Contracts & Sales Flashcards
1
Q
What is a contract?
A
A legally enforceable agreement
2
Q
What is an express contract?
What is an implied contract?
A
Express contract
- Contract that results from words
Implied contract
- Contract that results from conduct which a reasonable person would infer a promise to pay
3
Q
What is a quasi-contract?
A
It is not a contract. It is the remedy granted when the following elements exist:
- P has conferred a benefit on D
- P reasonably expected to be paid
- D would realize unjust enrichment if P is not compensated
4
Q
What is the measure of recovery under quasi-contract?
A
It may, as justice requires, be measured by either:
- Reasonable value of the services rendered (i.e., quantum meruit)
- Extent to which other party’s property increased in value or his other interests were advanced
Note: the contract price is not the measure of recovery, but it may be a ceiling
5
Q
Can a breaching party recover under quasi-contract?
A
Majority view
- YES, if:
- Not a willful breach
- For the party’s own convenience and financial advantage
Minority view
- NO
6
Q
What is a bilateral contract?
A
Contract formed from an offer that is open as to the method of acceptance (i.e., can return a promise or just perform)
7
Q
What is a unilateral contract?
A
Contract formed from an offer that requires performance as the method of acceptance
Two examples on bar exam:
- Offer that expressly requires performance
- Offer of a reward
8
Q
When does Article 2 of the UCC apply?
A
Sale of goods
Definitions
- Sale
- Passing title from seller to buyer for a price
- Goods
- Personal property
9
Q
How do you determine whether the UCC applies in a hybrid contract (i.e., involves goods and services)?
A
Majority (including Virginia)
-
Predominant purpose test
- If the contract primarily involves goods, the UCC applies to the entire contract
- Factors:
- Price of goods v. services
- Amount of labor involved
- Sophistication of labor
- Does contract contains typical sales language?
10
Q
A contract is more than an agreement. What does that mean?
A
It must be legally enforceable
11
Q
What is an offer?
A
Manifestation of the intent to be bound by contract
Objective test:
- Would a reasonable person believe that his or her assent created a contract?
- Do not focus on the person’s subjective intention
12
Q
Generally, what are the essential elements of an offer?
A
- Identity of the offeree
- Subject matter
- Price to be paid
- Time of payment, delivery, or performance
- Quantity involved
- Nature of work involved
The more that terms are left open, the more likely it is that courts will view the communication as mere preliminary negotiations
13
Q
When can price be left out of a contract?
When is it required?
A
Real estate contract
- Required
- Because real estate is unique
UCC sale of goods
- Not required
- Because goods are fungible
14
Q
Can a court fill in vague or material terms in a contract?
A
No. Both common law and the UCC this makes the contract insufficiently definite and clear
15
Q
When will the courts imply the quantity for a contract?
A
Requirements contract
- Buyer agrees to buy all of its good faith requirements
Output contract
- Buyer agrees to buy all of the seller’s good faith output
Limitations
- Must be reasonably proportionate to either:
- Stated estimate
- Normal or comparable prior requirements/output
16
Q
Is an advertisement an offer?
A
Generally, no.
Exceptions:
- An advertisement is an offer if it:
- Is specific to quantity
- Indicates who can accept
- __An advertisement is an offer it it:
- Is in the nature of a reward
17
Q
Is a price quotation an offer?
A
Only if it is sent in response to an inquiry
E.g., catalog sent after purchaser says, “I need ten of these, how much will you sell them for?”
18
Q
What is the offer in an auction?
What is the effect of a reserve price?
A
The bid, not the auctioneer asking for bids
An auction is with reserve unless the terms state otherwise
Auction without reserve
- Auctioneer obligated to accept highest bid
19
Q
How does an offer terminate?
A
- Lapse of time
- Revocation
- Rejection
- Death
20
Q
If no time is expressed for acceptance of an offer, after how long will the offer terminate?
A
After a reasonable time under the circumstances
- 2 years - yes
- 2 weeks - probably
- 2 days - no
21
Q
How does a party revoke an offer?
A
-
Statement to the offeree
- Indicating an unwillingness to contract
-
Conduct of the offeror
- That is inconsistent with an intention to contract
- And the offeror is aware of the conduct
- Must be reliable
22
Q
How do you revoke a public offer?
A
Give notice of termination with equal publicity to that given by the offer
23
Q
When does revocation become effective?
A
When the revocation is received (i.e., mailbox rule does not apply)
24
Q
When can a party revoke?
