Contracts & Sales Flashcards

Question 1

Q

Law governing transactions for solely the sale of goods

[what law governs]

Answer

A

If a contract is solely for the sale of goods (i.e., tangible, movable items), UCC Article 2 governs the transaction, regardless of whether the parties are merchants or non-merchants.

However, many of the important UCC rules (14 in total) apply only to contracts in which at least one of the parties is a merchant.

Article 2 covers the sale of ordinary goods (a suit off the rack) and custom-made goods (a tailor-made suit).

Question 2

Q

Law governing transactions for solely non-goods

[what law governs]

Answer

A

If the contract involves only non-goods (i.e., real estate, services, or intangibles), the common law governs the transaction.

Question 3

Q

Law governing transactions with both goods and non-goods

[what law governs]

Answer

A

If the contract involves both good and non-goods, the predominant purpose (aka primary or dominant purpose) of the contract governs. The predominant purpose test is an all-or-nothing test; thus:

If the predominant purpose of the contract is goods, the UCC governs the entire contract
If the predominant purpose of the contract is non-goods, the common law governs the entire contract

Question 4

Q

Predominant Purpose Test

[what law governs]

Answer

A

TEST: To determine the predominant purpose of a mixed transaction, courts examine:

The language of the parties’ contract
The nature of the business of the supplier of the goods and non-goods (e.g., service)
The reason the parties entered into the contract (i.e., what each bargained to receive)
The respective amounts charged under the contract for goods and for non-goods

Question 5

Q

3 parts of a deal

[is there a deal]

Answer

A

An offer
Which is “alive” at the time of the attempted acceptance, and
A proper acceptance

Question 6

Q

Definition of an offer

[is there a deal]

Answer

A

Definition: an offer is an expression of present willingness to enter into a bargain, made in such a way that a reasonable offeree would believe that she can conclude a bargain merely by giving assent.

Question 7

Q

3 components of a valid offer

[is there a deal]

Answer

A

INTENT on the part of the offeror to enter into an immediate deal
The CONTENT of the offer must be sufficiently definite
(Advertisements, price quotes, and catalogs are generally not offers)
COMMUNICATION of the offer to the offeree

Question 8

Q

Requirements for a valid offer

[is there a deal]

Answer

A

Ideally, the offer should identify the parties, the subject matter, the price, and the time of performance. But certain terms are essential:

For real estate contracts, there must be a price and an adequate description of the land
For UCC contracts, there must be a quantity term (e.g., numerical or buyer’s requirements or seller’s output)
For employment contracts, there must be a duration (no duration results in an at-will contract)

Question 9

Q

Who may accept an offer?

[is there a deal]

Answer

A

Only persons aware of the offer may accept

Only persons to whom the offer was directed may accept (i.e., offers are not assignable, but option contracts are assignable)

Question 10

Q

At what point is an offer effective?

[is there a deal]

Answer

A

An offer is effective upon receipt by the offeree.

Question 11

Q

How may an offer terminate?

[is there a deal]

Answer

A

There are several ways an offer may “die” prior to an attempted acceptance:

By Its Own Terms.
Revocations by Operation of Law.
Revocations by the Offeror.

Question 12

Q

Terminating an offer by its own terms

[is there a deal]

Answer

A

The offeror is the “master” of the offer. As such, she may place a specific limit (e.g., one day or five minutes) on the time to accept. If no such limit is placed on the offer, the offer is open for a reasonable time.

Question 13

Q

Revocation of an offer by operation of law

[is there a deal]

Answer

A

An offer is automatically revoked (regardless of the other party’s knowledge) by the:

Death or the adjudicated incapacity of the offeror or the offeree (BUT: Death or adjudicated incapacity does not terminate an option contract)
Intervening illegality or destruction of the subject matter (These events will also terminate an option contract)
Non-adjudicated insanity of the offeror or offeree (but knowledge of the other party is necessary for this type of revocation to be effective)

Question 14

Q

Revocation by the offeror

[is there a deal]

Answer

A

As a general rule, offers are freely revocable, even if the offeror promises not to revoke the offer. An offer may be revoked by:

An unambiguous verbal revocation communicated by the offeror to the offeree prior to acceptance
Unambiguous conduct by the offeror indicating revocation (e.g., item sold to another) communicated by the offeror or a reliable third party to the offeree

Question 15

Q

When is an offer revocation effective?

[is there a deal]

Answer

A

A revocation is effective upon “receipt” by the offeree. Revocation by the offeror must pre-date the acceptance.

Question 16

Q

Mailbox rule

[is there a deal]

Answer

A

As a general rule, acceptances are effective upon dispatch (e.g., mailing), but revocations are always effective upon receipt by the offeree; thus, it is possible that a revocation will be communicated to the offeree prior to the receipt of the acceptance by the offeror (because it’s still in the mail) but subsequent to the mailing of the acceptance; in such cases, the revocation is ineffective.

Question 17

Q

Definition of “receipt”

[is there a deal]

Answer

A

A written offer, revocation, counteroffer, or rejection is “received” when the writing comes into the possession of the person addressed, regardless of when such document is opened or read.

Question 18

Q

Non-revocable offers

[is there a deal]

Answer

A

Offers are inherently revocable, except:

Option contracts.
A merchant’s firm offer (UCC-only rule).
Detrimental reliance.
Unilateral contracts.

Question 19

Q

Option contracts

[is there a deal]

Answer

A

An agreement, supported by consideration (even nominal consideration), to hold an offer open for a fixed period of time

Under the Restatement, an option is enforceable if it merely recites nominal consideration

Question 20

Q

Merchant’s firm offer

[is there a deal]

Answer

A

A merchant’s firm offer (UCC-only rule). An offer to buy or sell goods made by a merchant in a signed writing in which the merchant promises to hold the offer open for a stated time (or a reasonable time if no precise time is stated); such “firm offers” are irrevocable for the stated time (or reasonable time), but in no event more than 90 days

If the offer provides for a period longer than 90 days, the offer may still be accepted after 90 days if it has not been revoked; the 90-day period is simply the maximum period of irrevocability

Question 21

Q

Detrimental reliance

[is there a deal]

Answer

A

The offeree has detrimentally relied on the offer and that reliance was reasonably foreseeable by the offeror.

If a general contractor relies on the bids of subcontractors in preparing the general contractor’s bid, the subcontractors’ bids are irrevocable until the owner/architect awards the contract to a general contractor.

