Contracts MBE

Right to Demand Assurances

- Actions or circumstances that increase the risk of nonperformance by a party to a K but do not clearly indicate that performance will not be forthcoming may NOT be treated immediately as an anticipatory repudiation - Instead, if there are reasonable grounds for insecurity with respect to a party's performance, the other party may demand in writing assurances that the performance will be forthcoming at the proper time. - Until he receives adequate assurances, he may suspend his own performance. - If the proper assurances are not given within a rzble time (within 30 days after a justified demand for assurances) , he may then treat the contract as repudiated. What constitutes an adequate assurance depends on the facts of the case.

Anticipatory Repudiation v. Right to Demand Assurances

-The right to demand assurances arises when there are ANY REASONABLE GROUNDS FOR UNCERTAINTY- something makes a party nervous that the other will not perform. - Anticipatory repudiation requires much more than nervousness: there must be a clear indication that the other party is unwilling or unable to perform. - Ant rep: "I'm not going to perform - Reason to demand assurances: ""I'm not sure if I can perform"

Buyer's Nonmonetary Remedies under Article II

1. Cancellation: if a buyer rightfully rejects goods because they do not conform to the K, one of her options is simply to cancel the K. 2. Buyer's right to replevy identified goods a. On buyer's prepayment: If a buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the seller has not delivered the goods, the buyer may replevy the goods from the seller in two circumstances i. the seller becomes insolvent within 10 days after receiving the buyer's first payment; or ii. the goods were purchased for personal, family, or household purposes In either case, the buyer must tender the unpaid purchase portion of the purchase price to the seller b. On buyer's inability to cover: In addition, the buyer may replevy undelivered, identified goods from the seller if the buyer, after reasonable effort, is unable to secure adequate substitute goods (i.e., cover) Buyer's right to Specific performance: A right closely related to the buyer's right to replevy is her right to specific performance "where goods are unique or in other proper circumstances". The court may order specific performance even where the goods have not yet been identified to the K by the seller

*** Contract Elements ***

1. Mutual assent: offer and acceptance - Offer: A manifestation of an intention to be bound (reasonable person standard) - must contain a promise, undertaking, or commitment with definite and certain terms communicated to offeree - acceptance before termination by revocation, rejection, or operation by law 2. consideration: a bargained-for exchange of something of value - there may also be a substitute for consideration, such as promissory estoppel, detrimental reliance, or good-faith modification under the UCC 3 .No Defenses: Mistake (mutual or, under certain conditions, unilateral), lack of capacity (makes contract void or voidable), illegality (usually makes contract void), or statute of frauds

Buyer's damages for sale of goods

1. Seller does not deliver or buyer rejects goods or revokes acceptance AKA TOTAL BREACH: the buyer's basic damages where the seller does not deliver, or the buyer properly rejects or revokes her acceptance of tendered goods consists of the difference between the K price and either (1) the market price or (2) the cost of buying replacement goods (cover), PLUS incidental and consequential damages, if any, MINUS expenses saved as a result of seller's breach. A. Market price - Contract Price: if the buyer measures damages as the difference between K price and market price, market price usually is determined as of the time the buyer learns of the breach and at the place of tender (NOTE: the buyer's damages are measured at the time she learns of the breach, while the seller's damages are measured at the time for delivery) B. Cover - Contract Price: If the buyer chooses the cover measure, the buyer must make a RZBLE CONTRACT or substitute goods IN GOOD FAITH AND WITHOUT UNREASONABLE DELAY 2. SELLER DELIVERS NON-CONFORMING GOODS THAT BUYER ACCEPTS: A. Warranty damages: if buyer accepts goods that breach one of the seller's warranties, the buyer may recover as damages "loss resulting from the normal course of events from the breach:". The basic measure of damages in such a case is the DIFFERENCE BETWEEN THE VALUE OF THE GOODS AS DELIVERED and the VALUE THEY WOULD HAVE HAD IF THEY HAD BEEN ACCORDING TO K, PLUS INCIDENTAL AND CONSEQUENTIAL DAMAGES. B. Notice requirement: to recover damages for any defect as to accepted goods, the buyer must, within a reasonable time after she discovers or should have discovered the defect, notify the seller of the defect. If she does not notify the seller within a reasonable time, she loses her right to sue. Rzble time = flexible. 3. Seller anticipatorily breaches K: Measure of damages here is Market price at time when buyer learned of breach - Contract Price 4. Consequential damages: As noted above, a seller is liable for consequential damages arising from his breach if: 1. he had reason to know of the buyer's general or particular requirements; and 2. the subsequent loss resulting from those needs could not rzbly be prevented by cover. Particular needs must be made known to the seller, but general requirements generally need not be. a. Goods for resale: If the buyer is in the business of reselling goods, the seller is deemed to have knowledge of the resale. b. Goods necessary for manufacturing: if a seller knows that the goods he provides are to be used in the manufacturing process, he should know that his breach would cause a disruption in production leading to a loss of profits.