A
Anytime before acceptance, unless:
- Option contract
- Promise to keep offer open
- Supported by consideration
- UCC firm offer
- Contract for the sale of goods
- Written promise to keep offer open
- Made by a merchant
- Reliance
- Must be reasonably foreseeable
- Performance
- Must be on a unilateral contract only
- Must be more than mere preparation
25
Who is a merchant?
A person who either:
* _Deals_ in good of the kind
* _Holds himself out_ as having knowledge/skill particular to the goods
26
For how long does the UCC firm offer rule keep an offer open?
What if the promise doesn't state a time period?
No more than _3 months_, in the absence of additional consideration
If the promise doesn't state a time period, it is a _reasonable time_ less than or equal to 3 months
27
How does a party reject an offer?
1. Expressly
2. Counteroffer (but not mere bargaining)
3. Conditional acceptance
4. Acceptance with additional terms (but not under UCC)
5. Acceptance with conflicting terms (but not under UCC)
28
Under the UCC, when do additional terms become part of the contracts?
When:
1. Both parties are _merchants_
2. Additional terms do not _materially alter_ the contract
3. Offeror does not _object_ within reasonable time
Otherwise:
* Agreed terms become part of the contract
* Disagreed terms are left out
29
Does adding an arbitration clause materially alter a contract?
Majority
* YES
Minority
* Depending on industry standard, maybe not
30
Under the UCC, what happens when conflicting terms are added to a contract?
Majority (including Virginia)
* _Knock out doctrine_
* The conflicting terms cancel eachother out, and the UCC filles in the gaps
Minority
* Offeror's terms control and offeree's conflicting terms drop out
31
When does the death of a party not terminate the offer?
1. Option contract
2. Part performance of unilateral contract
32
Who can accept an offer?
Only the person to whom the offer was made, and they _must be aware of it_
So, the _power to accept_ cannot be assigned
But, an _option_ can be assigned unless it says otherwise
33
How can you accept an offer?
1. Performance
* Unilateral contract - performance must be complete
* Bilateral contract - performance must begin
2. Promise to perform
34
When can acceptance be done by mail?
When is it effective?
Acceptance by mail is reasonable if:
* Offer is by mail
* Customary in similar transactions at time and place
Mailbox rule
* Acceptance by mail is effective when _posted_ (i.e., dropped in mailbox)
35
What is the difference in terms of the effectiveness of acceptance and revocation?
Revocation - effective when received
Acceptance - effective when posted
36
What are the exceptions to the mailbox rule?
1. Rejection mailed first, rejection received first
* Acceptance is a counteroffer
2. Acceptance mailed first, rejection received first
* If offeror relied on rejection, estoppel may apply
3. Option deadline
* Acceptance must be received by deadline (i.e., mailbox rule does not apply)
37
If a party sends the wrong goods in response to an offer, do they accept?
Generally, yes
* Noncomforming goods is an acceptance and a breach
Exception:
* Accomodation
* If shipper makes it clear that the noncomforming goods are an accomodation, that is a counteroffer
38
Can silence be acceptance?
Generally, no.
Exception:
* When reasonable to interpret silence as acceptance based on prior course of conduct/past dealings
39
What are the elements of consideration?
1. Promisee must suffer _legal detriment_
2. Detriment must _induce promise_
3. Promise must _induce detriment_
40
What are the different forms of legal detriment?
1. Performance
* Doing something not legally obligated to do
2. Forbearance
* Not doing something legally obligated to do
3. Promise to perform
4. Promise to forbear
41
What is a conditional gift?
Does it constitute consideration?
When promisor _intends to make a gift_ that is _conditioned_ on promisee doing something that _doesn't benefit promisor_
It does not satisfy consideration because it is not a _bargained-for-exchange_
42
What is the rule regarding past consideration?
This is not valid consideration
It results in an unenforceable gratuitious promise
43
What is the rule regarding moral obligations and consideration?
Modern approach (not in Virginia)
* A moral obligation is not a substitute for consideration unless:
* The promisor requested the act
* The promisee expected to be paid
Traditional approach (Virginia)
* A moral obligation is not a substitute for consideration
44
When is consideration adequate?
Courts generally _do not inquire_ to th eadequacy of consideration
If the consideration is _grossly inadequate_, there may be some flaw in the bargaining process, such as:
* Fraud
* Duress
* Incapacity
45
What is the rule regarding pre-existing duties and consideration?
