Contracts and Sales Flashcards
Common Law of Contracts v. Article 2 of UCC + Predominant Purpose Test
Article 2 - Applies to sale of goods (movable personal property)
Common Law Contracts - Applies to ANY OTHER K (services, construction, land sale, etc.)
Predominant Purpose Test: In a mixed contract case (part goods/part service) apply the law that is governing the PREDOMINANT PART of the contract.
Define K + Types of Ks
A legally enforceable agreement made between two or more parties through mutual assent
Types: 1) Express (formed by language)
2) Implied in Fact (formed by conduct)
3) Quasi-K (technically not K, construed by courts to AVOID UNJUST ENRICHMENT)
Bilateral K v. Unilateral K + Unilateral Tip
Bilateral - An offer can be accepted IN ANY REASONABLE WAY (e.g. return promise, begin performance)
Unilateral - An offer can ONLY be accepted by PERFORMANCE
Tip: Look for magic words “offer…ONLY BY” or “reward offer”
Define Offer + Objective Standard
A manifestation of intent to be bound to a contract
Objective Standard: Manifestation is judged objectively and NOT by a persons own thoughts or interests.
Offers: Advertisements
Ads are generally NOT an offer UNLESS a quantity is listed.
Indefiniteness: Open Price Term in Sales K - UCC v. Common Law
Court will read in a “reasonable price” for sale of goods via UCC gap filler, BUT NOT in common law, vague terms there will invalidate a K
Requirements and Output Ks in UCC
Requirement: A buyer promises to buy from a certain seller ALL goods buyer requires, and seller agrees to sell that amount
Output: Seller promises to sell a certain buyer all of the goods the seller produces, and buyer agrees to buy that amount
Termination: Four Methods of Termination
1) Lapse of Reasonable Time
2) Revocation
3) Rejection
4) Death
Revocation: General Rule + Direct v. Indirect
General Rule: Offeror can revoke their offer ANY TIME before acceptance.
Direct Revocation: Offeror INDICATES DIRECTLY to the offeree that he has changed his mind about the K
Indirect Revocation: The offeror engages in conduct that indicates she’s changed her mind and the offeree is AWARE OF THE CONDUCT from a reliable source.
Revocation: Four Exceptions Where Offer Cannot Be Revoked + Firm Offer Timing + Tip
1) Option K (paid for)
2) Merchant’s Firm Offer Under Article 2 (merchant signs writing promising to keep offer open)
3) Detrimental Reliance (RARE - usually comes in the form of G contractors relying on S contractors bids)
4) Part Performance Under Unilateral K
5) Death (before acceptance)
Merchant Firm Offer Timing: If no time is stated, then for a reasonable time, NO LATER than 3 MONTHS
Tip: In a sale of goods, FIRST look for an option (no limits), if no option, SECOND look for firm option (subject to several limitations - signed, merchant, no later than 3 months)
When does offeror’s revocation become official?
A revocation is effective ON RECEIPT (no mailbox rule applies)
Rejections by Offeree + Remember Mere Inquiry
1) Express rejection
2) Counteroffer
3) Conditional Acceptance (operates as counteroffer)
4) Adding/Varying Terms (NOT NECESSARILY TRUE FOR ARTICLE 2)
Mere Inquiry: An inquiry WILL NOT terminate an offer when it is consistent with the idea that the offeree is still keeping the original proposal (REASONABLE PERSON TEST)
Adding Terms to Offer - Common Law v. UCC
Common Law: Mirror Image Rule, acceptance must mirror the offer exactly otherwise no contract
UCC: The offeree’s adding or changing a term DOES NOT prevent acceptance, so long as: 1) Both parties are merchants, 2) No material change, and 3) No objection to new terms within a reasonable time
Death Operating as Terminating Offer + Remember Option K
Death of EITHER PARTY before acceptance terminates a revocable offer
Remember: Death does not automatically terminate a CONTRACT, NOR an irrevocable offer (like option K)
Acceptance: Starting Performance as Acceptance - Bilateral v. Unilateral + Improper Performance as Acceptance in Unilateral K
Bilateral: Starting performance IS acceptance and carries with it an implied promise to finish the job
Unilateral: Starting performance IS NOT acceptance; only COMPLETING performance is acceptance, BUT offeror CANNOT REVOKE
Improper Performance As Acceptance: Would be a simultaneous ACCEPTANCE AND BREACH
Silence as Acceptance + Exceptions
Generally, silence is NOT acceptance
Exception: Custom exception, if offeree silently takes offered benefits, the courts will often find an acceptance, especially if PRIOR DEALINGS create a reasonable expectation of acceptance.
