchant who deals in goods of the kind!***

Answer 59

**Implied Warranty of Fitness for a Particular Purpose** a) Goods are fit for the Buyer’s special purpose b) Buyer has special purpose, Buyer is relying on Seller, and Seller knows it.

Answer 60

**Seller’s Warranty of Quality in a Lease of Goods under Article 3 (**Article 2A in NY) Same warranty as the implied warranty of merchantability in sale of goods, except concerns LEASES of goods. a) Banks are excluded- • if Tom leases a computer from Citibank, who bought it from Gigabyte, only Gigabte will be liable for under an implied warranty. Citibank lease is considered a finance lease.

Answer 61

Limitations on Warranty Liability in Sales and Leases of Goods A) Disclaimer of Warranties (clause that eliminates warranties) 1) Can’t provide an express warranty in a K, then include a disclaimer of warranties 2) Implied warranties may be disclaimed in a written K. 3) Disclaimers in all caps or large/bold print is effective.

Answer 62

A) **_Limitation of Remedies (doesn’t eliminate warranty, but limits recovery)_** 1) Remedies for Implied and Express Warranties can be limited. 2) Test for Validity of a Warranty Limitation: a) Whether it is unconscionable (whether it shocks the conscious) measured at the time of contract, not at the time of mishap. b) NOTE: cannot limit personal injury recovery for personal injury resulting from purchase of goods.

Answer 63

**Seller’s Delivery Obligation in a Sale or Lease of Goods Involving a Common Carrier** (UPS, Fedex, American Airlines, etc) 1) **Shipment Contract** – delivery to a common carrier 2) **Destination Contract** – delivery to where the buyer is located

Answer 64

**Shipment Contract** A) Seller must get the goods to a common carrier B) Seller must make reasonable delivery arrangements C) Seller must notify the Buyer

Answer 65

**Destination Contract-** A) Seller must get the goods to where Buyer is located. B) If K provides for delivery “FOB Bronx”, and Bronx is where Buyer is located, then is destination K.

Answer 66

**Risk of Loss:** When goods are damaged before the buyer gets the goods, and neither the buyer or seller is to blame, who bears the risk? **A)** **Agreement of the parties control** **_B) Breach_**: the breaching party is liable for an uninsured loss (***any** _breach_ of K at all*, even if not related to loss) * *C)** **Delivery by Common Carrier**- the risk shifts to the buyer **when the seller has completed its delivery obligation.** * *1) Shipment K**- if seller met its delivery obligations, then risk of loss is on the buyer. * *2) Destination K**- risk remains with the seller, until buyer actually receives the product.

Answer 67

D) **If no common carrier,** (Buyer to pick up, or Seller to deliver), the answer depends on whether seller is a MERCHANT. 1) **If the Seller is a merchant,** seller bears the risk of loss until the buyer takes physical possession of the goods. 2) **If the Seller is a NON-merchant,** the buyer bears the risk of loss once he “tenders” the goods. (comes into his possession) 3) **Consequences** * *a)** If the Seller bears the risk of loss- he must provide new goods to the buyer for no additional cost, or is liable for breach of K. * *b)** If the Buyer bears the risk of loss- buyer must still pay the K price.

Answer 68

**Risk of Loss in Leases of Goods UCC Art. 3 (2A- NY)** ## Footnote **A)** ***_Lessor bears risk of loss_*,** even if goods are in possession of lessee. **B) EXCEPTION:** Finance Leases- Lessee bears risk of loss. **Example:** Tom leases a computer from Citibank who bought it from Gigabyte. One month after the computer is delivered to Tom, it is destroyed by a flood. Tom bears the risk of loss, b/c NY legislature favors banks.

Answer 69

**_Perfect Tender Rule_** **A)** A seller must deliver **_perfect goods_** in the **_right place_** at the **_right time_**. If not, the *_Buyer has the right to reject the non-conforming goods_*. **B)** **_CURE:_** a Seller who fails to make perfect tender may have an option to cure, as long as the time for the Seller’s performance has NOT expired. **C)** **_EXCEPTION_**- if the past history of the parties shows that Buyer has accepted wrong goods before, then Seller will have option to cure even if date of delivery has expired.

