Contracts Final

When is a rejection effective?

A rejection is effective when received by the offeror.

How does promissory restitution apply to the material benefit rule?

Exception to "Material benefit" rule, which holds that if a person receives a material benefit from another, other than gratuitously, a subsequent promise to compensate the person for rendering such benefit is enforceable. Restatement section 86. Is the promise one made in recognition of a benefit previously received by the promisor from the promise where enforcement is necessary to prevent injustice? If so, the promise is binding.

What is promissory restitution?

Past consideration or moral obligation cannot support a contract if the promisor makes a promise in recognition of a benefit already conferred by the promisee. [See Restatement (Second) Contracts § 86 (with comments) (1981)]. Morality is subjective. Debts discharged in bankruptcy: promises to pay debts previously discharged in bankruptcy are legal enforceable. Pre-existing obligations are enforceable

What are the 5 elements needed for fraud in the inducement?

(1) The defendant made false representations as a statement of existing and material facts' (2) the defendant knew the representations to be false or made them to recklessly without knowledge concerning them; (3) the defendant made the representations intentionally for the purpose of inducing another party to act upon them; (4) the other party reasonably relied and acted upon the representations; (5) the other party sustained damages by replying upon the representations.

What is overpersuasion?

- Overpersuasion - (1) discussion of the transaction at an usual or inappropriate time, (2) consummation of the transaction in an unusual place, (3) insistent demand that the business be finished at once; (4) extreme emphasis on untoward consequences of delay; (5) the use of multipole persuaders by the dominant side against a single servient party, (6) absence of third - party advisers to the servient party, (7) statements that there is no time to consult financial advisers or attorneys. - Does not require lack of good faith, UNLIKE Duress

What is recission?

A rescission occurs where both parties agree to completely discharge all of the remaining duties owed by the other party. Note that if the parties only agree to partially discharge the remaining duties, the contract is considered modified rather than rescinded. [See Restatement (Second) of Contracts § 283(1), with comments (1981); see generally I.D.2.a, supra (discussion of modification)]

What is the test for impracticability?

1. An event has made the "performance as agreed" impracticable 2. The non-occurrence of the event was a basic assumption (substance of the agreement) on which the contract was made 3. The impracticability resulted without the fault of the property seeking to be excused (Good faith effort to perform, only seek after the effort did not work out) 4. The party has not assumed a greater obligation than the law imposes (the party has not agreed, either expressly or impliedly, to perform in spite of impracticability that would otherwise justify his nonperformance...)

What must there be to have a claim of economic duress?

duress there must be a causal link between coercive acts and circumstances of economic duress

What are 7 exceptions regarding consideration?

1) Exception—New or Different Consideration Promised If the promisee has given something in addition to what she already owes in return for the promise she now seeks to enforce, or has in some way agreed to vary her preexisting duty, such as by accelerating performance, there is consideration. It is important to note that it is usually immaterial how slight the change is, because courts are anxious to avoid the preexisting duty rule. 2) Exception—Voidable Obligation A promise to perform a voidable obligation (i.e., ratification) is enforceable despite the absence of new consideration. Thus, an infant's (i.e., minor's) ratification of a contract upon reaching the age of majority is enforceable without new consider- ation, as is a defrauded person's promise to go through with the tainted contract after learning of the fraud. 3) Exception—Preexisting Duty Owed to Third Party Traditionally, when a preexisting duty was owed to a third party, courts held that the new promise did not constitute consideration. However, the modern view adopted by the Second Restatement and the majority of jurisdictions states that the new promise constitutes consideration. [See Restatement (Second) of Contracts §73] 4) Exception—Honest Dispute as to Duty If the scope of the legal duty owed is the subject of honest dispute, then a modifying agreement relating to it will ordinarily be given effect. The compromise by each party is a detriment. 5) Exception—Unforeseen Circumstances Under the modern view, which appears to be the view adopted by the National Conference of Bar Examiners for MBE purposes, a promise modifying a contract that has not been fully performed on either side is binding without consideration if the modification is fair and equitable in view of circumstances not anticipated when the contract was made (e.g., contractor unexpectedly hits bedrock). [See Restatement (Second) of Contracts §89] Under the majority view, however, mere unforeseen difficulty in performing is not a substitute for consideration. But if the unforeseen difficulty rises to the level of impracticability, such that the duty of performance would be discharged (see VI.E.5., infra), most states will hold that the unforeseen difficulty is an exception to the preexisting legal duty rule. 6) Exception—Modification of Contract for the Sale of Goods At common law, a contract modification generally is unenforceable unless it is supported by new consideration. Article 2 does not follow this rule. Under Article 2, contract modifications sought in good faith are binding without consideration. Modifications extorted from the other party are in bad faith and are unenforceable. 7) Existing Debts One of the recurring problems in the preexisting duty area concerns promises regarding existing debts. When the amount due is undisputed, payment of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt. Neither a legal detriment nor a benefit would be present. But again, bear in mind that courts will attempt to avoid this result by applica- tion of the above exceptions. Thus, for example, if the consideration is in any way new or different (e.g., payment before maturity or to one other than the creditor; payment in a different medium, e.g., stock instead of cash; or payment of a debt that is subject to an honest dispute), then sufficient consideration may be found.

What is the two prong test for unconscionability?

1. Whether there is an absence of meaningful choice (Procedural unconscionability) 2. Unreasonably favorable to the other party. Whether the bargain is fair. (Substantive unconscionability)

What are five common examples of contracts or provisions that are usually unconscionable?

1.) Inconspicuous Risk-Shifting Provisions 2.) Contracts of Adhesion 3.) Exculpatory Clauses 4.) Limitations on Remedies 5.) Timing: Unconscionability is determined by the circumstances as they existed at the time the contract was formed.

What is a minor breach?

A breach of contract is minor if the obligee gains the substantial benefit of her bargain despite the obligor's defective performance. Examples would be insignificant delays in completing performance or small deficiencies in the quality or quantity of performance when precision is not critical. The effect of a minor (immaterial) breach is to provide a remedy for the immaterial breach to the aggrieved party. The aggrieved party is not relieved of her duty of performance under the contract.

What is procedural unconscionability?

A contract is procedurally unconscionable if a significant inequality in bargaining power prevents one of the parties from having a meaningful choice or real alternative in setting the terms of the agreement or the contract involves some aspect of unfair surprise. Procedural unconscionability often exists in standard form contracts where one party cannot negotiate or modify the terms, as well as contracts with buried terms that have been purposely hidden by the other party.

What is substantive unconscionability?

A contract is substantively unconscionable where the terms are overly harsh or one-sided against a party.

When will a contractual clause that limits liability be found to be unconscionable?

A contractual clause limiting liability for damages to property generally will not be found to be unconscionable unless it is inconspicuous. However, if a contract limits a party to a certain remedy and that remedy fails of its essential purpose, a court may find the limitation unconscionable and ignore it. Note that under the UCC any limitation on consequential damages for personal injury caused by consumer goods is prima facie unconscionable. [See UCC §2-719]

When is a revocation effective?

A revocation is generally effective when received by the offeree. Where revocation is by publication, it is effective when published.

What is the rule regarding timely acceptance of an option contract?

An offer must be accepted within the time specified or, if no time is specified, within a reasonable time. Often, an option contract specifies that the offer must be accepted within the option period; i.e., the offer terminates when the option expires. In the absence of specific language stating when the offer terminates, the power of acceptance arguably survives the option period, but courts often treat the option period as the offer period so that at the end of that time, the option expires and the offer lapses.

What is the effect of a court finding a clause or contract to be unconscionable?

If a court finds as a matter of law that a contract or any clause of the contract was unconscio- nable when made, the court may: (i) refuse to enforce the contract; (ii) enforce the remainder of the contract without the unconscionable clause; or (iii) limit the application of any clause so as to avoid an unconscionable result. [See, e.g., UCC §2-302]

When is an offer terminated by the offeree?

A.) Express rejection B.) Counteroffer as rejection C.) Lapse of Time

Is a right to cancel or withdraw provision illusory?

Although reservation of an unqualified right to cancel or withdraw at any time may be an illusory promise, the consideration is valid if this right is in any way restricted, e.g., the right to cancel upon 60 days' notice. Note that Article 2 implies a requirement of reasonable notice even if it is not specified in the contract.

What is an acceptance?

An acceptance is a manifestation of assent to the terms of an offer.Through this manifestation of assent, the offeree exercises the power given her by the offeror to create a contract. The offeree must know of the offer in order to accept, and this is true whether the offer is for a bilateral or unilateral contract.

What is accord and satisfaction?

An accord is created where the promisee agrees to accept a substitute performance in satisfaction of the promisor's existing duties. However, the promisor's original duties are not discharged until the accord has been performed. If there is a breach of the accord, the promisee may sue for enforcement of either the original duties or the new duties under the accord. [See Restatement (Second) of Contracts § 281 (1981)]

Will an error in judgement by one of the contracting parties make the contract voidable?

An error in judgment by one of the parties as to the value or quality of the work done or goods contracted for will not result in a voidable contract, even if the nonmistaken party knows or has reason to know of the mistake made by the other party.

What is an exculpatory clause and why does the court consider them unconscionable?

An exculpatory clause releasing a contracting party from liability for his own inten- tional wrongful acts is usually found to be unconscionable because such a clause is against public policy in most states. Exculpatory clauses for negligent acts may be found to be unconscionable if they are inconspicuous (as discussed above), but commonly are upheld if they are in contracts for activities that are known to be hazardous (e.g., a contract releasing a ski hill operator for liability for negligence often will be upheld).

What is a disclaimer?

An explicit or implicit disclaimer by a seller may limit, modify, or negate the three primary types of warranties.

A.) What is an express rejection?

An express rejection is a statement by the offeree that she does not intend to accept the offer. Such a rejection will terminate the offer. [Restatement (Second) of Contracts §36]

A.) What is an option contract?

An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer.

What is an untrue assertion?

An untrue assertion generally takes the form of a statement that is not in accordance with the facts, an act of concealment that prevents a party from discovering the facts, or a nondisclosure that either fails to correct a mistake or violates a relationship of trust and confidence (typically fiduciary).

What is fraud in the factum

If one of the parties was tricked into giving assent to the agreement under circum- stances that prevented her from appreciating the significance of her action, the agreement cannot be enforced; it is void.

When impracticability arises in the contract for the sale of goods, what are the rules under the UCC?

Article 2 generally follows the above rules for impossibility and impracticability. If performance has become impossible or commercially impracticable, the seller will be discharged to the extent of the impossibility or impracticability. [U.C.C. §2-615]

Does a rejection of an option contract terminate the original contract?

Because an option is a contract to keep an offer open, a rejection of or a counteroffer to an option does not constitute a termination of the offer. The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree's rejection.

Can extrinsic evidence ever be admitted?

Because the rule prohibits admissibility only of extrinsic evidence that seeks to vary, contra- dict, or add to an "integration," other forms of extrinsic evidence may be admitted where they will not bring about this result, i.e., they will fall outside the scope of the parol evidence rule.

What is a bilateral contract?

Bilateral Contracts Exchange of Mutual Promises: The traditional bilateral contract is one consisting of the exchange of mutual promises, i.e., a promise for a promise, in which each party is both a promisor and a promisee.

What are constructive conditions of performance?

By far the most important and common implied condition is that the duty of each party to render performance is conditioned on the other party either rendering his perfor- mance or making a tender of his performance. Example: Owen and Pete make a contract under which Pete will paint Owen's house by May 30, and Owen will pay Pete $8,000 on June 1. It is an implied condition to Owen's duty to pay $8,000 that Pete shall have painted the house. If Pete fails to paint Owen's house by June 1, it has a dual effect: (i) it is a breach of contract for which Pete will be liable in damages, and (ii) it is a nonfulfillment of an implied condition to Owen's duty to pay, so Owen does not have a duty to pay Pete.

Can an assignment be partial?

Contract rights may be transferred to one assignee or split up and transferred to two or more. Similarly, the assignor may transfer some rights under the contract and retain others.

What is the sixth contract in statute of fraud?

Goods Priced at $500 or More A contract for the sale of goods for a price of $500 or more is within the Statute of Frauds and generally must be evidenced by a signed writing to be enforceable. Note that a writing is sufficient even though it omits or incorrectly states a term, but the contract is not enforceable beyond the quantity of goods shown in the writing.

If the promise is made to one party for the benefit of another, does the other party have a promissory estoppel claim?

If a promise is made to one party for the benefit of another, it is often foreseeable that the beneficiary will rely on the promise. Enforcement of the promise in such cases rests on the same basis and depends on the same factors as in cases of reliance by the promisee. Justifiable reliance by third persons who are not beneficiaries is less likely, but may sometimes reinforce the claim of the promisee or beneficiary.

What is an implied warranty of merchantability?

Implied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable. The serving of food or drink for consumption on the premises is a sale of goods subject to the warranty of merchantability.

What standard is used in determining the satisfaction of contracts involving mechanical fitness, utility, or marketability?

In contracts involving mechanical fitness, utility, or marketability (e.g., construc- tion or manufacturing contracts), a condition of satisfaction is fulfilled by a perfor- mance that would satisfy a reasonable person. It is therefore immaterial that the promisor was not personally satisfied if a reasonable person would have accepted and approved the performance tendered.

What is the difference between a promise and a condition?

It is important to understand that there is a difference between whether a party is bound under a contract and whether a party who is bound has come under a duty to perform. A person is bound if there has been an offer, an acceptance, and an exchange of consideration. However, the contract may provide (impliedly or explicitly) that a party who is bound does not come under a duty to perform unless or until some specified condition occurs. In looking at the terms of a contract, a distinction has to be drawn between an absolute promise on the one hand and a condition on the other.

What happens when there is failure of timely performance in land contracts?

More delay in land contracts is required for materiality than in mercantile contracts.

What is the rule regarding parol evidence and modifications?

Parol evidence can be offered to show subsequent modifications of a written contract, because the parol evidence rule applies only to prior or contemporaneous negotiations. In short, the parties may show that they have altered the integrated writing after its making.

Does the parol evidence apply if there is no written agreement?

NO

If the modification to a contract is to correct an error in the contract, does there need to be consideration?

No

Who can accept an offer?

Party to Whom Offer Is Addressed or Directed: Generally, only the person to whom an offer is addressed has the power of acceptance. This is so even if the offer does not call for personal performance or special financial responsibility on the part of the offeree. One may also have the power of acceptance if she is a member of a class to which an offer has been directed. If the offer is made to the general public, anyone may qualify as an offeree. If the offer requests performance from an unlimited number of persons, performance by anyone knowing of the offer will cut off the power of every other person to accept, provided that the offeror desires only one performance and there is no indication that he is willing to pay more than once. Unlike rights under an existing contract, the offeree's power of acceptance cannot be assigned.

What are the different views regarding contracts that explicitly prohibit oral modification?

Provisions Prohibiting Oral Modification Not Effective at Common Law The common law rule is that even if a written contract expressly provides that it may be modified only by a writing, the parties can orally modify the contract. b. UCC Recognizes No-Modification Clauses Under the UCC, even if a contract is not within the Statute of Frauds, if it explicitly provides that it may not be modified or rescinded except by a signed writing, that provision will be given effect. [UCC §2-209]

What is an inconspicuous risk shifting provision what are examples of when the court will find inconspicuous risk shifting provisions unconscionable?

Standardized printed form contracts often contain a material provision that seeks to shift a risk normally borne by one party to the other. Examples of such provisions are: (i) Confession of judgment clauses, which are illegal in most states; (ii) Disclaimer of warranty provisions; and (iii) "Add-on" clauses that subject all of the property purchased from a seller to repos- session if a newly purchased item is not paid for. Typically, such clauses are found in the fine print ("boilerplate") in printed form contracts. Courts have invalidated these provisions because they are inconspicuous or incomprehensible to the average person, even if brought to his actual attention.

When can a party assign rights and delegate duties to a third party?

The basic fact situation to be dealt with here is: X enters into a valid contract with Y. This contract does not contemplate performance to or by a third party. Subsequently, one of the parties seeks to transfer her rights and/or duties under the contract to a third party. 1. Assignment of Rights A transfer of a right under a contract is called an "assignment." The main issues regarding assignments are: (i) What rights may be assigned? (ii) What is necessary for an effective assignment? (iii) Is the assignment revocable or irrevocable? (iv) What are the rights and liabilities of the various parties? (v) What problems exist if there have been successive assignments of the same rights? a. Terminology X and Y have a contract. Y assigns her rights under the contract to Z. Y is the assignor, Z is the assignee, and X is the obligor.

Is economic benefit required for there to be consideration?

The benefit to the promisor need not have economic value. Peace of mind or the grati- fication of influencing the mind of another may be sufficient to establish bargained-for consideration, provided that the promisee is not already legally obligated to perform the requested act.

Is an "AS IS" clause a disclaimer?

Unless the circumstances indicate otherwise, the implied warranties of merchantability and fitness can be disclaimed by expressions such as "as is," "with all faults," or other expressions that in common understanding call the buyer's attention to the fact that there are no implied warran- ties. Although nothing in the UCC specifically requires this type of disclaimer to be conspicuous, many courts have found that a hidden or fine-print disclaimer of this type is not effective.

Can an anticipatory repudiation be retracted?

Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final.

How does a disclaimer relate to unconscionability?

The court will test warranty disclaimers by the conscionability standards of UCC section 2-302. Such things as lack of bargaining position, lack of choice, and failure to understand would be relevant in determining whether a disclaimer is unconscionable.

When must the impossibility arise?

The impossibility must arise after the contract has been entered into. If the facts giving rise to impossibility already existed when the contract was formed, the question is not really one of "discharge of contractual duties." Rather, it is a "contract formation" problem, namely, whether the contract is voidable because of mistake.

Beside a basic assumption, the mistake must also do what?

The mistake must have a material effect on the exchange of performances. In other words, the resulting imbalance must be so severe that the breaching party cannot be fairly required to perform. Typically, the breaching party will be disadvantaged by the mistake while the injured party receives a significant advantage.

What is a unilateral contract?

Unilateral Contracts—Acceptance by Performance: The traditional unilateral contract is one in which the offeror requests performance rather than a promise. Here, the offeror-promisor promises to pay upon the completion of the requested act by the promisee. Once the act is completed, a contract is formed. In such contracts, there is one promisor and one promisee.

C.) What is the rule regarding detrimental reliance?

Where the offeror could reasonably expect that the offeree would rely to her detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time[Restatement (Second) of Contracts §87] The case law indicates that this may be limited to those situations in which the offeror would reasonably contem- plate reliance by the offeree in using the offer before it is accepted.

What is extrinsic evidence?

evidence related to a contract that is not included in the written contract

General things to know about restitution

Subcontractor needs to prove... 1. Exhausted all the remedies from contractor 2. The owner has not paid the contract Restitution is intended to prevent unjust enrichment. The court will generally award restitution if one party has conferred a benefit to the other party through partial performance, but there is no enforceable contract. The amount of restitution is measured by the reasonable value of the party's performance or the extent of enrichment of the other party's interests. Note that either an injured party or a breaching party may seek restitution. [See Restatement (Second) of Contracts §§ 370, 371, 373, 374(1) (1981)] Services rendered by family members to each other are presumed to be gratuitous, while services rendered between individuals who are not members of the same family are presume to be compensation.

What if the contract has an express provision against assignment?

(1) Assignment of "the Contract" Absent circumstances suggesting otherwise, a clause prohibiting the assignment of "the contract" will be construed as barring only the delegation of the assignor's duties. [Restatement (Second) of Contracts §322; UCC §2-210(4)] -(2) Assignment of Rights Under the Contract A clause prohibiting the assignment of contractual rights generally does not bar assignment, but merely gives the obligor the right to sue for breach if an assignment is made. [Restatement (Second) of Contracts §322] In other words, the assignor has the power but not the right to assign. (a) Factors that Make Assignment Ineffective Notwithstanding the general rule, if the clause provides that any attempt to assign will be "void," assignment will be ineffective (i.e., the assignor has neither the power nor the right to assign). Also, if the assignee has notice of the nonassignment clause, assignment will be ineffective.

What are the five elements for fraud by silence?

(1) The defendant had knowledge of material facts that the plaintiff did not have and could have discovered by the exercise of reasonable diligence; (2) the defendant was under an obligation to communicate the material facts to the plaintiff; (3) the defendant intentionally failed to communicate the plaintiff the material facts; (4) the plaintiff justifiably relied upon the defendant to communicate the material facts to the plaintiff; and (5) the plaintiff sustained damages as a result of the defendant's failure to communicate the material facts to the plaintiff.

What are the elements of frustration of purpose?

- (i) There is some supervening act or event leading to the frustration; (ii) At the time of entering into the contract, the parties did notreasonably foresee the act or event occurring; 1.) The event must have "substantially frustrated" that party's "principal purpose" in entering the contract 2. It must have been a basic assumption on which contract was made that the event would not occur 3. The frustration must not have occurred through the fault of the party seeking to be excused. 4. That party must not have assumed a greater obligation than the law imposes.

What is an illusory promise?