Common law
* Performing a pre-existing duty is _not consideration_ for a new promise _unless_:
* Duty owed to a _third person_ (not promisor)
* Unforeseen difficulty renders performance _vitally different_ than was was originally agreed upon
UCC Article 2
* _Additional consideration not required_ for modification if:
* The party modifying acts in good faith
46
When can partial payment be consideration for a promise to forgive the balance of debt?
Only when the debt is either:
* _Not yet due_
* _Disputed_
E.g., the release of the remaining balance is enforceable if the promisor pays any amount that is either disputed or not due
47
When can the promise to pay for a settlement be enforceable?
As long as the party giving up the claim _in good faith_ believes it is a _valid claim_
48
Is a promise to pay debt barred by the statute of limitations enforceable?
Only if it is written, and only to the extent of the new promise, and not the original balance due
49
What is an illusory promise?
Does it constitute consideration in exchange for another promise?
It is a promise in form, but not in substance
It is not consideration for the other promise
E.g., I will buy your house if I decide I want it
50
What are the elements of promisorry estoppel?
1. Promise
2. Reliance that is both:
* Foreseeable
* Justifiable
3. Enforcement is necessary to avoid injustice
NOT RECOGNIZED IN VA FOR AFFIRMATIVE RELIEF
51
What is the remedy for promissory estoppel?
The remedy is limited to what justice requires
So, it may be limited to the extent of reliance
NOT RECOGNIZED IN VA FOR AFFIRMATIVE RELIEF
52
Who lacks capacity to contract?
* _Infants (minors)_
* Persons under 18 years old
* _Mental incompetents_
* Person who is either:
* _Unable to understand_ in a reasonable manner nature and consequences of transaction
* _Unable to act in a reasonable manner_ in relation to the transaction
* _Intoxicated persons_
* __Other party has _reason to know_ that:
* By reason of intoxication
* The person is unable to either:
* Understand in a reasonable manner nature and consequences of transaction
* Act in a reasonable manner in relation to the transaction
53
What are the consequences of incapacity?
The contract is _voidable_ - i.e., incapacitated party can disaffirm
54
Can a contract ever be enforced against a minor?
Yes, under the _quasi-contract_ theory if the contract is for _necessaries_ - i.e., items that the minor needs in order to live
Whether soemthing is a necessary is a question of fact
55
What contracts fall within the statue of frauds?
"MY LEGS"
* Contract in consideration of **_marriage_**
* Contract that cannot be performed within one **_year_**
* Promise creating interest in **_land_****__**
* Promise by **_executor_** or administrator to pay own funds
* Contract for the sale of **_goods_** $500 or more
* Promise to act as a **_surety_** for the debt of another
56
What makes a marriage contract subject to the statute of frauds?
Must be a promise in consideration of marriage (not just a promise to marry)
57
What makes an executor promise subject to the statute of frauds?
Must be a promise by executor to pay his own funds for an obligation of the estate
58
What makes a surety contract subject to the statute of frauds?
Must be a promise to the creditor
Not a promise to the debtor
Not a novation - i.e., a promise to immediately pay the full debt
59
What is the main purpose rule with respect to the statute of frauds?
If a promise to pay the debt of another is for the main purpose of the promisor, it is not within the statute of frauds
E.g., main shareholder promises to act as a surety on the debt of the corporation
60
Is a contract within the statute of frauds if it is for multi-year employment, but can be terminated anytime?
Majority - yes
Minority - no
61
Is a contract to employ someone for life within the statute of frauds?
No. The person could possibly die within the year
62
Is a contract to grant an easement within the statute of frauds?
Only if the easement will last longer than a year
63
Is a lease contract within the statute of frauds?
Only if the lease is for more than a year
64
What is the equal dignity rule with respect to the statute of frauds?
If a contract is subject to the statute of frauds, and therefore must be in writing, you _must have a writing in order to authorize_ someone else to sign it for you
65
When does the modification of a contract fall within the statute of frauds?
When both:
* _Contract, as modified_, falls within the statute of frauds
* Modified terms are _essential_ to the contract
66
If a contract provides that all modifications have to be in writing, does a modification have to be in writing to satisfy the statute of frauds even if he contract would not fall within the statute of frauds as modified?
Common law
* Provision requiring written modification is ignored
UCC
* Provision requiring written modification is valid, unless waived
67
How is the statute of frauds satisfied for contracts other than for the sale of goods?