Seller's nonmonetary remedies under the UCC

1. Seller's right to withhold goods: if the buyer fails to make a payment due on or before delivery, the seller may withhold delivery of the goods. The seller may also withhold the goods when the goods are sold on credit and, before the goods are delivered, the seller discovery that the buyer is insolvent. However, in such a case, the seller must deliver the goods if the buyer tenders cash for the payment. 2. Seller's right to recover goods a. right to recover from buyer on buyer's insolvency: if a seller learns that a buyer has received delivery of goods on credit while insolvent, the seller may reclaim the goods upon demand made within 10 days after the buyer's receipt of goods. However, the 10-day limitation does not apply if a misrepresentation of solvency has been made in writing to the particular seller within 3 months before delivery. b. Right to recover shipped or stored goods from bailee: 1. On buyer's insolvency: the seller may stop delivery of goods in the possession of a carrier or other bailee if he discovers that the buyer is insolvent. Of course, the seller must deliver the goods if the buyer tenders cash for their payment. 2. On buyer's breach: the seller may stop delivery of a carload, truckload, planeload, or large shipment of goods if the buyer breaches the K or the seller has a right to withhold performance pending receipt of assurances 3. Seller's ability to force goods on buyer limited: the seller's ability to force goods on a buyer is limited to an action for price when the seller is unable to resell the goods to others at a reasonable price.

Third-Party Beneficiary v. Promisor

A beneficiary may sue the promisor on the contract. The promisor may raise against the third-party beneficiary any defense that the promisor has against the promisee. Whether the promisor may use the defenses the promisee would have against the third party beneficiary depends on whether the promisor made an absolute promise to pay or only a promise to pay what the promisee owes the beneficiary. If the promise is absolute, the promisor cannot assert the promisee's defenses; if the promise is not absolute, the promisor can assert the promisee's defenses.

Express Contractual provision against Assignment

A clause prohibiting the assignment of "the contract" will be construed as barring only delegation of the assignor's duties. A clause prohibit the assignment of "contractual rights" generally does not bar assignment, but rather merely gives the obligor the right to sue for damages. However, if the contract provides that attempts to assign will be void, the parties can bar assignment. Also, if the assignee has notice of the nonalignment clause, an assignment will be ineffective.

implied-in-fact contract

A contract formed by the the conduct of the parties.

Unilateral Contract

A contract that results when an offer can be accepted only by the offeree's performance. Here, the offeror/promisor promises to pay upon completion of the requested act by the promisee. Once the act is completed, a contract is formed. A traditional unilateral contract occurs only in two situations: (1) when the offeror clearly indicates that completion of performance is the only manner of acceptance; and (2) where there is an offer to the public, such as a reward offer.

Third-Party beneficiary v. Promisee

A creditor beneficiary can sue the promisee on the existing obligation between them. She may also sue the promisor, but may obtain only one satisfaction. A donee beneficiary has no right to sue the promisee unless grounds for a detrimental reliance remedy exists.

Discharge due to illegality

A discharge by illegality occurs when the subject matter of the contract has become illegal due to a subsequently enacted law or other governmental act. This is often referred to as "supervening illegality."

Offer

A manifestation of an intention to be bound (as judged by a "Reasonable Person"/Objective standard). For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is wiling to enter into a contract on the basis of the offered terms. In deciding whether the offer creates this reasonable expectation, ask i. was there an expression of a promise, undertaking, or commitment to enter into the contract (i.e. was there intent to enter into the contract as opposed to a mere invitation to begin preliminary negotiations) ii. was there certainty and definiteness in the essential terms iii. was there communication of the above

Contract

A promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. Also, a legally enforceable agreement.

Promisee v. Promisor in 3rd party beneficiary contracts

A promisee may sue the promisor both at law and in equity for specific performance if the promisor is not performing for the third person

Bilateral Contract

A type of contract consisting of the exchange of mutual promises, in which each party is both a promisor and a promisee. An offer can be accepted in any reasonable way, i.e. the offer is OPEN as to the method of acceptance. Most contracts are bilateral contracts, in that in most situations, an offer may be accepted either by a promising or by beginning performance.

Void v. Voidable

A void contract is one that is totally without any legal effect from the beginning and cannot be enforced by either party. (i.e. an agreement to commit a crime) A voidable contract is one that one or both parties may elect to avoid (i.e. by raising a defense that makes it voidable, such as infancy or mental illness) The key thing to remember is that void contracts cannot be enforced, but aggrieved party may elect to enforce a voidable contract.

requirements contract

An agreement in which a buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer needs or requires. Quantity will be measured by the buyer's good-faith needs. Under UCC section 2-306(1), quantities subject to requirements contracts may not be unreasonably disproportionate to any stated estimate or, in the absence of any stated estimate, to any normal or otherwise comparable prior requirements. In other words, a buyer's orders must be proportionate with what has been ordered in the past.