- Consideration must exist on both sides of the contract; that is, promises must be mutually obliga- tory. There are many agreements in which one party has become bound but the other has not. Such agreements lack mutuality, i.e., at least one of the promises is "illusory." If so, consideration fails. Restatement definition: A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless (a) each of the alternative performances would have been consideration if it alone had been bargained for; or (b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.

When does duress exist?

- Duress exists where (1) one party involuntarily accepted the terms of another, (2) circumstances permitted no other alternative, and (3) such circumstances were the result of coercive acts of the other party - The assertion of duress must be proven by evidence that the duress resulted from defendant's wrongful and oppressive conduct and not by the plaintiff's necessities. - What constitutes a reasonable alternative is a question of fact, depending on the circumstances of each case. An available alternative or remedy may not be adequate where the delay involved in pursing that remedy would cause immediate and irreparable loss to one's economic or business interest.

What is a condition precedent?

- If one of the parties conditioned its performance on the happening of future uncertain event. Where 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 under- standing may be offered and received. This would be a condition precedent to effectiveness. It should be borne in mind that parol evidence of such a condition precedent will not be admitted if it contradicts the express language of the written contract.

What is a collateral agreement? What is a naturally omitted term?

- Parties may show that they entered into a side agreement as long as it does not contradict the main agreement. If the courts find the side agreement is collateral agreement, parol evidence is permitted. If not, the parol evidence rule bars the admission. - This "collateral agreement" doctrine is hard to apply because it is conclusory. The Restatements of Contracts include a similar concept with a more definitive approach: the naturally omitted terms doctrine. The doctrine allows evidence of terms that would naturally be omitted from the written agreement. A term would naturally be omitted if: (i) It does not conflict with the written integration; and (ii) It concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument. -Example: Seller offered to sell his sister his ranch. The deed gave Seller an option to repurchase, but the parties orally agreed that the option could not be transferred to a third party. Oral evidence of the agreement was not barred by the parol evidence rule. The court held that when family members are contracting, they would not ordinarily be expected to put such a term into the written contract. [See Masterson v. Sine, 68 Cal. 2d 222 (1968)]

Is a letter of intent binding?

- When determining whether there was intent to reduce a letter of intent to a formal contract, the following factors may be considered: (1) whether the agreement at issue is one usually put into writing, (2) whether the letter of intent involves few or many details, (3) whether the agreement at issue involves a small or large amount of money, (4) whether the agreement at issue is one that requires a formal writing in order to express all the terms, (5) whether the negotiations have indicated that the parties intended to reduce the agreement to a formal writing, (6) if negotiations were abandoned, where in that process that occurred, (7) the extent to which the party now disclaiming the existence of a contract provided assurances to the other party, (8) the reliance of the party who seeks to enforce the contract on the completion of the transaction. - Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show the agreements are preliminary negotiations. - Both the UCC and the Restatement agree with the Quake court that whether a contract is formed in such case turns on the factual question of whether the parties intended to be contractually bound at the point when they agreed in principle, or only if further negotiations proved successful.

Promisor vs. Promisee

1) Donee Beneficiary Situation If the promisor fails to perform and the contract involves a donee beneficiary, it was once said that the promisee could not sue the promisor at law. The ratio- nale was that because the donee beneficiary had no cause of action against the promisee, there was no damage suffered. Today, however, the majority view is that the promisee has a cause of action. Because the promisee hardly ever suffers any actual damage, however, she will usually receive only nominal damages. Hence, most courts have resolved this problem by allowing specific performance in this situation. 2) Creditor Beneficiary Situation If the promisor fails to perform as to a creditor beneficiary and a promisee has had to pay the beneficiary on the existing debt, the promisee may recover against the promisor. If the debt has not yet been paid by the promisee to the third party, the promisee can compel the promisor to pay in a specific performance action.

What duties can be delegated?

1) General Rule As a general rule, all contractual duties may be delegated to a third person. 2) Exceptions There are several exceptions to the general rule. a) Duties Involving Personal Judgment and Skill If the duties involve personal judgment and skill, they may not be delegated. Example: A talent agency cannot delegate its duty to select performers for a certain show to some other agency. It is immaterial that the other agency may have a better reputation and may have more performers under contract than the delegator. A court will not make such inquiries at all. b) "Special Trust" in Delegator Where a special trust has been reposed in the delegator, he may not delegate his duties (e.g., relationship of attorney and client, physician and patient, etc.). c) Change of Obligee's Expectancy If performance by the delegate will materially change the obligee's expec- tancy under the contract, the duty may not be delegated. d) Contractual Restriction on Delegation If a contract restricts either party's right to delegate duties, such a provision will usually be given strict effect.

What rights can be assigned?

1) General Rule Generally, all contractual rights may be assigned. However, several exceptions to this rule exist. 2) Exceptions a) Assigned Rights Would Substantially Change Obligor's Duty If an assignment of rights would substantially change the obligor's duty, the assignment will be barred. (1) Personal Service Contracts If the assignment of rights would result in the obligor having to perform personal services for someone other than the original obligee, the attempted assignment will be invalid. For the purposes of assignment, the test as to what constitutes personal services is whether the perfor- mance so involves the personality or personal characteristics of the obligor that it would be unfair to require the obligor to perform for a third person. Examples of personal services that cannot be assigned include those of a lawyer, physician, architect, and author. In contrast, repair and construction contracts usually are not considered to involve personal services, so a contractor may be required to render his perfor- mance to an assignee. (2) Requirements and Output Contracts Although at common law rights under requirements and output contracts were not assignable, under Article 2, they are assignable as long as the assignee does not disproportionately alter the contemplated quantity. Likewise, the buyer's duty to purchase goods under an output contract and the seller's duty to sell goods under a requirements contract can always be delegated, unless they fall within the general restrictions on delegation listed at 2.b., infra, because the other party's rights are not affected. b) Rights Assigned Would Substantially Alter Obligor's Risk When the obligor's risk would be substantially altered by any attempted assignment, the assignment will fail. -c) Assignment of Future Rights The assignment of a right expected to arise under a contract of employment not then existing operates only as a promise to assign the right when it arises, i.e., when the expected future contract is in fact entered into. Contrast this with future rights in existing contracts, which are generally assignable even though the right might not yet have vested. d) Assignment Prohibited by Law A right may not be assigned if the assignment is prohibited by law. Such public policy against assignment may be embodied either in a statute or in case precedent. For example, many states have laws prohibiting, or at least limiting, wage assignments.

Are past or moral promises consideration?

1) General Rule—Not Sufficient Consideration If something was already given or performed before the promise was made, it will not satisfy the "bargain" requirement. The courts reason that it was not given in exchange for the promise when made. Example: 2) Exceptions A loose piece of molding fell from a building and was about to hit Sam. Sherry, seeing this, pushed Sam out of the molding's path and was herself struck by it and seriously injured. Sam later promised Sherry that he would pay her $100 per month for life. There is no consideration because Sherry did not bargain for Sam's promise. There is substantial disagreement with the general rule. Thus, the courts have sought to avoid its application by creating exceptions. a) Debt Barred by a Technical Defense If a past obligation would be enforceable except for the fact that a technical defense to enforcement stands in the way (e.g., statute of limitations), the courts will enforce a new promise if it is in writing or has been partially performed. However, the court will enforce the contract only to the extent of the new promise. Example: Debtor owed Creditor $2,000, but the statute of limitations had run on the debt. Debtor won some money in her state lottery and wrote to Creditor, explaining that she had just won some money and promising to pay Creditor $1,000. The promise to pay is enforceable—at least to the extent of the $1,000— despite the lack of new consideration. b) Promise to Pay Arising Out of Past Material Benefit—Material Benefit Rule Under a modern trend, some courts will enforce a promise if it is based on a material benefit that was previously conferred by the promisee on the promisor and if the promisee did not intend to confer the benefit as a gift. This includes situations in which the promisee performed an act at the promi- sor's request or performed an unrequested act during an emergency (such as in the example in b.1), above). The Second Restatement follows this rule but adds that the promise is unenforceable to the extent it is disproportionate to the benefit conferred. [Restatement (Second) of Contracts §86]

How do you determine whether the promisee intended to confer rights to a third party?

1) Language of Contract Often, but not always, whether a party is the intended beneficiary of a contract can be determined from the language of the contract itself. The issue is whether the purpose of the promisee was to confer a right on another directly. -2) Factors The courts generally look at the following factors in resolving the question of intention: a) Is the third party expressly designated in the contract? If so, it is more likely that it is primarily for her benefit. But note that it is not necessary that the third-party beneficiary be named, or even identifiable, at the time the contract is made; she need only be identifiable at the time performance is due. b) Is performance to be made directly to the third party? If so, it is more likely that the contract is primarily for her benefit. -c) Does the third party have any rights under the contract (e.g., the right to designate when and where performance is to be made)? If so, it is more likely that the contract is primarily for her benefit. d) Does the third party stand in such a relationship to the promisee that one could infer that the promisee wished to make an agreement for the third party's benefit? If so, it is more likely that the contract is primarily for her benefit.

What happens if there is failure to perform when performance is the nature of the contract or there is a time is off the essence provision

1) Nature of Contract or Time of the Essence Provision Unless the nature of the contract is such as to make performance on the exact day agreed upon of vital importance (e.g., contract for use of a wedding chapel), or the contract by its terms provides that time is of the essence, failure by a promisor to perform at the stated time will not be material. Merely providing a date for perfor- mance does not make time of the essence. a) Time of the Essence Traditionally, courts have held that if the contract contains a "time is of the essence" provision, any delay is a material breach of contract. The modern trend, however, is for the court to consider all of the circumstances, including the time of the essence clause, in determining whether performance at the time specified is important. For example, if the parties sign a preprinted form contract that contains a "time is of the essence" clause and there are no surrounding circumstances indicating that performance on that date is of vital importance, a court could find that delayed performance is only a minor breach. [See Restatement (Second) of Contracts §242(c)]

What is necessary for an effective assignment?

1) Requirement of Writing A writing is usually not required to have an effective assignment, so an oral assignment is generally effective. However, there are situations where an assign- ment must be in writing: a) Wage assignments; b) Assignments of an interest in land; and c) Assignments intended as security interests under Article 9 of the UCC 2) Requirement of Adequate Description The right being assigned must be adequately described. 3) Requirement of Present Words of Assignment The assignor must also manifest an intent to transfer his rights under the contract completely and immediately to the assignee. Whether such intent is present will be determined by looking to the terms of the transfer itself, i.e., the test is objec- tive, not subjective. It is not necessary to use the word "assign"; any generally accepted words of transfer will suffice (e.g., "convey," "sell," "transfer," etc.). 4) No Requirement of Consideration Consideration is not required; a gratuitous assignment is effective. Note: It is important to remember, however, that even though neither a writing nor consideration is generally required, the lack thereof will affect revocability. (See f., infra.)

When is writing not required under the statute of frauds?

1) When Writing Not Required There are three situations described in UCC section 2-201(3) in which contracts are enforceable without the writing described above: a) Specially Manufactured Goods If goods are to be specially manufactured for the buyer and are not suitable for sale to others by the seller in the ordinary course of his business, the contract is enforceable if the seller has, under circumstances that reasonably indicate that the goods are for the buyer, made a substantial beginning in their manufacture or commitments for their purchase before notice of repudi- ation is received. [UCC §2-201(3)(a)] -b) Admissions in Pleadings or Court If the party against whom enforcement is sought admits in pleadings, testi- mony, or otherwise in court that the contract for sale was made, the contract is enforceable without a writing (but in such a case the contract is not enforced beyond the quantity of goods admitted). [UCC §2-201(3)(b)] c) Payment or Delivery of Goods If goods are either received and accepted or paid for, the contract is enforce- able. However, the contract is not enforceable beyond the quantity of goods accepted or paid for. Thus, if only some of the goods called for in the oral contract are accepted or paid for, the contract is only partially enforceable. If an indivisible item is partially paid for, most courts hold that the Statute of Frauds is satisfied for the whole item. 2) Merchants—Confirmatory Memo Rule In contracts 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 Statute of Frauds to bind the sender, it will also bind the recipient if: (i) he has reason to know of the confirmation's contents; and (ii) he does not object to it in writing within 10 days of receipt. [UCC §2-201(2)]

What happens when the mistake is due to a misunderstanding from ambiguous contract language? - What if neither party knew of the ambiguity? What if both knew? What if only one knew?

4. Misunderstanding—Ambiguous Contract Language Contract language with at least two possible meanings leads to different results depending on the awareness of the parties. Most often there is no contract because there is no meeting of the minds. a. Neither Party Aware of Ambiguity—No Contract If neither party was aware of the ambiguity at the time of contracting, there is no contract unless both parties happened to intend the same meaning. -b. Both Parties Aware of Ambiguity—No Contract If both parties were aware of the ambiguity at the time of contracting, there is no contract unless both parties in fact intended the same meaning. -c. One Party Aware of Ambiguity—Contract If one party was aware of the ambiguity and the other party was not at the time of contracting, a contract will be enforced according to the intention of the party who was unaware of the ambiguity.

How can a buyer accept goods?

A buyer may accept goods by indicating acceptance or failing to reject the goods, after a reasonable opportunity for inspection, or by acting inconsistently with the seller's ownership at any time. Note that accepted goods may no longer be rejected, though a buyer may revoke acceptance under the circumstances discussed below. [See U.C.C. § 2-606 (2002); see also VI.A.3., infra)]

When can a buyer revoke acceptance?

A buyer may revoke acceptance of substantially impaired goods if the buyer (a) reasonably assumed that the seller would cure the non-conformity (but the seller did not) or (b) reasonably failed to discover the non-conformity before acceptance due to the seller's assurances that the goods conformed or the difficulty of discovery of the non-conformity. The buyer must notify the seller of the revocation within a reasonable time after discovering the non-conformity, or within a reasonable time after the non-conformity should have been discovered, and before any substantial change in the condition of the goods not caused by their own defects. As with rejection, the buyer has the duty to hold revoked goods. [See U.C.C. § 2-608 (2002); see generally VI.A.1.a, supra (discussion of buyer's duty to hold)]

What is a completely integrated agreement?

A completely integrated agreement is a complete statement of the terms. The parol evidence rule excludes extrinsic evidence of prior or contemporaneous agreements that are inconsistent with or within the scope of the completely integrated agreement. In other words, the court may not use extrinsic evidence to modify or supplement the contract. [See Restatement (Second) of Contracts §§ 213(1)-(2), 214-15 (1981)]

What is a condition subsequent?

A condition subsequent is one the occurrence of which cuts off an already existing absolute duty of performance. Example: Will and Grace enter the following contract: In consideration of Will's conveying his painting to her, Grace promises to pay Will $5,000 on July 1. Grace further promises to permit Will to retain the painting for purposes of exhibition during the months of July and August, provided security precautions for the safety of the painting are approved by Captain Smith. On July 1, Grace pays Will $5,000, and Will begins to exhibit the painting. On July 10, Captain Smith inspects security at the exhibition and declares it to be inadequate. Grace immediately asserts her right to possession, but Will refuses to surrender the painting. Grace is entitled to immediate possession of the painting. Her allowing Will to retain the painting for exhibition was subject to an express condition subsequent based on Captain Smith's approval of security precautions. Because the condition subsequent has ripened, Grace's conditional obligation to allow Will to retain the painting is extinguished.

What are some exceptions to the rule regarding the destruction of subject matter or means of impossibility when using the impossibility defense?

A contractor's duty to construct a building is not discharged by destruction of the work in progress. Rationale: Construction is not rendered impossible; the contractor can still rebuild. However, if the destruction was not caused by the contractor, most courts will excuse the contractor from meeting the original deadline. Example: Olivia hires Charlie to build her a garage. When Charlie has completed 90% of the work, the garage is hit by lightning and is destroyed by fire. Charlie will not be discharged from his contractual duty to build the garage because it is not impossible to rebuild the garage. -(2) Specificity Required (a) Subject Matter Note that destruction of the subject matter will render a contract impossible only if the very thing destroyed is necessary to fulfill the contract. If the thing destroyed is not actually necessary, impossibility is not a defense. -(b) Specificity of Source As with the destruction of the subject matter, destruction of a source for fulfilling the contract will render the contract impossible only if the source is the one source specified by the parties.

B.) What is the rule regarding a counteroffer as a rejection?

A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer but differs in its terms. A counteroffer serves as a rejection of the original offer as well as a new offer. [Restatement (Second) of Contracts §39] This usually happens in two situa- tions: (i) Counteroffer combined with express rejection, e.g., "Not at that price, but I'll take it at $200." (ii) Acceptance conditional upon additional terms, e.g., "I'll take it at that price, but only if it is also equipped with air conditioning."

What is a covenant not to sue?

A covenant not to sue exists if a promisee agrees never to sue the promisor to enforce a duty. A court will interpret the covenant as having the effect of immediately discharging the duty. Generally, a covenant not to sue is considered a contract and must meet the requirements for the formation of a contract, such as consideration. Note that a promisee may also create a covenant not to sue for a limited time, which temporarily prevents enforcement of the contract but does not discharge the duty. [See Restatement (Second) of Contracts § 285 (1981); see generally I), infra (discussion of formation of contracts)]

What is a warranty against infringement?

A merchant seller regularly dealing in goods of the kind sold also automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims. But a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims. If this warranty is breached and the buyer is sued, she must give the seller notice of the litigation within a reasonable time or lose her right to any remedy. In such a case, the seller can give the buyer notice of his wish to defend the lawsuit and, if the seller agrees to bear all expenses and satisfy any adverse judgment, the buyer must let him defend or lose any rights against him arising out of the breach. [UCC §2-607(3), (5)]

What is fradulent misrepresentation?

A misrepresentation is a false assertion of fact. It is fraudulent if it is intended to induce a party to enter into a contract and the maker knows or believes the assertion is false or knows that he does not have a basis for what he states or implies with the assertion. A fraudulent assertion can be inferred from conduct; i.e., concealment or sometimes even nondisclosure may be considered a misrepresentation. If a party induces another to enter into a contract by using fraudulent misrepresentation (e.g., by asserting information she knows is untrue), the contract is voidable by the innocent party if she justifiably relied on the fraudulent misrepresentation. This is a type of fraud in the inducement.

What is different between fraudulent or material misrepresentation?

A misrepresentation is fraudulent if (1) it is intended to induce a party's assent and (2) the party making the misrepresentation knows it is false or is not certain that it is true. Even if a misrepresentation is not fraudulent, the contract will still be voidable if the misrepresentation is material. A misrepresentation is material if it is likely to induce a reasonable person's assent or the party making the misrepresentation knows it will likely induce the particular party's assent (even if a reasonable person would not be so induced).

What is a unilateral mistake?

A mistake is unilateral if only one party enters into the contract based on the mistake. Like a mutual mistake, the unilateral mistake must relate to a basic assumption that has a material effect on the mistaken party, who must not bear the risk of the mistake. However, the unilateral mistake must also cause unconscionability or result from the other party's fault or knowledge for the mistaken party to avoid the contract. In other words, a unilateral mistake, without more, is not a defense. [See Restatement (Second) of Contracts § 153 (1981); see generally IV.D.1, supra (definitions of basic assumption, material effect, and bearing the risk)]

What does it mean when a party bears the risk of a mistake?

A mistake will not excuse a party's performance if that party bears the risk of the mistake. A party may bear the risk of the mistake based on: (1) the terms of the contract expressly allocating the risk to that party, (2) court allocation of the risk to one party that is reasonable under the circumstances, or (3) the party's conscious ignorance of the relevant facts, despite awareness of his or her own limited knowledge. [See Restatement (Second) of Contracts § 154 (1981)]

What is a mutual mistake and when what is needed before the court will consider whether the contract should be voidable for a mistake?

A mutual mistake is generally a mistaken assumption shared by both parties. Thus, when 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 adversely affected party if: (i) The mistake concerns a basic assumption on which the contract is made (e.g., the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia); (ii) The mistake has a material effect on the agreed-upon exchange (e.g., the cubic zirconia is worth only a hundredth of what a diamond is worth); and (iii) The party seeking avoidance did not bear the risk of the mistake.

What is a partially integrated rule?

A partially integrated agreement is a final but incomplete statement of the terms. The parol evidence rule excludes extrinsic evidence of prior or contemporaneous agreements that are inconsistent with the partially integrated agreement. In other words, the court may use extrinsic evidence to supplement, but not to modify, the contract. [See Restatement (Second) of Contracts §§ 213(1), 214-15 (1981)]

What are the three situations when a contract can be voidable when the party relies on opinions or mere puffery

A party justifiably relies on a misrepresentation if the untrue assertion is presented as a fact. An opinion or mere puffery only justifies reliance under three situations: i. Relationship An opinion justifies reliance if there is a relationship of trust and confidence between the party and the maker of the opinion (typically fiduciary), such that the party's reliance is reasonable. ii. Special Skill An opinion justifies reliance where the party reasonably believes that the maker of the opinion has special skill, judgment, or objectivity regarding the subject matter. iii. Susceptibility An opinion justifies reliance if the party is particularly susceptible for a special reason, such as illiteracy, unusual gullibility, or lack of intelligence.