Question 22

Q

Unilateral contracts

[is there a deal]

Answer

A

If the contract is unilateral in nature (e.g., its language expressly limits acceptance to complete performance), and the offeree has commenced performance (something more than mere preparation to perform), the offeree must be given a reasonable time to complete performance (but note: the offeree is not bound to complete performance unless it was a bilateral contract)

Question 23

Q

Terminations by the offeree

[is there a deal]

Answer

A

The offeree may also terminate an offer. When an offeree terminates an offer, it is called a “rejection.” Methods of rejection:

Counteroffer.
Express Rejection.
Conditional Acceptances.

Question 24

Q

Counteroffer

[is there a deal]

Answer

A

A counteroffer by the offeree permanently revokes the offer and, in fact, constitutes a new offer

Mere inquiries alone (“Will you take $9,000?”) are not rejections

In some cases, the original offer may be revived after a counteroffer

A offers to sell her car to B for $10,000. B replies, “I will not pay more than $9,000.” A responds, “I need the entire $10,000.”

Question 25

Q

Express rejection

[is there a deal]

Answer

A

“No thanks” or “not interested.” A rejection permanently revokes the offer, even if the offeror had originally indicated that it would be held open for a longer period.

Effective Date of Rejection. Rejections (express or otherwise) are effective upon receipt by the offeror.

Option Contracts. A rejection or counteroffer made by the “offeree” during the option period does not terminate the option contract, unless the “offeror” detrimentally relies on the offeree’s rejection.

Question 26

Q

Conditional acceptances

[is there a deal]

Answer

A

A conditional acceptance (“I accept if [or but or provided that or on the condition that or so long as”]) is a rejection/counteroffer and permanently revokes the offer

Question 27

Q

Mirror image rule

[is there a deal]

Answer

A

Common law: if the offeree adds terms to the acceptance, this constitutes a counteroffer and a rejection.

Last Shot Rule: if the parties perform without an express contract, the last document governs

Question 28

Q

UCC battle of the forms

[is there a deal]

Answer

A

UCC: If an offeree adds a term (“I accept and . . .”) to the acceptance, ask two questions:
1. Is there a contract? Answer: Yes (as long as acceptance of the additional term was not an express “condition” of acceptance).
2. Does the deal include the additional term? Answer: it depends.
—
If both parties are MERCHANTS, the additional term is part of the contract, unless:
(1) the original offer limited acceptance to the exact terms of the offer;
(2) the offeror objects to the additional term within a reasonable time after receiving the acceptance; or
(3) the additional term materially alters the offer (e.g., changes the remedies available to the offeror, significantly limits the offeree’s liability, or disclaims warranties). An additional term that materially alters the offer does not equal a rejection; in such cases, there will be a contract, but without the new term.
—
If either party is a non-merchant, the additional term is not part of the contract, unless the additional term is expressly accepted by the offeror (after receiving the acceptance)

Question 29

Q

Definition of acceptance

[is there a deal]

Answer

A

Definition: An acceptance is a manifestation of assent to the terms of the offer.

Question 30

Q

Who may accept an offer?

[is there a deal]

Answer

A

Only those who are aware of the offer

Equal Publicity Rule: to revoke a public offer, you must give equal publicity (e.g., the same newspaper, same number of days, etc.) to the retraction as you did the offer

Only those person to whom the offer was made (thus, offers may not be assigned or accepted by bystanders to whom the offer was not directed).

Option contracts may be assigned

Question 31

Q

How may an offer be accepted?

[is there a deal]

Answer

A

The offeror is the master of the offer and may limit the form of acceptance (e.g., by fax only), but must do so unambiguously.

Question 32

Q

May an offeree accept by commencing performance?

[is there a deal]

Answer

A

Bilateral Contracts may be accepted by either (1) a promise to perform (communicated to the offeror); or (2) commencement of performance.

Contracts are presumed to be bilateral

If an offeree accepts by commencing performance and the offeror has no adequate means of learning of such commencement, the offeree must notify the offeror within a reasonable time that performance has commenced; failure to give timely notice will render the contract unenforceable

Question 33

Q

Commencing performance with a unilateral contract

[is there a deal]

Answer

A

Unilateral Contracts may NOT be accepted by commencing performance. An offeree is not bound by starting performance in a unilateral contract, but commencement of performance prevents the offeror from revoking the offer for a reasonable time.

Unilateral contracts are limited to (1) those that unambiguously require completion of performance as acceptance; and (2) offers to the public, such as rewards or prizes. Unilateral offers may be accepted only by full performance

Question 34

Q

Mailbox rule exceptions

[is there a deal]

Answer

A

The Mailbox Rule does not apply where:

The offeror stipulates that acceptance is not effective until received;
The offeror unambiguously mandates a method of acceptance (e.g., by fax only) different than that used by the offeree; or
The offeree’s method of acceptance is not reasonable under the circumstances (e.g., offeree uses U.S. mail to accept an email offer to purchase ripe bananas).

Question 35

Q

Mailbox rule - dual dispatches

[is there a deal]

Answer

A

If an offeree rejects an offer by mail and then sends an acceptance, the first document received by the offeror is effective. By contrast, if the offeree accepts by mail but then sends a rejection, there is a contract unless the rejection arrives first and the offeror relies on that rejection.

Question 36

Q

The mailbox rule and option contracts

[is there a deal]

Answer

A

For option contracts, the offeror must receive the acceptance (i.e., exercise) to have a contract. In other words, the Mailbox Rule does not apply to option contracts.

Question 37

Q

Possible forms of acceptance under the UCC

[is there a deal]

Answer

A

A UCC offer for “prompt shipment” may be accepted by a prompt:

Promise to ship
Shipment of conforming goods
Shipment of non-conforming goods
- Shipment of non-conforming goods constitutes an acceptance and a breach of contract
- Accommodation: if the seller sends non-conforming goods as an “accommodation,” there is no acceptance and thus no breach of contract. An accommodation occurs when the seller notifies the buyer (before or with the shipment) that the goods are non-conforming but are being sent anyway.
- If a seller promises to ship conforming goods and then sends non-conforming goods as an accommodation, the seller has accepted the offer and breached the contract.

Question 38

Q

How acceptance is determined

[is there a deal]

Answer

A

“Mutual assent” is judged by the objective theory of contracts

Whether an offer or revocation has been made is judged from the perspective of a reasonable offeree

Whether an acceptance, rejection, or counteroffer has been made is judged from the perspective of a reasonable offeror

Question 39

Q

Types of contracts

[is there a deal]

Answer

A

Express Contracts: mutual assent established by the parties’ language (oral or written)
- Option Contracts: an express contract to hold an offer open for a fixed period of time.
Contracts implied-in-fact: mutual assent established (at least in part) by the parties’ conduct (e.g., silently accepting benefits where it is reasonable to assume the other party expects compensation).
Contracts implied-in-law (i.e., quasi-contracts): these are not contracts, so there is no mutual assent. A quasi-contract is simply a remedy designed to prevent unjust enrichment.