Answer 70

**_Installment Sales Contracts_** A) Look for contact language that requires or authorizes the Seller to deliver the goods in **separate installments**. (ie: _delivery of bagels every morning_) B) **NOTE:** Perfect Tender Rule **does _NOT_** apply to installment contracts. The policy **assumes that Seller will cure in the course of ongoing performance**, and Buyer has less right to reject goods – requires substantial impairment.

Answer 71

**WHEN acceptance occurs**- 1) Buyer must have opportunity to inspect the goods before acceptance occurs. a) If Buyer retains the goods for a reasonable period of time, but doesn’t inspect them, he waives his right to reject.

Answer 72

***_EFFECT of Acceptance-_*** ** 1) Once Buyer accepts goods, too late to reject.** ** 2) *A Buyer who accepts non-conforming goods, _may still collect damages!!_***

Answer 73

* **_Effect of Payment_** – Payment w/out opportunity for inspection is not acceptance w/out inspection of goods. * **_Also NOTE:_** Effect of buyer’s keeping goods without objection – if the gap between the time the buyer receives the goods and the buyer complains is a month or more… then the buyer has accepted the goods.

Answer 74

***_Revocation of Acceptance of Goods_*** **A) Once a Buyer accepts, he cannot revoke his acceptance.** **• _EXCEPTION_-** Buyer can revoke after acceptance, but only if the non-conformity substantially impairs their value AND it was difficult to discover.

Answer 75

**_Buyer’s Payment Obligation_** If K provides that payment is due upon delivery, then **_Buyer must tender payment_** (cash or check if not specified by K)

Answer 76

**_Performance of CL Contracts_** **Substantial Performance is the standard,** and party must pay full contract price for the services. 1) However, a party may still collect damages for breach of K of an immaterial breach (for whatever was not finished).

Answer 77

A) Substantial Performance is the standard, and party must pay full contract price for the services. 1) However, a party may still _**collect damages for breach of contract of an** ***immaterial breach***_ (for whatever was not finished). 2) **_Material Breaches_** ***only*** will ***_excuse_*** other party from performing his part of the bargain (ie: paying for any of the services). (*as long as breaching party hasn’t substantially performed*)

Answer 78

***_Divisible Contracts_*** A) **Payment is divided up on a per unit basis** B) **Substantial performance** is calculated on a unit by unit basis. Therefore, whatever unit has been substantially completed, **other party must pay contract price for each completed unit.**

Answer 79

**_In Rem Remedies:_** **A)** **_Specific Performance:_** Real Estate and for Unique Goods (antiques, works of art, custom made) **B)** **RECLAMATION:** Unpaid Seller’s Right to Reclaim Goods under Article 2 **C) Entrustment:** No right against a later BFP.

Answer 80

**Specific Performance** A) compelling a party to do what he agreed to do. (only avialble if monetary damages are inadequate) 1) Real Property is viewed as unique, & therefore available for specific performance on breached Ks. 2) Sale of Goods (Art. 2)-ONLY available under specific performance if the goods are unique such as: antique, custom made goods, works of art. 3) Service Ks- UNAVAILABLE- cannot force someone to perform, injured party entitled to monetary damages instead

Answer 81

**RECLAMATION:** Unpaid Seller’s Right to Reclaim Goods under Article 2- (Reclamation): **A) Rule: ** Seller has ***_NO RIGHT_*** to reclaim goods from a Buyer who has yet to pay for them. **B) EXCEPTION**- *if B is insolvent at time of receipt* S must make demand for goods w/in 10 days from B’s receipt of goods. **C) Example:** B buys goods on credit from S on May 10. Goods are delivered to B on May 20. B is insolvent on May 20. On May 29, S learns of B’s insolvency, and makes a demand to reclaim the goods. Permissible, since demand is made w/in 10 days on 5/29. **_NOTE:_** IF B sold goods to 3rd party on May 25, S has no right to recover goods from 3rd party and only has right of reclamation as to Buyers.

Answer 82

**A)** Entrusting owner has **_NO RIGH_**T to get her belongings back from ***_a later BFP_***. However, she will have a right to sue the person who she entrusted her belongings to for conversion. C**)** ***_Example:_*** Britney takes her watch to Jay jewelers to be repaired. Jay wrongfully sells the watch to Gwen, a bonafide purchaser for value. Britney may only sue Jay for conversion.