Essential terms in Real estate transactions

An offer involving realty must identify (1) the land and (2) the price terms. -The land must be identified with some particularity but a deed description is not necessary. Most courts will NOT supply a missing term for realty

Restitution

As an alternative to K damages discussed above, restitution may be available in a K-type situation. Restitution, a hallmark of equity as opposed to contract law, is based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent. Restitution can provide a remedy not only when a contract exists and has been breached, but also when a K is unenforceable, and sometimes, when no contractual relationship exists at all between the parties. 1. Terminology: When a contract is unenforceable or no K between the parties exists, an action to recover restitutionary damages if often referred to as an action for an implied-in-law k, an action in quasi-k, or an action in quantum meruit. 2. Measure of damages: generally, the measure of restitution is THE VALUE OF THE BENEFIT CONFERRED. Although this is usually based on the benefit received by the defendant (ie, the increase in the value of D's property), recovery may also be measured by the "detriment" suffered by the plaintiff. (the reasonable value of the work performed or the services rendered) if the benefits are difficult to measure or the "benefit" measure would achieve an unfair result. 3. Specific Applications a. When K Breached: when a K has been breached and the non breaching party has not fully performed, he may choose to cancel the k and sue for restitution to prevent unjust enrichment. NOTE that if P has fully performed, he is limited to his damages under the K. This may be less than he would have received under a restitutionary action because a restitutionary remedy is not limited to the K price. i. "Losing" contracts: a restitutionary remedy often is desirable in the case of a "losing" K (a K in which the actual value or the services or goods to be provided under the contract is higher than the k price), because normal contract expectation damages or reliance damages would be a lesser amount ii. Breach by P: Under some circumstances, a P may seek restitution even though the P is the party who breached. If the brach was intentional, some courts will not grant the breaching party restitution; modern courts, however, will permit resitutionary recovery but limit to the K price less damages incurred as a result of the breach. a. Restitution of advance payments or deposit if buyer of goods breaches: if the buyer has paid part of the purchase price in advance and then breaches the K, he can usually recover some of the payments. Unless the seller can prove greater damages, he may keep payments totaling 20% of the purchase price or $500, whichever is less. The balance must be returned to the buyer. If there is a valid liquidated damages clause, the seller need refund only the excess of the buyer's payments over the amount of liquidated damages. NOTE: Generally, when there is a breaching party attempting to collect on a partially performed contract, you should consider substantial performance, divisibility,and restitution - in that order. You must read the call of the q and each answer choice carefully, and of course, you must be able to regroup when your expected answer is not one of the choices. b. When K unenforceable - Quasi-K remedy: restitution may be available in a quasi-k action when a K was made but is unenforceable and unjust enrichment would otherwise result (celebrity is hired to sign autographs and is paid, but dies before he performs; the other party has a restitutionary action to recover the payment) c. The no K involved - Quasi- K remedy: Restitution may also be available in a quasi-k action when there is no contractual relationship between the parties if: 1. The P has conferred a benefit on the D by rendering services or expending properties; 2. the P conferred the benefit without the rzble expectation of being compensated for its value; 3. the D knew or had reason to know of P's expectations; and 4. The D would be unjustly enriched if he were allowed to retain the benefit without compensating the P TIP: ALWAYS keep the quasi-k remedy in the back of your mind. First, look for a valid K, allowing the P relief. But if there is no valid k, quasi-k MAY provide a remedy if the P has suffered a loss or rendered services.

Rights and liabilities of parties - Assignment

Assignee v. Obligor: the assignee can sue the obligor, as the assignee is the real party in interest, i.e. the assignee - not assignor is entitled to performance under the K. (the obligor has as a defense against the assignee any defense inherent in the contract, e.g. failure of consideration and other defenses that came into existence before the obligor had knowledge of the assignment. The obligor cannot raise by way of defense any defenses the assignor might have had against the assignee. Assignee v. Assignor: In every assignment FOR VALUE, the assignor warrants that: (1) he has not made a prior assignment of the same right; (2) the right exists and is not subject to any undisclosed defenses; and (3) he will do nothing to interfere with the assigned right. The assignee may sue the assignor for breach of any of these warranties. HOWEVER, the assignor will not be liable to the assignee if the obligor is incapable of performing.

Is assignment revocable or irrevocable?

Assignments for value: CANNOT BE REVOKED. An assignment is for value if it is (1) done for consideration; or (2) taken as security for or payment of a preexisting debt. Assignments for value cannot be revoked. Gratuitous assignments: An assignment not for value generally is revocable, UNLESS (1) the obligor has already performed; (2) a token chose ( ie a tangible claim, such as a stock) id delivered; ( an assignment of a simple chose (ie and intangible claim, such as a contract right) is put in writing; or (4) the assignee can show detrimental reliance on the gratuitous assignment. (estoppel) A revocable gratuitous assignment may be terminated by: (1) the death or bankruptcy of the assignor; (2) notice of revocation by the assignor to the assignee or the obligor; or (3) the assignor taking performance directly from the obligor; or (4) subsequent assignment of the same right by the assignor to another.