When can a party assert the defense of duress?

A party may assert the defense of duress where assent is induced by an improper threat that leaves no reasonable alternative. An improper threat typically involves a crime or tort and may be expressed or implied through words or conduct. Note that a purely economic or pecuniary threat, without some wrongful act, generally will not give rise to a defense of duress.

What is the rule for undue influence?

A party may assert the defense of undue influence if assent is induced by unfair persuasion. The party may be under the domination of the persuader or in a relationship that justifies a belief that the persuader will not act inconsistently with the party's welfare. [See Restatement (Second) of Contracts § 177 (1981)]

When is a performance "impossibile."

A performance is impossible if it cannot be performed by anyone, not just the breaching party. Generally, only three types of events are sufficient to render performance impossible: the death or incapacity of a person necessary for the performance, the destruction of the subject matter (including significant deterioration or failure to come into existence), and the prevention of the performance by law (including regulations and court orders). Bear in mind, however, that destruction of the subject matter of the contract will not give rise to a valid defense of impossibility if the risk of loss is already on a particular party (such as when the risk of loss has passed to the purchaser of land under the doctrine of equitable conversion). [See Restatement (Second) of Contracts §§ 262-64 (1981)]

What is the rule regarding minors?

A person lacks capacity due to infancy until the beginning of the day before his or her eighteenth birthday, which is the age of majority in most jurisdictions. Keep in mind that many jurisdictions deem a married person under the age of majority to be an adult. A minor may generally disaffirm a contract until a reasonable time after she reaches the age of majority or choose to ratify the contract. Note that a minor must generally return the subject matter of the agreement (or what is left of it) if she elects to disaffirm. [See Restatement (Second) of Contracts § 14 (1981)]. Can only ratify AFTER the eighteen's birthday.

DEFENSES What is the rule regarding mental incapacity?

A person lacks capacity due to mental illness or defect when unable to reasonably understand the nature and consequences of the transaction. Even if a person is able to understand the nature and consequences of the transaction, the person may also lack capacity when unable to reasonably act in relation to the transaction, but only if the other party has reason to know of the mental illness or defect. Note that generally such contracts may be avoided by the incapacitated party's legal representative. Alternately, if the party regains capacity, she may elect to ratify or disaffirm the contract. [See Restatement (Second) of Contracts § 15 (1981)]

What is the definition of a promise?

A promise is a commitment to do or refrain from doing something. If a promise is unconditional, the failure to perform according to its terms is a breach of contract.

Is a provision that gives one party the right to choose among alternative choices valid consideration?

A promise to choose one of several alternative means of performance is illusory unless every alternative involves some legal detriment to the promisor. However, if the power to choose rests with the promisee or some third party not under the control of the promisor, the promise is enforceable as long as at least one alternative involves some legal detriment. Example: Compare: Smith, an English professor, tells Jack that in return for Jack's promise to pay $250, Smith will either (i) give Jack swimming lessons, (ii) paint Jack's portrait, or (iii) teach his English class (of which Jack is a member) on a regular basis during the next term, the choice to be entirely Smith's. Because alternative (iii) represents a preexisting duty owed by Smith to the university under his contract of employment, it involves no legal detriment, and Smith's promise does not constitute valuable consideration for Jack's promise to pay $250. Had Smith allowed Jack's mother (or Jack) to select the performance, there would be a legal detriment and valuable consideration—even if alternative (iii) were selected. a. Selection of Valuable Alternative Cures Illusory Promise Even if a promisor retains the power to select an alternative without legal detriment, his actual selection of an alternative involving legal detriment would cure the illusory promise. Example: In the above example (in which Smith was allowed to select a means of performance), if Smith had actually chosen alternative (i) or (ii), his illusory promise would have been cured.

What is a "losing" contract and an example when restitution would be applied?

A restitutionary remedy often is desirable in the case of a "losing" contract (i.e., a contract in which the actual value of the services or goods to be provided under the contract is higher than the contract price), because normal contract expectation damages or reliance damages would be for a lesser amount. Example: Owner and Builder enter into a contract under which Builder is to remodel Owner's kitchen for $30,000, to be paid on completion. It turns out Builder underestimated the cost of the remodel by failing to take into account increasing supply costs. Builder estimated that the job would end up costing him $33,000. When the remodel was nearly complete, Owner told Builder that he was out of funds for home improvements and could not pay him. Builder ceased work on the job. At that point, Builder had spent $32,000 on the remodel. Builder may recover the $32,000 in restitution, even though his contract damages would have been only $30,000.

When are common situations when parties will use the three principles above for defense?

A seller of land, goods, or services will raise impossibility or impracticability as a defense that discharges performance. By contrast, the party who is supposed to pay (usually the buyer) will raise frustration of purpose as a defense discharging perfor- mance. Paying money is never impracticable. Example: Caretaker is hired to tend to the mansion on Blackacre and signs a three- year employment contract to that effect at a rate of $30,000 per year. In the second year of Caretaker's contract, the mansion is destroyed by fire and the employer stops paying Caretaker. Caretaker sues the employer for breach and the employer countersues Caretaker. Caretaker will raise the defense of discharge by impossibility because the subject matter of the contract was destroyed. The employer will raise the defense of discharge by frustration of purpose for the same reason. The employer cannot claim impossibility because he is still able to pay money.

What is the difference between a factual statement vs an opinion?

A statement relating merely to the value of the goods, or a statement purporting to be only the seller's opinion or commendation of the goods, does not create an express warranty. -To order to be a factual statement, the statement must be objective and capable of being proven true or false. Ex: "better ingredients, better pizza", " the world most effective energy drink" are all pufferies. "all organic pizza" is a factual statement.

Is a suretyship promise valid consideration? - What is this and what are the exceptions?

A suretyship contract involves a promise to pay the debt of another. A suretyship contract is not enforceable unless it is supported by consideration. If a surety is compensated, the requirement of consideration is not much of an issue, because the compensation will serve as consideration for the surety's promise. If, however, the surety is gratuitous (i.e., the surety is not paid for his services), the consideration requirement may cause problems. The timing becomes important in determining whether adequate consideration is present in a gratuitous surety situation. a. Surety Makes Promise Before (or at the Same Time as) Creditor Performs or Promises to Perform—Consideration Present If the gratuitous surety makes his promise to pay before (or at the same time as) the creditor performs or promises to perform, the creditor's performance or promise will serve as consideration for the surety's promise, because the creditor has incurred a detriment in exchange for the surety's promise. Example: Beth sees a car on Sam's used car lot that she wants, but she does not have enough money to pay for the car. Sam tells Beth that he will sell her the car for $500 and a two-year promissory note for the remainder if Beth can get her father to co-sign the note with her. Beth's father agrees. The three parties meet, Beth and her father sign the note, and Sam signs over title of the car to Beth. Beth's father is bound as a surety because the consideration passed from Sam at the same time Beth's father made his promise. b. Surety Makes Promise After Creditor Performs or Promises to Perform— Generally No Consideration to Support Surety's Promise If a gratuitous surety does not make his promise until after the creditor has performed or made an absolute promise to perform, there is no consideration to support the surety's promise because of the preexisting legal duty rule—the creditor has not incurred any new detriment in exchange for the surety's promise. Thus, the surety's promise is unenforceable. Example: Beth sees a car on Sam's used car lot that she wants, but she does not have enough money to pay for the car. Sam tells Beth that she can have the car for $500 and a two-year promissory note for the remainder. Beth agrees. Sam signs the title of the car over to Beth, and Beth gives Sam $500 and a promissory note for the remainder. A few days later, Sam discovers that Beth works only part-time and will likely have trouble making payments on her current income. He calls Beth and asks her to get a surety on the note. Beth's father sends Sam a letter promising to pay whatever Beth owes if she defaults. Beth's father is not bound as surety because there is no consideration to support his promise. 1) Exception—Obtaining Surety Is Condition Precedent If the contract between the debtor and the creditor makes obtaining a surety a condition precedent to the creditor's performance, so that the creditor would be justified in refusing to perform the contract until a surety is obtained, the surety's promise is binding if the creditor performs in reliance on the surety's promise. 2) Exception—Additional Consideration As with other contracts, if the creditor gives additional consideration in exchange for the surety's promise, the surety will be bound.

What are ambiguous terms? what will the court do when the contract has ambiguous terms?

A term is ambiguous if multiple meanings lead to a misunderstanding between the parties. The ambiguity may be latent (due to the circumstances) or patent (due to the language). Specifically, a latent ambiguity does not appear on the face of the contract and arises only from a consideration of extrinsic circumstances, while a patent ambiguity is apparent on the face of the contract and arises from inconsistent or uncertain language. If the parties understood the same meaning, then the court will interpret the contract based on that meaning. However, if the parties understood different meanings, then the court will interpret the term against a party with knowledge of the misunderstanding at the time of the contract. If neither party knew of the misunderstanding, then the court will void the contract for lack of mutual assent. [See Restatement (Second) of Contracts § 201 (1981); Merriam-Webster's Dictionary of Law (Kindle ed. 2011), latent ambiguity, patent ambiguity]

What is an indefinite term? What will the court do when a term is indefinite?

A term is indefinite when left open or uncertain, such that the parties may not have intended to form a binding contract. If the indefinite term is essential to the exchange, then the court will likely void the contract for indefiniteness. However, if the parties intended to form a binding agreement, then the court will supply a customary or reasonable term and enforce the contract. [See U.C.C. §§ 2-204, 2-310 (2002); Restatement (Second) of Contracts § 33 (with comments)(1981)]

What are the main issues regarding delegation of duties?

A transfer of contractual duties is called a "delegation." The main issues regarding delega- tions are: (i) What duties may be delegated? (ii) How does one make a valid delegation? (iii) What are the rights and liabilities of the various parties where there has been a valid delegation? a. Terminology X and Y have a contract. Y delegates duties thereunder to Z. Y is the obligor because Y is the one with the duty to perform the obligation. Y also is the delegator (sometimes called the delegant) because Y delegated the duty. Z is the delegate (sometimes called the delegatee) because Z is the one to whom the duty was delegated. X is called the obligee, because X is the one for whom Y or Z is obligated to perform.

What constitutes a valid offer?

A valid offer contains reasonably certain terms(definite terms) from which a reasonable person is able to conclude that an offer has been made. Typically, this means that the offer must identify the parties, describe the subject of the agreement, and include some sort of price term (which may be an objective standard from which the price can be derived, such as "fair market value"). - The most common types of invalid offers are jokes, preliminary offers, and advertisements. [See Restatement (Second) of Contracts § 33 (1981)]

What is an Implied warranty of fitness for a particular purpose?

A warranty will also be implied in a contract for the sale of goods whenever (i) any seller, merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller's skill and judgment to select suitable goods; and (ii) the buyer in fact relies on the seller's skill or judgment. [UCC §2-315] The comment to section 2-315 says, "A particular purpose differs from the ordinary purpose for which goods are used in that it envisages a specific use by the buyer which is peculiar to the nature of his business whereas the ordinary purposes for which goods are used are those envisaged in the concept of merchantability."

What is the mailbox rule? (barbri)

Acceptance by mail or similar means creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped, unless: (i) The offer stipulates that acceptance is not effective until received; or (ii) An option contract is involved (an acceptance under an option contract is effective only upon receipt [Restatement (Second) of Contracts §63]). Note: Because in most states a revocation is effective only upon receipt (see C.1.a.2), supra), under the mailbox rule if the offeree dispatches an acceptance before he receives a revoca- tion sent by the offeror, a contract is formed. This is true even though the acceptance is dispatched after the revocation is dispatched and received after the revocation is received. a. Effect of Offeree Sending Both Acceptance and Rejection: Because a rejection is effective only when received, an offeree sending both an acceptance and rejection could create problems for the offeror if the mailbox rule were applicable; e.g., a contract would be created when the acceptance was dispatched even if the offeror received the rejection and relied on it before receiving the acceptance. 1) Offeree Sends Rejection, Then Acceptance—Mailbox Rule Does Not Apply If the offeree sends a rejection and then sends an acceptance, the mailbox rule does not apply. Whichever one is received first is effective. 2) Offeree Sends Acceptance, Then Rejection—Mailbox Rule Generally Applies If the offeree sends the acceptance first, the mailbox rule applies; i.e., a contract is created upon dispatch of the acceptance. However, if the offeror received the rejec- tion first and changed his position in reliance on it, the offeree will be estopped from enforcing the contract.

What is the general rule about whether advertisements are offers or not?

Advertisements, catalogs, circular letters, and the like containing price quota- tions are usually construed as mere invitations for offers. They are announce- ments of prices at which the seller is willing to receive offers. Typically, these are not considered offers because they usually are indefinite as to quantity and other terms, and addressed to the general public. If an advertisement addressed to the general public were considered an offer, it might be overaccepted; i.e., the number of acceptances may exceed the number of items for sale. However, in certain situa- tions, courts have treated advertisements as offers if the language of the advertise- ment can be construed as containing a promise, the terms are certain and definite, and the offeree(s) is clearly identified. Price quotations also may be considered offers if given in response to an inquiry.

What is important to remember when determining whether the writing between the parties is complete or partial? How does this relate to parol evidence?

After establishing that the writing was "final," one should determine if the integra- tion was "complete" or only "partial." If complete, the writing may not be contradicted or supplemented; if partial, it cannot be contradicted, but it may be supplemented by proving up consistent additional terms. As with the finality component, whether an integration is complete or partial depends on the intent of the parties. All relevant evidence is admissible for the purpose of making the determination, even the evidence whose admissibility is challenged. The UCC presumes all writings are partial integra- tions unless there is evidence that the parties intended a writing to be the complete agreement. [UCC §2-202(b)]

When can an intended beneficiary enforce a contract?

An "intended" beneficiary can enforce a contract only after his rights have vested. This becomes important when the original parties to the contract take actions (e.g., rescission, modification, etc.) that affect the third-party beneficiary. The general rule for both creditor and donee beneficiaries is that their rights vest when the beneficiary: (i) Manifests assent to the promise in a manner invited or requested by the parties; (ii) Brings suit to enforce the promise; or (iii) Materially changes position in justifiable reliance on the promise. [Restatement (Second) of Contracts §311] a. Significance of Vesting Before the intended third-party beneficiary's rights vest, the promisor and promisee are free to modify their contract—including removing the third-party beneficiary altogether—without consulting the third party. Once the third-party beneficiary's rights have vested, the promisor and promisee cannot vary his rights without his consent.

What is the mailbox rule? (outline)

An acceptance by promise is effective upon proper dispatch, meaning when the acceptance is sent, regardless of whether the offeror receives the acceptance. An acceptance may be effective upon improper dispatch only if received by the offeror within a reasonable amount of time. The mailbox rule generally does not apply to option contracts (effective upon receipt), unilateral contracts (effective upon full performance), or offers that specify an alternate time of acceptance (such as that the acceptance will only be effective upon receipt). There are two scenarios in which the mailbox rule becomes especially important. Recall that revocation of an offer is only effective when actually received by the offeree. Thus, if an offeree were to send acceptance at the same time that the offeror sent a rejection, a contract would be formed, because acceptance becomes effective when mailed. Next, when an offeree accepts or rejects an offer but then changes her mind, the mailbox rule may come into play. If the offeree first mails acceptance and then tries to reject, a contract is still formed. However, if the offeree first mails a rejection and then attempts to accept, whichever is actually received first by the offeror will be effective.

What is concealment and nondisclosure?

An action intended to prevent another from learning a fact is the equivalent of asserting that a fact does not exist. Similarly, if a party frustrates an investigation by the other party or falsely denies knowledge of a fact, it can be considered a misrepresentation. Note, however, that nondisclosure without concealment usually is not a misrepresentation. A party is not required to tell everything he knows to the other party, but if the nondisclosure is either material or fraudulent, the contract is voidable for misrepresentation. [See Restatement (Second) of Contracts §§159 - 164]

b. Excuse of Condition by Actual Breach

An actual breach of the contract when performance is due will excuse the duty of counterperformance. Note, however, that counterperformance will be excused at common law only if the breach is material. A minor breach may suspend this duty, but it will not excuse it. Even if the minor breach may be cured, it will not suffice to excuse conditions. Rather, the courts will make the nonbreaching party whole by either giving him damages or otherwise mitigating his promised performance so as to account for the breach. (As to rules determining materiality of breaches, see VII.B., infra.)

What is an integrated agreement?

An agreement is completely or partially integrated if adopted by the parties as a written, final statement of the terms. Often, a contract will contain a merger clause stating that the document is a final expression of the entire transaction between the parties. Without a merger clause, any contemporaneous writings that relate to the same subject matter and are assented to as multiple parts of a single transaction are typically considered to be within the same integrated agreement.

General rules regarding assignments?

An assignor (promisee) may transfer his or her rights to a third-party assignee through assignment. The effect of the assignment is to extinguish the privity between the assignor and obligor (promisor), such that only the assignee may sue the obligor for enforcement. Any contractual right may generally be assigned, regardless of whether there is a writing, except where the assignment would materially vary the contract by changing the obligor's duty, increasing the obligor's burden or financial risk, impairing the obligor's chance of obtaining return performance, or reducing the value of the return performance to the obligor. The materiality depends on the nature of the contract and the circumstances of the assignment. Note that an assignment may also be forbidden by law or the contract itself, though "anti-assignment clauses" that prohibit assignment are often strictly construed. [See Restatement (Second) of

For an installment contract, what are the rules regarding rejection, acceptance, and cancellation?

An installment contract provides for the delivery of goods in separate installments to be separately accepted by the buyer. Installment contracts vary slightly from typical contracts in terms of the buyer's rights and duties under the perfect tender rule. [See U.C.C. § 2-612 (2002)] 1. Rejection A buyer may reject a non-conforming installment if the non-conformity substantially impairs the value of the installment to the buyer and cannot be cured by the seller. Note, however, that a single non-conforming installment does not automatically entitle the buyer to cancel the contract. [See V.A.4.c), infra (discussion of cancellation)] 2. Acceptance A buyer must accept an installment if the seller gives adequate assurance that the non-conformity will be cured. 3. Cancellation A buyer may cancel the contract if one or more non-conforming installments substantially impairs the value of the entire contract. However, the contract will be reinstated if the buyer demands future installments or accepts a non-conforming installment without promptly notifying the seller of the cancellation.

D.) What is the rule regarding beginning performance in a response to a unilateral contract offer?

An offer for a true unilateral contract becomes irrevocable once performance has begun. Note that the unilateral contract will not be formed until the total act is complete. However, once the offeree begins to perform, she is given a reasonable time to complete performance, during which time the offer is irrevocable. Note also that the offeree is not bound to complete performance— she may withdraw at any time prior to completion of performance. (LOOK INTO THIS MORE... IS THERE AN REMEDY IF OFFEREE DOES NOT COMPLETE PERFORMANCE)

c. Excuse of Condition by Anticipatory Repudiation

Anticipatory repudiation occurs if a promisor, prior to the time set for performance of his promise, indicates that he will not perform when the time comes. If the requirements set forth below are met, this anticipatory repudiation will serve to excuse conditions. 1) Executory Bilateral Contract Requirement Anticipatory repudiation applies only if there is a bilateral contract with executory (unperformed) duties on both sides. If the nonrepudiating party has nothing further to do at the moment of repudiation, as in the case of a unilateral contract or a bilateral contract fully performed by the nonrepudiator, the doctrine of anticipatory repudiation does not apply. The nonrepudiator must wait until the time originally set for performance by the repudiating party. Until such time, the repudiator has the option to change his mind and withdraw the repudiation and perform in accordance with the contract. [Accord: UCC §2-611] Example: Winston promises to pay Salem $2,000 on November 15 as consideration for Salem's car, the latter to be delivered on October 20. Salem delivers the car to Winston on October 20; on November 3, Winston repudiates. Because Salem does not have any more duties to perform, he will not have a cause of action until November 15. 2) Requirement that Anticipatory Repudiation Be Unequivocal An anticipatory repudiation stems from the words or conduct of the promisor unequivocally indicating that he cannot or will not perform when the time comes. This statement must be positive. -3) Effect of Anticipatory Repudiation In the case of an anticipatory repudiation, the nonrepudiating party has four alter- natives: (i) Treat the anticipatory repudiation as a total repudiation and sue immediately; (ii) Suspend his own performance and wait to sue until the performance date; (iii) Treat the repudiation as an offer to rescind and treat the contract as discharged; or (iv) Ignore the repudiation and urge the promisor to perform. 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. Not only is the nonrepudiating party excused from performing, but she should suspend her performance. If she continues to perform in spite of the repudiation, she may be precluded from claiming damages for any loss that could have been avoided. (see VIII.B.7, infra). [Restatement (Second) Contracts §257 cmt. a] Note: UCC section 2-610 provides substantially identical alternatives to a nonrepudiating party when there is an anticipatory repudiation in the case of the sale of goods. 4) Retraction of Repudiation A repudiating party may at any time before his next performance is due withdraw his repudiation unless the other party has canceled, 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 intention to perform, but must include any assurances justifiably demanded. [See UCC §2-611]

Who do warranties extend to?