1. _Writing_ that contains:
* _Identity_ of parties
* _Description_ of subject matter
* All _essential terms_
* _Signature_ by party to be charged
2. Part performance of _oral real estate agreement_
* Statute of frauds satisfied if 2/3 of the following:
* Full or part payment
* Possession
* Improvements
3. _Estoppel_ to plead statute of frauds
* D is estopped from raising statute of frauds if:
* D told P he would draft agreement
* P acted in reliance on this
4. _Promissory estoppel_
* Modern trend
* D estopped from raising statute of frauds if:
* D makes oral promise to P
* P acts in reliance on this
* Virginia
* NO PROMISSORY ESTOPPEL
68
How is the statute of frauds satisfied for contracts for the sale of goods?
1. _Writing_ that contains:
* Quantity (or output/requirements)
* Indication that contract for sale was made
* Signature by party to be charged
2. Writing _signed by party seeking enforcement_
* Under UCC 2-201(2), statute of frauds waived if:
* Both parties are _merchants_
* Writing _claims there is a contract_
* Writing is _signed_
* Writing included _quantity_
* Other party fails to object in _10 days_ of receipt
3. _Part performance_ of contract for sale of goods
* Satisfied statute of frauds:
* _To the extent of part performance_
4. ___Specially manufactured goods_
* Statute of frauds waived if:
* Seller made _substantial beginning_ of manufacture
5. _Judicial admission_
* Statute of frauds waived if:
* Party admits there was a contract _under oath_
69
What happens if a contract fails to satisfy the statute of frauds?
What happens if a party loses the statute of frauds defense?
Contract fails to satisfy statute
* Contract is _unenforceable_ (but not illegal)
Party loses defense
* Statute of frauds defense won't work
* May still argue that contract doesn't exist
70
When does an ambiguity make a contract invalid?
When:
* Parties use a _material term_ open to at least two reasonable interpretations
* Each party attaches a _different meaning_
* _Neither party knows_ or has reason to know of the other's meaning
E.g., Peerless example
71
When does a mutual mistake of fact make a contract invalid?
What if the mistake is just as to value?
When:
* Both parties are _mistaken_
* Regarding a _basic assumption of fact_
* That _materially_ affects the agreement
* And is not a risk their either party _bears_
No relief if mistkae is just as to value
72
When does a unilateral mistake of fact make a contract voidable?
Generally _never_, unless:
* The mistake was _obvious_ (i.e., the other party knew or should have known about it)
* The mistaken party seeks _avoidance before the other party relies_ on the contract (limited to bid situations)
73
When does duress make a contract voidable?
What are the different types of duress?
When the party was left with _no reasonable alternative_ but to enter into the contract
Types
1. Personal duress (e.g., gun to head)
2. Economic duress (e.g., caterer demands more money day before wedding)
74
What is the key difference between entering into a contract based on a pre-exisiting duty, and entering into a contract based on duress?
With _duress_, the contract is both voidable (shield) and you can get your money back (sword)
With the _pre-existing duty_, the contract is only voidable (shield)
75
When does undue influence make a contract voidable?
Similar to duress, but it is _unfair persuasion_ rather than cocercion
(often arises in will situations)
76
What is fraud in the inducement?
What is fraud in the factum?
Do they make the contract void or voidable?
Fraud in the _inducement_
* One party lies to induce the other party to sign
* Both parties know they are signing a contract
* Makes the contract voidable
* Cannot be raised against a holder in due course
Fraud in the _factum_ (i.e., execution)
* One party lies about the nature of the document signed
* Only one party knows they are signing a contract
* Makes the contract void
* Can be raised against a holder in due course
77
Does a party have to disclose facts that would discourage the other party from entering the contract?
Generally, no
Exceptions:
* Disclosure required by _statute_
* Active _concealment_ of negative fact
* Partial disclosure would be _misleading_
* _Changed circumstances_ make previous assertion false
* Party becomes aware that other party is _operating under mistake_ as to a material fact
* Confidential or fiduciary _relationship_
78
When will a contract be deemed unconscionable?
The _judge_ decides whether at the _time of the contracting_, there was both:
* _Procedural_ unconsionability (i.e., unfair bargaining power)
* _Substantive_ unconscionability (i.e., unfair terms)
79
When will a contract be void due to illegality?
* Subject matter is illegal (e.g., sale of drugs)
* Purpose is illegal (e.g., lease of plane to sell drugs)
80
When will a contract be illegal becuase a party does not have a license required by statute?
When the license is required to _protect public_ welfare, the contract is illegal
When the license is required to _raise revenue_, the contract is not illegal
81
What are sources of contract terms other than the words of the parties?