Creditor v. Donee Beneficiary

Both intended beneficiaries. Creditor - person to whom debt is owed by promisee. Donee - person who the promisee intends to benefit gratuitously

Damages in Construction Contracts

Breach by owner: 1. Before completion: Expected profits + costs expended 2. After completion: K price Breach by builder: Costs of Completion + reasonable reasonable damages from delay - quasi-K for benefit conferred by builder A. Restoration and economic waste: usually, when a building K is not properly performed, the owner is entitled to the cost of fixing the defect. However, unless there is a special significance attached to the use of a particular item (the owner is the CEO of the particular brand of copper pipe used) AND that significance is communicated to the builder, a court will not order a remedy that results in undue economic waste. NOTE: a builder does not owe a duty to avoid the consequence of an owner's breach by securing other work, BUT does have a duty to mitigate by NOT CONTINUING WORK after the breach. Again, however, if completion will decrease damages, it will be allowed

Discharge due to impossibility of performance

Contractual duties will be discharged based on impossibility if performance has become objectively impossible, i.e., the duties could not be performed by anyone. Courts will also discharge contractual duties where performance has become impracticable. The test for a finding of impracticability is that the party to perform has encountered: (i) extreme and unreasonable difficulty and/or expense; and (ii) its nonoccurrence was a basic assumption of the parties.

Standard for Recovering Damages

Damages can be recovered only to the extent they can be proved with reasonable certainty and could not be avoided with reasonable effort

Entrustment

Entrusting goods to a merchant who deals in goods of that kind gives him the power (but not the right) to transfer all of the rights of the entrusted to a buyer in the ordinary course of business. Entrusting includes both delivering goods with the merchant for later pickup or delivery. Buying in the ordinary course of business means buying in good faith from a. person who deals in goods of the kind without knowledge that the sale is in violation of the ownership of third parties. NOTE: The requirements for entrustment are very specific. A merchant must be one who one who ordinarily deals in goods of the kind (e.g., a television repair shop that only repairs televisions does not qualify). The sale must be in the ordinary course of business. Entrustment passes only the rights of the entrusted (i.e., if the entrusted is not the owner, ownership cannot pass.

Effect of Assignment

Establishes privity of k between the obligor and the assignee while extinguishing privity between the obligor and the assignor. Once the obligor has knowledge of the assignment, he must render performance to or pay the assignee. If the obligor renders performance to or pays the assignor, he does so at his own risk. Typically, one of the parties (usually the assignee) will notify the obligor of the assignment.

State of Limitations under UCC

For sales contracts, the UCC provides for a 4-YEAR SOL. The parties may shorten the period by agreement to no less than one year, but THEY MAY NOT LENGTHEN the period. Accrual of action: the statutory period begins to run WHEN A PARTY CAN BRING SUIT - i.e. when breach occurs. The period begins to run regardless when the aggrieved party knows about the breach. Breach of warranty actions: for a BOW action, the breach occurs and the limitation period begins to run upon DELIVERY of the goods, even if the buyer does not discover the breach until much later - Warranty extends to future performance: if there is an EXPRESS warranty that explicitly extends to future performance of the goods, the 4 year period does not begin to run until the buyer should have discovered breach. - Implied warranties breached on delivery: because implied warranties cannot "explicitly" extend to future performance, they are breached, if at all, upon delivery

Discharge due to Frustration

Frustration will exist if the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge. If the purpose has been frustrated, a number of courts will discharge contractual duties even though performance of these duties is still possible. The elements necessary to establish frustration are: (i) some supervening act or event leading to the frustration; (ii) at the time of entering into the contract, the parties did not reasonably foresee the act or event occurring; (iii) the purpose of the contract has been completely or almost completely destroyed by this act or event; and (iv) the purpose of the contract was realized by both parties at the time of making the contract.

What rights may be assigned?

GENERALLY, all contractual rights may be assigned. Exceptions: (1) an assignment that would substantially change the obligor's duty or risk (e.g., personal service contracts where the service is unique); (2) an assignment of future rights to arise from FUTURE k's (not future rights in already existing k's ; and (3) an assignment prohibited by law (eg wage assignment in some states)

Does the duty to mitigate apply under the UCC?

Generally not. An injured buyer is not required to cover, and an injured seller is not required to resell. Market damages are always available if the buyer does not cover or the buyer does not resell. HOWEVER, recall that the seller generally cannot bring an action for the full K price unless the goods cannot be resold at a rzble price or were damaged or were lost when the risk of loss was on the buyer.

What duties may be delegated

Generally, all duties may be delegated. EXCEPTIONS: (1) the duties involve personal judgment and skill; (2) delegation would change the obligee's expectancy (e.g. requirements and output contracts; (3) a special trust was reposed in the delegator by the other party to the contract; and (4) there is a contractual restriction on delegation.

Voidable Title Concept

Generally, if a sale is induced by fraud, the seller can rescind the sale and recover the goods from the fraudulent buyer (i.e. it is a voidable title). However, the defrauded seller may not recover the goods from a good faith purchaser for value who bought from the fraudulent buyer. The right of a defrauded seller are cut off both buy a buyer and by a person who takes a security interest in the goods.

Common law v Article 2 of the UCC

Generally, the common law governs contracts. However, for contracts involving the sale of goods, Article 2 of the UCC applies.

Exception to Parol Evidence Rule

Generally, under the parol evidence rule, when the parties express their agreement in a writing with the intent that it embody the final expression of their bargain, any other expressions-written or oral-made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing. However, if a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of the understanding may be offered and received. The rationale is that the written agreement is not being altered by parol evidence because the written agreement never came into being.