Answer 83

* *Types:** * *A) _Punitive Damages_** –not allowed in K, purpose is to compensate not punish (else, headwind to K) * *B)** **_Liquidated Damages_** –Permissible if damages r difficult to est & reasonable est of propable dam * *C)** **_Expectation Damages_** – Puts the P in as good a position as full performance * *D)** **_Consequentional Damages_** -Special damages to this specific P that r reason/4C-able@time of K. * *_E) Incidental damages_** - Involve the cost of arranging a replacement deal OR Expenses incurred * *_F) Lost Volume Seller_** – losing 1 unit of profit as a result of B’s breach * *_G) Rule of Mitigation_** -can’t recover for damages that could have be avoided w/ reasonable

Answer 84

**_No Punitive damages_** - purpose of K damages is to compensate, NOT punish.

Answer 85

* *Liquidated Damages**- * *A) _permissible_** if damages were difficult to estimate and the clause is a reasonable forecast of probable damages (parties themselves determine what damages are) **B)** **_Example_**: Simon hires Tom to redo his office. The K requires the job to be completed by April 5, and provides for damages of $100/day for each day Tom is late. Tom finishes 20 days late. **1)** The liquidated damages clause is valid b/c ***_$100/day_*** figure is **flexible**. The damages are ***_graduated_*** by day so they increase with the length of the delay. Provides an incentive for Tom to get the job done. **2)** **Exception:** However, if the clause provided for $**20,000 in damages if Tom was late**, then ***_this would be invalid_*** b/c it is not a reasonable forecast and ***fixed figures invalidate liquidated damages*** clauses.

Answer 86

* *Expectation Damages**- * *A)** **Puts the P in as good a position as full performance.** (aka- Benefit of the Bargain Damages) based upon ***_expectation_*** that each party will perform without breach. **_1)_** Owner will **get the difference** between what he was ***supposed to pay*** under K and ***what he actually paid*** to get the job done by another person. **Example:** **O** hires **P** to paint his house for $**20**k. **P** doesn’t paint the house. **O** pays another painter $**23**k. Thus, **O** can recover $**3**k from **P** for his breach. * *_2)_** When buying **GOODS**, and seller doesn’t perform, ***B cannot take advantage of seller’s breach to benefit himself at the seller’s expense** by buying a higher grade* of product. * *_a)_** Buyer must use *GOOD FAITH* in order to get the difference of what he paid. **_3)_** “***_Unique Goods_***”- **B** contracts to buy an antique chair for $**4k.** **B** then discovers the chair is not antique, but keeps it and sues for breach. The chair is actually worth $**2k**. Had it been antique, it would have been worth $**7k**. ***_a)_*** **B** is entitled to $**5k** in damages. His expectation was an antique chair worth $**7k**. He ends up with an ordinary chair that he paid $**4k** for. The chair is actually worth $**2k**, so he gets back $**5k** since he is entitled to the benefit of his bargain.

Answer 87

**Incidental damages:** (always recoverable) A) Involve either the cost of arranging a replacement deal (ie: advertising) OR B) Expenses the B incurs in taking care of the non-conforming goods.

Answer 88

**_Lost Volume Seller_** – ***losing 1 unit of profit as a result of B’s breach***. **_Example:_** Hyde contracts to buy a suit from S&M Suit’s ***regular inventory*** for $**900**. Hyde breaches. The next day, S&M ***sells the same suit to another customer for $900***. *Since S&M would have had 2 sales* **(and twice the profit)** but for Hyde’s breach, ***_Hyde is liable for S&M’s loss of profit on his suit_*** (not the K price).

Answer 89

**Consequential Damages**- **A)** **special damages** to this particular P **that are reasonable foreseeable** at the time of K. **_Example:_** Fuzzy contracts to sell Newt a peach-picking machine for $**10k**. Fuzzy breaches. Newt is unable to find another harvesting machine right away. As a result, Newt’s crop rots, causing him a $**3k** loss. • If this particular kind of damage was reasonably foreseeable to Fuzzy at the time of K formation, then Newt is entitled to $**3k** in damages.