Question 40

Q

Requirements for an enforceable deal (once you’ve determined there is an offer and acceptance)

[is the deal enforceable]

Answer

A

For a “deal” to be enforceable, there must be

Consideration
No Valid Defenses

Question 41

Q

Consideration definition and elements

[is the deal enforceable]

Answer

A

Consideration is a bargained-for exchange of legal detriments, which has two-parts:

A bargained-for exchange; the promisor bargained for an exchange by the promise in which
The promisee (1) promises to do something (or in fact does something) that, but for the contract, he or she is not obligated to do or (2) promises not to do something (or in fact does not do something) that, but for the contract, he or she is legally entitled to do (i.e., legal detriment).

Question 42

Q

Consideration sufficiency

[is the deal enforceable]

Answer

A

Consideration must be legally “sufficient” for there to be a binding contract. To be sufficient, the consideration must be something that has value in the eyes of the law.

Examples of insufficient consideration:

Love and affection
Performing a service the law believes does not exist (e.g., voodoo curse)
Nominal or token consideration (except for option contracts)
A promise to forbear filing a suit the plaintiff knows is frivolous

Question 43

Q

Consideration adequacy

[is the deal enforceable]

Answer

A

If the requirement of sufficiency of consideration is met, there is no additional requirement of equivalence in the values exchanged, unless the contract is so one-sided that it is unconscionable.

As long as consideration exists, the parties’ motives for performance are irrelevant.

Question 44

Q

Things that do not constitute consideration

[is the deal enforceable]

Answer

A

Things that do NOT constitute consideration:

Past Consideration (or Moral Obligation)
Pre-Existing Legal Duty
Part Payment of a Debt
Promise Not to Sue (i.e., a settlement)

Question 45

Q

Past consideration

[is the deal enforceable]

Answer

A

If the promisee has already performed the act before the promisor makes her promise, there is no “bargained-for” exchange and thus no consideration.

Exceptions:

Material Benefit Rule (Restatement § 86): A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice, unless the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched.
Promise to Pay Debt Barred by SOL: A written promise to pay a debt barred by the Statute of Limitations is enforceable up to the amount of the new promise despite no new consideration.
Promise to Perform a Voidable Obligation: If a minor or incompetent promises to perform a voidable obligation after reaching the age of majority or regaining competency, the obligation is enforceable despite no new consideration

Question 46

Q

Pre-existing legal duty

[is the deal enforceable]

Answer

A

If the promisee is legally bound to do (or not to do) the act either by a prior contract or statutory law, there is no legal detriment suffered by the promisee. This means that the modification of an existing contract requires new consideration.
If a modification is induced by improper threats, the innocent party may also raise the defense of economic duress if it had no reasonable alternatives.
Exceptions: there are several exceptions to the pre-existing duty rule in which parties may modify a contract and the modification will be enforceable. Under these situations, the promisee is entitled to additional consideration because:
- The promisee agrees to add to or modify the original deal in any legitimate (i.e., non-pretextual) fashion
- The modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made
- A third party agrees to pay additional consideration to the promisee
- UCC: sales contracts may be modified without consideration as long as the parties act in “good faith”

Question 47

Q

Part payment of a debt

[is the deal enforceable]

Answer

A

If a creditor agrees to take less than full payment in exchange for a release, may the creditor seek the remainder from the debtor?

If the debt is due (or overdue) and undisputed in amount, part payment does not constitute consideration for the release and thus the debtor owes the remainder
But if the debt is not yet due (and the debtor agrees to pay early) or if there is a good faith dispute as to the amount of the debt, part payment would constitute consideration for a release (these are examples of an “accord and satisfaction”)
There would also be consideration if a different type of performance—transfer of goods or services—is agreed upon (this is also an example of an “accord and satisfaction”).

Question 48

Q

Promise not to sue

[is the deal enforceable]

Answer

A

A promise not to sue constitutes consideration if the promisor has either a good faith (subjective or reasonable (objective) belief that the suit is valid.

If a party executes a written instrument (i.e., a quitclaim deed) settling a claim that was bargained for by the other party, the instrument is sufficient consideration even if the executing party did not subjectively believe the claim was valid.

Question 49

Q

Promissory estoppel

[is the deal enforceable]

Answer

A

If there is no consideration, may the promisee enforce the deal? Generally, no.

But consider promissory estoppel, which applies where the promisor (1) made a promise; (2) the promisee reasonably, detrimentally, and foreseeably relied on the promise (i.e., the promise induced the promisee to act); and (3) enforcement of the promise is necessary to avoid injustice.

Promissory estoppel damages are generally limited to reliance damages (as opposed to expectation damages).

The Statute of Frauds does not apply to promissory estoppel.

Question 50

Q

Contract defenses

[is the deal enforceable]

Answer

A

Lack of Capacity
Statute of Frauds
Illegality
Duress/Undue Influence
Misrepresentation
Mistake or Misunderstanding
Unconscionability

Question 51

Q

Lack of capacity

[is the deal enforceable]

Answer

A

The following parties lack capacity to enter into a contract:

Minors (under age 18)
Mental incompetents (unable to understand legal significance of the acts)
- The contract of a party who has been adjudicated incompetent are void
Intoxicated persons (unable to understand legal significance of acts and the other party knew or should have known of the intoxication)

Question 52

Q

When may a party lacking capacity disaffirm a contract

[is the deal enforceable]

Answer

A

A party lacking capacity may disaffirm a contract (i.e., the contract is voidable by the incapacitated party) during disability or within a reasonable time thereafter

In a minority of jurisdictions, the party lacking capacity is liable for any benefit he experiences or damage he causes prior to disaffirming

Question 53

Q

2 situations in which incapacitated parties are liable on contracts

[is the deal enforceable]

Answer

A

If the incapacitated party retains the benefit of the contract after gaining capacity (e.g., reaching age 18) or fails to disaffirm the contract within a reasonable time after gaining capacity, he has impliedly “affirmed” the contract and it is enforceable
- An affirmation by a minor or incompetent does not require new consideration
The contract is for necessaries (aka necessities); if so, the incapacitated party is liable in quasi-contract for the value of the goods or services, but not for the actual contract price

Question 54

Q

Is the contract subject to the Statute of Frauds?
(general rule + exceptions)

[is the deal enforceable]