Acceptance: Mailbox Rule + Remember Lost Mail + Exceptions
Acceptance is effective when MAILED
Remember: Being lost is IRRELEVANT, it counts as acceptance once sent.
Exceptions: 1) Offer states otherwise
2) Irrevocable offers (acceptance must be ACTUALLY received by deadline)
3) Rejection sent FIRST, then acceptance (whichever ARRIVES FIRST prevails)
Define consideration + Remember Forebearance
A bargained-for legal detriment/benefit
Remember: Forbearance constitutes consideration (NOT doing something)
Consideration: Past or Moral Consideration
If something was ALREADY given or performed before the promise, it will NOT SATISFY the “bargain” requirement
Consideration: Adequacy of Consideration + Exception
Courts will normally NOT INQUIRE into the adequacy of consideration (i.e., the relative values exchanged)
Exception: Courts of Equity MAY inquire into the relative values and deny an equitable remedy if they find a contract unconscionable
Contract Modification: Common Law v. UCC + Common Law Exceptions
Common Law: PREEXISTING DUTY RULE - the promise to perform an existing legal duty is NOT CONSIDERATION
Exceptions: 1) Voidable Obligation
2) Preexisting Duty Owed to 3rd Parties (when a preexisting duty is owed to a third party, the new promise constituted consideration)
3) Unforeseen Circumstances
UCC: Contract modifications in GOOD FAITH (legitimate commercial reason outside of the control of the party) are binding WITHOUT CONSIDERATION
Contract Modification: Existing Debts + Time-Barred Debt Exception
When the amount due is undisputed, payment of a smaller sum than due WILL NOT be sufficient consideration for a promise by the creditor to discharge the debt
Exception: A written promise to pay a debt, collection of which is barred by SOL, IS ENFORCEABLE, even WITHOUT CONSIDERATION
Consideration Substitute: Promissory Estoppel
A promise may be enforceable, even if it lacks consideration at the time, if 1) promisor should REASONABLY expect to INDUCE ACTION or forbearance, AND 2) such action or forbearance IS INDUCED
Defenses: Lack of Capacity For Minors General Rule + Remember Disaffirmation of Part/Whole K + Categories
An incapacitated DEFENDANT has the RIGHT to disaffirm the K anytime BEFORE or SHORTLY AFTER (reasonable time) reaching the age of majority (she does NOT HAVE TO, but she can if she wants to avoid the K)
Remember: The K MUST be disaffirmed AS A WHOLE; it cannot be affirmed in part and disaffirmed in part
Categories: Minors (U18), intoxicated, mentally incompetent
Defenses: Implied Affirmation after Gaining Capacity
An infant MAY AFFIRM upon reaching majority either expressly or FAILING TO DISAFFIRM
Defenses: Exception to Incapacity of Minors Defense
An incapacitated party is liable for NECESSARIES (i.e. food, shelter, clothing, or medical care) but ONLY for their reasonable value, NOT THE CONTRACT PRICE
Defenses: Ambiguity/Misunderstanding - When Both Parties Misunderstand & When Only One Party Misunderstands
K Language with AT LEAST TWO possible meanings leads to different results depending on the awareness of the parties:
1) Neither (or both) Party is Aware of the Ambiguity - NO K, UNLESS both parties happen to intend the same meaning
2) One Party is Aware of Ambiguity - K, enforced according to the intention of the party who was UNAWARE OF THE AMBIGUITY
Defenses: Mutual Mistake as to Existing Fact Elements + Remember Mistake in Value
When both parties entering into a K are mistake ABOUT EXISTING FACTS relating to the agreement, the K MAY BE VOIDABLE by the adversely affected party if:
1) The mistake concerns a basic assumption on which the K is made,
2) The mistake was material, and
3) The party seeking avoidance DID NOT ASSUME THE RISK (e.g. contractor v. homeowner relationship)
Remember: Mistake in value is generally NOT a defense, UNLESS the parties take steps to not assume the risk of determining value (i.e., take it to an expert)
Defenses: Unilateral Mistake