Answer 90

**_Rule of Mitigation_** (avoidability) - can’t recover for damages that could have be avoided w/ reasonable care. **Example:** Kay is terminated from her job in violation of her K. She makes $900/week. Her employer alleges that she can get a comparable job paying $800/wk. What are Kay’s damages? assuming allegations are true, $100/week. * *1)** Comparable Work- whether P would have gotten same work in same city. * * ** **_a)_** Doesn’t mean K has to get another job, just that her damages will be reduced accordingly. ** ** **_b)_** Defense (burden is on breaching employer)- Kay could have avoided some or all of damages by using reasonable effort.

Answer 91

**A)** Excuse based on the **Other Party’s Breach** **B**) Excuse based on **Other Party’s Repudiation** by Words or Conduct +**_“Anticipatory Repudiation”_** **C)** Excuse Based on **_Later Agreement_** (4):**Modification, Accord & Satisfaction, Rescission, Novation** **D)** Excuse Based on **Later Unforeseen occurance** that makes ***_Performance Impossible_*** (**_frustrates_**). **E)** Excuse based on **Failure of an Express Condition**

Answer 92

**Excuse based on the Other Party’s Breach**- **A)** Rejection of goods for lack of perfect tender, excusing Buyer from issuing payment. **B)** Material Breach excusing paying party from issuing payment for services.

Answer 93

***Excuse based on Other Party’s Repudiation by Words or Conduct*- (“Anticipatory Repudiation”)- before performance completion.** **_Example 1:_** If O contracts with Martha to have her house decorated for 50k, and thereafter changes her mind, and repudiates the K after Martha already starts the job, Martha is excused from completing the work and may sue O for damages under breach of K. **_Example 2:_** Repudiation Retracted- permissible as long as Martha hasn’t relied on O’s repudiation. 2 days after O repudiated the K, she decides she wants Martha to finish, so O can retract her repudiation by telling Martha she will pay her for completing the work. Martha can resume the work, or not. **_Example 3:_** When Payment is in the form of an Object- Martha contracts to decorate O’s house in exchange for a unique signed picture. If O sells the picture, Martha is excused from performing b/c this is a material breach or anticipatory repudiation.

Answer 94

**Excuse Based on Later Agreement** (4): A) Modification (substitute agreement) B) Accord & Satisfaction, C) Rescission (Cancellation). D) Novation

Answer 95

**Excuse Based on Later Agreement** (4 Types) **_A) Modification_** (substituted agreement)- takes effect immediately 1) Once an agreement is modified, and substituted with different obligation, cannot collect on original obligation. **_Example:_** Joey borrows $1000 from Monica and promises to repay the debt. Later, Monica & Joey agree that she will discharge the debt now if Joey promises to paint her apt w/in 30 days. If Joey fails to paint apt, Monica’s only right to sue is on the painting deal.

Answer 96

**_Accord and Satisfaction_** **A)** ***_Accord_***- is a new agreement btw 2 people already subject to a contract to do something different (paint apt) **B)** ***_Satisfaction_***- performance of the Accord **_Example:_** Joey borrows $1000 from Monica and promises to repay the debt. Later, Joey & Monica agree that if Joey paints her apt within 30 days, then Monica will discharge the debt. If Joey doesn’t paint the apt, Monica can sue either on the accord or the original debt. Accord will only wipe out Joey’s debt once it is satisfied.

Answer 97

**_Rescission_** (cancellation) **A)** If 2 parties to a contract both agree to cancel the K, then all obligations discharged. **B)** Must occur when ***_BOTH_*** **parties have some performance remaining**. ***_ie_****:*** If one party completes performance by mowing the lawn, and Helen (benefited party) cant afford to pay, so they agree to cancel K. **Helen is _still *obligated*_ to pay for the services.**

Answer 98

**A)** **_Novation_**- substitution: where one party to a K is excused from performing and a new party is substituted to do the job. * *B)** **_Requirements_** * **_1_****)*** Where all parties agree to substitution, Helen can only go after substituted party if he doesn’t fulfill his obligation. **_Example:_** Opie contracts to mow Helen’s lawn. Later, Opie, Goober & Helen agree that Goober will mow the lawn instead. If Goober doesn’t mow the lawn, Helen can only pursue him for damages, not Opie who has been relieved of his duty. **_2_****)** Agreement between original & substituted party alone ***_does NOT relieve_*** original party of his duty. **_Example:_** Opie contracts to mow Helen’s lawn. Later, Opie & Goober agree that Goober will mow the lawn instead. If Goober fails to perform, Helen can go after Opie since he simply delegated his duty to Goober, and Helen did not consent.