Specific Performance

IF THE LEGAL REMEDY IS INADEQUATE, the non breaching party may seek specific performance, which is an order from the court to the breaching party to perform or face contempt of court charges (watch for a K containing a liquidated damages clause. Such a clause does NOT make the legal remedy adequate) Available for land or rare unique goods: - SPECIFIC PERFORMANCE IS ALWAYS AVAILABLE FOR LAND SALE CONTRACTS. - It is also available for goods that are rare or unique at the time performance is due. - It is NOT available for BOK to provide services, even if the services are rare or unique! This is because 1. it would be difficult for the court to enforce and supervise and 2. the courts feel it is tantamount to involuntary servitude, which is constitutionally prohibited a. Injunction as an alternate remedy: In contrast, a court MAY ENJOIN a breaching employee from working for a competitor throughout the duration of the contract if the services contracted for are rare or unique. Covenant not to Compete: most courts will grant an order of specific performance to enforce a covenant not to compete if: (1) the services to be performed are unique (thus rendering money damages inadequate); and (2) the covenant is reasonable. To be reasonable: i. the covenant must be rzbly necessary to protect a legitimate interest of the person benefitted by the covenant. ii. The covenant must be rzble as to it geographic scope and duration (cannot be broader than the benefitted person's customer base and typically cannot be longer than 2 years) iii. the covenant must not harm the public An action for specific performance is subject to equitable defenses: -Laches -Unclean hands - Sale to a bona fide purchaser

Thief generally cannot pass Title

If a thief steals goods from the true owner and then sells them to a buyer, the thief is UNABLE to pass title to the buyer (because title is void). Rationale: a seller can transfer only the title he has or has power to transfer. Therefore, even a good faith purchaser for value generally cannot cut off the rights of the true owner if the seller's title was void. EXCEPTION: exception may apply if the buyer has made accessions (valuable improvements) to the goods or the true owner is estopped from asserting title (e.g., if the true owner expressly or impliedly represents the thief had title).

Defense of Mutual Mistake

If both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract may be voidable by the adverse party if: i. the mistake concerns a basic assumption on which the contract is made (eg., the parties think they are contracting for the sale of diamond but in reality the stone is cubic zirconia) ii. the mistake has a material effect on the agreed-upon exchange (e.q., the cubic zirconia is only worth a hundredth of what a diamond is worth); and iii. the party seeking avoidance DID NOT ASSUME THE RISK OF THE MISTAKE NOT A DEFENSE IF PARTY BORE THE RISK: Mutual mistake is not a defense if the party asserting the mistake as a defense bore the risk that the assumption was mistaken. This commonly occurs when one party is in a position to better know the risks than the other party or where the parties knew that their assumption was doubtful. -Mistake in value generally not a defense: if parties to a K make assumptions as to the value of the subject matter, mistakes in those assumptions will generally not be remedied - even though the value of the subject matter is generally a basic assumption and the material creates a material imbalance - because both parties usually assume the risk that their assumption as to value is wrong.

Buyer's Risk of Loss when good are defective

If goods are defective, the risk of loss does not pass to the buyer until the defects are cured or the buyer accepts the goods despite their defects. Therefore, if the goods are rejected, the risk of loss is not on the buyer for the return shipment. Also, this rule prevents the operation of the usual risk of loss rules for carrier contracts. Thus, even though the risk of loss would normally pass to the buyer when the goods are delivered to a common carrier under a shipment contract, that is not true if the goods are defective. If the buyer rightfully revokes acceptance, the risk of loss is treated as having rested on the seller from the beginning; therefore, the risk of loss is not on the buyer once the goods are accepted if the acceptance is later revoked.

Unilateral Mistake

If only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a K. However, if the non-mistaken party knew or had reason to know of the mistake made by the other party, the K is voidable by the mistaken party. The mistake must have a material fact on the agreed-upon exchange and the mistaken party must not have borne the risk of the mistake.

What problems exist if there have been successive assignments of same rights?

If the first assignment is revocable, a subsequent assignment revokes it. If it is irrevocable, the first assignment will usually prevail over a subsequent assignment. Several EXCEPTIONS exist (IF the second assignee has paid value and taken without notice of first assignment aka BFP): (1) the subsequent assignee gets the first judgment against the obligor; (2) the subsequent assignee gets the first payment of a claim from the obligor; (3) the subsequent assignee gets delivery of a token chose; (4) the subsequent assignee is the party to a novation releasing the assignor; or (5) the subsequent assignee can proceed against the first assignee on an estoppel theory (estoppel could, of course, operate against the subsequent assignee as well).