Answer

A

Exceptions: The following contracts are subject to the statute of frauds: (MYLEGS)
1. M: MARRIAGE - Agreements to marry supported by some form of financial consideration (e.g., prenuptial agreements)
2. Y: YEAR - Service contracts that by their own terms are NOT CAPABLE of being performed within one year from the date of the contract.
3. L: LAND - A transfer of an interest in land, except short-term (12 months or fewer) leases
4. E: EXECUTOR - Promise by an executor (or administrator) of an estate to pay the estate’s debts out of the executor’s own pocket.
5. G: GOODS - A contract for the sale of goods when the purchase price is $500 or more (as ultimately modified).
6. S: SURETY - Suretyship contracts (i.e., where one person “guarantees” the payments of another; e.g., a co-signer) – EXCEPTION: if the “main or primary purpose” of the agreement is to benefit the “surety,” the contract does not have to be in writing

Question 55

Q

What satisfies the statute of frauds

[is the deal enforceable]

Answer

A

A writing signed by the defendant

The SOF does not require the parties to sign a written contract; instead, any writing (e.g., a check, a memo to the file, a letter to a friend, notes scribbled on a cocktail napkin) that contains the essential terms and is signed by the defendant will suffice
For non-goods contracts: all material terms must be in writing (i.e., the identity of the parties, subject matter, price, and time) and the writing must be signed by the defendant
For goods contracts ($500 or more), the only essential term is quantity (note: the contract is not enforceable beyond the quantity stated in the writing) – UCC: the writing must be signed by the defendant or a written confirmation may be used between two merchants (a confirmation letter containing a quantity term signed by the plaintiff) if the other party does not object to the written confirmation within 10 days of receipt; the contract is not enforceable beyond the quantity stated in the confirmation
Under both the UCC and common law, the signature requirement may be satisfied by an electronic signature, such as a person typing her name at the end of an email message.

Question 56

Q

Instances in which part performance may entitle the P to specific performance or damages despite the lack of a writing

[is the deal enforceable]

Answer

A

“Part Performance” may, in some cases, entitle the plaintiff to specific performance or damages despite the lack of a writing:

Service Contracts: full performance by either party satisfies SOF; part performance does not (but quasi-contract damages may be available)
Sale of Goods Contracts:
- Ordinary Goods: part performance (i.e., part delivery/acceptance or part payment/acceptance) will satisfy SOF to extent delivered (and accepted) or paid (and accepted)
- Unique or Specialized Goods Not Suitable for Sale in the Ordinary Course: the contract fully complies with SOF when the seller substantially begins performance or makes commitments for procurement of the goods
Land Contracts (Specific Performance only): Requires the following: payment (substantial or full) plus either possession or improvement

Question 57

Q

Admission in court

[is the deal enforceable]

Answer

A

Under the UCC, an admission in court or court papers satisfies SOF (up to the amount of the admission).

This rule may also apply to common law contracts.

Question 58

Q

SOF and contract modifications

[is the deal enforceable]

Answer

A

A modification to a contract must satisfy SOF if the contract, as modified, would be subject to SOF.

Question 59

Q

Private statutes of frauds

[is the deal enforceable]

Answer

A

Under the common law (and the UCC to a lesser degree), a “no oral modifications” clause is usually deemed waived by

The parties’ oral modifications of the contract or
The parties’ performance of the contract in a manner inconsistent with its express terms

Question 60

Q

If the Statute of Frauds applies and has not been satisfied, are there any remedies available to the plaintiff?

[is the deal enforceable]

Answer

A

Restitution: A makes an oral contract to furnish services to B for a “two-year period.” After A has worked for two months, B discharges him without paying him anything. Is A entitled to any relief?

Yes, A can recover from B as restitution the reasonable value of the services rendered during the two months.

Promissory Estoppel

Question 61

Q

Illegality

[is the deal enforceable]

Answer

A

If the subject matter of a contract is illegal (e.g., a contract with a hit man or a gambling contract in a state where gambling is illegal), neither party may enforce it at any time. In other words, the court will leave the parties as it finds them.

If the contract merely relates to an illegal act (e.g., the purchase of a gun on credit from Walmart, and the gun is to be used for murder), it is enforceable by the party who is not involved in the illegal act (i.e., Walmart).

If one party to an illegal contract is a member of a class for whose protection the statute or regulation was enacted the protected person may enforce (or disaffirm) the contract.

Question 62

Q

Illegality because a lack of license

[is the deal enforceable]

Answer

A

If a contract is illegal solely because a party does not have a required license, the enforceability of the contract depends on the purpose of the license:

If the purpose of the license is to regulate the skill and quality of a particular occupation (e.g., a license to practice law, medicine, plumbing, nursing), the contract is unenforceable.

If the purpose of the license is solely to raise revenue (e.g., a business license), the contract is enforceable.

Question 63

Q

Duress

[is the deal enforceable]

Answer

A

Two types of duress may render a contract voidable:

Physical duress: violence or threats of violence (this type of duress renders a contract void)
Economic duress: by wrongful act (e.g., threatening to breach a contract), one party takes advantage of another party who has no reasonable alternatives; such defense is limited to circumstances where the defendant “caused” the plaintiff’s financial distress in the first place

Question 64

Q

Undue influence

[is the deal enforceable]

Answer

A

Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion and who by virtue of the relationship between them (i.e., a confidential or fiduciary relationship) is justified in assuming that the person will not act in a manner inconsistent with her welfare.

Answer 65

A

This defense exists if a party is induced to enter into a contract by false assertions of fact. Under contract law, a misrepresentation makes a contract voidable if it is either fraudulent or material.

Misrepresentations may consist of outright lies, innocent misstatements (if material), half-truths, concealment, or, under the right circumstances, silence.

The mere fact that the truth of a misrepresentation could have been revealed by the exercise of due care does not mean the innocent party’s reliance was unjustified.

Traditionally, the defense of misrepresentation required false assertions of past or present facts. However, the Restatement and a majority of jurisdictions also recognize “promissory fraud.” A claim for promissory fraud is based on a promise of future action; such claim is actionable if the promise was made with an intent not to perform the future action.

Answer 66

A

If the defrauding party misrepresents the very nature of the document presented to the innocent party for signature, the agreement is void.

Answer 67

A

Mutual Mistake: both parties are mistaken about a basic material fact

If the mistake relates to what is being purchased (i.e., the subject matter of the contract—a real Picasso as opposed to a fake Picasso), the contract is unenforceable

This defense is unavailable if the party asserting it “assumed the risk” of the mistake; a party assumes the risk where: (1) the parties knew their assumption was doubtful, or (2) one party (e.g., contractor) is in a better position to know the risks than the other party (e.g., homeowner)

By contrast, if the mistake relates to the “value” of what is being purchased (the value of a real Picasso), the contract is fully enforceable (as long as there was no fraud, etc.)