Article 2 provides alternative provisions for determining to whom warranty liability extends. [UCC §2-318] Most states have adopted Alternative A, which provides that the seller's warranty liability extends to any natural person who is in the family or house- hold of the buyer or who is a guest in the buyer's home if it is reasonable to expect that the person may use, consume, or be affected by the goods and that person suffers personal injury because of a breach of warranty. The seller cannot escape the effect of this section by contract. (The comments say that beyond this, the section is neutral and is not intended to enlarge or restrict the developing case law on whether the seller's warranties given to his buyer who resells extend to other persons in the distributive chain.) Alternative B extends a seller's express or implied warranty liability to any natural person reasonably expected to use, consume, or be affected by the goods and who suffers personal injury because of a breach of warranty. The broadest alternative, Alternative C, extends warranty liability to any person reasonably expected to use, consume, or be affected by the goods and who is injured by breach of the warranty (this includes property damage). The seller may not exclude or limit the operation of the section with respect to personal injury.

What is restitution?

As an alternative to the contract damages discussed above, restitution may be available in a contract-type situation. Restitution is not really part of contract law, but rather is a distinct concept. Restitution 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 contract is unenforceable, and in some cases when no contractual relationship exists at all between the parties.

E.) What is the rule regarding beginning of performance?

As noted above, most offers are indifferent as to the manner of acceptance, and, thus, a bilateral contract may be formed upon the start of performance by the offeree. (See I.C.2.c.1), supra.) Therefore, once the offeree begins perfor- mance, the contract is complete and revocation becomes impossible.But note: Notification of the start of performance may be necessary.

When is a communication considered to be received?

At common law, a written communication is considered to have been "received" when it comes into the possession of the person addressed (or of someone authorized by him to receive it) or when it is deposited in some place authorized as the place for this or similar communications to be depos- ited. [Restatement (Second) of Contracts §68] The communication need not be read by the recipient to be effective. Similarly, under the UCC, a person receives notice when (i) it comes to his attention, or (ii) it is delivered at a place of business through which the contract was made or another location held out by that person as the place for receipt of such communications. An organization receives a communication at the time it is brought (or should have been brought) to the attention of the individual conducting the transac- tion. [UCC §1-202] Note that these rules do not restrict the communication or notice to a writing; thus, courts will likely apply the same rules to phone messages.

What is the battle of the forms?

At common law, under the mirror image rule, an acceptance had to mirror the terms of the offer exactly in order to be effective. If the attempted acceptance varied the terms of the offer in any way, it was construed as a counteroffer. [See Eliason v. Henshaw, 17 U.S. 225 (1819)] The UCC has done away with the mirror image rule, instead treating an acceptance that varies the terms of the offer as valid unless the acceptance explicitly provides that it is conditional on the offeror's agreement to the new terms. [U.C.C. § 2-207] Whether the additional or changed terms become part of the agreement depends on whether the parties are merchants or not. i. Nonmerchant Contracts If at least one party to the contract is a nonmerchant, the new or modified terms do not automatically become part of the agreement. Rather, the new terms are treated as proposals and are only incorporated into the contract if the offeror expressly agrees. [U.C.C. § 2-207(2)] ii. Merchant Contracts If all parties to the agreement are merchants, any new or modified terms automatically become part of the agreement. This is where the term "battle of the forms" comes from; the last form sets the terms for the agreement. There are three exceptions in which the amended terms will not become part of the agreement: (1) the offer explicitly provides that acceptance is limited to the terms of the original offer, (2) the new terms materially alter the agreement, or (3) the offeror objects to the new terms within a reasonable time. [Id.; see generally, Egan Mach. Co. v. Mobil Chem. Co., 660 F. Supp. 35 (D. Conn. 1986)]

What is the definition for consideration?

Basically, two elements are necessary to constitute consideration: (i) there must be a bargained- for exchange between the parties; and (ii) that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee. At the present time, the detriment element is emphasized in determining whether an exchange contains legal value. -Consideration consists of a benefit to the promisor or a detriment to the promisee. -"Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first." "A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other." Courts "will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to anyone. It is enough that something is promised, done, forborne or suffered by the party to whom the promise is made as consideration for the promise made to him."

What are constructive conditions of cooperation and notice?

Constructive conditions of cooperation and notice are common. Under a constructive condition of cooperation, the obligation of one party to render performance is impliedly conditioned on the other party's cooperation in that performance. Also, it is often a condition to one party's performance of a duty under a contract that the other party give him notice that the performance is due. A condition of notice is most commonly applied where a party could not reasonably be expected to know a fact that triggered the duty to perform unless such notice was given. Examples: 1) Seller promises to deliver certain goods to the "No. 2 loading dock" of Buyer's factory. It is an implied condition to Seller's duty to deliver the goods that such a loading dock exists, that the dock is reasonably accessible for making a delivery, and that Buyer permits Seller to make the delivery at the dock. 2) Landlord leases a building to Tenant and promises to maintain and repair the interior of the building as necessary. It is an implied condi- tion to Landlord's promise to repair that Tenant will give her reasonable notification of the need for repairs and will permit her to enter to make the repairs. Tenant therefore cannot sue Landlord for failure to make a needed repair unless he has first notified Landlord that the repair is required, and given Landlord an opportunity to make the repair.

What is required under the statute of Frauds?

Essential or Material Terms If a writing does not contain the essential terms of the agreement, it does not satisfy the Statute and the contract cannot be enforced. There is no definitive list of essential terms. They vary depending on the situation. What is essential depends on the agree- ment, its context, and the subsequent conduct of the parties, including the dispute that has arisen. There must be enough in the writing to enable a court to enforce the contract. If an element is contained in the writing, evidence is admissible to explain the particulars. If, however, a term is missing and cannot be supplied by implication or rule of law, evidence will not be admitted to add it. The essential terms normally include the identity of the parties, description of the subject matter, and the terms necessary to make the contract definite (see II.B.2., supra). For example, writings evidencing land sale contracts must contain a description of the land and the price, and those for employment contracts must state the length of employment. For the sale of goods, the UCC requires only some signed writing indicating that a contract has been made and specifying the quantity term. 2. Signature Requirement The signature requirement is liberally construed by most courts. A signature is any mark or symbol made with the intention to authenticate the writing as that of the signer. It need not be handwritten; it can be printed or typed. Under the UCC, even a party's initials or letter- head may be sufficient. a. Electronic Signature The signature requirement may be satisfied by an electronic signature. [UETA §7(d)] As with paper signatures, whether a record is "signed" is a question of fact. No specific technology is necessary to create a valid signature. If the requisite intent is present, one's name as part of an e-mail may suffice as a signature, as may the firm name on a facsimile (fax).

Is a best-efforts promise illusory?

Exclusivity Agreements—Best Efforts Implied A court may find an implied promise furnishing mutuality in appropriate circumstances (such as exclusive marketing agreements). The courts generally will find an implied promise to use best efforts and sustain agreements that might otherwise appear illusory. Example: Y Corp. was granted exclusive rights to sell Dominick's dresses in return for one-half the profit. The agreement was silent as to any obligation on the part of Y Corp. Held: Y Corp. impliedly promised to use its best efforts to sell Dominick's dresses. [See UCC §2-306(2)]

Regarding the first question; for a communication to be an offer, there must be what? What are things the court looks at to determine if the communication is an offer?

For a communication to be an offer, it must contain a promise, undertaking, or commitment to enter into a contract, rather than a mere invitation to begin preliminary negotiations; i.e., there must be an intent to enter into a contract. The criteria used to determine whether a communication is an offer include the following: A: Language: The language used may show that an offer was or was not intended. Technical language such as "I offer" or "I promise" is useful to show that an offer was made, but it is not necessary. Also, certain language is generally construed as merely contemplating an invitation to deal, preliminary negotiations, or "feelers," rather than being an offer. This includes phrases such as "I quote," "I am asking $30 for," and "I would consider selling for." No mechanical formula is available. For example, price quotes, which are gener- ally considered invitations to deal, can be offers if made in response to an inquiry that contains a quantity term. B. Surrounding Circumstances: The circumstances surrounding the language will be considered by courts in deter- mining whether an offer exists. For example, where the statement is made in jest, anger, or by way of bragging, and the statement is reasonably understood in this context, it will have no legal effect. However, where the statement is subjectively intended to be in jest but reasonably understood by the hearer to have been made seriously, the statement is an offer because it is interpreted objectively (i.e., according to a reasonable person's expectations). C. Prior Practice and Relationship of the Parties: In determining whether certain remarks constitute an offer rather than preliminary negotiations, a court will look to the prior relationship and practice of the parties involved. D. Method of Communication

General rule about revoking an assignment?

Generally, an assignment for value, such as an assignment made upon payment of valuable consideration or as security for a debt, is irrevocable. In contrast, a donative assignment, or gratuitous assignment, meaning an assignment given for no consideration, is typically revocable. There are some important exceptions. The assignor can no longer revoke if: (1) the obligor has already performed; (2) the assignment is in writing; (3) there has been delivery of a token chose, or tangible thing symbolizing the assignment, related to the rights being assigned (like stock certificates or insurance policies); or (4) the assignee has reasonably, foreseeably, and detrimentally relied on the assignment. Where permitted, revocation may be accomplished by the assignor: (1) notifying the assignee or the obligor that the assignment is revoked, (2) accepting performance in the assignee's place, (3) reassigning to someone else, or (4) by operation of law, such as upon the death or bankruptcy on the assignor. Note that if an assignor wrongfully revokes an irrevocable assignment, the assignment may still be effective; in that case, the assignee will be able to seek damages.

What effect does impossibility have on a contract?

If a contract is discharged because of impossibility, each party is excused from duties arising under the contract that are yet to be fulfilled. Either party may sue for rescission and receive restitution of any goods delivered, payments made, etc.

What is the effect of a failure or occurrence of a condition?

If a contract is not enforceable due to the failure or occurrence of a condition, and one of the parties has fully or partially performed, he can usually recover under unjust enrich- ment theories (see VIII.C., infra), although the measure of damages in that case may be less advantageous than the contract price.

When a contract is modified, how does this effect the duties of each parties?

If a contract is subsequently modified by the parties, this will serve to discharge those terms of the original contract that are the subject of the modification. It will not serve to discharge the entire contract. To have such a partial discharge, the following requirements must usually be met.

What if there is a minor breach with anticipatory repudiation?

If a minor breach is coupled with an anticipatory repudiation (see VI.D.6.c., supra), the nonbreaching party may treat it as a material breach; i.e., she may sue immediately for total damages and is permanently discharged from any duty of further performance. Indeed, the courts hold that the aggrieved party must not continue on, because to do so would be a failure to mitigate damages. The UCC modifies this to permit a party to complete the manufacture of goods to avoid having to sell unfinished goods at the lower salvage value. (See infra.)

a. Excuse of Condition by Hindrance or Failure to Cooperate

If a party having a duty of performance that is subject to a condition (i.e., she is the party protected by the condition) prevents the condition from occurring, the condition will be excused if such prevention is wrongful. Note, however, that it is not necessary to prove bad faith or malice. Courts construe the requirement simply to mean that the other party would not have reasonably contemplated or assumed the risk of this type of conduct. Example: Franz agrees to paint Worthington's portrait. Worthington's promise to pay for the portrait is conditional upon her being satisfied with it. Worthington refuses to even look at the portrait. Because of her refusal, the condition is excused and her promise to pay becomes absolute. Note: It appears fairly well settled today that a condition will be excused not only by "active" noncooperation but by "passive" noncooperation as well.

When can parties discharge a contract?

If at least one of the parties is no longer interested in continuing a contract, the parties may mutually consent to discharge one or both of their obligations by substituting a new agreement or ending the agreement entirely.

When is public policy used as a defense against enforcement of a contract?

If either the consideration or the subject matter of a contract is illegal, this will serve as a defense to enforcement. Contracts may be illegal because they are inconsistent with the Constitution, violate a statute, or are against public policy as declared by the courts.

When does a breach occur?

If it is found that (i) the promisor is under an absolute duty to perform, and (ii) this absolute duty of performance has not been discharged, then this failure to perform in accordance with contrac- tual terms will amount to a breach of the contract. The nonbreaching party who sues for breach of contract must show that she is willing and able to perform but for the breaching party's failure to perform.

What happens when either party renders performance before the impossibility?

If part performance has been rendered by either party prior to the existence of the facts leading to impossibility, that party will have a right to recover in quasi-contract at the contract rate or for the reasonable value of his performance if that is a more convenient mode of valuation. (Note that such recovery will also be available when contract duties are discharged by impracticability or frustration, discussed below.)

What determines if a condition of satisfaction is fulfilled in contracts involving personal taste or judgement?

If the contract involves personal taste or personal judgment, a condition of satisfac- tion is fulfilled only if the promisor is personally satisfied. For example, contracts for portraits, dental work, or tailoring all require the promisor's personal satisfac- tion. a) Lack of Satisfaction Must Be Honest and in Good Faith Even if a condition requires personal satisfaction, it will fail to be fulfilled only if the promisor's lack of satisfaction is honest and in good faith. Therefore, if the promisor refuses to examine the promisee's performance, or otherwise rejects the performance in bad faith, the condition of satisfaction will be excused.

What is a material breach?

If the obligee does not receive the substantial benefit of her bargain as a result of failure to perform or defective performance, the breach is considered material. If the breach is material, the consequences are more severe. The nonbreaching party (i) may treat the contract as at an end, i.e., any duty of counterperformance owed by her will be discharged, and (ii) will have an immediate right to all remedies for breach of the entire contract, including total damages.

If a contract requires written modification, how does the court deal with oral modifications made?

If the parties attempt to orally modify a contract that requires written modifica- tion (either because of a contract clause or the Statute of Frauds), it is technically ineffective as a modification, but can operate as a waiver. Such a waiver will be found whenever the other party has changed position in reliance on the oral modification.

Is a mistake in value a valid defense?

If the parties to a contract 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 mistake creates a material imbalance—because both parties usually assume the risk that their assumption as to value is wrong. However, it is possible for the facts to show that the adversely affected party did not assume the risk in determining value.

What is the detrimental reliance exception?

If the promisee tells the donee beneficiary of the contract and should foresee reliance by the beneficiary, and the beneficiary reasonably relies to her detriment, the beneficiary can sue the promisee directly under a promissory estoppel/detri- mental reliance theory (see III.D., supra), even though the beneficiary cannot sue the promisee as a third-party beneficiary.

What is the difference between a third party beneficiary and a promisee?

If the promisor fails to perform vis-à-vis the third-party beneficiary, whether the third- party beneficiary may sue the promisee depends on whether the third-party beneficiary is a donee beneficiary or a creditor beneficiary. A donee beneficiary generally may not sue the promisee because generally there is no right to sue for nondelivery of a gift. (But see exception below.) However, a creditor beneficiary can sue the promisee on the underlying obligation that the promisor's performance was meant to discharge. Example: Suppose Alex offers to sell his car to Becky if Becky pays Cindy the $1,000 purchase price. Alex informs Cindy of the arrangement and she nods with approval, thus vesting her rights. Alex transfers his car to Becky, but Becky does not pay the $1,000 to Cindy. If Alex intended the $1,000 to be a gift to Cindy, she cannot sue Alex for Becky's failure to pay. But if Alex owed Cindy a debt and the $1,000 was meant to satisfy the debt, Cindy may sue Alex on the unsatisfied obligation that he owed her. Note: The rights of a creditor beneficiary are cumulative. She need not elect between suing the promisor and suing her own debtor (i.e., the promisee). She may sue both. Of course, she may obtain but one satis- faction.

If the degree of difficult of the performance agreed to in the contract becomes more difficult, is this enough to claim impracticability?

In effect, the courts will allow relief against performance where subjective impossibility is found. It should be noted, however, that a mere change in the degree of difficulty or expense due to such causes as increased wages, prices of raw materials, or costs of construction, unless well beyond the normal range, does not amount to impracticability, because these are the types of risks that a fixed-price contract is intended to cover. Thus, the fact that something is more expensive— even much more expensive—is not impracticability. [Restatement (Second) of Contracts §261]

What is necessary for an effective delegation?

In general, no special formalities are required to have a valid delegation. The delegation may be either written or oral. However, the delegator must manifest a present intention to make the delegation. There is no need that the word "delegate" be used; any generally accepted words of transfer may be used.

What determines the condition of satisfaction when the contract involves the satisfaction of a third party?

In many contracts, an express condition requires the satisfaction of a third person rather than a party to the contract. In particular, construction contracts often include a condition requiring the satisfaction of the owner's architect or engineer. When the satisfaction of a third person is a condition, most courts take the position that the condi- tion requires the actual personal satisfaction of the third person. As in the case where a party's personal satisfaction is required, however, a condition that requires a third person's personal satisfaction will be excused if the third person's dissatisfaction is not honest and in good faith.

When can there be an express condition and promise?

In some cases, a provision may be both a promise and a condition—i.e., a party may commit (promise) to bring about a given state of events, and the contract containing that commitment may also expressly state that the other party's duty to perform under the contract is conditioned on the occurrence of the state of events. Example: Carrier promises to get Manufacturer's goods to Los Angeles by October 1, and the contract expressly provides that Manufacturer will have no duty to pay Carrier unless the goods arrive by that time. Getting the goods to Los Angeles by October 1 is both a promise by Carrier and a condition to Manufacturer's liability.

What is the definition of a condition?

In this context, the term "condition" normally means either: (i) an event or state of the world that must occur or fail to occur before a party has a duty to perform under a contract; or (ii) an event or state of the world the occurrence or nonoccurrence of which releases a party from its duty to perform under a contract. In other words, a condition is a provision, the fulfillment of which creates or extinguishes a duty to perform under a contract. A condition is a "promise modifier." There can be no breach of promise until the promisor is under an immediate duty to perform. He may insert conditions on his promise to prevent that duty of immediate performance from arising until the conditions are met.

What is the fourth agreement covered in the statute of frauds?

Interest in Land A promise creating an interest in land must be evidenced by a writing. This includes not only agreements for the sale of real property, but also other agreements pertaining to land. 1) What Is an Interest in Land? In addition to agreements for the sale of real property, the following items are among the more important interests in land generally covered by the Statute: a) Leases for more than one year; b) Easements of more than one year; c) Mortgages and most other security liens; d) Fixtures; and e) Minerals (or the like) or structures if they are to be severed by the buyer. If they are to be severed by the seller, they are not an interest in land but rather are goods. If the subject matter is growing crops, timber to be cut, or other things attached to realty capable of severance without material harm to the realty, it is a contract for the sale of goods (see f., infra). [UCC §2-107] 2) Items That Do Not Create an Interest in Land Even though the end result of some contracts may involve land, they still do not come within this portion of the Statute. For example, a contract to build a building or a contract to buy and sell real estate and divide the profits does not create an interest in land. -3) Effect of Performance on Contracts Full performance by the seller will take the contract out of the Statute of Frauds. Part performance by the buyer may also remove the contract from the Statute. (See 5.a.1), infra.)

What is the purpose of the parol evidence rule?

Its name notwithstanding, the parol evidence rule is not generally regarded as a rule of evidence, but rather as a rule of substantive contract law. It is designed to carry out the apparent intention of the parties and to facilitate judicial interpretation by having a single clean source of proof (the writing) on the terms of the bargain.

What happens when the condition precedent is based on the promisor's satisfaction?

Many contracts include an express condition that a party will pay only if "satisfied" with the other party's performance. Because it is a condition, the promisor is under no duty to pay unless she is satisfied. The issue is how the promisor's satisfaction is to be measured; i.e., whether the performance must meet with promisor's actual personal satisfaction, or must only be a performance that would meet with the satisfaction of a reasonable person. The provision requiring the promisor's satisfaction is construed according to the subject matter of the contract.

When is mutual mistake not a defense?

Mutual mistake is not a defense if the party asserting 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 (e.g., contractor vs. homeowner) or where the parties knew that their assumption was doubtful (i.e., when the parties were consciously aware of their ignorance). In other words, to be a defense it must be a mistake, not a mere uncertainty.

g. Excuse of Condition by Waiver or Estoppel

One having the benefit of a condition under a contract may indicate by words or conduct that she will not insist on that condition's being met. Consideration is not required for a valid waiver of condition. The courts, in certain circumstances, will enforce this expression on the basis that the party has "waived" the condition or is "estopped" from asserting it. 1) Estoppel Waiver Whenever a party indicates that she is "waiving" a condition before it is to happen, or she is "waiving" some performance before it is to be rendered, and the person addressed detrimentally relies on the waiver, the courts will hold this to be a binding (estoppel) waiver. Note, however, that the promise to waive a condition may be retracted at any time before the other party has changed his position to his detriment. 2) Election Waiver When a condition does not occur or a duty of performance is broken, the benefi- ciary of the condition or duty must make an election; she may: (i) terminate her liability, or (ii) continue under the contract. If she chooses the latter course, she will be deemed to have waived the condition or duty. This election waiver requires neither consideration nor estoppel (although estoppel elements are often present). Note that, unlike an estoppel waiver, an election waiver cannot be withdrawn— even if the other party has not relied on it. 3) Conditions that May Be Waived If no consideration is given for the waiver, the condition must be ancillary or collateral to the main subject and purpose of the contract for the waiver to be effective. In other words, one cannot "waive" entitlement to the entire or substantially entire return performance. This would amount to a new undertaking that is really a gift in the disguise of a waiver. -4) Waiver in Installment Contracts In an installment contract, if a waiver is not supported by consideration, the beneficiary of the waived condition can insist on strict compliance with the terms of the contract for future installments (so long as there has been no detrimental reliance on the waiver) by giving notice that he is revoking the waiver.