* Custom and usage
* Past dealings
* UCC (if sale of goods)
82
What does the parole evidence rule do?
What facts trigger it?
Parole evidence rule _keeps terms out_ of the contract
When there is a:
* Written contract
* Intended as final agreement (integrated)
* Agreements that were either:
* Earlier
* Contemporaneous
* Cannot be used to _vary the terms_ of the agreement
83
What is the difference between a partially integrated and a completely integrated contract?
Partially integrated - everything in here is final, but not everything is in here
Completely integrated - everything in here is final, and everything is in here
84
What determination does a judge make when considering the parole evidence rule?
1. Is the contract integrated (partially or completely)?
2. Factors
3. Exceptions
85
What factors does a judge consider when determining the parole evidence rule?
* Merger or integration clauses
* How complete it looks
* How long negotiations were
* Whether the parties had lawyers
86
What are the exceptions to the parole evidence rule?
Using the earlier agreement to:
* _Explain_ the writing
* Establish a _defense_
* Show the writing _wouldn't be effective_ until a condition
* _Add_ to the writing is only _parially integrated_
87
What is a collateral agreement?
_Admissible_ despite the parole evidence rule
Either:
* Agreement made for _separate consideration_
* Agreement that would _naturally be omitted_ from the writing under the circumstances (i.e., writing is only partially integrated)
88
What is a shipment contract?
What is a destination contract?
Shipment
* Seller's delivery obligation satisfied when:
* Good tendered to carrier, and
* Arrangements made for shipment, and
* Buyer notified of shipment
* Parties' words:
* FOB shipper's location
* All words not listed below
Destination
* Seller's delivery obligation satisfied when:
* Goods tendered to buyer
* Parties' words:
* FOB location other than shipper's
* Ex-ship
89
When contractual language is unclear as to whether it is a shipment or destination contract, what is the presumption?
Shipment contract
90
Assuming no agreement otherwise, no breach, and a common carrier, when does risk of loss shift to the buyer?
When the seller completes his delivery obligations
91
Assuming no agreement otherwise, no breach, and no common carrier, when does risk shift to the buyer?
If the seller is a _merchant_:
* When buyer _receives_ the goods (i.e., takes possession)
If the seller is a _non-merchant_:
* When seller _tenders_ the goods (i.e., makes available)
92
If a buyer lets three months pass after tender before picking up goods, does the buyer have to pay for the goods?
Under UCC, after a commercially reasonable time the seller is _no longer entitled to price_ (but still has breach of contract claim)
93
What is a sale on approval?
When does risk of loss shift to the buyer?
When a buyer takes possession of goods for a trial period
Risk does not shift until the buyer formally accepts
94
When does risk of loss shift when a buyer takes goods on consignment?
Same rules as normal goods (i.e., merchant - recept; non-merchant - tender)
95
What can give rise to an express warranty?
Must be a _basis of the bargain_
Words
* Must have _natural tendency to induce reliance_
* Not mere puffing
Conduct
* Use of sample of model
96
What are the implied warranties?
Who gives which?
Merchantability
* Only by _merchants_ with respect to _goods of the kind_
* Goods fit for _ordinary purpose_ for which used
Fitness
* Any seller
* Goods fit for _particular purpose_ for which _buyer relied_
Title
* Any seller
* Seller has good title
97
What warranties may be disclaimed?
How do you disclaim them?
Express warranties _cannot be disclaimed_
Implied warranties of _merchantability_ and _fitness_:
* Express disclaimer:
* Must be _conspicuous_
* Must mention either:
* Merchantability
* General language removing implied warranty
* E.g., "as is", "with all faults"
* Course of dealing, cours eof performance, trade usage
* Defects that should have been revealed by examination that seller demanded buyer undertake
Implied warranty of title:
* Specific language (i.e., more than "as is")
* Specific circumstances (e.g., sale by sheriff)
98
When is a limitation of remedies clause valid?
So long as it:
* Is not _unconscionable_
* __E.g., limiting consequential damages for personal injury with consumer goods
* Does not _fail of its essential purpose_
* E.g., seller insists on making repairs after consistently failing to fix the problem
99
What is the statute of limitations for breach of warranty?
From when does it start to run?
4 years from tender of _delivery_, unless:
* Explicitly _extended_, in which case:
* 4 years from when breach is _discovered_ or should have been discovered
100
In Virginia, who does a warranty extend to if there is personal injury?
Anyone who might reasonably be expected to:
* Use
* Consume
* Be affected
101
In Virginia, who does a warranty extend to if there is consequential loss?