Creditor Beneficiary v. Donee Beneficiary of Third Party K's

If the purpose in extracting the commitment from the promisor was to discharge an obligation owed to the third party, the third party is a creditor beneficiary. If the promisee's purpose in extracting the promise was to confer a gift on the third party, the third party is a donee beneficiary. An important difference between the two types of beneficiary is that a creditor beneficiary can sue the promisee on the underlying obligation, but a donee beneficiary cannot. A donee beneficiary generally may not sue the promisee because generally there is no right to sue for nondelivery of a gift. A creditor beneficiary can sue the promisee on the underlying obligation that the promisor's performance was meant to discharge. Neither a creditor beneficiary's nor a donee beneficiary's rights are automatically vested. Any third-party beneficiary must manifest assent, bring suit, or materially change his position to vest his rights. Both a creditor and donee beneficiary can sue the promisor for failure to perform. Similarly, a promisee in a third-party beneficiary contract can sue the promisor for nonperformance regardless of whether the third-party is a creditor or donee beneficiary.

Consideration with possibility of future value

If there is a possibility of future value in the bargained-for act, adequacy of consideration will be found, even if the value never comes into existence.

Confirmatory Memo

In K between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the SOF to bind the sender, it will also bind the recipient if: (1) he has reason to know of the confirmation's contents; and (2) he does not object to it in writing within 10 days of receipt. Note: the battle of the forms provision applies to confirmatory memos.

Essential terms in contracts for sale of goods

In a k for sale of goods, the quality being offered must be certain or capable of being made certain.

Equitable Defenses Available against Specific Performance

In addition to standard contract defenses, an action for specific performance is subject to the equitable defenses of: i. Laches: a claim that P has delayed bringing the action and that THE DELAY HAS PREJUDICED D. ii. Unclean hands: a claim that the party seeking specific performance is guilty of WRONGDOING IN THE TRANSACTION BEING SUED UPON; and iii. Sale to a bona fide purchaser: a claim that the subject matter has been SOLD TO A PERSON WHO PURCHASED FOR VALUE AND IN GOOD FAITH

Condition precedent exception to Parol evidence rule

In general, the parol evidence rule bars oral evidence contradicting a written agreement which was intended to be a final and exclusive embodiment of the parties' agreement. However, one exception to this general rule provides that parol evidence is admissible to show a condition precedent to the existence of a contract.

Essential terms in employment and other services contracts

In k's for employment, if the duration of the employment is not specified, the offer, if accepted, is construed as creating an at-will employment K. For other services, the nature of the work to be performed must be included in the offer.

Third Party Beneficiary Contract

In the typical situation, A (promisee) contracts with B (promisor) that B will render some performance to C (3rd party beneficiary). Only INTENDED beneficiary have contractual rights - NOT incidental beneficiaries. To determine if ben. is intended, consider whether the beneficiary i. Is identified in the K ii. receives performance directly from the promisor; or iii. has some relationship with the promisee to indicate intent to benefit

Goods

Movable things. All things movable at the time they are identified as the item to be sold under contract. Includes most tangible things (Cars, horses, hamburgers), but not real estate, services, or intangible things.

Does the failure to mitigate bar recovery?

NO! The failure to mitigate only REDUCES recovery. If a fact pattern shows a clear breach and the P does not attempt to mitigate damages, she can recover for the breach, but the recovery will be reduced by the damages that would have been avoided by mitigation.

Quasi-contract (implied-in-law contract)

Not actually contracts, but imposed by courts in certain cases to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant.

Anticipatory Repudiation

Occurs if a promisor, prior to the time set for performance of his promises, indicates that he will not perform when the time comes. If requirements below met, anticipatory rep will serve to excuse conditions. 1. Ant rep applies only if there is a bilateral k with unperformed duties on both sides. 2. An ant rep stems from the words or conduct of the promisor UNEQUIVOCALLY indicating that he cannot or will not perform when the time comes. Effect of Ant Rep: in the case of ant rep, the nonrepudiating party has 4 alternatives: 1. treat the ant rep as a total repudiation and sue immediately 2. Suspend his own performance and wait to sue until performance date 3. Treat the repudiation as an offer to rescind and treat the K as discharged. 4. Ignore the repudiation and urge the promisor to perform (but note that by urging the promisor to perform, the nonrepudiating party is not waiving the repudiation - she can still sue for breach and is excused from performing unless the promisor retracts the repudiation.) Retraction of Repudiation: a repudiating party may at any time before his next performance is due withdraw his repudiation unless the other party has cancelled, materially changed her position in reliance on the repudiation, or otherwise indicated that she considers the repudiation final. Withdrawal of the repudiation may be in any manner that clearly indicates the intention to perform, but must include any assurances justifiably demanded.

merchant

One who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved. For article 2 purposes involving general business practice (statute of frauds, confirmatory memos, firm offer, memos) almost anyone in business can be deemed a merchant. BUT some article 2 provisions are narrower and require a person to be a merchant with respect to goods of the kind involved in the subject transaction (implied warranty of merchantibility)

Rescission

Remedy whereby the original K is considered voidable and rescinded. The parties are left AS THOUGH A K HAS NEVER BEEN MADE. THE GROUNDS FOR RESCISSION MUST HAVE OCCURRED EITHER BEFORE OR AT THE TIME THE K WAS ENTERED INTO. The grounds are: i. Mutual mistake of material fact ii. Unilateral mistake IF the other party knew or should have known of the mistake iii. Unilateral mistake IF hardship by the mistaken party is so extreme it outweighs the other party's expectations under the contract. iv. Misrepresentation of fact or law by either party as to a material factor that was relied upon; and v. Other grounds, such as duress, undue influence, illegality, lack of capacity, and failure of consideration Defenses: Generally all equitable defenses (laches, unclean hands) -P's negligence not a defense Additional relief: generally, if P has paid money to the D, she is entitled to restitution in addition to rescission