Generally, no relief if mistake is not material. Ks with errors (such as computation) may be canceled in equity, assuming the nonmistaken party has NOT RELIED on the K OR if the unilateral mistake is so EXTREME that it outweighs the other party’s expectations will be a ground for cancellation of K
Defenses: Unconscionability + Test
Empowers a court to refuse to enforce all or part of an agreement
Tests: 1) Unfair surprise and Oppressive Terms 2) tested AT THE TIME agreement was made
Defenses: Duress + Tip for Two Types of Guys
Contracts induced by duress or undue influence are VOIDABLE and may be rescinded as long as not affirmed
Tip: 1) “Bad guy” - makes an improper threat
2) “Vulnerable guy” - no reasonable alternative
Defenses: Statute of Frauds Elements + Tip for Major Categories + Remember Lifetime Ks + Remember Short Performance in Over One Year + Equal Dignity Rule
1) Writing required
2) Signed by the party sought to be bound
Tip for Major Categories: (MY LEGS) 1) Marriage, 2) Year (Ks that CANNOT POSSIBLY be completed in under one year), 3) Land sale (leases included), 4) Executor (paying estate’s debts from own pockets), 5) Goods $500 or more, and 6) Surety (a promise to answer for THE DEBT of another)
Remember: Lifetime Ks DO NOT count under SOF because the life might last less than one year
Remember: Even if a service will last a couple of hours, if it takes place OVER ONE YEAR, it MUST MEET SOF
Equal Dignity Rule: Agents authorization MUST be in writing if the underlying deal would be (e.g. authorizing an agent to sell a ranch must be in writing, but authorizing an agent to sell a book less than $500 would not)
Defenses: SOF Contract Modification + Remember Prohibits on Modification
The modification MUST BE IN WRITING ONLY IF the K AS MODIFIED is within the SOF
Remember: If the original K PROHIBITS oral modification, all modifications must thereafter be in writing (this provision is UNENFORCEABLE in common law)
Defenses: SOF - What is An Adequate Writing? UCC v. Common Law
UCC: Must contain 1) writing, 2) quantity, and 3) signed by party to be charged with breach
Common Law: 1) writing, 2) containing ALL material terms, and 3) signed by defendant
Defenses: SOF Exceptions - Land Sale/Real Property
Land Sale/Real Property Exception to SOF:
(a) leases of one year or less CAN BE ORAL, (b) “part performance” is considered two out of three: some payment, possession, and/or improvements
Defenses: SOF Exceptions - Years
Full Performance of Service K Satisfies SOF BUT Part Performance Doesn’t
Defenses: SOF Exceptions - Sale of Goods for $500 or More + Remember Custom Made Goods + Judicial Admission + Merchant Confirmatory Memo
If goods are RECEIVED, ACCEPTED OR PAID FOR, the K is enforceable
Custom-Made Goods - K is enforceable if seller has a) reasonably indicated the goods are for the buyer, b) made a SUBSTANTIAL BEGINNING in their manufacture or commitments for their purchase, c) BEFORE repudiation
Judicial Admission - if D admits under oath she had a deal
Merchants’ Confirmatory Memo - One party can use its OWN SIGNED WRITING to satisfy AGAINST OTHER PARTY, IF: a) both parties are merchants, b) writing claims agreement & has quantity, AND c) there’s no written objection within 10 days
Defenses: SOF Exceptions - Suretyship
The “Main Purpose” Exception: If the suretyship’s MAIN PURPOSE is to benefit HIMSELF, than NO WRITING IS REQUIRED
Parol Evidence Rule (PER) + Tip
Keeps out evidence of a PRIOR OR CONTEMPORANEOUS agreement (oral or written) that CONTRADICTS a legal writing
Tip: A PER problem REQUIRES A WRITING, so if the fact pattern says the K was orally agreed, it is a SOF problem NOT PER
Parol Evidence Rule Exceptions (Allows Evidence In) + Tip for After K Terms
1) Correct a clerical error (e.g. a typo)
2) Establish a DEFENSE against formation
3) Interpret a VAGUE OR AMBIGUOUS term
4) Add to a PARTIALLY INTEGRATED writing (NOT complete integration)
Tip: Stuff that happens AFTER K = Modification analysis, NOT P.E.R. - i.e. is there new consideration?