Answer 99

Excuse of Performance based upon Later Unforeseen Occurrence/Events * *A)** Destruction of Thing Necessary to Perform * *B)** Destruction of Goods under Article 2 * *C)** Death or incapacity of a person essential for performance * *D)** Supervening Government Regulation * *E)** Frustration of Purpose (Buyer’s remedy) * *F)** Excuse based on Failure of an Express Condition

Answer 100

**A)** Destruction of Thing Necessary to Perform- excuses party from performing and is not liable for breach of K. **_Example:_** C contract to lease his hall to D for a concert on 6/1. The hall burns down on 5/29. C is excused from performing since the hall’s destruction makes performance impossible. **_COMPARE:_** Builder contracts to build house for 300k. After Builder is near completion, the house burns down. Builder is NOT excused, b/c he can build another house, and performance is not impossible.

Answer 101

Destruction of Goods under UCC Article 2 A) **Party who bears the risk of loss is excused from performing if goods are destroyed.** **_Non-merchants Example_****:** Kramer (buyer) contracts to buy Jerry’s corvette. ***After the K***, ***_but_ before delivery*** of the car, (so the *_risk of loss is still on Seller_*- Jerry) the car is destroyed by flood. Kramer cannot sue for breach b/c **Jerry is excused from performing since** corvette identified in the K is unexpectedly destroyed. **_COMPARE_: *If goods are destroyed after delivery is made, but before Kramer drives it off, the risk of loss is on Kramer***, **_and he will still be liable_** for the K price since the corvette has been tendered & it is still possible for Kramer to pay. **_Fungible Items_** (goods in excess)- a contract for the sale of a fungable item (ie: cow manure), where the product is destroyed before delivery to the Buyer, Seller must still deliver the item since they have more of it.

Answer 102

**_Death or incapacity of a person essential for performance_** **A)** If someone hired for their “special expertise” or reputation dies, then his death is excuse for performance, and estate is not liable for breach. **_Exception:_** If person hired for standard performance (mowing lawn), then estate isn’t excused and is liable for breach of K, unless they get someone else to mow lawn

Answer 103

**Supervening Government Regulation** If a person contracts to do something that is later deemed illegal by a government ordinance, then that person is excused from performing.

Answer 104

**_Frustration of Purpose_** ***(Buyer’s remedy)*** At time of K, both parties understood what the purpose of the K was - AND - Later on, and unforeseen event frustrates that purpose. Thus, Buyer is excused from performing if purpose becomes void or moot. (ie: parade cancelled)

Answer 105

**Excuse based on Failure of an Express Condition** **_Express Condition_** - contract language that ***doesn’t create an obligation, but limits obligations*** created by other contractual language (***if, so long as, provided, unless, etc***). Strict compliance required. **_Example:_** B contracts to buy S’s house for $**300**k on condition that it appraises for $**300**k. S’s house appraises for $**295**k. **B’s performance is _excused_**, and S may not sue for breach due to failure of K meeting the condition.

Answer 106

**_Satisfaction Clauses_- (reasonable satisfaction – objective)** **_OBJECTIVE STANDARD:_** Xena contracts to have Sam paint her house and pay him $**2**k ***if she is satisfied with his work***. Everyone likes his work ***except Xena***. ***_Xena is NOT excused_*** from paying if a reasonable person would be satisfied. **_COMPARE_:** if Sam **was hired to paint Xena’s portrait**, then ***this is a matter of personal taste*** and ***_the subjective standard is applied_***, ***_SO_*** Xena would be ***_excused_ if she was dissatisfied*** with Sam’s work.

Answer 107

**Conditions Precedent/Concurrent/Subsequent:a matter of timing** Tiger Woods agrees to let Derek Jeter use his golf cliubs for $100/wk… 1) ***_IF_*** it rains on 7/4- condition precedent, must be met for Tiger to be obligated to perform. 2) ***_AS LONG AS_*** Derek keeps the clubs in good repair- concurrent, runs alongside K 3) ***_UNTIL_*** the Mets win the World Series- subsequent, performance comes first, then occurrence of condition may cut it off.