Reformation

Remedy whereby the writing setting forth the agreement between the parties is changed so that it conforms to the original intent of the parties. Grounds: i. Mistake: To reform a K because of mistake, there must be (1) an agreement between the parties, (2) an agreement to put the agreement in writing, and (3) a variance between the original agreement and the writing ii. Misrepresentation: If a writing is inaccurate because of a misrepresentation, P can choose between avoidance and reformation. To qualify for reformation, the misrepresentation must relate to the content or the legal effect of the record. - Misrepresentations as to the SUBJECT MATTER of the agreement ARE NOT grounds for reformation; rescission and damages are the proper remedy for that. Negligence does not bar reformation: failure to read the record of the agreement does not preclude a party from obtaining reformation. In nearly every case in which the record does not reflect the agreement, either one or both parties failed to read it. CC evidence standard: the variance between the antecedent agreement and the writing must be established by clear and convincing evidence. Parol evidence rule and SOF do not apply: the parol evidence rule is not applied in reformation actions. Likewise, the majority rule is that the SOF does not apply - but many courts will deny reformation if it would add land to the K without complying with the SOF. Defenses: In addition to the general equitable defenses, the existence of a BFP for value is also a defense to reformation. Similarly, reformation is not permitted if the rights of third parties will be unfairly affected.

Damages in Contracts for sale of land

Standard measure of breach here is the difference between the K price and the FMV of the land

Rights and liabilities of the parties - Delegation

The obligee must accept performance from the delegate of all duties that may be delegated. The delegator remains liable on the contract; thus, the obligee may sue the delegator for nonperformance by the delegate. The obligee may require the delegate to perform ONLY if there has been an ASSUMPTION (i.e., the delegate expressly or impliedly promises he will perform the duty delegated and this promise is supported by consideration or its equivalent). This promise creates a contract between the delegator and delegated in which the obligee is a third party beneficiary.

Liquidated Damages

The parties to a K may stipulate what damages are to be paid in the event of a breach. These liquidated damages must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach. Requirements for Enforcement: i. Damages must have been difficult to estimate or ascertain at the time the K was formed; and ii. the amount agreed on must have been a REASONABLE FORECAST of compensatory damages in the case of breach. The test for reasonableness is a comparison between the amount of damages prospectively probable at the time of contract formation and the liquidated damages figure. If the liquidated damages amount is unreasonable, courts will construe this as a penalty and not enforce the provision. Recoverable even if no actual damages: if the above requirements are met, P will receive the liquidated damages amount. Most courts hold this is so even if no actual money or pecuniary damages have been suffered.

When do third-party beneficiary's rights vest?

The rights of the third-party beneficiary do not vest until: (i) it manifests assent in a manner invited or requested by the parties; (ii) it learns of the contract and detrimentally relies on it; or (iii) it brings a lawsuit to enforce its rights. Until a third party's rights have vested, a modification of the contract can take place without the consent of the third party. (this matters because the original k parties cannot modify or cancel a K without 3rd party ben consent once 3rd party's rights have vested) NOTE: Merely being informed does not cause vesting; justifiable reliance is required!!

Compensatory Damages

The usual goal of damages for BOK is to put the non breaching party in the position she would have been in had the promise been performed, so far as money can do this. 1. "Standard Measure" of Damages - Expectation Damages: In most cases, P's standard measure of damages will be based on an "Expectation" measure, i.e. sufficient damages for her to buy a substitute performance. This is also known as the "benefit of the bargain" damages. 2. Reliance damage measure: If the P's expectation damages are too speculative to measure (eg., P cannot show with sufficient certainty the profits she would have made if D had performed the K), the P may elect to recover those damages she has suffered based on her reasonable reliance on the K. Reliance damages award the P the cost of her performance, i.e. they are designed to put the P in the position she would have been in had the K never been formed. 3. Incidental Damages: Compensatory damages may also include incidental damages. Incidental damages are most commonly associated with K's for the sale of goods and typically include expenses reasonably incurred by a buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller's breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer's breach. 4. Consequential damages: Consequential damages are special damages and reflect losses over and above expectation damages. They arise because of the non breaching party's particular circumstances, and most often they consist of lost profits. -These damages may be recovered only if, at the time the K was made, a rzble person would have foreseen the damages as a probable result of the breach. Foreseeabilty is the key issue for consequential damages. To recover consequential damages, the breaching party must have KNOWN OR HAD REASON TO KNOW of the special circumstances giving rise to the damages. - NOTE: in K's for the sale of goods, ONLY A BUYER MAY RECOVER CONSEQUENTIAL DAMAGES. 5. Certainty Rule: The P must prove that the losses suffered were certain in their nature and NOT SPECULATIVE. - Traditionally, if the breaching party prevented the non breaching party from setting up a new business, courts would not award lost profits from the prospective business as damages, because they were too speculative. - HOWEVER, modern courts may allow lost profits damages if they can be made more certain by observing similar businesses in the area or other businesses previously owned by the same party.