Only parties in privity
102
What is a true condition?
A condition that is outside the control of either party
103
What is a condition coupled with a covenant?
Condition that is in some way _within the control_ of one party, and therefore creates an obligation on that party to make a _good faith_ effort to cause the event to occur
E.g., obtaining financing
104
Who has the burden to plead:
Condition precedent
Condition subsequent
Precedent - plaintiff
Subsequent - defendant
105
What is a constructive condition?
A condition by operation of law
E.g., each party's _substantial performance_ of the contract
106
If a contract is silent as to what should be done first, what is the presumption?
Sale of goods
* Each party's performance is a constructive _concurrent_ conditions to the other
Service contract
* Service is a constructive condition _precedent_ to payment
107
When will a condition be excused?
Look to see if the _person protected_ by the condition (i.e., person who benefits from it) has done or said anything to justify taking it away
* Failure to make _good faith effort_ to satisfy condition
* E.g., obtain financing
* Estoppel
* Person says something before condition arises
* Other person changes position in reliance
* Waiver
* Person says something after condition arises
108
What is the standard used to determine if a party satisfied a condition?
Express condition
* Strict compliance
Constructive condition
* Substantial performance
109
What is the standard used if an express condition involves personal taste?
Subjective good faith (i.e., objective reasonable person irrelevant)
110
What is the standard for the performance of sale of goods contracts under UCC Article 2?
Perfect tender - i.e., seller must deliver perfect goods
If not, buyer can reject whole, accept, whole, or accept part
111
When can a seller cure an imperfect delivery?
* Limited remedy clause gives _contractual right_ to cure
* Time for performance _not expired_
* Time for performance expired, but _reasonable basis for believing improper tender was acceptable_
112
How does a buyer reject goods?
Provide notice to the seller that is:
* Timely (so seller can cure or preserve the goods)
* Oral or written
113
When rejecting goods, does a buyer have to explain why he is rejecting?
Generally, no but he probably should.
If the buyer doesn't, the buyer cannot rely on an unstated defect to justify rejection to establish breach:
* If seller _could have cured_
* If both parties are merchants and seller requested in writing for a full and final written _statement of defects_
114
When can a buyer reject goods?
If all of the following is true:
* Buyer has not accepted
* Goods are less than perfect
* Contract is not on installment
115
What is an installment sales contract?
_Requires_ or _authorizes_:
* Delivery in separate lots
* To be separately accepted
116
Why is it necessary to identify installment sales contracts?
Buyer can only reject an installment if there is:
* Substantial impairment
* That cannot be cured
117
Does a breach of one installment ever permit the buyer to reject the entire contract?
Only if the breach substantially impairs the value of the entire contract
E.g., one beer delivery has e coli so nobody would drink beer from that supplier
118
When has a buyer accepted goods?
1. When, after reasonable opportunity for inspection, buyer indicates that either:
* The goods conform
* She will keep them even if they don't conform
2. Buyer fails to make an effective rejection
3. Buyer acts inconsistent with seller's ownership
119
If a buyer continues using the goods after rejection, is that always an acceptance?
Yes, unless the use was necessary
120
What are the requirements for revocation?
1. Noncomformity _substantially impairs value_ to buyer
2. _Excusable ignorance_ of grounds for revocation, or reasonable reliance on seller's assurances
3. Revocation within _reasonable time after discovery_ of noncomformity
4. Revocation _before substantial change_ in condition of goods not caused by defect
121
In what form should the buyer make payment?
In the absence of agreement otherwise:
* Buyer must pay by either:
* Cash
* Check
* Seller can reject check, but must give buyer reasonable time to get cash
122
If buyer has the right to reject, what is the effect on risk of loss?
Risk remains on seller until either:
* Defect cured
* Buyer accepts despite defect
123
If buyer rightfully revokes, what is the effect on risk of loss?
Risk is on seller to the extent of _deficiency in buyer's insurance coverage_
124
If seller hasn't shipped the goods, and buyer breaches, can risk of loss ever fall on buyer?
Only if seller has identified the goods (i.e., segregated them for delivery), risk is on buyer to the extent of _deficiency in seller's insurance coverage_
125
How do you determine whether a breach is material and therefore excuses the other party's performance?
Did you basically get what you bargained for? If so, breach is only minor.
126
What is anticipatory repudiation?
What is the effect?