Answer 68

A

Unilateral Mistake: Only one party was mistaken

General rule: contract is enforceable

Exception 1: in cases involving a mechanical error of computation, the non-mistaken party may not “snap up” an offer or bid that it knew or should have known was erroneous (i.e., the offer was too good to be true)

Exception 2: under the Restatement, unilateral mistake is also a valid defense if enforcement of the contract would be unconscionable

Answer 69

A

There is no manifestation of mutual assent (and thus no contract) if the parties attach materially different meanings to their manifestations and neither party knows or has reason to know the meaning attached by the other.

By contrast, the manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if that party does not know of any different meaning attached by the other, and the other knows (or should know) the meaning attached by the first party.

Answer 70

A

UCC and common law doctrine

Tested at the time of contracting.
Question of law for the court.

An unconscionable contract is one that is

Procedurally unfair (e.g., surprise terms, adhesion contracts); and
The terms are oppressive (e.g., grossly overpriced)

Answer 71

A

These defenses are typically affirmative defenses for which the defendant would carry the burden of pleading, the burden of production, and the burden of persuasion.

Answer 72

A

Complete Integration. If a written contract is the final and complete agreement of the parties (i.e., it is a fully integrated contract), the parol evidence rule prohibits parties from introducing prior oral statements or writings or contemporaneous oral statements that add to or contradict the written contract.
If a contract contains a merger clause (“This is the complete and final agreement.”) there is a presumption of complete integration.
On the MBE, parol evidence questions will generally state (or assume) that the contract is completely “integrated.”

Answer 73

A

If a written contract is the final (but not complete) expression of the parties’ agreement, the parol evidence rule prohibits parties from introducing prior oral statements or writings or contemporaneous oral statements that contradict the written contract.

Whether a writing is integrated (completely or partially) is a question of law for the judge.

Answer 74

A

The PER is a rule of contract law and has many exceptions (i.e., situations in which parol evidence is admissible):

Parol evidence is admissible to prove that the contract never became operative because of fraud, duress, mistake, illegality, or failure to satisfy a condition precedent.
Parol evidence is admissible to establish the meaning of an ambiguous term, to show that consideration was (or was not) in fact paid, to establish a case for reformation (i.e., the writing contains a clerical error), or to prove unconscionability
Oral or written statements made after the contract was executed—usually as part of a contract modification—are not subject to the PER: thus, such statements are generally admissible (subject, of course, to SOF).
Under the UCC, the following evidence (in order of preference) is admissible to explain or supplement a contract, regardless of whether the contract is integrated or ambiguous:
- Course of performance (the same parties in the same contract);
- Course of dealing (the same parties in earlier contracts); and
- Usage of trade (other parties in the same industry)
If a prior or contemporaneous additional agreement is of a type that would “naturally and normally” be contained in a separate agreement (with separate consideration), its admissibility is not barred by the PER (e.g., a side deal)

Answer 75

A

At common law, if the parties failed to agree on a material term, a court would not enforce the agreement because of indefiniteness. Under modern law, if a contract has been formed that fails to address one or more terms, the court will fill in those terms as follows:

Common Law and UCC: All contracts contain implied promises of good faith, fair dealing, and reasonable efforts in connection with performance and enforcement.

Answer 76

A

Time and place of payment
Place of delivery and Risk of Loss
Price
Date and mode of delivery

Answer 77

A

Under the UCC, payment is due at the time and place at which the buyer is to receive the goods.

In an installment contract, payment is due at the time and place at which the buyer is to receive of each installment.

The buyer may pay by check, but the seller may demand cash; in such event, the buyer must be given a reasonable time to obtain the cash.

Answer 78

A

Place of Delivery. If the contract does not call for (expressly or implicitly) delivery, the UCC presumes that the buyer will pick up such goods at the seller’s place of business or, if none, the seller’s residence.

Risk of Loss. In such cases, risk of loss shifts to the buyer upon

Physical receipt by the buyer if the seller is a merchant or
Tender by the seller if the seller is a non-merchant

Answer 79

A

The UCC recognizes two types of “delivery” contracts, which are used when the parties expressly provide for delivery by common carrier or the circumstances are such that common carrier delivery is implied:

Shipment Contracts. Such contracts are created by the phrase “FOB or FAS Seller’s location.” Under such contracts, the seller’s risk of loss ends when the seller places the goods with a common carrier.
- Presumption: If a contract calls for delivery but is silent as to risk of loss, the UCC presumes that the contract is a “shipment” contract.
- Seller’s Breach: Risk of loss remains with the seller if the seller is in breach (e.g., shipped nonconforming goods).
Destination Contracts. Such contracts are created by the phrase “FOB or FAS Buyer’s location.” Under such contracts, the seller’s risk of loss ends when the goods arrive at buyer’s location.
- Buyer’s Breach: Risk of loss is borne by the buyer if buyer is in breach (e.g., anticipatory repudiation), but the buyer is entitled to any insurance proceeds the seller obtains for such loss.

Answer 80

A

The parties can conclude a contract for sale even though the price is not settled. In such case, the price is a reasonable price at the time for delivery if:

Nothing is said as to price;
The price is left to be agreed by the parties and they fail to agree; or
The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency (e.g., Kelley Blue Book) and it is not so set or recorded.

Answer 81

A

Date of Delivery: The time for shipment or delivery or any other action under a contract if not agreed upon by the parties shall be a reasonable time. Reasonableness depends on the circumstances, such as:

How complicated the good is to make
Past dealings of the parties
The practice of the industry
The needs of the buyer

A party must give notice before treating a sales contract as breached due to the passage of a reasonable time for performance.

Mode of Delivery: The default rule is that goods will be delivered and received in a single lot.

Answer 82

A

Express: statements of fact (but not puffing), models, samples, etc. that are part of the buyer’s basis of the bargain; strict liability for breach, and express warranties may not be disclaimed

The Parol Evidence Rule may bar evidence of express warranties made prior to the execution of an integrated contract.

Answer 83

A

Implied Warranty of Merchantability (this warranty applies only to Merchants who sell goods of this kind)
Implied Warranty of Fitness for a Particular Purpose:
Other Implied Warranties

Answer 84

A

Implied Warranty of Merchantability (this warranty applies only to Merchants who sell goods of this kind): the goods must be fit for their ordinary purposes. This warranty may be disclaimed generally (e.g., by seller “as is” or “with all faults”) or specifically (e.g., by a CONSPICUOUS disclaimer mentioning “merchantability”).

Answer 85

A

Implied Warranty of Fitness for a Particular Purpose: this warranty is made by any seller who knows the buyer’s specific needs and knows that the buyer is relying on the seller’s expertise to select suitable goods. This warranty may be disclaimed generally (e.g., by selling ”as is” or “with all faults”) or specifically (e.g., by a CONSPICUOUS written disclaimer).