What is the rule regarding charitable subscriptions, marriage settlements, and other gifts?

One of the functions of the doctrine of consideration is to deny enforcement to a promise to make a gift. Such a promise is ordinarily enforced by virtue of the promisee's reliance only if his conduct is foreseeable and reasonable and involves a definite and substantial change of position which would not have occurred if the promise had not been made. In some cases, however, other policies reinforce the promisee's claim. Thus the promisor might be unjustly enriched if he could reclaim the subject of the promised gift after the promisee has improved it. Subsection (2) identifies two other classes of cases in which the promisee's claim is similarly reinforced. American couts have traditionally favored charitable subscriptions and marriage settlements, and have found consideration in many cases where the element of exchange was doubtful or nonexistent. Where recovery is rested on reliance in such cases, a probability of reliance is enough, and no effort is made to sort out mixed motives or to cconsider whether partial enforcement would be appropriate.

What is the effect of an irrevocable assignment?

One should note that the term "irrevocable" as applied to an assignment may be misleading. The effect of such irrevocability is to remove from the assignor the right to revoke or make a subsequent assignment of the same right to a third party. However, in many situations, even though the assignor no longer has this right, he still has the power to do so. He would, of course, be liable for a breach of contract. Exception: An exception exists for assignments accompanied by delivery of a token chose. In this case, the assignor loses both the right and the power to revoke or further assign.

What is the fifth agreement covered under the statute of frauds?

Performance Not Within One Year from Date of Contract A promise that by its terms cannot be performed within one year is subject to the Statute of Frauds. Part performance does not satisfy the Statute of Frauds in this case. 1) Effective Date The date runs from the date of the agreement and not from the date of perfor- mance. Example: Maria entered into an employment agreement whereby she was to perform services from April 1, 2014, until March 31, 2015. The agreement was entered into on March 15, 2014. It must be evidenced by a writing.

What is the second agreement under the statute of frauds?

Promises to Pay Debt of Another (Suretyship Promises) 1) Must Be a Collateral Promise A promise to answer for the debt or default of another must be evidenced by a writing. The promise may arise as a result of a tort or contract, but it must be collateral to another person's promise to pay, and not a primary promise to pay. Example: "Give him the goods, and if he does not pay, I will." This promise is a collateral promise and must be evidenced by a writing. But if the promise is, "Give him the goods, and I will pay for them," the promise is a primary promise and need not be evidenced by a writing. 2) Main Purpose Must Not Be Pecuniary Interest of Promisor If the main purpose or leading object of the promisor is to serve a pecuniary interest of his own, the contract is not within the Statute of Frauds even though the effect is still to pay the debt of another. Example: Ernie contracted with ABC Co. to have some machines custom- made for his factory. He promised ABC Co.'s supplier that if it would continue to deliver materials to ABC, Ernie would guarantee ABC Co.'s payment to the supplier. This promise need not be in writing because Ernie's main purpose in guaranteeing payment was to assure that ABC Co. had adequate supplies to build his machines.

d. Excuse of Condition by Prospective Inability or Unwillingness to Perform

Prospective failure of condition occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. Example: John contracts with Barbara to buy her house for $150,000. Payment is due on August 1. On July 10, John goes into bankruptcy (or Barbara transfers title to the house to Emily). Prospective inability to perform has occurred. 1) Distinguish from Actual and Anticipatory Repudiation Prospective inability or unwillingness to perform is not an anticipatory repudiation because such a repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform. (In short, the distinction between anticipatory repudiation and prospective inability to perform is one of degree.) 2) What Conduct Will Suffice? Any conduct may suffice for a finding that there is prospective inability or unwillingness to perform. Note that in judging this conduct, a reasonable person standard will be applied. 3) Effect of Prospective Failure The effect of this prospective failure is to allow the innocent party to suspend further performance on her side until she receives adequate assurances that performance will be forthcoming. If she fails to obtain adequate assurances, she may be excused from her own performance and may treat the failure to provide assurances as a repudiation. (This same basic right is provided in UCC section 2-609—see VIII.A.2.c., infra.) 4) Retraction of Repudiation As with anticipatory repudiation, retraction is possible if the defaulting party regains his ability or willingness to perform. However, this fact must be communicated to the other party in order to be effective. If the other party has already changed her position in reliance on the prospective failure, an attempted retraction may be ineffective.

What are ways an offer in a bilateral contract can be accepted?

Recall that unless an offer specifically provides that it may be accepted only through performance, it will be construed as an offer to enter into a bilateral contract and may be accepted either by a promise to perform or by the beginning of performance (compare offers for true unilateral contracts, which may be accepted only by full performance). a. Generally, Acceptance Must Be Communicated Generally, acceptance of an offer to enter into a bilateral contract must be communicated to the offeror. 1) Exception—Waiver in Offer If an offer provides that acceptance need not be communicated, then no communi- cation of the acceptance is required. Example: Alex applies for life insurance on a form that provides that the policy will become effective immediately upon approval by the insurance company's home office. The insurance contract is formed when the home office approves Alex's application.

What is anticipatory repudiation?

Requires a clear manifestation of an intent not to perform the contract on the date of performance. That intention must be definite and unequivocal manifestation that will not render the promised performance when the time fixed for it in the contract arrives. Doubtful and indefinite statements that performance may or may not take place are not enough to constitute anticipatory repudiation. The another party needs to give notice of acceptance of anticipatory repudiation. -An anticipatory repudiation may take the form of a statement that clearly indicates an intent to breach (not just a mere expression of doubt) or a voluntary, affirmative act that renders a party unable to perform. It is possible for an anticipatory repudiation to be retracted before it becomes final. If a party makes an anticipatory repudiation, the other party may elect to sue immediately and is under no obligation to wait until the date performance is due. [See Restatement (Second) of Contracts §§ 250 (with comments), 256 (1981)]

How does restitution apply when there is no contract between the parties? RULE!!

Restitution may also be available in a quasi-contract action when there is no contractual relationship between the parties if: -(i) The plaintiff has conferred a benefit on the defendant by rendering services or expending properties; (ii) The plaintiff conferred the benefit with the reasonable expectation of being compensated for its value; (iii) The defendant knew or had reason to know of the plaintiff's expectation; and (iv) The defendant would be unjustly enriched if he were allowed to retain the benefit without compensating the plaintiff. -Note: Where the parties are in a close relationship to one another, it is usually presumed that the benefits were given gratuitously and the party claiming relief bears the burden of showing that they were conferred with an expectation of being paid therefor.

How does restitution apply when the contract is unenforceable?

Restitution may be available in a quasi-contract action when a contract was made but is unenforceable and unjust enrichment otherwise would result. Examples: 1) Aristotle hires Derek to sign autographs in Aristotle's sporting goods store one day next month and gives Derek half of his $1,000 fee upon making the contract. Derek then dies and so is discharged from his obligation to perform. Aristotle can recover the $500 from Derek's estate as restitution in quasi-contract. 2) Owner hires Builder to repair Owner's house. After Builder has completed half of the repair work, the house is destroyed by a tornado. Although the parties will be discharged for impossibility, Builder will be able to recover in restitution for the valuable improvements made to the house before it was destroyed. 3) Landlord promises to sell Tenant five acres of a 1,000-acre tract that Tenant is leasing, but the contract fails to state which five acres. Tenant plants fruit trees on the five acres that he thinks were intended. Tenant cannot enforce the promise because it does not specify which five acres were intended, but he can recover restitution in a quasi-contract action for the value of the fruit trees.

How does restitution apply in the sale of goods?

Restitution of Advance Payments or Deposit If Buyer of Goods in Breach Article 2 has very specific rules concerning whether and how much a breaching buyer can recover of advance payments. If the buyer has paid part of the purchase price in advance and then breaches the contract, he can usually recover some of the payments. (1) General Offset Provision When the buyer breaches, the seller may keep advance payments totaling 20% of the purchase price or $500, whichever is less. The balance must be returned to the buyer. [UCC §2-718(2)(b)] (2) Effect of Liquidated Damages Provision If there is a valid liquidated damages clause, the seller is required to refund only the excess of the buyer's payments over the amount of liqui- dated damages. [UCC §2-718(2)(a)] (3) Seller's Right to Greater Damages The general offset rule above applies only if the seller cannot prove greater actual damages. If the seller can prove damages in excess of 20% of the price or $500, he may recover them. Even if he cannot prove actual damages beyond the offset, he is additionally entitled to incidental damages and the value of any benefits received by the buyer. [UCC §2-718(3)]

What is a constructive (implied) condition?

Sometimes it is implied that the duty to render performance under a contract is conditional upon the occurrence of some event or state of the world, even though the contract does not explicitly so state. In that case, there is said to be an "implied" or "constructive" condition that the relevant event or state of the world must occur before the performance of one or both parties comes due.

When there is an ambiguity in a contract, what do the courts look at?

Subjective Intention of Parties Controls While the objective test is used in contract law generally, the latent ambiguity situa- tion is unique in that the courts look to the subjective intention of the parties. This is because the objective test simply does not work in this situation. The objective manifes- tations of the parties appear to be perfectly clear but subsequent facts indicate the latent ambiguity. It is then necessary to receive evidence of what each party subjectively thought at the time of contracting.

What is temporary impossibility/impracticability?

Temporary impossibility suspends contractual duties; it does not discharge them. When performance once more becomes possible, the duty "springs back" into existence. Note, however, that a duty will not "spring back" into existence if the burden on either party to the contract would be substantially increased or different from that originally contemplated.

What is a revocation?

Termination by Offeror—Revocation A revocation is the retraction of an offer by the offeror. A revocation terminates the offeree's power of acceptance if it is communicated to her before she accepts. 1) Methods of Communication a) Revocation by Direct Communication Revocation directly communicated to the offeree by the offeror terminates the offer. (1) Revocation by Publication: Offers made by publication may be terminated by publication of revocation through comparable means. Example: An offer published in The New York Times may be revoked by publication in The New York Times. It may not be revoked by publication in Reader's Digest or by a TV spot. b) Revocation by Indirect Communication: The offer may be effectively terminated if the offeree indirectly receives: (i) correct information, (ii) from a reliable source, (iii) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer. Example: Offeree, before attempting to accept Offeror's offer to sell Greenacre, was informed by a reliable third party that Offeror had sold Greenacre to another. Held: Offeror revoked the offer.

What is the rule regarding the failure of timely performance under a contract?

The basic question here is whether the parties to the contract must perform on time. Assuming that the defaulting party had a duty of immediate performance when his failure to perform occurred, then his failure to perform on time will always be a breach of contract. There are, however, additional specific rules for determining the materiality of breach by failure of timely performance.

When a contract confers rights and duties on a third party, what must the situation be?

The basic situation to be dealt with here is: A enters into a valid contract with B that provides that B will render some performance to C. A is the promisee, B is the promisor, and C is a third party. Three main problems must be focused on: (i) Is C an intended third-party beneficiary? (ii) Can A and B alter the contract's terms to deprive C of her rights? That is, when do C's rights vest? (iii) What are the rights of A and C against B; of C against A?

Does buyer have a duty to hold rejected goods?

The buyer has a duty to hold rejected goods with reasonable care and without exercise of ownership over them for an amount of time that is sufficient to permit the seller to remove the goods. [See U.C.C. § 2-602(2) (2002)] Example: A buyer buys a new station wagon and takes it home. Afterward, the buyer discovers that the car does not have a spare tire, which was required under the contract, and notifies the seller that he revokes his acceptance of the car. The buyer leaves the car parked in front of his home and refuses delivery of new license plates. Eventually, the station wagon is towed due to an expired registration. The buyer has held the station wagon with reasonable care and has not violated his duty to hold. [See Colonial Dodge, Inc. v. Miller, 362 N.W.2d 704 (Mich. 1984)]

What is the effect of an assignment?

The effect of an assignment is to establish privity of contract between the obligor and the assignee while extinguishing privity between the obligor and assignor. The assignee then replaces the assignor as the real party in interest, and she alone is entitled to performance under the contract. 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.

What is the difference between a failure of a condition and a breach of contract?

The failure of a contractual provision that is only a condition is not a breach of contract, but it discharges the liability of the promisor whose obligations on the conditional promise never mature. b) Excuse of Performance Breach of a promise by one party may or may not excuse the other party's duty to perform under the contract (see 6.b., infra). Nonfulfillment of a condition normally will excuse a duty to perform that was subject to the condition. c) Interrelation of Conditions and Promises If a party's promise to perform is subject to a condition, there can be no breach of contract by that party until the condition has been fulfilled.

What is the general rule regarding rights and duties between parties and what are two important exceptions?

The general rule is that a contract operates to confer rights and impose duties only on the parties to the contract and on no other person. However, two important exceptions exist: (i) contractual rights involving third-party beneficiaries, and (ii) contractual rights or duties that are transferred to third parties. In the first situation, the original contract will confer the rights and duties on the third party; in the second situation, the original contract does not confer any rights or obligations on the third party, but subsequently one of the parties has sought to transfer his rights and/or duties under the contract to a third party (i.e., assignment of rights, delegation of duties).

What significant circumstances does the court look at when determining the materiality of a breach?

The materiality of a breach is generally based on a consideration of a number of significant circumstances: loss of benefit to the injured party, adequacy and extent of compensation to the injured party, disproportionate forfeiture by the breaching party based on that party's preparation or performance in substantial reliance on the exchange, likelihood of cure by the breaching party, and absence of good faith or fair dealing by the breaching party. substantial performance, a breach is immaterial if the breaching party has rendered a good faith performance that is substantially similar to what was promised in the contract. Restatement (Second) of Contracts § 237- Note 4 on page 815. Note 6: even fulfill the substantial performance, may still pay for the damages.

The mistake must relate to what for it to be used as a defense?

The mistake must relate to a basic assumption upon which the contract was made (also referred to as the "substance of the agreement"). Note however that a mistake as to the value of the subject matter of the contract is generally not a defense.

How does the parol evidence rule apply to warranties?

The parol evidence rule might be an obstacle to a buyer to whom an express warranty was made when the contract contains a broad disclaimer of warran- ties. In a typical situation, the seller makes an express warranty verbally, but the written contract contains no such warranty and instead contains a clause disclaiming all warranties not set forth in the contract. Here, the parol evidence rule could prevent the buyer from introducing evidence of the verbal warranty. But note: The buyer can often avoid the rule by a showing that he did not intend that the writing be the complete and exclusive expression of the parties' agreement (see V.C.2., supra) or that the disclaimer is unconscionable under the circumstances

How can the parties end an agreement?

The parties may end the original contract through a rescission, release, or covenant not to sue.

What is the rule when the parties substitute a new agreement?

The parties may substitute a new agreement for the original contract through an accord and satisfaction, substituted contract, or novation. The court will determine whether a new agreement is an accord or substituted contract by considering the parties' intent. [See Restatement (Second) of Contracts § 279 cmt. c (1981)]

Sale of goods: What is the perfect tender rule?

The perfect tender rule provides that all goods, including the delivery of those goods, must conform to the contract in every respect. The common law substantial performance doctrine does not apply to contracts for the sale of goods, and the court will not distinguish between a minor and a material breach. In other words, any failure to adhere to the terms of the contract, however slight, will entitle the injured party to a remedy. Note that a buyer generally has the right to inspect the goods before accepting or rejecting. If the seller violates the perfect tender rule, the seller breaches the contract, and the buyer may elect to reject or accept the goods (either partially or as a whole). In some cases, the buyer may also accept and then subsequently revoke acceptance of the goods. [See U.C.C. § 2-601; 2-513 (2002)]

e. Excuse of Condition by Substantial Performance

The performance of one contractual promise is usually a condition precedent to the duty of immediate performance of the return promise (see 4., supra). Technically, if the promise has not been completely performed, the other performance is not yet due. This can cause forfeiture if the breach is minor, because the promisee can receive almost complete performance with no duty to perform in return. To avoid this harsh result, the courts have adopted the "substantial performance" and "divisibility" concepts. 1) Rule of Substantial Performance Generally, the condition of complete performance may be excused if the party has rendered substantial performance. In this case, the other party's duty of counter- performance becomes absolute. It should be noted, however, that courts gener- ally apply this doctrine only where a constructive (implied in law) condition is involved. They will not apply it where there is an express condition for fear this would defeat the express intent of the parties. 2) Substantial Performance Arises If Breach Is Minor Rules for determining substantiality of performance are the same as those for determining materiality of breach. (See VII.B.2., infra.) In other words, the test is whether the breach of contract by the performing party is material or minor. If it is material, then performance has not been substantial; if it is minor, performance has been substantial. 3) Inapplicable Where Breach "Willful" Most courts will not apply the substantial performance doctrine if the breach was "willful." (This is so even though willfulness is only one of the six factors usually relied on in determining materiality of a breach. See VII.B.2., infra.) Trivial defects, however, even if willful, will be ignored by the courts as de minimis. 4) Damages Offset Even though the party who has substantially performed is able to enforce the contract, the other party will be able to mitigate by deducting damages suffered due to the first party's incomplete performance. 5) Generally Inapplicable to Contracts for the Sale of Goods For contracts for the sale of goods, the UCC's "perfect tender rule" gives the buyer the right to reject goods that do not conform to the contract in any manner, with a few exceptions (see VII.C., infra). [UCC §2-601]

What happens if there has been a successive assignment of the same right?

The problem: X assigns to Y a right to the payment of $500 owed him by Smith. Subsequently, X assigns this same right to Z. Who prevails—Y or Z? 1) Revocable Assignments If the first assignment made is revocable, a subsequent assignment will serve to revoke it (i.e., the subsequent assignee prevails). 2) Irrevocable Assignments a) First Assignee Has Priority The general rule is that if the assignor makes two assignments of the same right and the first assignment is irrevocable, the first assignee has priority. b) Exceptions In certain situations, a second assignee who pays value and takes without notice of the earlier irrevocable assignment will prevail. (1) Judgment Against Obligor If the subsequent assignee gets the first judgment against the obligor, she will prevail. (2) Payment of Claim If the later assignee gets first payment from the obligor on the assigned claim, her rights will be superior. (3) Delivery of Token Chose If the subsequent assignee gets the first delivery of a token chose from the assignor, she will prevail. (4) Novation The second assignee will prevail if she obtains a novation that super- sedes the obligation running to the assignor in favor of the new one running to her. This assumes that the obligor had no knowledge of the prior assignment at the time of the novation. (5) Estoppel If the subsequent assignee is able to set up an estoppel against the first assignee, she will have priority, e.g., the first assignee permits the assignor to retain a document that would indicate to a reasonable person that the assignor was sole owner of the right. (Estoppel could, of course, operate the other way as well. Thus, if the subsequent assignee has actual knowledge of the earlier assignment, she will be estopped to assert her claim as against the earlier assignee even though she would, under any of the other rules above, normally succeed.) 3) UCC Rules Basically, the UCC has approached the successive assignments problem by imposing filing requirements. [UCC §9-310] If the filing provision is applicable to the trans- action, generally the assignee who is the first to file will prevail. [UCC §9-322]

Is forbearance to sue and a settlement of claims valid consideration?

The promise to refrain from suing on a claim may constitute consideration. If the claim is valid, the forbearance to sue is, of course, sufficient consideration. If the claim is invalid and the claimant is aware of this fact, he has no such right; his suit is no more than the wrongful exercise of a power. But even if the claim is invalid, in law or in fact, if the claimant reasonably and in good faith believes his claim to be valid, forbearance of the legal right to have his claim adjudicated constitutes detriment and consideration.

What are some factors the courts take into consideration to determine if the actor's conduct who is claiming promissory estoppel is protected?

The promisor is affected only by reliance which he does or should foresee, and enforcement must be necessary to avoid injustice. Satisfaction of the latter requirement may depend on the reasonableness of the promisee's reliance, on its definite and substantial character in relation to the remedy sought, on the formality with which the promise is made, on the extent to which the evidentiary, cautionary, deterrent and channeling functions of form are met by the commercial setting or otherwise, and on the extent to which such other policies as the enforcement of bargains and the prevention of unjust enrichment are relevant.

Is a unilateral offer irrevocable once the actor prepares to begin preparations under D.

The rules limiting the offeror's power to revoke an offer for a unilateral contract apply only if the offeree has embarked on performance. They do not apply when the offeree is only preparing to perform. Note, however, that substantial preparations to perform may constitute detrimental reliance sufficient to make the offeror's promise binding to the extent of the detrimental reliance.