Terms: Conduct as a Source of Terms in the UCC - Hierarchy
1) (Best Evidence) Course of performance
- how parties have performed under previous installments of THIS K
2) (Second Best Evidence) Course of dealings - what parties did under PRIOR Ks with EACH OTHER
3) (Last Evidence to Use) Usage of trade - what OTHERS in the trade do in SIMILAR Ks
Terms: Express Warranty + Remember Buyer Reliance
Any affirmation of fact or promise from the seller that describes the goods, promise facts about the goods, showing a sample or model, BUT NOT an “opinion”
Remember: An express warranty need only come at a time when the buyer “could have relied” on the express warranty, the buyer need not prove they ACTUALLY DID rely
Terms: Implied Warranties in Sale of Goods (UCC) + Key Facts for Each
1) Implied Warranty of Merchantability - An affirmation from the seller WHO DEALS IN GOODS OF THE KIND that the goods are fir for their ORDINARY PURPOSE
2) Implied Warranty of Fitness for a Particular Purpose - the goods are FIT FOR THE BUYER’S PARTICULAR PURPOSE (seller does NOT NEED to be any kind of a merchant at all)
Key Facts: 1) Merchantability - Seller is a merchant who DEALS IN GOODS of the kind
2) Fitness for a Particular Purpose - Seller knows buyer has a SPECIAL PURPOSE and is RELYING ON SELLER to select suitable goods
Terms: Limitations on Warranty of Liability in a Sale of Goods - Disclaimers
A seller can disclaim IMPLIED WARRANTIES, but CANNOT disclaim EXPRESS WARRANTIES so long as they are CONSPICUOUS or use LANGUAGE like “as is” or “with all faults”
Terms: Limitations on Warranty of Liability in a Sale of Goods - Limitations on Damages + Remember Personal Injury Claims
Seller CAN limit buyer’s remedies for breach of ANY warranty (express included), as long as the limitation is NOT UNCONSCIONABLE
Remember: Warranty disclaimers that limit damages for personal injury are PRESUMED unconscionable
Terms: Risk of Loss in a Sale of Goods - Hierarchy of Risk Allocation
1) Agreement allocates risk, this controls (likely won’t appear on bar)
2) Breaching party bears risk, EVEN IF BREACH IS UNRELATED
3) Delivery by Common Carrier - risk of loss shifts TO BUYER when SELLER COMPLETES ITS “DELIVERY OBLIGATIONS”
4) Non-Carrier Cases - risk of loss depends on WHETHER SELLER IS A MERCHANT (if MERCHANT, seller bears loss until BUYER TAKES POSSESSION/if NON-MERCHANT, buyer bears loss once SELLER “TENDERS” GOODS (makes them available to buyer))
Terms: Risk of Loss in a Sale of Goods - Common Carrier Possibilities + Tip for Deferred K
1) Shipment K - Seller must get the goods to the common carrier, make delivery arrangements, and notify the buyer, then risk shifts to buyer
2) Destination K - Seller must see that goods get delivered to Buyer, then risk shifts to buyer
Tip: A shipment K is PRESUMED unless the K clearly indicates otherwise
Terms: Performance of Common Law K Requirement
Performance DOES NOT have to be perfect in common law K, only SUBSTANTIAL PERFORMANCE is required
Terms Performance of Contracts for a Sale of Goods (UCC) - Perfect Tender Rule
Seller MUST deliver perfect goods in the RIGHT PLACE at the RIGHT TIME, and if tender is not 100% perfect, buyer has the RIGHT TO REJECT all of the goods
Terms Performance of Contracts for a Sale of Goods (UCC) - Option to Cure + Remember Reasonable Grounds + Tip on Past Dealings
A seller who fails to make perfect tender MAY have an option to cure IF TIME HAS NOT EXPIRED
Remember: Seller DOES NOT have an option to cure UNLESS there is “reasonable grounds” for thinking her improper tender would have been accepted
Tip: Look for information in facts about past deals between Seller and Buyer in which Buyer didn’t insist on perfect to show “reasonable grounds”
Terms Performance of Contracts for a Sale of Goods (UCC) - Installment Ks