Answer 86

A

Other Implied Warranties. The seller also impliedly warrants that she

Has good title;
Has the right to convey; and
There are no liens or encumbrances on the goods

Answer 87

A

Failure of a Condition Precedent
Other Party’s Breach
Anticipatory Repudiation
Prevention (aka Failure to Cooperate or Bad Faith)
Subsequent Agreement
Subsequent Event

Answer 88

A

If a condition precedent to a party’s performance has not occurred, that party’s performance is excused.

Express conditions precedent may be satisfied only by strict compliance; that is, unless the condition occurs completely, the duties subject to the condition are not enforceable.

The party whose performance is subject to a condition precedent must make a good faith attempt to satisfy the condition.

However, compliance with an express condition precedent is excused if the party whose performance is subject to the condition voluntarily waives (by words or conduct) the condition.

Answer 89

A

Express Conditions – a party’s satisfaction. If a contracting party’s performance is expressly conditioned on his or her “satisfaction” with the other party’s performance, the following rules apply:

If the contract is for services that do not require personal taste or aesthetics (e.g. a contract to install a furnace), the party (whose performance is conditioned on his or her satisfaction) must act reasonably (objective test) in determining whether the other party’s performance is satisfactory; in close cases, courts will apply this objective test

If the contract is for services that require personal taste or aesthetics (e.g., a contract to paint a portrait), the party (whose performance is conditioned on his or her satisfaction) must act in good faith (subjective test) in determining whether the other party’s performance is satisfactory

If a third party (e.g., an architect) is to make the determination of “satisfactory” performance, the third party must act in good faith (subjective test)

Answer 90

A

Constructive Conditions (not satisfied): If the contract fails to provide for the order of performance, the following conditions are implied in law:

If performance by one party will take time (e.g. builder in a construction contract), that party’s performance must take place prior to the other party’s performance (e.g., owner’s duty to pay)

If performance by both parties may occur at the same time (e.g., sale of goods), the parties must tender simultaneously (i.e., each party’s tender is a condition precedent to the other party’s performance)

If the contract sets a date certain for one party to perform but does not set a date for the other party to perform, the party subject to the date certain must perform first

Answer 91

A

Unlike express conditions, constructive conditions may be satisfied by substantial compliance, unless the breach is willful (in which case strict compliance is required)

Answer 92

A

If the seller does not make a perfect tender, the buyer’s duty to perform (i.e., pay) is excused, unless:

Seller Cures. The seller has a right to cure (upon notice that it will cure) if the time for performance has not yet expired or an option to cure if the seller is “surprised” that the buyer failed to accept the goods (e.g., because of prior course of dealing or the sale of pre-packaged goods form a reputable supplier) and the seller remedy the nonconformity within a reasonable time after expiration of the time for performance
Installment Sales Contract. If delivery will occur in two or more installments
- An installment may be rejected only if the nonconformity substantially impairs the value of that installment and cannot be cured
- The whole contract is breached only if the nonconformity of one or more installments substantially impairs the value of the entire contract
- Note: unless the contract expressly calls for installments, the UCC presumes a single delivery

Answer 93

A

If one party is in material breach (i.e., the party has not substantially performed), the other party’s duty to perform is excused. If the breach is not material, the non-breaching party must perform (i.e., pay) and then seek damages (or offset the amount of damages from final payment).

Most courts will require strict compliance if the breach is willful.

Answer 94

A

A delay in performance will generally constitute a material breach only if it operates to significantly deprive the other party of the benefit of the contract. If time is “of the essence” and a party fails to perform on time, that party is in material breach. Under modern law, there is a presumption that time is not “of the essence,” unless the contract so states or other circumstances make the need for promptness apparent.

Answer 95

A

If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a party’s performance of his part of such a pair has the same effect on the other’s duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised.

If the contract by its own terms is expressly indivisible, the court may not construe it otherwise.

Answer 96

A

If one party unambiguously declares (i.e., in a communication to the other party) that it will not perform prior to the date of performance, the other party’s performance is excused and that party has two choices: (1) await performance by the repudiating party for a commercially reasonable time (while suspending its own performance); or (2) treat the declaration as an immediate breach (e.g., bring suit, sell item to another buyer) even if it has notified the repudiating party that it would await performance and has urged a retraction. If the repudiating party retracts the repudiation before the non-repudiating party has materially changed position in reliance on the repudiation or has notified the repudiating party that the contract is terminated, the obligations of both parties are revived.

Answer 97

A

It is not necessary for repudiation that performance be made literally and utterly impossible. Repudiation can result from action which reasonably indicates a rejection of the continuing obligation, including (1) a statement of intention not to perform except on conditions that go beyond the terms of the contract, or (2) a sale of the goods to a third party that the seller was contractually obligated to deliver to the buyer.

Answer 98

A

UCC (and Restatement): A party may demand in writing adequate assurances of future performance if that party has reasonable grounds for insecurity (e.g., something short of an anticipatory repudiation, such as credit problems). The party demanding adequate assurances may suspend its future performance until such assurances are received (which must be within a reasonable time, not to exceed 30 days). Failure to provide such assurances in a timely fashion constitutes an anticipatory repudiation.

Answer 99

A

If one party acts in such a way that makes the other party’s performance impossible, the other party’s performance is excused.

Answer 100

A

All parties to the original contract (and the new third party) agree to substitute the new party for one of the original parties. In such case, the original party’s (the party who was replaced) performance is excused and the new party assumes that duty.

A novation is never presumed; it must be clearly established.

Answer 101

A

An agreement by the parties to a contract to accept a different type of performance by one party (the “accord”) and that party so performs (the “satisfaction”). The accord suspends the original performance; the satisfaction excuses the original duty. If there is no “satisfaction,” the other party may sue on the original agreement or the accord.

Answer 102

A

This excuses performance only if both parties’ performances are still executory.

If the original contract is subject to the SOF, a writing may be required to rescind it.

Answer 103

A

After the deal is executed (but before it is performed), an unexpected event occurs that renders performance the performance the seller of goods or real property or the provider of services:

Objectively Impossible
Commercially Impracticable

Answer 104

A

No one could perform under such circumstances (e.g., (1) destruction of the subject matter – a contract to buy a particular horse, but the horse dies; (2) death or incapacity of a party in a personal services contract – a singer dies after signing a contract to star in an opera; or (3) a supervening illegality). If, at the time of contracting, the parties were aware than an event was not certain to occur, that event may not be used to support a claim of impossibility or impractability.