What cure does the seller have for any non-conforming goods?

The seller may cure any non-conformity of the goods after rejection by promptly notifying the buyer of the sellers' intent to cure. If the time for performance has not expired, then the seller merely needs to make a conforming delivery by the due date of the performance (which the buyer must accept). However, if the time for performance has expired, then the seller may have additional time to make a conforming delivery only if the seller had reasonable grounds to believe that the non-conforming goods would be acceptable. [See U.C.C. § 2-508 (2002)]

What is an explicit disclaimer?

The seller may explicitly disclaim any of the following: (1) an express warranty, using clear and reasonable words or conduct, (2) an implied warranty of merchantability, using spoken or written language that mentions merchantability, or (3) an implied warranty of fitness, using written language. An explicit disclaimer of either type of implied warranty must be conspicuous (not in fine print unless pointed out to the buyer). "As is" disclaimer need not be conspicuous. [See U.C.C. § 2-316(1)-(2) (2002)]

What is an implicit disclaimer?

The seller may implicitly disclaim either type of implied warranty by using plain language, such as "as is" or "with all faults," or by permitting a buyer examination of the goods. If the buyer examines the goods as fully as desired or refuses to examine the goods at all, then the warranty is negated for any defects that the examination should have revealed under the circumstances. Note that an express warranty may not be implicitly disclaimed.

What is an express condition?

The term "express condition" normally refers to an explicit contractual provision. It is an express statement in the contract providing that either (i) a party does not have a duty to perform unless some event occurs or fails to occur; or (ii) if some event occurs or fails to occur, the obligation of a party to perform one or more of his duties under the contract is suspended or terminated. Conditions of satisfaction are common express conditions.

Can a warranty of title be disclaimed?

The title warranty can be disclaimed or modified only by specific language or by circumstances which give the buyer notice that the seller does not claim title or that he is selling only such rights as he or a third party may have (e.g., a sheriff's sale).

What is the mirror image rule?

The traditional rule under the common law is that an acceptance must unconditionally agree to the exact terms of the offer. In other words, an acceptance must be the "mirror image" of the offer and may not add or remove any terms. The mirror image rule generally does not apply to the sale of goods.

How can a disclaimer of warranty of fitness for a particular use be effective?

The warranty of fitness for a particular purpose can be specifically disclaimed only by a conspicuous writing. A written disclaimer, according to the statute, is sufficient if it says, for example, "[t]here are no warranties which extend beyond the description on the face hereof."

How many types of WARRANTIES are there?

There are three primary types of warranties: express warranties, implied warranties of merchantability, and implied warranties of fitness for a particular purpose. However, a seller may limit warranties through the use of disclaimers.

What are the two basic categories of "intended beneficiaries" who may sue on the promise?

There are two basic categories of "intended" beneficiaries who may sue on the promise: creditor and donee beneficiaries. The distinction between the two is based on the promisee's purpose in extracting the commitment from the promisor. 1) Creditor Beneficiary If the promisee's purpose in extracting the promise was to discharge an obligation owed to the third party, the third party is a creditor beneficiary. 2) Donee 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.

What is the bargained-for exchange?

This element of consideration requires that the promise induce the detriment and the detri- ment induce the promise (see preceding example). Unless both of these elements are present, the "bargained-for exchange" element of consideration is not present. If either of the parties intended to make a gift, he was not bargaining for consideration, and this requirement will not be met. -a. Act or Forbearance by Promisee Must Be of Benefit to Promisor It is not enough that the promisee incurs detriment; the detriment must be the price of the exchange, and not merely fulfillment of certain conditions for making the gift. The test is whether the act or forbearance by the promisee would be of any benefit to the promisor. In other words, if the promisor's motive was to induce the detriment, it will be treated as consideration; if the motive was no more than to state a condition of a promise to make a gift, there is no consideration.

What is the test to determine if goods are merchantable

To be merchantable, goods must at least: (i) Pass without objection in the trade under the contract description; (ii) In the case of fungible goods, be of fair average quality within the description; (iii) Be fit for the ordinary purposes for which such goods are used; (iv) Be, within the variations permitted by the agreement, of even kind, quality, and quantity within each unit and among all units involved; (v) Be adequately contained, packaged, or labeled according to the contract; and (vi) Conform to any promises or affirmations of fact made on the label. Other warranties of merchantability may arise from the course of dealing or usage of trade. [UCC §2-314(2)] The most important test is "fit for the ordinary purposes for which such goods are used," and a failure to live up to this test is the usual claim in a merchantability suit.

What is the statute of frauds and what is its purpose?

To prevent people from being bound by agreements that did not make; it should not protect them from agreements they admit they made. - Oral modification allowed as long as do not alter the underlying obligations - In most instances, an oral contract is valid. However, certain agreements, by statute, must be evidenced by a writing signed by the party sought to be bound. 1. Writing Requirement The Statute of Frauds does not require a formal written contract. Among other things, the writing could be a receipt, a letter, a check with details in the memo line, or a written offer that was accepted orally. The Statute requires only one or more writings, signed by the party to be charged, that: (i) reasonably identify the subject matter of the contract, (ii) indicate that a contract has been made between the parties, and (iii) state with reasonable certainty the essential terms of the unperformed promises. [Restatement (Second) of Contracts §131]

What is the doctrine of divisibility?

Two requirements must be met. First, it must be possible to apportion the performances of the parties into corresponding pairs performances. Second, it must be proper to treat theses pairs of part performances as "agreed equivalents." Restatement Section 240.

When can a plaintiff seek restitution for breaching a contract?

Typically, the plaintiff will be seeking restitution because the defendant breached the contract. However, under some circumstances, a plaintiff may seek restitution even though the plaintiff is the party who breached. If the breach was intentional, some courts will not grant the breaching party restitution; modern courts, however, will permit restitutionary recovery but limit it to the contract price less damages incurred as a result of the breach. Example: Client hires Attorney to represent Client in a contract dispute. Attorney prepares the case, but withdraws without good cause. The case is settled favorably for Client. Modern courts will allow Attorney to recover for the value of the services he rendered to Client, up to the contract price, reduced by the reasonable amount Client had to expend to hire another attorney.

What is the general view of contract law regarding modification? What is the modern view?

Under general contract law, a final contract cannot be modified unless the modification is supported by new consideration. The modern view, however, permits modification without consideration if: (i) the modification is due to circumstances that were unanticipated by the parties when the contract was made and (ii) it is fair and equitable. [See Restatement (Second) of Contracts §89] The bar examiners have indicated that they are looking for the modern view on the MBE. The UCC is even more liberal with regard to modification. Under the UCC, promises of new and different terms by the parties to a sales contract are valid without consideration, but good faith is required to make a modification enforceable.

What is the effect of noncompliance with the statute of frauds and what are some remedies?

Under the majority rule, noncompliance with the Statute of Frauds renders the contract unenforceable at the option of the party to be charged (i.e., the party being charged may raise the lack of a sufficient writing as an affirmative defense). If the Statute is not raised as a defense, it is waived. e.) Equitable and Promissory Estoppel Estoppel (see III.D., supra) is sometimes applied in cases where it would be inequitable to allow the Statute of Frauds to defeat a meritorious claim. When a defendant falsely and intentionally tells a plaintiff that the contract is not within the Statute or that he will reduce their agreement to a writing, or when his conduct foreseeably induces a plaintiff to change his position in reliance on an oral agreement, courts may use the doctrine to remove the contract completely from the Statute of Frauds. c. Judicial Admission If the party asserting the Statute of Frauds defense admits in pleadings or testimony that there was an agreement, it is treated as though the Statute is satisfied. The contract will be enforced without a writing. 6. Remedies If Contract Is Within Statute If a contract is within the Statute of Frauds and there is noncompliance with the Statute with no applicable exception, in almost all cases a party can sue for the reasonable value of the services or part performance rendered, or the restitution of any other benefit that has been conferred. (See VIII.C., infra, for a detailed discussion.) This recovery would be in quantum meruit rather than a suit on the contract. The rationale is that it would be unjust to permit a party to retain benefits received under the failed contract without paying for them. 7. Contract Made by Agent The problem: A given contract is required under state law to be evidenced by a writing. An agent now purports to enter into such a contract on behalf of her principal. Must the agent's authority also be in writing? Most states would answer no, except for contracts involving interests in real property. A few states would answer yes as to all such contracts pursuant to the states' equal dignities statutes. However, even where written authority would otherwise be required, written authority may be dispensed with if the agent contracted in the presence and under the direction of the principal or if the principal later ratified the contract in writing.

What is the terminology used for restitution?

When a contract is unenforceable or no contract between the parties exists, an action to recover restitutionary damages often is referred to as an action for an implied in law contract, an action in quasi-contract, or an action for quantum meruit.

When one party brings a suit seeking to enforce a contract, what are the three questions the court looks to answer?

When a suit is brought in which one party seeks to enforce a contract or to obtain damages for breach of contract, a court must first decide whether there was in fact a contract. In making this determination, a court will ask the following three basic questions: 1. Was there mutual assent? 2. Was there consideration or some substitute for consideration? 3. Are there any defenses to creation of the contract?

What happens when the purpose of the condition is to benefit only one party?

When it is clear that the purpose of a condition is to protect or benefit only one of the parties, the other party's duty will not be subject to the condition. Example: A buyer and seller enter into a contract under which the buyer will purchase the seller's property if the buyer is able to obtain a loan at 6% interest. The buyer is only able to obtain a loan at 7% but wants to go through with the purchase. The condition was clearly inserted for the buyer's benefit. Courts will not allow the seller to use the condition to excuse his duty and avoid the contract.

Can a provision be both a promise and a condition? When can a condition imply a promise?

When the occurrence of a condition is within the benefiting party's control, that party impliedly promises to act in good faith and use reasonable effort to cause the condition to occur. Example: Buyer and Seller enter into an agreement for the sale of Blackacre. The written contract provides that the contract is contingent on Buyer obtaining a 30-year mortgage at 5%. Buyer changes his mind about the purchase and does not apply for any mortgages. Because of his lack of good faith reasonable effort to obtain a mortgage, Buyer's duty to perform under the contract will not be excused by the failure of the condition.

What is the rule when there is a mistake by transmission?

When there is a mistake in the transmission of an offer or acceptance by an intermediary, the prevailing view is that the message as transmitted is operative unless the other party knew or should have known of the mistake. Example: Compare: Harry put his home up for sale at the price of $340,000. After viewing the home, Sally called her attorney and asked him to prepare an offer to purchase the home for $313,000. The attorney misunderstood Sally and prepared an offer for $330,000 and transmitted the offer to Harry. Harry accepted. Assuming that the attorney had the power to bind Sally, a contract was formed to buy the house for $330,000, despite the attorney's mistake in trans- mitting the price. Same facts as above, but Sally asked her attorney to prepare an offer for $318,000 and the attorney misunderstood and submitted an offer for $380,000. Here, Sally probably would not be bound because Harry probably should have known of the error as the offer substantially ex

Is the assignment revocable?

When, if ever, do the rights of the assignee "vest" so that the assignment becomes irrevocable? Assignments are divided into two categories: assignments for value and gratuitous assignments. 1) Assignments for Value Are Irrevocable An assignment is for value if it is: (i) done for consideration, or (ii) taken as security for or payment of a preexisting debt. Assignments for value cannot be revoked. -2) Gratuitous Assignments Are Revocable An assignment not for value, i.e., a "gratuitous" assignment, is generally revocable. a) Exceptions to Rule of Revocability In certain situations, however, a gratuitous assignment will be held irrevo- cable. (1) Performance by Obligor If the obligor has already performed, the assignment will be irrevocable. (2) Delivery of Token Chose If a token chose (tangible claim) involving the rights to be assigned (e.g., stock certificates, savings account passbook, etc.) has been delivered, the assignment will be irrevocable. (3) Assignment of Simple Chose in Writing If the assignment involves a simple chose, i.e., an intangible claim not embodied by any token (or the great majority of ordinary contract rights), setting it forth in a writing will make the assignment irrevocable. (4) Estoppel The theory of estoppel may prevent the assignor from revoking a gratu- itous assignment if: (i) the assignor should reasonably foresee that the assignee will change her position in reliance on the assignment; and (ii) such detrimental reliance does in fact occur.

What is material misrepresentation?

Whether or not a misrepresentation is fraudulent, the contract is voidable by the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material. A misrepresentation is material if: (i) it would induce a reasonable person to agree, or (ii) the maker knows that for some special reason it is likely to induce the particular person to agree, even if a reasonable person would not.

What is important to remember as to whether the writing intended by the parties was final? How does this related to parol evidence?

Writings that evidence a purported contract are not necessarily the "final" expression of that contract. Thus, for example, the parties might only have intended such writings to be preliminary to a final draft. If so, the parol evidence rule will not bar introduction of further evidence. Any relevant evidence is admissible to show that the parties did not intend the writing to be final. Note that the more complete the agreement appears to be on its face, the more likely it is that it was intended as an integration.

What is the rule regarding warranties and assignments?

a) Assignor's Warranties In every assignment for value, the assignor impliedly warrants that: (i) He has the right to make the assignment; i.e., the assignor has made no prior assignment of the right; (ii) The right exists and is not subject to limitations or defenses other than those stated or apparent at the time of the assignment; and (iii) He will do nothing to defeat or impair the assigned right; e.g., he will not attempt a subsequent assignment. [Restatement (Second) of Contracts §333] Breach of any of these warran- ties gives rise to a cause of action. For example, if the assignor wrongfully exercises his power to revoke the irrevocable assignment, the assignee may proceed against him. Also, the assignee may seek to recover against the assignor if the obligor successfully asserts a defense she had against the assignor in an action by the assignee, thereby defeating the assigned right— provided the assignee had no notice of the defense at the time of the assign- ment. b) Obligor Incapable of Performance The assignor will not be liable to the assignee if the obligor is incapable of performing, e.g., is insolvent. c) Rights of Sub-Assignees Sub-assignees do not have any rights against the original assignor. The courts reason that there is no privity of contract. However, the assignee who "sub-assigns" becomes the assignor with respect to that assignment and can be held liable thereon.

What are specific situations in which impossibility arises?

a) Death or Physical Incapacity Death or the physical incapacity of a person necessary to effectuate the contract serves to discharge it. -b) Supervening Illegality As we have seen, supervening illegality may serve to discharge a contract. Many courts treat such supervening illegality as a form of impossibility. -c) Subsequent Destruction of Contract's Subject Matter or Means of Performance If the contract's subject matter is destroyed or the designated means for performing the contract are destroyed, contractual duties will be discharged. Note, however, that this destruction must not have been the fault of either party. Substantial damage to the subject matter will generally be construed by the courts as the equivalent of "destruction." -(3) If Risk of Loss Has Already Passed to Buyer The rules relating to discharge because of destruction of the subject matter will not apply if the risk of loss has already passed to the buyer. The usual situations involve contracts for the sale of goods under the UCC and contracts for the sale of land where equitable conversion has taken place. In such cases, the seller may enforce the contract and the buyer will have to pay.

What contracts are not covered in the statute of frauds?

a) Possibility of Completion Within One Year If the contract is possible to complete within one year, it is not within the one-year prong of the Statute of Frauds, even though actual performance may extend beyond the one-year period. Example: Carlo makes the following oral statement to Nellie: "Be my nurse until I recover and I will pay you a small salary now, but leave you a large estate in my will." The contract need not be evidenced by a writing because Carlo could recover within one year. b) Right to Terminate Within Year If a contract that cannot be performed within one year allows both parties the right to terminate within a year, there is a split as to whether the right to terminate takes the contract out of the one-year prong of the Statute of Frauds. The majority view is that nonperformance is not performance within one year, and so the contract is still within the Statute of Frauds. The minority Second Restatement view suggests that because the contract is terminable by either party within a year, it is outside the Statute. c) Lifetime Contracts A contract measured by a lifetime (e.g., a promise to "employ until I die" or "work until I die") is not within the Statute because it is capable of perfor- mance within a year, since a person can die at any time. d) Performance by One Party Even if a contract cannot be performed within one year, if it has been fully performed on one side, most courts will find that it is enforceable even though it is oral. Even if a court were to find that it was not enforceable, the performing party can sue for restitution for the reasonable value of the benefit conferred.

What are some things the court looks at to determine the adequacy of consideration?

a. Adequacy of Consideration Courts of law normally will not inquire into the adequacy of consideration (i.e., the relative values exchanged). If a party wishes to contract to sell an item of high market value for a relatively low price, so be it. However, courts of equity may inquire into the relative values and deny an equitable remedy (such as an order for specific performance) if they find a contract to be unconscionable. 1) Token Consideration If the consideration is only token (i.e., something entirely devoid of value), it will usually not be legally sufficient. The courts reason that this indicates a gift rather than bargained-for consideration. 2) Sham Consideration Parties to a written agreement often recite that it was made in consideration of $1 or some other insignificant sum. Frequently, this recited sum was not in fact paid and, indeed, it was never intended to be paid. Most courts hold that evidence may be introduced to show that the consideration was not paid and no other consider- ation was given in its stead. 3) Possibility of Value Where there is a possibility of value in the bargained-for act, adequacy of consid- eration will be found even though the value never comes into existence.

What is a condition precedent?

a. Condition Precedent A condition precedent is one that must occur before an absolute duty of immediate performance arises in the other party. Example: Sal and Mary agree that "in consideration of Mary's promise to repay principal plus 8% interest, Sal hereby promises to loan Mary $50,000 for one year, provided that on July 1, the market value of Mary's country home is not less than $100,000." On July 1, Mary's country home is appraised at a market value of $80,000. Sal refuses to make the loan, and Mary sues. Sal wins because his duty to loan the $50,000 is subject to an express condition precedent. Because the condition was not satis- fied, Sal's contingent liability never matured.

What are the (8) ways a condition can be excused? Explain each excuse individually in the cards to follow?

a. Excuse of Condition by Hindrance or Failure to Cooperate -b. Excuse of Condition by Actual Breach -c. Excuse of Condition by Anticipatory Repudiation -d. Excuse of Condition by Prospective Inability or Unwillingness to Perform -e. Excuse of Condition by Substantial Performance -f. Excuse of Condition by "Divisibility" of Contract -g. Excuse of Condition by Waiver or Estoppel -h. Excuse of Condition by Impossibility, Impracticability, or Frustration

What six criteria are used to determine the materiality of a breach?

a. General Rule Whether a breach is material or minor is a fact question. To make this determination, the courts generally apply the following six criteria [Restatement of Contracts §275]: 1) Amount of Benefit Received Look to the extent to which the nonbreaching party will receive substantially the benefit she could have anticipated from full performance. The greater the extent, the less material the breach. 2) Adequacy of Damages Look to the extent to which the injured party may be adequately compensated in damages. The greater the extent, the less material the breach. 3) Extent of Part Performance Look to the extent the party failing to perform completely has already performed or made preparations to perform. The greater the extent, the less material the breach. 4) Hardship to Breaching Party Look to the extent of hardship on the breaching party should the contract be terminated. If a finding of materiality and termination of the contract would cause great hardship to the breaching party, the breach is less likely to be found to be material. 5) Negligent or Willful Behavior Look to the extent of negligent or willful behavior of the party failing to perform. The greater the extent, the more material the breach. 6) Likelihood of Full Performance Look to the extent of likelihood the party who has failed to perform will perform the remainder of his contract. The greater the extent, the less material the breach.

When and which third parties can sue?

a. Intended Beneficiaries Can Sue Only intended third-party beneficiaries have contract rights. As the term "intended third-party beneficiary" suggests, whether a person is an intended beneficiary depends on the intent of the parties. Example: Rich agrees to pay Erwin $1,000 to paint Paula's house, and Erwin agrees. Paula is an intended third-party beneficiary and has contract law rights even though she is not a party to the contract. b. Incidental Third-Party Beneficiaries Have No Contract Rights Incidental third-party beneficiaries benefit from the contract, but that is not the primary purpose of the contract. These beneficiaries have no contract rights. Example: Rich agrees to pay Erwin $1,000 to paint Rich's house, and Erwin agrees. Rich's unpainted house has affected the property value of his neighbor Paula. Paula's property value will increase when Rich's house is painted; thus, she will benefit from the contract. Here, however, Paula has no contract rights. She is merely an incidental beneficiary; the purpose of the contract was to benefit Rich.

What are situations in a contract can be removed from the statute of frauds?

a. Performance 1) Land Sale Contracts If a seller conveys to the buyer (i.e., fully performs), he can enforce the buyer's oral promise to pay. Likewise, the buyer may seek to specifically enforce an oral land sale contract under the doctrine of part performance. Part performance that unequivocally indicates that the parties have contracted for the sale of land takes the contract out of the Statute of Frauds. What constitutes sufficient part perfor- mance varies among jurisdictions. Most require at least two of the following: (i) payment (in whole or in part), (ii) possession, and/or (iii) valuable improvements. a) Specific Performance Only A purchaser of an interest in land may enforce an oral contract in this manner only in equity (i.e., he may sue only for specific performance, not damages). 2) Sale of Goods Contracts Part performance is sufficient to take a sale of goods contract out of the Statute of Frauds when: (i) the goods have been specially manufactured, or (ii) the goods have been either paid for or accepted. If a sales contract is only partially paid for or accepted, the contract is enforceable only to the extent of the partial payment or acceptance. 3) Services Contracts—Full Performance Required As noted above, an oral contract that cannot be completed within one year but has been fully performed by one party is enforceable.