When one party manifests before his performance is due that he cannot or will not perform his duty
Effect:
* Excuses other party's duty to perform
* Provides an immediate claim to damages for breach
* Unless non-repudiating party fully performed
* In which case, must wait until actual breach
127
If before performance is due, a party says that he will not perform based on an erroneous belief that the other has breached, what is the result?
Anticipatory repudiation, so the other party is excused from performing and can sue for immediate damages
128
Can you retract anticipatory repudiation?
Yes, so long as the other party has not changes its position in reliance
129
What are the ways in which performance can be excused by agreement of the parties?
1. _Modification_
* Changes _duties_ under the contract
* Original duties are discharged _immediately_
* E.g., paint house three days later
2. _Accord and satisfaction_
* Substitution of _performance_ under the contract
* Original duties remain _until new performance_
* E.g., paint house instead of paying cash
3. _Rescission_
* _Discharges all duties_ under the contract
* Some performance must remain on both sides, otherwise no consideration
4. _Novation_
* Substitution of _parties_ under the contract
* Original party is excused _immediately_
* Requires agreement of:
* Both parties to original contract
* New party
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Do you need a writing to rescind a contract subject to the statute of frauds?
Generally, not unless:
* Land contract
* Sales contract
131
When is a party excused by reason of impossibility or impracticability?
* _Post-contract_ occurence
* _Not reasonably foreseeable_ at time of contracting
* _Not a risk assumed_ by either party
* Renders performance _impossible_ or _impracticable_
* _Without fault_ of party seeking to be excused
132
What is a force majeure clause?
Excuses performance on the occurence of specific types of events
133
Is a builder's duty to construct a building discharged by destruction of the work in progress?
No. Builder's have builder's risk insurance
134
What if a farmer contracts to sell wheat, and then his crops are destroyed by a flood?
Farmer won't be excused if the contract did not specifically identify his crops as the source of wheat
135
If a seller's inventory is partially destroyed, how does he decide which orders to fill with the remaining inventory?
What rights do the buyers have?
Allocate remaining inventory in a way that is fair and reasonable
Buyers can refuse to accept partial delivery, but they haven o breach of contract claim
136
When will the incapacity of a person be an excuse for nonperformance?
When the person is specific to the contract
E.g., person is necessary to the contract
137
When is a party excused by reason of frustration of purpose?
* Post-contract occurrence
* Not reasonable foreseeable at time of contracting
* Totally or nearly destroys purpose or value of contract
* Purpose was known to both parties at contracting
138
When are liquidated damages valid?
Liquidated damages are enforceable if:
* At time of contract, damages _difficult to estimate_
* At time of contract, provision _reasonable forecast_ of possible damages
139
Are punitive damages recoverable for breach of contract?
No
140
What is the general measure of damages for ordinary contracts?
Expectation damages - i.e., put the non-breaching party in as good a position as if the contract had been performed
141
What are incidental damages?
Costs incurred in a reasonable effort to avoid loss resulting from the breach
142
What are consequential damages?
Any of the following resulting from the breach:
* Injury to person
* Injury to property
* Lost profits
143
What is the rule regarding mitigation?
A party cannot recover damages that could have reasonably been avoided
However, a party is not required to take steps that involve:
* Undue burden
* Risk
* Humiliation
144
What is the standard for determining the reasonableness of damages?
Damages must be reasonably certain (i.e., mathematical precision not necessary)
145
What if P's expectation damages are too speculative to measure?
_Reliance damages_ may be recovered to _return the party to the status quo_ - i.e., costs spent in preparation for performance
E.g., profit that would have been earned had the contract been performed may be very speculative, so reimburse the party for costs incurred
146
What is a lost volume seller?
What are the implications?
Seller whose supply was greater than demand
So, if there is a breach, seller could have sold the original item and another
So, seller gets _lost profits_
147
When can a buyer get specific performance for the sale of goods?
Either when:
* Goods are unique
* Other circumstances apply - e.g., inability to cover
148
What is negative specific performance?
When a court of equity prevents a party from working for someone else because he breached a service contract
149
In a UCC sale of goods contract, what can a party do if they are worried about the other's performance?
1. In writing _demand adequate assurance_ of performance
2. _Suspend performance_ until assurance is received
3. _Treat as repudiation_ if assurance not received in _30 days_
150
When can a seller retain rights in goods it sells if it is not paid?
If the seller has either:
* A _security interest_
* A right to _reclamation_
151
When does an unpaid seller have a right to reclamation?