Answer 108

**Excusing (eliminating) a Condition by Later Action or Inaction of Person who is Protected by the Condition** **_Failure to cooperate_:** B contracts to buy S’s house for 300k “provided that” B obtains a 200k mortgage at 5% or less. B makes no effort to obtain a mortgage, and refuses to buy the house. S sues for breach. **_Analysis_:** * *1)** Who’s protected by the Condition? **==\>** **Buyer** * *2)** Did that person do or say something to lose protection of condition?**==\>YES**, B didn’t even look for a mortgage so he loses the protection and is bound to pay K price. **_Estoppel_**- (later statement by protected party & reliance by other party) **_Example:_** Trump’s duty to make payments under a construction K is conditioned on Builder furnishing Trump with an architect certificate stating that the work done in prior month is acceptable. Then, Trump tells Builder that he will make future payments w/out the certificate. The next month, Builder does not provide a certification, and Trump refuses to pay. Builder can sue Trump, and Trump has to pay b/c he waived the condition and **Builder *_relied_* on his statement**

Answer 109

**_Third Party Problems involve:_** * *1)** Delagation of Duties (to a 3rd party) * *2)** Assignment of Rights * *3)** Third-Party Beneficiary Law

Answer 110

* *Delegation of Duties:** * *_Rule_**- contractual duties may be delegated ***without obligee’s*** consent (person to whom duty is owed) **_Example:_** Opie contracts to mow Helen’s lawn for $25. Opie delegates to Goober, who does a great job. Helen objects to Opie’s delegation. Doesn’t matter, she still has to pay b/c consent is not required. * *_EXCEPTIONS:_** * *1)** K language prohibits delegation. * *2)** K language prohibits assignment. On multi-state, means same thing, so delegation is prohibited as well. * *3)** Cannot delegate where K involves special skills or party w/ special reputation. (David Letterman to host Academy Awards, cannot delegate to someone else)

Answer 111

* *Consequences if Delegate does NOT perform:** * *A)** The original delegating party remains liable. • Note: the case of a novation involves consent, and therefore no liability for delegating party. **B)** If Delegate receives Consideration- then he is liable to oblige. However, obligee can sue either delegating party or delegate. **_Example:_** Opie contracts to mow Helen’s lawn for $25. Opie delegates the duty to Goober and pays him $15 to do so. Goober never cut the lawn. Thus, Helen can go after Goober (since he received consideration) or go after Opie, since Helen never consented.

Answer 112

**_Assignment of Rights_**- 2 people enter into a K, and later, one person transfers his rights under the K to a third party. Must have privity of K * *_Example: _** Batman contracts to provide security for Gotham City for $**200**k. Batman assigns his right to the $**200**k payment to Robin. On these facts: * *(a)** the Assignor is Batman (person who transfers his rights) * *(b)** the Assignee is Robin (person to whom rights are transferred) * *(c)** The Obligor is Gotham City (person who owes performance/$ under K) * *2)** Requirements for making an assignment: * *(a)** No consideration is necessary in order to make an assignment * *(b)** All assignments over 5k must be in writing. * *(c)** Future promises to assign are INVALID. Must have present tense language to assign.

Answer 113

* *Restrictions on Assignments** * *A) _Contract Clauses_:** distinguish btw a clause that merely prohibits assignments from a clause that completely invalidates assignments. 1) **If A contract provides** - “Rights under this contract are ***_not assignable_***”. This is a prohibition, however, if a person assigns their rights nonetheless, the ***_assignment itself is valid_*** and obligor owes **$** to the assignee. (but assignor may be liable for breach of K) **2) If K states**- “***_All assignments_*** of rights under this contract ***_are void_***”, then language invalidates any assignments. **3) Court imposed (CL) limitation** - *_an assignment cannot substantially change duties of the obligor_*. **_Example:_** Gotham City assigns its right to Batman’s services to Metropolis. This assignment would be invalid b/c it substantially changes Batman’s duties. **Requirement Contracts**- assignments under these Ks are valid as long as the assignee’s requirements are not out of line with the assignor’s