If a contractor performs services (e.g., plumbing) on a building and the building is destroyed (due to no fault of the contractor) before the contractor completes performance, the contractor’s duty to perform is discharged and the contractor is entitled to quasi-contractual damages measured just before the destruction occurred.

However, a contractor’s duty to construct a building is not discharged by destruction of the work in progress (but most courts will excuse the contractor from meeting the original deadline).

Answer 105

A

An unforeseen event that so drastically changes the duty of one party that it is no longer fair to make that party perform (e.g., an unexpected strike, war, outbreak of disease, shortage of raw materials, embargo)

An unforeseen event that simply makes a party’s performance more expensive is not sufficient to excuse performance, unless the increase in expenses is massive (e.g., a ten-fold increase) or the increase in places the non-performing party on the brink of bankruptcy.

If the unforeseen event is temporary in nature, the seller may only suspend performance. If the seller’s inability to perform as a result of the unforeseen event is only partial, the seller must provide pro rata performance to her customers, including regular customers who do not have any outstanding orders.

Answer 106

A

After the deal is executed (but before it is performed), an unexpected event occurs that frustrates the sole purpose of a buyer of goods or real property or a recipient of services:

Frustration of Purpose. The sole purpose of the contract—which both parties know of at the time of contracting—no longer exists (e.g., B leases an apartment from C to watch a coronation. Both parties are aware of the purpose. The coronation is unexpectedly canceled. This is frustration of purpose and B’s non-performance is excused). Frustration of purpose is rarely successful as an excuse for non-performance.

Answer 107

A

In the event of a breach, the non-breaching party may choose to pursue various remedies, including:

Expectation Damages
Reliance Damages
Equitable Damages
Restitution

Answer 108

A

Definition: Expectation damages are forward-looking damages; their purpose is to place the non-breaching party in the position it would have been in if the breaching party had fully performed.

Answer 109

A

In most cases, the non-breaching party is entitled to “expectation damages”

Plus incidental damages (e.g., placing a new classified ad to find for another buyer)
Plus foreseeable consequential damages (Hadley v. Baxendale). Such damages (e.g., lost profits, lost rents) must be foreseeable by both parties at the time of contracting; this usually means the plaintiff told the defendant of her special needs at the time of contracting
Minus reasonably avoidable costs and damages (e.g., in a wrongful discharge case, plaintiff must accept a comparable job to avoid damages)

Answer 110

A

To determine the amount of “expectation” damages, ask:

What would the plaintiff have received if the contract had been fully performed?
What did the plaintiff actually received?
What’s the difference?

Answer 111

A

If a breach results in defective or unfinished construction, the plaintiff (e.g., the buyer or homeowner) may recover damages based on

The diminution in the market price of the property caused by the breach, or
The reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.

Answer 112

A

Special Cases
If an employee breaches an employment contract, the employer is entitled to recover the difference between the wages paid to the replacement employee and the breaching employee’s contract. If an employer breaches an employment contract, the employee is entitled to recover the full contract price, minus:
The salary the employee would have received if the employee had made reasonable efforts to obtain a comparable job in the same locale; and
The actual salary the employee received from any job.

Answer 113

A

The standard measure of damages for breach of a land sale contract is the difference between the contract price and the fair market value of the land.

Answer 114

A

Buyer is entitled to compensatory damages (as set forth below) plus foreseeable consequential damages plus incidental damages minus avoidable damages.

Answer 115

A

Except for installment contracts, the seller must make “perfect” tender. Any defect permits the buyer to reject the goods in whole or in commercial units (subject, in some cases, to the seller’s right to cure). If the goods are non-conforming, the buyer must (1) make a timely inspection and rejection; (2) promptly notify the seller of the rejection and the reasons therefor; and (3) dispose of the goods in accordance with the seller’s instructions or, if none, in a manner to avoid damages. As for damages, the buyer may get “cover” damages, which is the difference between the contract price and the price the buyer had to pay for a reasonable replacement or the difference between the contract price and the market price (at the time the buyer discovers the breach). If the buyer covers, the buyer may not sue for market damages.

Answer 116

A

In such cases, buyer’s damages are measured by the difference between the value of what the buyer received and the value of what he would have received if the seller had fully performed (i.e., breach of warranty damages); buyer must give the seller notice of defects within a reasonable time after they are or should have been discovered.

Answer 117

A

Seller is entitled to compensatory damages (as set forth below) plus incidental damages (but not consequential damages) minus expenses saved because of the breach.

Answer 118

A

Seller’s damages are either (1) the difference between the contract price and the resale price (resale may occur by any commercially reasonable manner—public or private—with notice to the buyer) or (2) the difference between the contract price and the market price (at the time and place of tender).

If the seller is a lost volume seller (i.e., one with an unlimited supply of goods to sell), seller’s damages are equal to the profit seller would have made on the sale. Notice of resale is not required for lose volume sellers.

Answer 119

A

Seller may recover the entire contract price if (1) the goods are specialized and seller is unable to resell them (i.e., the seller may “force” the buyer to purchase the goods); (2) the buyer has accepted the goods (but has not paid for them); or (3) the goods are destroyed after risk of loss has shifted to the buyer.

Answer 120

A

Liquidated Damages are appropriate only if:
1. At the time of contracting, the parties knew it would be difficult to determine the amount of damages in the event of a breach, and
2. The liquidated damages amount is reasonable in light of anticipated or actual damages
—
Examples of enforceable liquidated damage clauses:
1. 10% of purchase price for real estate contracts
2. Per diem (e.g., $100 per day for delays in building contract) damages
—
If the contract permits the plaintiff to elect to recover either liquidated damages or actual damages, the liquidated damages clause is probably unenforceable.

Answer 121

A

No punitive damages are awarded in contracts cases (unless there is also a tort).

Answer 122

A

Damages for emotional distress are not available in breach of contract actions, unless the breach caused personal injury (e.g., breach of warranty) or such harm is “particularly likely” to result from a breach (e.g., breach of warranty) or such harm is “particularly likely” to result from a breach (e.g., a mortuary mishandling a corpse or an insurance company guilty of bad faith).

Answer 123

A

Reliance damages are backward-looking damages; their purpose is to put the non-breaching party in the position it would have been in had the contract never been formed.

Answer 124

A

Reliance damages are generally awarded in cases where the non-breaching party cannot establish expectation damages with reasonable certainty; in those cases, the non-breaching party has a right to damages based on its reliance interest, including expenditures made in preparation for performance.

Traditional (Minority) View: Lost profits (i.e., expectation damages) are not recoverable by a new business or enterprise; a new business or enterprise is limited to reliance damages.

Restatement (Majority) View: Lost profits are recoverable by a new business or enterprise if proved with reasonable certainty.