Perfect tender rule DOES NOT apply, rather a buyer MAY ONLY REJECT an installment delivery for SUBSTANTIAL IMPAIRMENT
Terms Performance of Contracts for a Sale of Goods (UCC) - Buyer’s Implied Acceptance of Goods + Remember Consequences of Acceptance + Tip for Timeline
Buyer keeps goods after having a REASONABLE OPPORTUNITY to inspect them
Remember: Once buyer accepts, he may NOT reject, BUT can still get damages for seller’s breach
Tip: Look for a delay between receipt & complaint of MORE THAN 1 MONTH to not be reasonable
Terms Performance of Contracts for a Sale of Goods (UCC) - Buyer’s Revocation of Acceptance of the Goods
Generally, a buyer cannot revoke acceptance of goods UNLESS the non-conformity SUBSTANTIALLY IMPAIRS the value of the goods AND the impairment was DIFFICULT TO DISCOVER (i.e. latent defect)
Terms Performance of Contracts for a Sale of Goods (UCC) - Consequence of Rejection/Revocation of Acceptance Options
1) Return - buyer can RETURN the goods at seller’s expense
2) Refund - Buyer can GET BACK MONEY buyer has paid
3) Damages - buyer can get DAMAGES for breach of K
Terms Performance of Contracts for a Sale of Goods (UCC) - Buyer’s Obligation to Pay and His Method of Payment
Cash unless otherwise agreed. A check is also okay, BUT if SELLER REFUSES, buyer doesn’t breach, but gets ADDITIONAL REASONABLE time to come in with the cash.
Excuses for Nonperformance: Other Party’s Breach - Buyer’s Options after Seller’s Breach Under UCC Art. 2 + Remember Damages
1) Reject all
2) Accept all
3) Reject some & accept the rest
Remember: Whichever option buyer chooses, buyer STILL MAY GET DAMAGES
Excuses for Nonperformance: Other Party’s Breach - Common Law K Damages and Excuse + Remember Divisible Ks
Damages - Injured party can recover damages for ANY breach of contract (material or non-material)
Excuse for Nonperformance - Only a MATERIAL BREACH provides an excuse to suspend innocent party’s performance
Remember: If it is a divisible K, non-breaching party still must perform obligations under all other divisible K areas
Excuses for Nonperformance: Anticipatory Repudiation Effect + Remember Retraction of Repudiation
Where a party unequivocally repudiates before his performance obligations, the non-repudiating party has three options:
1) Treat the anticipatory repudiation as breach and SUE IMMEDIATELY
2) Suspend own performance obligations and WAIT TO SUE until performance date, or
3) Treat the repudiation as an OFFER TO RESCIND and treat the K as DISCHARGED
Remember: A repudiating party may at any time before his performance obligation is due WITHDRAW his repudiation UNLESS the other party has RELIED on the repudiation
Excuses for Nonperformance: Failure to Give Adequate Assurance (UCC Article 2)
A party with REASONABLE GROUNDS for being insecure about the other party’s performance MAY, in writing, request adequate assurance that the other party will perform, IF NO ASSURANCE, the party may treat this as an ANTICIPATORY REPUDIATION
Excuses for Nonperformance: Later Agreements Excusing Original Obligation + Remember Remedies for Breach of Accord + Tip Accord v. Modification
1) Rescission - mutual agreement to CANCEL the K (so long as each party has some performance remaining)
2) Modification (a new agreement to replace an existing K, excuses original obligations IMMEDIATELY)
3) Accord/Satisfaction (an agreement to accept a different performance in FUTURE satisfaction of an EXISTING DUTY - current duty is SUSPENDED, but NOT EXCUSED until the accord is satisfied/performed)
4) Novation - an agreement to substitute a new party for an existing one (eliminating obligations for original party)
Remember: If a party breaches an accord, the non-breaching party can sue for a breach of the ORIGINAL contract OR a breach of the accord.