Unilateral Rescission

Unilateral rescission results where one of the parties desires to rescind but the other party refuses to agree to a rescission. For unilateral rescission to be granted, the party desiring rescission must have adequate legal grounds. One ground for unilateral rescission is mutual mistake of a material fact.

Non-breaching buyer's standard remedy under the UCC.

When a seller fails to deliver goods as promised, the buyer may "cover" under UCC section 2-712 by making a reasonable purchase of substitute goods, and then may recover as damages the difference between the contract price and the "cover" price. AKA cover price - K price.

What are buyer's options when a seller fails to deliver to a buyer "perfect tender"?

When a seller fails to deliver perfect tender to a buyer, it is considered simultaneously an acceptance and bok. Buyer's options are: (i.) the buyer can accept the goods and pay the K price; (ii) buyer could timely reject the goods and sue for damages; and (iii) buyer can accept any commercial units and reject the rest (can accept in part and reject in part) BUT if the delivery of nonconforming tender is accompanied by a note of accommodation, then the delivery is not acceptance and breach, but a COUNTEROFFER!

Conditional Acceptance under UCC

When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer. The conditional acceptance is essentially a new offer, and the original offeror may form a K by expressly assenting to the new terms. However, the offer that results from a conditional acceptance cannot be accepted by performance. If the parties ship or accept goods, a contract is formed by their conduct, and the new terms are not included.

Seller's damages under K's for sale of goods

Where buyer repudiate or refuses to accept conforming goods: the UCC provides THREE measures for damages when the buyer wrongful repudiates or refuses to accept conforming goods. In addition to incidental damages (costs of storing, shipping, reselling) [BUT NOT CONSEQUENTIAL DAMAGES], the seller can recover: i. Market price (at time and place of delivery) - K price ii. K price - resale price iii. If the above measure are inadequate because the seller could have made an additional sale, recover under a LOST PROFITS measure aka K Price - Cost of goods - NOTE: other damages measures will NEVER be adequate if the seller is a lost volume seller. To determine whether the lost profits measure is appropriate, look at the seller's SUPPLY. If the seller's supply is unlimited (he can obtain all the goods he can sell), then he is a lost volume seller, and the lost profits measure can be used. If the seller's supply is limited (he cannot obtain all the goods he can sell, as with a unique item), the lost profits measure cannot be used, and one of the other two measures must be used instead. 2. Where buyer accepted goods - Action for Price: - If the buyer accepted the goods and has not paid, or has not accepted the goods, and the seller is unable to resell them at any reasonable price, or if the goods have been lost or damaged at a time when risk of loss was on the buyer, the buyer may maintain an action against the buyer for the full contract price.

Assignment

X (obligor) contracts with (Y) (assignor). Y assigns his rights to X's performance to Z (assignee). For an assignment to be effective, the assignor must manifest an intent to immediately and completely transfer her rights. A writing is usually not required to have an effective assignment. The right being assigned must be adequately described. It is not necessary to use the word "assign"; any accepted words of transfer will suffice. A gratuitous assignment is effective; consideration is not required.

Delegation

Y (obligor/delegator) promises to perform for X (the oblige). Y delegates her duty to Z (the delegate) In order for effective delegation, the delegator must manifest a present intention to make a delegation. There are no special formalities to be complied with. They may be written or oral

Damages in Employment Contracts

a. Breach by employer: Full K price - amount employee made or would have made by taking similar position (employer must prove position available) b. Breach by employee: Costs of replacing employee - amounts owed to employee for work done. c. Employment-at-will: When employment is at will, it may be terminated at any time for any reason. Thus, termination by either party does not result in breach. A position characterized as "permanent" creates employment-at-will relationship.

Material alteration under UCC

any change to a contract that affects the money, the liability, or remedy for BOK.

Express Contract

created by the parties' words (oral or written).

Factors that courts consider to decide whether a valid offer exists

i. Language: technical language such as "I offer" or "I promise" is useful, but it is not necessary. Phrases such as "I quote", "I am asking for $30" and "I would consider selling for" tend to be construed as mere invitations to deal rather than offers. Price quotations typically not offers, but can be if given in response to an inquiry that contains a quantity term. ii. Surrounding circumstances: Statements made in jest, anger, or by way of bragging, if reasonably understood in this context, will have no legal effect. (reasonable person standard) iii. prior practices and relationships of the parties iv. method of communication: the broader the communicating media (e.g. publications), the more likely it is the courts will view it as merely the solicitation of an offer

Covenant not to Compete

most courts will grant an order of specific performance to enforce a covenant not to compete if: (1) the services to be performed are unique (thus rendering money damages inadequate); and (2) the covenant is reasonable. To be reasonable: i. the covenant must be rzbly necessary to protect a legitimate interest of the person benefitted by the covenant. ii. The covenant must be rzble as to it geographic scope and duration (cannot be broader than the benefitted person's customer base and typically cannot be longer than 2 years) iii. the covenant must not harm the public