Answer 125

A

Equitable remedies are available only if money damages are inadequate (i.e., money damages will not put the non-breaching party in as good a position as performance would have).

Answer 126

A

Specific Performance is available only for breaches of:

Real estate contracts
UCC contracts
- For the sale of unique or rare goods
- For other proper circumstances (i.e., the buyer is unable to cover or is unable to secure a comparable long-term contract)
Specific performance will not be awarded for personal services contracts, but an injunction may be entered to prevent the employee from working for a competitor (but only where the employee has very rare skills—a professional athlete—or the employee possesses trade secrets or the employee is subject to an enforceable “non-compete” agreement).

Answer 127

A

Where a writing that memorializes an oral agreement fails to accurately express the agreement because of a clerical or transcription error (or fraud), the court may reform the writing to express the agreement, except to the extent that rights of third parties will be unfairly affected.

Clear and convincing evidence is usually required for reformation.

Answer 128

A

The purpose of restitution is to prevent unjust enrichment.

Answer 129

A

No Enforceable Contract (Quasi-Contract). If there is no valid contract but the plaintiff provided a valuable service (or property) to the defendant with a reasonable expectation of payment, the plaintiff may be entitled to quasi-contractual relief. A quasi-contract is not a contract, but rather a form of relief designed to remedy unjust enrichment. Quasi-contract damages are measured by either the detriment suffered by the plaintiff or the benefit experience by the defendant.

Answer 130

A

Non-Breaching Plaintiff. If the plaintiff is the non-breaching party (which is typical), the plaintiff may choose restitution over expectation or reliance damages. However, restitution is usually the best remedy only with regard to “losing contracts” (i.e., those in which the plaintiff would have lost money).

Breaching Plaintiff. If the plaintiff breached the contract, quasi-contract damages will be limited to the enrichment actually received by the defendant (and not the value of the efforts undertaken by the plaintiff).

Answer 131

A

There are three types of third parties that may have rights and/or duties in the contract:

Third Party Beneficiary
Assignment of Rights
Delegation of Duties

Answer 132

A

A Third Party Beneficiary is contemplated by the original contracting parties at the time of contracting

If at the time of contracting, the promisor and promisee (the original contracting parties) intend to confer a benefit on a third party (who is named or identifiable in the contract), that third party beneficiary may enforce the agreement against the promisor, unless:

The original contracting parties modified or cancelled the contract prior to the time the third party’s interest in the contract vested. Vesting occurs when the third party (1) assents to the contract; (2) knows of an relies upon the contract; or (3) files suit on the contract or

The promisor has a defense regarding the formation or performance of the contract that would have been enforceable against the promisee (because the third-party beneficiary’s rights to enforce the contract are derivative)

Answer 133

A

In a third-party-beneficiary contract, the promisee may sue the promisor for an order of specific performance ordering the promisor to provide the goods, services, etc. to the third party.

If the original contracting parties do not expressly intend to confer a benefit on a third party, the third party is merely an “incidental” third party beneficiary and has no right to enforce the contract.

Answer 134

A

If after the time the original parties entered into a contract, one of the parties assigns her “rights” (e.g., benefits—often the right to payment) under the contract to a third party, this is an assignment of rights. The “assignor” is the party who assigns her rights, the “assignee” is the third party, and the “obligor” is the other original party to the contract. The common law and UCC rules are quite similar regarding assignments.

Answer 135

A

Contract rights are generally assignable unless (1) the contract makes assignments “void,” (2) the assignment would materially change the duty of the obligor, or (3) the assignment would materially increase the burden of risk imposed on the obligor.

Answer 136

A

Language prohibiting “assignment of the contract” is construed as barring delegation of duties and not assignment of rights.

Language prohibiting “assignment of contractual rights” does not bar assignment but merely give the obligor a right to sue the assignor for breach of contract.

Answer 137

A

If an assignment is effective, the assignee (but not the assignor) may sue the obligor to enforce it. The assignee’s rights to enforce the contract are derivative; thus, the assignee is subject to most defenses the obligor could assert against the assignor.

Answer 138

A

Once the obligor has knowledge of a valid assignment, the obligor must render performance to pay the assignee; if the obligor renders performance to or pays the assignor, the obligor does so at his or her own risk.

Answer 139

A

An oral gratuitous assignment is generally revocable by the assignor.

Such assignments are automatically revoked (1) by the death or bankruptcy of the assignor; (2) by the assignor’s subsequent assignment of the same rights to another assignee; or (3) if the assignor takes performance directly from the obligor.

Answer 140

A

Assignments for value (e.g., as payment for a preexisting debt) and written gratuitous assignments (e.g., a signed writing or delivery of a token chose, such as a savings account passbook or a lottery ticket) are generally irrevocable by the assignor.

Answer 141

A

If the assignor assigns the same contract rights to more than one assignee, the following rules apply:

If the first assignment is revocable, a subsequent assignment revokes it.
If there are two or more irrevocable assignments, the first irrevocable assignee prevails.
- The losing assignee (for value), however, has a breach of warranty action against the assignor.

Answer 142

A

Assignees of Rights and Delagatees of Duties appear after the execution of the original contract

Often, contract rights and duties are assigned/delegated to the same third party; when a party to a contract “assigns the contract,” such a transfer acts as both an assignment of rights and a delegation of duties

Answer 143

A

If after the time the original parties entered into a contract, one of the parties transfers her “duties” (e.g., the work) under the contract to a third party, this is a delegation of duties. The “delegator” or “delegor” is the party who delegates her duties, the “delegatee” or “delegee” or “delegate” is the third party, and the “oblige” is the other original party to the contract. The common law and UCC rules are quite similar for delegation of duties.

Duties may generally be delegated, but not if (1) the contract prohibits either delegations or assignments; or (2) the oblige chose the delegator to perform a “personal service” because of the delegator’s special skills, reputation, or trust (e.g., the delegator is a famous portrait painter). In other words, if the delegation impairs the obligee’s commercially reasonable expectations, the delegation is void.

Under the UCC, the oblige may treat a delegation as creating reasonable grounds for insecurity and thus may demand that the delegatee provide adequate assurance of performance.

Answer 144

A

If the delegation is proper, the oblige MUST accept the performance of the delegatee; if the oblige refuses to accept such performance, the oblige forfeits any rights it has against the delegatee and the delegator.

Answer 145

A

If a delegation is valid and the delegatee does not perform (or does not fully perform), the oblige may sue the delegator (unless there was a novation) or the oblige may sue the delegatee as a third party beneficiary of the contract between the delegator and the delegatee.

In such cases, the delegatee has primary liability and the delegator has secondary liability as a surety.

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