What are two limitations on the illegality defense?

a. Plaintiff Unaware of Illegality If the plaintiff contracted without knowledge that the agreement was illegal and the defendant acted with knowledge of the illegality, the innocent plaintiff may recover on the contract. -B. Licensing—Revenue Raising vs. Protection If a contract is illegal solely because a party does not have a required license, whether the contract will be enforceable depends on the reason for the license: 1) Revenue Raising—Contract Enforceable If the license is required merely to raise revenue (e.g., a city requires all vendors at a fair to pay a $25 license fee), the contract generally is enforceable. 2) Protection of Public—Contract Not Enforceable If the license is required to ensure that the licensee meets minimum requirements to protect the public welfare (e.g., a license to practice law, medicine, accounting, etc.), the contract is void. This means that even if the unlicensed party performs perfectly under the contract, the party cannot collect any damages.

What is the standard of preference courts use when interpreting a contract? (10)

a. Standards of Preference The court will adhere to certain rules and standards of preference when choosing among reasonable interpretations of a contract. These rules and standards are intended to assist the court in determining the meaning or legal effect of the terms. [See Restatement (Second) of Contracts §§ 202-03, 206 (1981)] i. The parties' intent and purpose are given great weight. ii. The parties' words and conduct are interpreted in light of the circumstances. iii. All terms are interpreted to have reasonable, lawful, and effective meaning. iv. Specific or exact terms are given greater weight than general language. v. Negotiated or added terms are given greater weight than standardized terms. vi. A meaning that operates against the draftsman (the party that supplied the terms of the contract) is preferred over other reasonable meanings. vii. When a single contract involves repeated performances by either party, such as in an installment contract, the course of performance between the parties (for example, acceptance of previous performance without objection) is strong evidence of the contract's meaning. viii. If the parties to a contract have engaged in similar transactions with one another in the past, the course of dealing between the parties may aid in the proper construction of the current contract. ix. The customs, practices, and other trade usages of a particular industry may be used to clarify an agreement between parties who regularly conduct business in the industry.

What are situations in which a contract may be terminated by operation of law?

a. Termination by Death or Insanity of Parties If either of the parties dies or is adjudicated insane prior to acceptance, the offer is terminated. It is not necessary that the death or insanity be communicated to the other party. [Restatement (Second) of Contracts §48] (Compare: Supervening mental incapacity of the offeror without an adjudication of incapacity will terminate an offer only if the offeree is aware of the incapacity.) Note, however, that the offer will not terminate in this fashion if the rules limiting an offeror's power to terminate are appli- cable (e.g., an option contract). b. Termination by Destruction of Subject Matter Destruction of the subject matter terminates the offeree's power of acceptance. [Restatement (Second) of Contracts §36] CONTRACTS AND SALES 15. c. Termination by Supervening Legal Prohibition of Proposed Contract If the subject matter of the proposed contract becomes illegal, the offer will terminate. [Restatement (Second) of Contracts §36] Example: Lucky Lou offers Vegas Vernon a share in his casino business. Prior to acceptance, a law is passed banning casinos. The offer is automatically terminated.

What are rights of the third party beneficiaries and the promisee?

a. Third-Party Beneficiary vs. Promisor If the promisor fails to perform, the third-party beneficiary may sue the promisor on the contract, subject to defenses as follows: 1) Promisor's Defenses Against Promisee Because the third-party beneficiary's rights are derivative, the promisor may raise any defense against the third-party beneficiary that he would have against the promisee, including: lack of assent, lack of consideration, illegality, impossibility, and failure of a condition. 2) Promisee's Defenses Against Third-Party Beneficiary If Promise Not Absolute Whether the promisor can use any of the defenses that the promisee would have against the third-party beneficiary depends on whether the promisor made an absolute promise to pay (e.g., "I will pay T $500 in exchange for your services") or only a promise to pay what the promisee owes the beneficiary (e.g., "I will pay T whatever you owe him in exchange for your services"). In the former case, the promisor cannot assert the promisee's defenses; in the latter case, the promisor can assert the promisee's defenses.

What is a condition concurrent?

b. Conditions Concurrent Conditions concurrent are those that are capable of occurring together, and that the parties are bound to perform at the same time (e.g., tender of deed for cash). Thus, in effect, each is a condition "precedent" to the other. Example: Smith and Jones agree that "in consideration of Jones's promise to pay the sum of $500, Smith promises to convey his 1970 Buick." Having signed this agreement, Jones never tenders the $500 and Smith does not tender the car. Neither party is in breach of contract. The contract is silent regarding the time and place of performance, but the promises exchanged as consideration can obviously be performed at the same time and place. Hence, tender of the promised performance by each party is a constructive condition concurrent to liability of the other. Because both parties failed to tender performance, neither obligation matured.

Explain the elements for promissory estoppel and give examples.

i. Reasonable Expectation The promisor should reasonably expect the promise to induce an act or forbearance from the promisee. Example: A father promises to pay for all six semesters of his daughter's tuition if she attends law school. The father should reasonably expect his daughter to quit her current job to attend law school. This is unlikely to be a reasonable expectation, however, if the father only promises to pay for his daughter's books the first semester. ii. Reliance The promisee must reasonably rely on the promise by performing a definite and substantial act or forbearance in reliance on the promise. Examples: 1) A father promises to pay for all six semesters of his daughter's tuition if she attends law school. The daughter plans to quit her current job to attend law school, but she does not turn in her two weeks' notice or send out law school applications. The daughter has not yet performed a definite or substantial act or forbearance that would permit application of the doctrine of promissory estoppel. 2) Elvis Presley promises to pay for expenses incurred by the mother of his girlfriend during the mother's divorce proceedings, including a $40,000 mortgage debt. Presley dies on August 16, and his estate informs the mother on August 25 that the mortgage debt will not be paid. In April of the following year, the mother enters into a settlement agreement in which she agrees to assume the mortgage debt. Because the mother's reliance on Presley's promise after August 25 is unreasonable, she is not entitled to $40,000 from Presley's estate. [See Alden v. Presley, 637 S.W.2d 862 (Tenn. 1982)] iii. Substantial Detriment The promisee must suffer a substantial detriment in reliance on the promise for promissory estoppel to apply. Any benefit received by the promisee is irrelevant. Example: An uncle promises to reimburse his nephew's trip to Europe. In reliance on his uncle's promise, the nephew goes on the trip and incurs significant expense. Even though the nephew received the benefit of the trip to Europe, the uncle is obligated to provide reimbursement. [See Devecmon v. Shaw, 14 A. 464 (Md. 1888)]

What is the courts view regarding the foreseeability of the event that made the performance impracticable?

the party must show that it neither knew nor had reason to know at the time of contracting of the facts that made performance impracticable. Failure of basic assumption of contract - market failure generally is not such an assumption because parties should know the markets often change dramatically. Natural disaster or war is generally not be granted relief. Most courts have held that relief under the doctrines of impracticability or frustration of purpose should not be denied simply because the event may have been foreseeable - Foreseeability or even recognition of a risk does not necessarily prove its allocation. Parties to a contract are not always able to provide for all the possibilities of which they are aware, sometimes because they cannot agree, often simply because they are too busy. Moreover, that some abnormal risk was contemplated is probative but does not necessarily establish an allocation of the risk of the contingency which actually occurs.

What is promissory estoppel?

• A promise that expressed in an imperfect way, can be implied in the conduct from the parties. Not limited just to expressed promise. • Case by case analysis • The degree of detrimental reliance may be the most significant element in judicial determination that promissory estoppel should be invoked. Definition/Elements (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

In deciding whether a communication creates this reasonable expectation, you should ask the following three questions:

(i) Was there an expression of a promise, undertaking, or commitment to enter into a contract? (ii) Were there certainty and definiteness in the essential terms? (iii) Was there communication of the above to the offeree?

What is a warranty of title?

1) Warranty of Title Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting. [UCC §2-312] This warranty arises automatically and need not be mentioned in the contract.

When can a buyer reject goods?

A buyer may reject goods within a reasonable time after delivery by promptly notifying the seller of the rejection. The court will consider the nature, purpose, and circumstances of the goods when determining reasonableness, such as whether the goods are perishable or likely to rapidly decline in value. [See U.C.C. §§ 1-205, 2-602(1), 2-603(1) (2002)]

What is a merger clause?

A merger clause is a statement in a writing reciting that the agreement is the complete agreement between the parties. The presence of a merger clause is often determinative in large commercial contracts in which both parties are represented by lawyers. The modern trend, however, is to consider the clause as one factor in determining the integration issue.

What is a novation?

A novation is created where the parties enter into a substituted contract that replaces the promisor or promisee with a substitute party. The original party is immediately discharged of any liability under the contract. [See Restatement (Second) of Contracts §§ 279-80, cmt. c (1981); see generally VII.B.1.b, supra (definition of substituted contract)]

What is frustration of purpose?

A party's principal purpose is substantially frustrated if the other party's performance has become virtually worthless, regardless of whether it is possible or practicable because 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.

A parties reliance on a misrepresentation must be what for a contract to be voidable?

A party's reliance on a misrepresentation must be justified for the contract to be voidable; i.e., he is not entitled to relief if the reliance was unreasonable under the circumstances. However, the mere fact that the misrepresentation could have been revealed by the exercise of reasonable care does not mean reliance was unjustified. For example, a party's failure to read a contract or use care in reading it will not necessarily preclude him from avoiding the contract.

What is impracticability?

A performance is impracticable if it will cause extreme and unreasonable difficulty, expense, injury, or loss to one of the parties. The impediment to performance must be severe, and the breaching party must reasonably attempt to overcome any obstacles to performance.

What is a substituted contract?

A substituted contract is created where the promisee accepts a substitute agreement that immediately discharges the promisor's existing duties, regardless of whether the substituted contract has been performed. If there is a breach of the substituted contract, the promisee may only sue for enforcement of the substitute agreement. [See Restatement (Second) of Contracts § 279 (1981)]

What how does the court deal with an omitted term of a contract?

A term is omitted if the parties have failed to provide for a given situation that subsequently arises. The court will fill the gap in the contract by supplying a term that is reasonable under the circumstances. [See Restatement (Second) of Contracts §§ 204-05, with ch. 9, topic 1, intro. note (1981)]

What happens if failure of timely performance is the result of a delay?

Delay at the onset of performance before the delaying party has rendered any part of his agreed-on performance is more likely to be considered material than delay where there has been part performance.

What is partial impossibility/impracticability?

If the performance to be rendered under the contract becomes only partially impossible, the duty may be discharged only to that extent. The remainder of the performance may be required according to the contractual terms. This is so even though this remaining performance might involve added expense or difficulty.

What is the third agreement under the statute of frauds?

Promises in Consideration of Marriage A promise the consideration for which is marriage must be evidenced by a writing. This applies to promises that induce marriage by offering something of value (other than a return promise to marry—e.g., "if you marry my son, I will give the two of you a house").

What are some typical cases of illegality?

Some of the most common areas in which problems of illegality have arisen are: a. Agreements in restraint of trade; b. Gambling contracts; c. Usurious contracts; d. Agreements obstructing administration of justice; e. Agreements inducing breach of public fiduciary duties; and f. Agreements relating to torts or crimes.

What is the rule regarding the termination of an offer?

The power of acceptance created by an offer ends when the offer is terminated. The mutual assent requirement obviously cannot be met where the termination occurs before acceptance is effective. Thus, you must establish whether the offer has been terminated, and if so, in what fashion.

What is the remedy for promissory estoppel?

The remedy for promissory estoppel will be limited by the promisee's actual loss based on the extent of reliance, rather than by the terms of the promise.

What are the two situations that a unilateral contract can be formed?

Under Article 2 and the Second Restatement, a traditional unilateral contract (i.e., a contract that can be formed only by full performance) occurs in only two situa- tions: (i) where the offeror clearly (unamb

What are the four exceptions to the silence four for acceptance?

a. Benefit of Services Silence constitutes acceptance if the offeree receives the benefit of offered services, despite the reasonable opportunity to reject those services, and the offeree knows that compensation is expected. b. Exercise of Dominion Silence constitutes acceptance if the offeree exercises dominion over offered property by acting inconsistently with the offeror's ownership of that property. c. Prior Dealings Silence constitutes acceptance if it is reasonable, based on prior dealings, for the offeror to understand that the offeree has accepted by remaining silent. d.Implied-in-Fact Contract: Silence constitutes acceptance if the offeror has indicated that the offeree may accept by silence or inaction. The offeree must intend to accept the offer by remaining silent or inactive.

What types of agreements does the statute of frauds apply to?

a. Executor or Administrator Promises Personally to Pay Estate Debts -b. Promises to Pay Debt of Another (Suretyship Promises) -c. Promises in Consideration of Marriage -d. Interest in Land -e. Performance Not Within One Year from Date of Contract

What is the effect of a contract that is considered illegal?

a. Generally Contract Is Void Illegal consideration or subject matter renders a contract void and unenforceable. In a close case, a court may sever an illegal clause from the contract rather than striking down the entire contract. b. Effect Depends on Timing of Illegality If the subject matter or consideration was illegal at the time of the offer, there was no valid offer. If it became illegal after the offer but before acceptance, the supervening illegality operates to revoke the offer. If it became illegal after a valid contract was formed, the supervening illegality operates to discharge the contract because performance has become impossible (see VI.E.5.a., infra).

What are contracts of adhesion? Why are these usually unconscionable?

"Take It or Leave It" Courts will deem a clause unconscionable and unenforceable if the signer is unable to procure necessary goods, such as an automobile, from any seller without agreeing to a similar provision. The buyer has no choice.

What are the two situations a court will imply a condition relating to the time of performing under the contract?

1) Simultaneous Performance Possible—Conditions Concurrent If both performances can be rendered at the same time, they are constructively concurrent; thus, each is a condition "precedent" to the other. Hence, absent excuse, each party must first tender his own performance if he wishes to put the other under a duty of immediate performance resulting in breach if he fails to perform. Example: Lulu agrees to sell Hank her old tractor for $4,000. Because Lulu can sign over title and Hank can hand over money at the same time, the conditions are constructively concurrent. 2) One Performance Takes Time—Conditions Precedent If one performance will take a period of time to complete while the other can be rendered in an instant, completion of the longer performance is a constructive condition precedent to execution of the shorter performance. Example: Lulu agrees to paint Hank's barn for $400. In absence of a contract provision to the contrary, Lulu must paint the barn before Hank must pay.

To determine whether a contract can be voidable for misrepresentation, what four things must there be?

1. There must have been a misrepresentation 2. The misrepresentation must have been either material or fraudulent 3. The misrepresentation must have induced the recipient to make the contract 4. The recipient must have been justified in replying on the misrepresentation.

2. Disproportionate Forfeiture

2. Disproportionate Forfeiture A condition does not have to occur if the avoidance of performance would deny compensation to a party that has relied substantially, through preparation or performance, on the expectation of the exchange. The condition must not be a material part of the exchange, in that the injured party is not significantly harmed by the non-occurrence. [See Restatement (Second) of Contracts § 229 cmt. b (1981)]

How are the duties of the parties affected by conditions?

A duty of immediate performance with respect to a conditional promise does not become absolute until the conditions (i) have been performed, or (ii) have been legally excused. Thus, in analyzing a question, if the facts do not reveal performance of the applicable condi- tion precedent or concurrent, look to see whether the condition has been excused. Excuse of conditions can arise in a variety of ways.

What constitutes a legal benefit to the promisor?

A legal benefit to the promisor is simply the reverse side of legal detriment. In other words, it is a forbearance or performance of an act by the promisee which the promisor was not legally entitled to expect or demand, but which confers a benefit on the promisor.

What is a release?

A release occurs where one party agrees in writing to discharge a duty owed by the other party, either immediately or after the occurrence of a condition. Depending on the state, a release may need to be supported by consideration, a signed writing, or the other party's reliance. [See Restatement (Second) of Contracts § 284(1) cmt. b (1981)]

Does a modification have to be in writing?

A written contract can be modified orally. However, the modification must be in writing if the contract as modified falls within the Statute of Frauds. Thus, for a sale of goods contract, if the contract as modified is for $500 or more, it must be evidenced by a writing; if the contract as modified is for less than $500, no writing is necessary. [UCC §2-209]

What is an offer?

An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.

What is the method for a disclaimer of warranty of merchantability?

Article 2 provides specific methods for disclaiming the implied warranties of merchantability and fitness. Use of these methods is the best way for a seller to ensure that a disclaimer is effective. (1) Disclaimer of Warranty of Merchantability The warranty of merchantability can be specifically disclaimed or modified only by mentioning merchantability. If the sales contract is in writing, the disclaimer must be conspicuous. [UCC §2-316(2)]

What is the rule regarding modification at common law?

At common law, a contract modification generally is unenforceable unless it is supported by new consideration.

f. Excuse of Condition by "Divisibility" of Contract

Divisibility, like the doctrine of substantial performance, is a concept designed to mitigate the harsh result of a potential forfeiture. 1) Rule of "Divisibility" If a party performs one of the units of a divisible contract, he is entitled to the agreed-on equivalent for that unit even if he fails to perform the other units. It is not a condition precedent to the other party's liability that the whole contract be performed. However, the other party has a cause of action for failure to perform the other units and may withhold his counterperformance for those units. -2) What Is a "Divisible" Contract? Obviously, the rule applies only if there is a finding that the contract is "divisible" (as compared to "entire"). Three tests must be concurrently satisfied in order to make this finding. (i) The performance of each party is divided into two or more parts under the contract; (ii) The number of parts due from each party is the same; and (iii) The performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party, i.e., each performance is the quid pro quo of the other. [Restatement (Second) of Contracts §240] -a) Interpretation Decisions on divisibility are questions of interpretation. The underlying consideration is one of fairness. Generally, the courts will construe contracts as divisible so as to avoid hardships and forfeitures that might otherwise result. b) Contract Expressly Indivisible If the contract by its own terms is expressly indivisible, the court may not construe it as otherwise. 3) Sales of Goods—Installment Contracts Like the common law, Article 2 assumes that a contract is not divisible unless it authorizes deliveries in several lots, in which case the contract is called an install- ment contract. In installment contracts, the price, if it can be apportioned, may be demanded for each lot unless a contrary intent appears. [UCC §§2-307, 2-612]

What events are sufficient to make performance impracticable under the UCC and are sufficient grounds for discharge?

Events sufficient to excuse performance include a shortage of raw materials or the inability to convert them into the seller's product because of contingen- cies such as war, strike, embargo, or unforeseen shutdown of a major supplier. Catastrophic local crop failure (as opposed to a mere shortage) also is sufficient for discharge. However, mere increases in costs are rarely sufficient for discharge unless they change the nature of the contract.

What is the first type of agreement covered under the statute of frauds?

Executor or Administrator Promises Personally to Pay Estate Debts A promise by an executor or administrator to pay the estate's debts out of his own funds must be evidenced by a writing.

How does modification relate to assignments?

Generally, an assignee succeeds to the contract as it stands at the time of the assignment. This means that the assignee takes subject to any modifications, oral or written, made before the assignment. What about modifications after the assignment? Suppose that after the obligor has received notice of the assignment, the obligor and assignor attempt to modify the contract. Will the modification affect the assignee's rights? (1) Post-Assignment Modification Generally Has No Effect on Rights of Assignee Generally, such a modification of the contract will not affect the rights of the assignee. This is so even when the modification is undertaken in good faith. (2) UCC Position The UCC provides that such a modification of an assigned right to payment that has not yet been fully earned by performance is effective against the assignee if made in good faith. However, the modification will cause a breach of an assignment contract that prohibits such modifi- cations. [UCC §9-405] c) Defenses of Assignor Not Available The obligor will not be able to raise by way of defense any defenses that the assignor might have against the assignee.

What is the UCC's view regarding allocation of risk of the parties?

Generally, the seller assumes the risk of the occurrence of such unforeseen events and must continue to perform. However, if it is fair to say that the parties would not have placed on the seller the risk of the extraordinary occurrence, the seller will be discharged.

What happens if there is failure of timely performance in merchant contracts?

In mercantile contracts, timely performance as agreed is important, and unjustified delay is material.

What constitutes a legal detriment?

Legal detriment will result if the promisee does something he is under no legal obligation to do or refrains from doing something that he has a legal right to do. It is important to remember that the detriment to the promisee need not involve any actual loss to the promisee or benefit to the promisor. -Note: Remember that the promisor must have sought to induce the detrimental act by his promise.

What are exceptions to the infancy rule?