Tip: Whether you have a modification or accord depends on the TIMING - is the underlying obligation excused NOW (modification) or LATER (accord/satisfaction)
Excuses for Nonperformance: Impossibility (Impracticability in Art. 2) as an Excuse Definition + Types + Remember Article 2 Rules for Destruction of Goods + Remember Increase in Cost for Seller
A LATER UNFORESEEN event that makes performance IMPOSSIBLE (called impracticability under Article 2)
Types:
1) Destruction of Something Necessary for Performance (look at “remember”)
2) Death/Incapacity of Essential Persons
3) Supervening Governmental Regulation
Remember: Article two has two trick questions for destruction of goods: 1) Risk of Loss - A seller who BORE RISK OF LOSS when goods were damaged or destroyed is EXCUSED by impracticability (if risk of loss is passed, no impracticability needed)
2) Unidentified Goods - seller is EXCUSED only if the goods that were damaged or destroyed had been “identified to the K” (unidentified goods are probably not excused)
Remember: Increase in cost of seller’s performance is NO EXCUSE to impossibility of performance
Excuses for Nonperformance: Frustration of Buyer’s Primary Purpose
If the central purpose of the contract is UNDERMINED, and BOTH PARTIES UNDERSTOOD that was the central purpose, it is an excuse for nonperformance.
Excuses for Nonperformance: Failure of an Express Condition + Remember Express Conditions Unmet v. Breach + Tip to Look for Certain Words
Express conditions must be PERFECTLY (strict compliance) satisfied to trigger another obligation under the K
Remember: If a condition is not met, it is NOT A BREACH, it just has yet to trigger the other obligation. VERY DIFFERENT, conditions do not create obligations
Tip: Look for words like “if,” “as long as,” “when,” “provided that,” “on condition that” “and “unless”
Excuses for Nonperformance: Satisfaction Ks - Which standard applies?
“Satisfaction” is measured by a REASONABLE PERSON STANDARD, UNLESS the K deals with art or matters of personal taste
Excuses for Nonperformance: Excusing a Condition + Questions to Ask Regarding Excusing a Condition
An occurrence of a condition MAY BE EXCUSED by the later action or inaction of the PERSON PROTECTED by 1) Failure to cooperate or 2) Waiver (voluntarily giving up protection)
Questions to Ask: 1) Who is protected?
2) Did he do anything to forfeit his protection? (Not act in good faith)
3) Result?