Answer 114

* *Rights of an Assignee** * *A)** May sue the obligor if he doesn’t perform as promised (receive **$** for his assigned services). * *_Example_: ** Robin can sue Gotham City if he completed Batman’s duties & Gotham City doesn’t pay him. * *B)** Obligor has same defenses against assignee as it would against assignor * *_Example_: ** If Batman contracts to provide security for Gotham City for 200k and assigns his right to payment to Robin, yet doesn’t perform his duties under K, then Robin cannot collect b/c his rights are only as good as Batman’s. (who is guilty of breach) **C)** **NOTICE** to Obligor of assignment Payment by the obligor to the assignor after an assignment, is effective ***_unless_*** the Obligor ***_has knowledge of the assignment_***.

Answer 115

* *Multiple Assignments** * *A) _Gratuitous Assignments_** - ***the last gratuitous assignee in time _wins_*** because a later gift assignment revokes an earlier one. **_Example_:** If Batman assigns his right to payment to Robin first, and then subsequently the same payment to American Heart Assoc, then the AHA wins b/c they were the last in time. * *2)** What if Assignment to Robin was in WRITING? * *(a)** ***_Mutli-State_***: irrelevant, and ***_last in time still wins_***. * *(b)** ***_NY:_*** Robin wins b/c writing substitutes consideration. **B)** ***_Assignments for Consideration_***- the ***_first_*** assignee for consideration wins. (*regardless of amount*)

Answer 116

**Third Party Beneficiary** A Person who did not make a contract, but still has rights under it, *b/c K was made to benefit them.* **_Example A_:** O buys a life insurance policy from Prudential, with the proceeds ***going to his wife*** upon his death. O makes all required payments, then dies. **Prudential** ***refuses to pay O’s wife***. O's wife can sue Prudential under the K & collect the proceeds since she is a TPB. **_Example B_:** Arnold (Promisee) pays Travis (Promisor) 5k to sing for **William&Mary (Intended Beneficiary)** on May 3. Travis takes the 5k, but never sings. **_W&M can sue_** Travis under the K and collect damages for breach b/c they are the TPB of Arnold’s contract with Travis.

Answer 117

**_A) Intended Beneficiaries_** - the third party that is named in the K and has legal rights to enforce. **_B) Incidental Beneficiaries_** - not named in K, and not intended to be benefited, thus no rights. * *_C) Creditor Beneficiary_** - third party that is a creditor of the promise. * * ** **_Example:_**** ** Arnold owes 5k to W&M. Arnold pays Travis 5k to sing for W&M on May 3. * *_D) Donnee Beneficiary_** - third party who isn’t owed prior debt by promisee. * * ** **_Example:_** Arnold is grateful for W&M’s support during his campaign. Out of gratitude, he pays Travis 5k to sing for W&M on May 3.

Answer 118

**Comparison Fact Pattern:** **A)** **_Third-Party Beneficiary:_** all 3 parties are involved from the beginning. **B) _Assignment:_** 2 people contract and a third person appears later on.

Answer 119

**Rescission or Modification of the K** **A)** Arnold & Travis ***can rescind their K _BEFORE_ W&M learns of it*,** b/c W&M’s rights have not vested. **B)** Arnold & Travis c***annot rescind their K _AFTER_ W&M learns of it*** and invites guests for the concert on May 3. (creates a ***_reliance_*** issue) **C)** W&M’s ***rights have already vested since they know about the K,*** and ***_relied_*** on it.

Answer 120

**Rights of a Third-Party Beneficiary** _**Requirements**:_ **1)** **Third party must be named in the K** or must be able to **reasonably *rely*** on the ***promise*** **2)** **Performance** must run **directly** to the **third party** **3)** **Promise must *_intend_*** that the ***_benefit run_*** **to the third party**. ** (a)** An **intended beneficiary** *can sue the breaching promisor even though there is no privity of K* between them. **(i)** W&M can sue Travis if he doesn’t sing May 3. **4)** However, W&M **cannot recover damages from** Arnold ***as a donee beneficiary*** if Travis doesn’t sing, ***_UNLESS_** **they are a creditor beneficiary*** Pallet * *B)** **_Rights of the Promisee_** (Arnold) * *1)** ***Arnold can recover damages*** from Travis if he doesn’t sing on May 3 as he promises ***even if W&M is a donee beneficiary***