When:
* Credit sale
* Buyer insolvent when received goods
* Demand for return made either:
* Within 10 days of buyer's receipt
* Within reasonable time if buyer lied about solevency
152
In a third-party beneficiary situation, who is the promisor and promisee?
Promisor - Person who renders performance that benefits TPB
Promisee - Person bargaining with promisor for TPB's benefit
153
What is the difference between intended and incidental beneficiaries?
How can you tell?
Only intended beneficiaries have contract rights as TPB
Look at the intention of the parties, including:
* Whether TPB is expressly designated in contract
* Whether performance by promisor is directly to TPB
* Whether TPB has rights under the contract
* Relationship between promisee and TPB
154
What if a third party was already a creditor of a promisee when the third-party beneficiary contract was entered?
The third party is a creditor beneficiary
155
What happens when a TPB's rights vest?
The promisor and promisee can no longer terminate the TPB's rights
156
When do a TPB's rights vest?
Either:
* When the TPB brings suit to enforce the promise
* When the TPB materially changes its position in justifiable reliance on the promise
* When the TPB manifests assent to the promise in a way invited or requested by the promisor and promisee
157
In a third-party beneficiary relationship, who can sue whom?
* TPB can sue promisor
* Promisee can sue promisor
* Creditor beneficiary can sue promisee
* But not regular TPB
158
What can you assign?
What can you delegate?
Assign rights
Delegate duties
159
If delegation allowed if:
* Contract prohibits delegation?
* Contract prohibits assignment?
* Yes
* Yes - prohibition of assignment is prohibition of both assignment and delegation
160
Under common law, what can you not delegate?
Duties that arise from:
* Special skills
* Special reputation
161
What are the requirements for delegation?
(Actually, what is not required)
1. Consent of obligee not required (unlike novation)
2. Consideration not required
* But:
* No consideration
* Delegate can't be liable
* Consideration
* Delegate can be liable
162
What is the difference between creating a third party beneficiary and assigning your rights?
Assignment substitutes a party, TPB adds someone who can sue
163
What are the limits on assignment?
Assignment cannot substantially change the duties of the obligor
164
Can you assign your rights in a requirements contract?
Yes. This does not substantially change the duties of the obligor because you are inherently required to have reasonably proportionate requirements
165
What is the distinction between prohibition and invalidation of assignments?
If the contract only prohibits assignments, the assignor is in breach after assigning, but the assignment is still valid
The contract must specifically state that assignments are invalid for that to be the case
166
What are the requirements for assignment?
* Must have language of _present_ assignment
* I assign, not I promise to assign
* Must be in writing if:
* Wage assignment
* Assignment of interest in land
* Assignment of choses in action \> $5,000
* Assignments intended as security interests
167
Can the obligor and assignor modify their contract if there is an assignment?
Yes, until obligor receives notice of the assignment
168
Can an obligor continue to pay the assignor after an assignment?
What if the assignment was gratuitous?
If he does so without notice of the assignment, obligor's debt is discharged
If he does so with notice of the assignment, obligor still owes assignee
If assignment is gratuitous, acceptance of payment by assignor revokes assignment
169
How can a gratuitous assignment be revoked?
Provided no exceptions apply:
* Directly
* Death of assignor
* Bankruptcy of assignor
* Acceptance of performance by assignor
* Subsequent assignment by assignor
So, last assignee under gift assignment wins
170
When can a gratuitous assignment not be revoked?
* Obligor already performed
* Assignee obtained a judgment against obligor
* Assignee entered a new contract with obligor by novation
* Assignee reasonably relied on assignment
171
What is the general rule regarding the priority of assignments for consideration?
First in time, first in right, unless:
* Subsequent assignee takes assignment without notice of prior assignments and it either:
* Is first to obtain payment from obligor
* Is first to obtain judgment against obligor
* Enters into new contract with obligor by novation
* Gets a token or writing from obligor, surrender of which is required by obligor's contract
* It can use estoppel against first assignee
172
What if a subsequent assignee notifies the obligor of his rights first?
Majority (American rule)
* Does not matter
Minority (English rule)
* Subsequent assignee gets priority
173
What happens when you give goods to a merchant who deals in goods of that kind, and the merchant sells those goods without your permission?
The merchant has the power to transfer all rights of the entruster to a _buyer in due course_ (i.e., good faith purchaser)
You just sue merchant for conversion
174
What happens when someone without title (i.e., thief) sells or entrusts goods to a merchant, who then sells them to a customer?
The customer does not have good title, and cannot keep the items even if the customer was a buyer in due course