Remedies: Non-Monetary Remedies - Specific Performance Definition
An equitable remedy, AVAILABLE ONLY if monetary damages are INADEQUATE to compensate the injured party
Remedies: Non-Monetary Remedies - Contracts that Favor Specific Performance + Remember Personal Service Ks
1) Real Property/Land Sale K (generally available because real property is CONSIDERED UNIQUE)
2) Sale of Goods for Unique Products (Only if the goods are UNIQUE or the buyer is unable to buy similar goods in the market)
Remember: Specific performance for personal service Ks are NOT AVAILABLE, but they may be prevented from working for competitors
Remedies: Non-Monetary Remedies - Unpaid Seller’s Right to Reclaim Goods Rule + Exceptions
Generally Rule: Reclaiming goods are NOT AVAILABLE under Article 2
Exceptions: 1) If a buyer was INSOLVENT WHEN IT RECEIVED THE GOODS and seller makes a demand WITHIN 10 DAYS after buyer received them
2) Seller can reclaim goods AT ANY TIME if buyer MISREPRESENTS it solvency to seller in writing within THREE MONTHS BEFORE DELIVERY
Remedies: Monetary Damages - Expectation Damages Definition
Put an injured party IN AS GOOD A POSITION AS FULL PERFORMANCE, this is the favored remedy for monetary damages
Remedies: Monetary Damages - Buyer’s Damages Options if Seller Breaches AND When to Use Them + Remember Good Faith
1) Cover Damages (COST OF REPLACEMENT - K PRICE = DAMAGES)
2) Market Damages: Use when seller doesn’t sell in good faith or at all. (MARKET PRICE - K PRICE = DAMAGES)
3) Loss in Value: Use when buyer keeps product (EXPECTED VALUE - ACTUAL VALUE = DAMAGES)
Remember: In Market Price, if buyer does not buy replacement goods, STILL RECOVER
Remember: For Cover Damages, buyer MUST make a reasonable K in GOOD FAITH and WITHOUT REASONABLE DELAY
Remember: Use Loss in Value if BUYER KEEPS GOODS
Remedies: Monetary Damages - Seller’s Damages Options if Buyer Breaches
1) Resale Damages (RESALE PRICE - K PRICE = DAMAGES) if sold in GOOD FAITH
2) Market Damages: Use when seller doesn’t sell in good faith or at all (MARKET PRICE - K PRICE)
3) Contract Price: Use when Seller cannot resell the goods because of uniqueness or other reason (RECOVER FULL K PRICE)
4) Lost Profit from Volume Seller Rule: Use when seller manufactures and sells as many goods as he can (RECOVER LOST PROFITS)
Remedies: Punitive Damages
Punitive damages ARE NOT AWARDED for breach of K, the purpose is to COMPENSATE, NOT PUNISH
Remedies: Liquidated Damages Elements + Tip for Single Lump Sums
Elements: 1) Damages were difficult to estimate AT THE TIME of the K
2) They are a REASONABLE FORECAST of probable damages
3) Cannot operate as a “penalty”
Tip: Any time a questions deals with a single lump sum for liquidated damages, it is UNREASONABLE because it must be proportionate to the harm
Remedies: Incidental Damages + Tips for When to Use (2)
Costs to the injured buyer or seller of TRANSPORTING/CARING for goods after breach AND of arranging a SUBSTITUTE TRANSACTION
Tip: (1) These are ALWAYS RECOVERABLE, try to add them in on all remedies
(2) DO NOT PICK incidental damages answer choices that have to do with “foreseeable”
Remedies: Consequential Damages Definition + Remember UCC Article 2
Damages that are REASONABLY FORESEEABLE to the breaching party AT THE TIME OF FORMATION of the K
Remember: Consequential damages ARE NOT available under Article 2
Remedies: Avoidable Damages
An injured party CANNOT RECOVER damages he could have avoided with REASONABLE EFFORT to secure a COMPARABLE JOB - subtract these from damages sought
Third-Party Problems: Entrustment (Article 2) + Example
An owner who entrusts goods to a MERCHANT who deals in goods of the kind HAS NO RIGHTS against a bona fide purchaser (BFP)
Example: Guy sells his watch to a JEWELER to be repaired, Jeweler sells it to BFP. Guy CANNOT sue BFP, only Jeweler.