Over time, some very important exceptions to this rule have developed. The most important of these is that contracts for necessities like food, shelter, and medical care are always enforceable against minors. This serves the public policy goal of ensuring minors are able to obtain such things (as people would be reluctant to enter into such contracts with minors if they were unenforceable). In addition, there have been a number of statutory exceptions to this rule. For example, some statutes specifically provide that minors cannot avoid certain types of contracts, such as student loan agreements or insurance contracts. Minors are professionals. Educational loan, car insurance

B) What is a merchant's firm offer?

Under Article 2, there are circumstances in which a promise to keep an offer open is enforceable even if no consideration has been paid to keep the offer open. Under Article 2: (i) If a merchant; (ii) Offers to buy or sell goods in a signed writing; and (iii) The writing gives assurances that it will be held open (e.g., "this offer will be held open for 10 days," "this offer is firm for 10 days," "I shall not revoke this offer for 10 days"); (iv) The offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed three months).

Why do unilateral and option contracts have sufficient consideration?

Unilateral contracts, enforceable because one has begun performance, or option contracts, enforceable because one has purchased time to decide (e.g., whether to purchase land), are not held objectionable on "mutuality" grounds.

What is the rule regarding silence as acceptance?

Usually, silence is not considered to be an acceptance but there are four exceptions to this rule and if depends if there is reasonable expectation by the offeror that silence represents an acceptance. In such a case, the offeree is under a duty to notify the offeror if she does not intend to accept.

How does restitution apply when a contract is breached?

When a contract has been breached and the nonbreaching party has not fully performed, he may choose to cancel the contract and sue for restitution to prevent unjust enrichment. Note that if the plaintiff has fully performed, he is limited to his damages under the contract. This may be less than he would have received in a restitutionary action because a restitutionary remedy is not limited to the contract price (see example below).

For a misrepresentation to be actionable as fraud, what must there be?

a misrepresentation, to be actionable, must be one of fact rather than opinion.

What are limitations on on offeror's power to revoke?

a) Options b) Merchant's Firm Offer Under Article 2 c) Detrimental Reliance d) Beginning Performance in Response to True Unilateral Contract Offer e) Beginning Performance—Offer Indifferent as to Manner of Acceptance

What are ways in which an offer in a unilateral contract can be accepted?

a. Completion of Performance Most courts hold that an offer to form a unilateral contract is not accepted until perfor- mance is completed. The beginning of performance may create an option so that the offer is irrevocable. (See C.1.a.3)d), supra.) However, the offeree is not obligated to complete performance merely because he has begun performance, as only complete performance constitutes an acceptance of the offer. b. Notice Generally, the offeree is not required to give the offeror notice that he has begun the requested performance, but is required to notify the offeror within a reasonable time after performance has been completed. If a required notice is not given, a contract is formed, but the offeror's duties are discharged for failure of an implied condition subse- quent (see VI.D.2.c., infra). However, no notice is required if: (i) The offeror waived notice; or (ii) The offeree's performance would normally come to the offeror's attention within a reasonable time.

What are the steps for promissory estoppel?

• Steps: finding promise (implied or created through conduct) - induce performance - reasonable reliance - substantial detriment - injustice can be avoided only by enforcement of promise - the promise will be enforced only to the extent of the reliance. ($500 promised, $400 spent, can only enforce $400)

What can extrinsic evidence be admitted?

1) The parol evidence rule does not apply to exclude evidence offered to interpret or explain the meaning of the agreement 2) The parol evidence rule does not apply to agreements, whether oral or written made AFTER the execution of the writing 3) The parol evidence rule does not apply to evidence offered to how that effectiveness of the agreement was subject to an oral condition precedent. 4) The parol evidence rule does not apply to evidence offered to show the agreement is invalid for any reason, such as fraud, duress, undue influence, incapacity, mistake or illegality. 5) The parol evidence rule does not apply to evidence that is offered to establish a right to an "equitable" remedy, such as "reformation" of the contract 6) The parol evidence rule does not apply to evidence introduced to establish a "collateral" agreement between the party.

What are the factors the court looks when determine whether to interpret a provision as a promise or as a condition?

1) Words of Agreement Words such as "provided," "if," and "when" usually indicate that an express condi- tion rather than a promise was intended. Words such as "promise" and "agree" usually indicate a promise. However, words by themselves might not be determina- tive. Both the specific words of the phrase and the words of the rest of the agree- ment (thus the context of the entire contract) will be examined by the courts in drawing a conclusion. 2) Prior Practices The prior practices of the contracting parties, particularly with one another, will be taken into consideration. 3) Custom The custom with respect to that business in the community will be examined. 4) Third-Party Performance If performance is to be rendered by a third party, it is more likely to be a condition than an absolute promise. 5) Courts Prefer Promise in Doubtful Situations In doubtful situations, most courts will hold that the provision in question is a promise. The underlying rationale is that this result will serve to support the contract, thereby preserving the expectancy of the parties. This preference is particularly significant in situations where the breaching party has substantially performed, because if the provision is treated as a condition, the nonbreaching party is completely discharged from her obligation; whereas, if the provision is treated as a promise, the nonbreaching party must perform, although she may recover for the damage she has suffered as a result of the breach. 6) Reference to Time A provision that states that a duty is to be performed "when" an event occurs raises an issue of whether the event is a condition or is intended to merely mark the passage of time. Courts prefer the time interpretation, which reduces the obligee's risk of forfeiture, unless the event is within the obligee's control. [See Restatement (Second) of Contracts §227]

After the court determines whether a contract exists, there are 9 general rules/factors the court will look at to interpret a contract, what are those 9 things?

1. Construed as a Whole Contracts will be construed as a "whole"; specific clauses will be subordinated to the contract's general intent. 2. Ordinary Meaning of Words The courts will construe words according to their "ordinary" meaning unless it is clearly shown that they were meant to be used in a technical sense. 3. Inconsistency Between Provisions If provisions appear to be inconsistent, written or typed provisions will prevail over printed provisions (which indicate a form contract). 4. Preference to Construe Contract as Valid and Enforceable It is important to note that the courts generally will try to reach a determination that a contract is valid and enforceable. Hence, they will be inclined to construe provisions in such a fashion as to make them operative. Obviously, this general policy will not be carried so far as to contravene the intention of the parties. 5. Ambiguities Construed Against Party Preparing Contract Ambiguities in a contract are construed against the party preparing the contract, absent evidence of the intention of the parties. This is particularly true when there is no evidence of fraud, mutual mistake, duress, or knowledge by one party of unilateral mistake; and both parties are represented by counsel. 6. Course of Performance Where a contract involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance, any course of performance accepted or acquiesced to is relevant in determining the meaning of the contract. [UCC §1-303(a), (d)] 7. Course of Dealing The parties' course of dealing may be used to explain a contract. A course of dealing is a sequence of conduct concerning previous transactions between the parties to a particular transaction that may be regarded as establishing a common basis of their understanding. [UCC §1-303(b), (d)] 8. Usage of Trade A usage of trade may also be used to explain a contract. A usage of trade is a practice or method of dealing, regularly observed in a particular business setting so as to justify an expectation that it will be followed in the transaction in question. [UCC §1-303(c), (d)] 9. Priorities of Conflicting Rules Express terms are given greater weight than course of performance, course of dealing and usage of trade. Course of performance is given greater weight than course of dealing or usage of trade, and course of dealing is given greater weight than usage of trade.

What is the rule regarding a person's ability to enter into a contract when they were intoxicated at the time?

A person lacks capacity due to intoxication when unable to reasonably understand the nature and consequences of the transaction or unable to reasonably act in relation to the transaction. In either case, the other party must have reason to know of the person's intoxication in order for intoxication to be a valid defense. [See Restatement (Second) of Contracts § 16 (1981)]

What does conspicuous mean?

A term is conspicuous when it is "so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it." Language in the body of a writing is conspicuous if: (i) it is in larger type than surrounding text; (ii) it is in a contrasting type, font, or color; or (iii) it is set off from the text by marks that call attention to it. [UCC §1-201(b)(10)] The court, not the jury, decides any fact question as to conspicuousness.

General notes about beneficiaries..

A third-party beneficiary is a non-party to the contract who is intended by the parties to receive a benefit from the contract. The court typically determines the parties' intent based on the circumstances of the agreement, such as whether the beneficiary would be reasonably justified in relying on the contract. An intended beneficiary has the right to sue for enforcement, even if he or she was not involved in the formation of the contract. The promisor may assert any defenses against the beneficiary that could be asserted against the promisee. Once the beneficiary assents, sues, or materially changes position in reliance on the contract, he or she is considered to have vested rights that prevent the original parties from modifying or discharging the agreement. An incidental beneficiary, who only happens to receive a benefit, though that was not necessarily the intent of the contracting parties, does not have the right to sue for enforcement and cannot have vested rights. [See Restatement (Second) of Contracts §§ 302 cmt. d, 304, 311, 315 (1981)]

Does it matter whether the seller knows about the defect?

As in all implied warranty cases, it makes no difference that the seller himself did not know of the defect or that he could not have discovered it. Implied warranties are not based on negligence but rather on absolute liability that is imposed on certain sellers.

h. Excuse of Condition by Impossibility, Impracticability, or Frustration

Conditions may be excused by impossibility, impracticability, or frustration of purpose. (See E.5., infra.) -Remember that the promisor's duty to perform serves as a condition precedent to the other party's duty to perform. Hence, if these duties should be excused by impossibility, impracticability, or frustration, the other party's contractual duties will also be discharged

For the impossibility rule to operate, does the court look at the subjective or objective nature of the impossibility to determine whether the duties could be performed?

For this rule to operate, the impossibility must be "objective"; i.e., the duties could not be performed by anyone. "Subjective" impossibility will not suffice, i.e., where the duties could be performed by someone but not the promisor.

Restitution allows what for types of damages to be recovered?

Generally, the measure of restitution is the value of the benefit conferred. Although this is usually based on the benefit received by the defendant (e.g., the increase in value of the defendant's property or the value of the goods received), recovery may also be measured by the "detriment" suffered by the plaintiff (e.g., 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.

What is the difference between an illegal contract and a contract that was formed for illegal purposes?

If the contract was formed for an illegal purpose but neither the consideration nor the subject matter is illegal (e.g., a contract to rent a plane when the renter's purpose is to smuggle drugs out of Colombia), the contract is only voidable (rather than void) by the party who (i) did not know of the purpose; or (ii) knew but did not facilitate the purpose and the purpose does not involve "serious moral turpitude." If both parties knew of the illegal purpose and facilitated it, or knew and the purpose involves serious moral turpi- tude, the contract is void and unenforceable. [Restatement (Second) of Contracts §182]

What happens when there is failure of timely performance in equity?

In equity, the courts generally are much more lenient in tolerating considerable delay. Hence, they will tend to find the breach immaterial and award compensation for the delay where possible.

What does rule of substantial performance not apply in breach of contract situations?

Rule of substantial performance will not apply when the breach is a willful, intentional deviation from contract terms.

What is the rule regarding impossibility, impracticability, and frustration of purpose?

The occurrence of an unanticipated or extraordinary event may make contractual duties impossible or impracticable to perform or may frustrate the purpose of the contract. Where the nonoccurrence of the event was a basic assumption of the parties in making the contract and neither party has expressly or impliedly assumed the risk of the event occur- ring, contractual duties may be discharged.

What does the court look to to determine whether the writing is an integration?

The question of whether a writing is an "integration" of all agreements between the parties can be broken down into two further subquestions:(i) Is the writing intended as a final expression? (ii) Is the writing a complete or partial integration?

What is the UCC's view on modification?

Under Article 2, contract modifications sought in good faith are binding without consideration. Modifications extorted from the other party are in bad faith and are unenforceable.

What is interpretation?

When enforcing a contract, the court must interpret the terms of the agreement to determine the appropriate remedy. Ordinarily, courts will interpret contract according to its plain meaning, unless the parties clearly intended a specialized meaning, but often terms may be susceptible to more than one reasonable interpretation. The process of interpretation generally involves the application of standards of preference and the clarification of terms. However, the use of extrinsic evidence during interpretation is limited by the parol evidence rule. Note that even if there is some ambiguity in a contract, courts will generally interpret contracts as valid and enforceable if at all possible.

What is the rule regarding when mistake can be used as a defense?

A breaching party who is adversely affected by a mistake may avoid performance if at least one of the parties held an erroneous belief that was not in accordance with the facts or the law at the time of the contract. The mistake may be mutual or unilateral. [See Restatement (Second) of Contracts §§ 151 (with comments), 152 (1981)]

What are methods of revoking an assignment and what is the effect?

A gratuitous revocable assignment may be terminated in a number of ways: (1) Death of the assignor; (2) Bankruptcy of the assignor; (3) Notice of revocation communicated by the assignor to either the assignee or the obligor; (4) The assignor takes performance directly from the obligor; or (5) Subsequent assignment of the same right by the assignor to another. c) Effect of Revocation Once an assignment is revoked, the privity between the assignor and the obligor is restored, and the assignor is once again the real party in interest.

What is the concept of unconscionability?

A party may assert the defense of unconscionability if the bargaining process and/or terms of the contract are unfair. The court will consider whether the contract has a high degree of procedural and/or substantive unconscionability. [See U.C.C. § 2-302 (2002); Restatement (Second) of Contracts § 208 (with comments) (1981)]

What is the rule regarding preliminary offers?

A preliminary offer is some kind of invitation to negotiate, such as an invitation to bid, a negotiation of terms, a price quotation, or a proposal of terms. Generally, a preliminary offer is not considered a binding offer, because such an offer lacks any manifestation of the offeror's willingness to conclude a final bargain.

What is the method in which an offer must be accepted?

An acceptance may consist of a promise or performance by the offeree, depending upon the terms of the offer. If the offer stipulates the method of acceptance, acceptance must conform to the terms of the offer to be valid. Otherwise, any reasonable method of acceptance, such as by phone, mail, or fax, will be valid. An acceptance by a promise communicated to the offeree forms a bilateral contract. In contrast, if the offeror conditioned acceptance of the contract on full performance, acceptance by performance forms a unilateral contract.

General note about assignments..

An assignor (promisee) may transfer his or her rights to a third-party assignee through assignment. The effect of the assignment is to extinguish the privity between the assignor and obligor (promisor), such that only the assignee may sue the obligor for enforcement. Any contractual right may generally be assigned, regardless of whether there is a writing, except where the assignment would materially vary the contract by changing the obligor's duty, increasing the obligor's burden or financial risk, impairing the obligor's chance of obtaining return performance, or reducing the value of the return performance to the obligor. The materiality depends on the nature of the contract and the circumstances of the assignment. Note that an assignment may also be forbidden by law or the contract itself, though "anti-assignment clauses" that prohibit assignment are often strictly construed. [See Restatement (Second) of Contracts § 317, cmt. d (1981)]

What is an express warranty?

Any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, sample, or model is part of the basis of the bargain. For the statement, description, sample, or model to be a part of the basis of the bargain, it need only come at such a time that the buyer could have relied on it when she entered into the contract. The buyer does not need to prove that she actually did rely, although the seller may negate the warranty by proving that the buyer as a matter of fact did not rely. It is not necessary that the seller intended the affirmation of fact, description, model, or sample to create a warranty. [UCC §2-313]

Are conditional promises valid consideration?

Conditional promises are enforceable, no matter how remote the contingency, unless the "condition" is entirely within the promisor's control. (1) A conditional promise is not consideration if the promisor knows at the time of making the promise that the condition cannot occur. (2) A promise conditional on a performance by the promisor is a promise of alternative performances within § 77 unless occurrence of the condition is also promised. a.) Promise Conditioned on Satisfaction A promise conditioned on the promisor's satisfaction is not illusory because the promisor is constrained by good faith (for contracts involving personal taste) and a reasonable person standard (for contracts involving mechanical fitness, utility, or marketability).

Mere Inquiry vs a counteroffer?

Distinguish between a counteroffer (which constitutes a rejection) and a mere inquiry. An inquiry will not terminate the offer when it is consistent with the idea that the offeree is still keeping the original proposal under consideration. The test is whether a reasonable person would believe that the original offer had been rejected. Examples: 1) The offeree says to the offeror, "Would you consider lowering your price by $5,000?" This, without more, is merely an inquiry, not a rejection. 2) The offeree says to the offeror, "I couldn't possibly pay your asking price but could pay $5,000 less." This is more than a mere inquiry because of the certitude involved and will be treated as a counteroffer.

What are exceptions when a misrepresentation can be actual when it is a misrepresentation of opinion and not fact?

Exceptions: 1) Where the recipient stands in a confidential relationship to the person whose opinion is asserted such that the recipient is reasonable in relying on it. It need not be a fiduciary relationship but may be one between family members or where one party has taken steps to induce the other to believe that he can rely on the first party's judgement 2) Where the recipient reasonably believes the other person has special skill or judgement with respect to the subject matter 3) Where the recipient is "for some other special reason particularly susceptible to a misrepresentation of particular type involved."

Regarding the sale of goods, what happens when the seller is partially unable to perform?

If the seller's inability to perform as a result of the unforeseen circumstance is only partial, he must allocate deliveries among his customers and, at his option, may include in the allocation regular customers not then under contract. The seller must reasonably notify his buyers of any delay or reduc- tion in deliveries because of unforeseen circumstances. A buyer who receives such a notification may refuse any particular delivery affected, and if the deficiency substantially impairs the whole contract, she may treat the contract as at an end.

What is the parole evidence rule?

In interpreting and enforcing a contract, questions often arise as to whether the written instrument is the complete embodiment of the parties' intention. Where the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an "integration." 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.

How does the court interpret a provision as a promise or as a condition?

It is of considerable importance whether any given contractual provision is to be interpreted as a promise or condition. The basic test is one of "intent of the parties." The courts employ several basic criteria in reaching a deter- mination as to intent.

What is mutual assent?

Mutual assent is often said to be an agreement on the "same bargain at the same time"—"a meeting of the minds." The process by which parties reach this meeting of the minds generally is some form of negotiation, during which, at some point, one party makes a proposal (an offer) and the other agrees to it (an acceptance). An actual subjective meeting of the minds is not necessary. Rather, courts use an objective measure, by which each party is bound to the apparent intention that he manifested to the other(s).

Is a preexisting legal duty valid consideration?

The performance of a legal duty that is already owed is generally insufficient for consideration. In other words, a promise to perform an obligation that the promisor is already legally required to do cannot support a new, binding agreement. Under the preexisting duty rule, the modification of a contract and the settlement of claims, without some additional consideration, may be unenforceable.

What is the objective test to determine if there is a meeting of the minds?

The true test interpretation of an offer or acceptance is not what the party making it thought it meant or intended it to mean, but what a reasonable person in the position of the parties would thought it meant.

What is the view of modification involving unforeseen circumstances?

Under the modern view, a promise modifying a contract that has not been fully performed on either side is binding without consideration if the modification is fair and equitable in view of circumstances not anticipated when the contract was made (e.g., contractor unexpectedly hits bedrock). [See Restatement (Second) of Contracts §89] Under the majority view, however, mere unforeseen difficulty in performing is not a substitute for consideration. But if the unforeseen difficulty rises to the level of impracticability, such that the duty of performance would be discharged (see VI.E.5., infra), most states will hold that the unforeseen difficulty is an exception to the preexisting legal duty rule.

What is the rule regarding jokes as to whether there is a manifestation of mutual assent?

Where all the parties to what would otherwise be a bargain manifest an intention that the transaction is not to be taken seriously, there is no such manifestation of assent to the exchange as is required by this Section. In some cases the setting makes it clear that there is no contract, as where a business transaction is simulated on a stage during a dramatic performance. In other cases, there may be doubt as to whether there is a joke, or one of the parties may take the joke seriously. If one party is deceived and has no reason to know of the joke the law takes the joker at his word. Even if the deceived party had reason to know of the joke, there may be a claim for fraud or unjust enrichment by virtue of the promise made. Where the parties to a sham transaction intend to deceive third parties, considerations of public policy may sometimes preclude a defense of sham.

What is the rule regarding the lapse of time during which an offer may be terminated?

a) Must Accept Within Specified or Reasonable Time The offeree must accept the offer within the time period specified or, if no time period is specified, within a reasonable time. If she does not do so, then she will have allowed the offer to terminate. (Note: Where the offer's terms are unclear as to time, e.g., "by return mail," the time limit is what a reason- able person in the offeree's position would have assumed.) b) Look to When Offer Is Received by Offeree If the offer provides that it will expire within a particular time period, that period commences when the offer is received by the offeree. If the offer is delayed in transmission and this fact is or should have been apparent to the offeree, the offer terminates at the time it would have expired had there been no delay. All relevant facts must be considered in determining whether this knowledge is present. These include, e.g., date of letter, postmark, and any subsequent statements made by the offeror.

What are the three types of contracts?

a. Express Contract Express contracts are formed by language, oral or written. b. Implied in Fact Contract Implied contracts are formed by manifestations of assent other than oral or written language, i.e., by conduct (e.g., if a person sits in a barber's chair and the barber cuts his hair, a contract has been formed by the parties' conduct). c. Quasi-Contract or Implied in Law Contract Quasi-contracts are not contracts at all. They are constructed by courts 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.