Third-Party Problems: Third-Party Beneficiary General Fact Pattern + Define Terms (Intended Beneficiary/Promisor/Promisee)
Fact Pattern: Two people enter into a K INTENDING to benefit a third party.
Intended Beneficiary: A person who is not a party to the K, BUT HAS RIGHTS because it was intended to benefit her
Promisor: The party promising to perform for the 3rd party
Promisee: The party who secures the promise
Third-Party Problems: Promisor’s Liability to Third-Party Beneficiaries
Third-Party Beneficiaries have the right to enforce the K against the Promisor, AND the promisor may assert a defense against the third-party beneficiary
Third-Party Problems: Promisor’s Liability to Promisee
Promisee has the right to enforce the K against Promisor
Third-Party Problems: Rescission and Modification of 3rd Party Rights General Rule + Exception
The promisor and promisee CAN RESCIND OR MODIFY the K UNTIL the rights of the 3rd party have VESTED
Exception: Contrary language in the K CONTROLS
Third-Party Problems: Assignment of Rights to a Third Party Definition
Two people make a K; after formation one (assignor) transfers HIS RIGHTS to a third party (assignor) (party who owes the duty is obligor)
Third-Party Problems: Assignment of Rights to a Third Party v. Third-Party Beneficiaries
In assignment, two parties enter into a K and a third person (assignee) appears AFTER FORMATION. But with third-party beneficiaries, all parties are PRESENT FROM THE START
Third-Party Problems: Valid Assignments - Language of Transfer + Remember Consideration
An assignment MUST have language of PRESENT TRANSFER (cannot be a future promise)
Remember: No consideration is required to make a valid assignment
Third-Party Problems: Restrictions on Assignments - Prohibition Clauses v. Invalidation Clauses + Tip for Deferring to a Clause
Prohibition Clause: Prohibits assignments in a K, BUT if assignee (third-party) DOES NOT KNOW of prohibition, he may still recover for breach.
Invalidation Clause: Invalidates any assignment made, WHETHER assignee is aware
Tip: If it’s a close call, opt for PROHIBITION (much more popular bar question), therefore assignee can still collect if she did not know of the prohibition
Third-Party Problems: Restrictions on Assignments - Changing Duties of Obligor
Assignments CANNOT SUBSTANTIALLY change the duties of the obligor (look for change in PERFORMANCE rights, these violate assignments)
Third-Party Problems: Restrictions on Assignments - Obligor Liability to Assignee + Remember Obligor Who Is Unaware of Assignee
The assignee HAS THE RIGHT TO SUE the obligor directly
Remember: If the Obligor is UNAWARE, he still may perform K to Assignor, until Assignee is recognized
Third-Party Problems: Multiple Assignments - Gratuitous Assignments
The LAST GRATUITOUS ASSIGNEE prevails over earlier gratuitous assignees because a later gift assignment REVOKES EARLIER ONES
Third-Party Problems: Multiple Assignments - Assignments for Consideration + Exception
The general rule is the FIRST ASSIGNEE for consideration will PREVAIL OVER ALL SUBSEQUENT assignees as well as PRIOR GRATUITOUS ASSIGNEES
Exception: A later assignee for consideration prevails IF he DOES NOT KNOW of the earlier assignments AND is the FIRST TO GET PAYMENT from OR JUDGEMENT AGAINST the obligor
Third-Party Problems: Delegation of Duties to a Third Party General Rule + Exceptions + Remember No Assignments Clause
Contractual duties MAY BE DELEGATED to another party WITHOUT CONSENT of the person to whom performance is owed (obligee)
Exception: (1) K language controls, therefore a prohibition on delegations or assignments will not allow this
(2) Persons with special skill or reputation CANNOT BE DELEGATED (even if delegation would be similar skills and reputation)
Remember: Clauses that prohibit assignments ALSO prohibit delegations
Third-Party Problems: Delegation - Rights of the Obligee + Remember Delegates with Consideration
Delegating party ALWAYS remains liable (contrast with novation)
Remember: A delegate who gets consideration IS LIABLE
