Contracts BarPrep
HYPO 6G B contracts to buy an antique painting for $4,000. B later discovers it's not antique. B keeps it anyway. The painting is worth $2,000. Had it been antique, it would be worth $5,000. What are B's damages?
LOSS IN VALUE DAMAGES. $5000 (expectation) - $2000 (actual value) = $3000.
signature requirement for SOF
any mark intended to authenticate the writing
What term is essential to the offer of services?
description of the work
if offeree sends rejection and then acceptance...
mailbox rule doesn't apply. Whichever offeror receives first is effective.
If only one party signed the writing, to determine whether the SOF is satisfied, look carefully for a writing signed by the party to be charged. If not, consider whether...
the merchant's confirmatory memo rule applies. Can be signed by either party and is enforceable.
The majority view is that acceptance of an option is effective only when received by the offeror, so the usual "mailbox rule" ...
does not apply to make the acceptance effective on dispatch
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: 1) it would induce a reasonable person to agree, or 2) 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
Minor Breach Coupled with Anticipatory Repudiation
the nonbreaching party may treat it as a material breach The aggrieved party must not continue on, because to do so would be a failure to mitigate damages. UCC modifies this to permit a party to complete the manufacture of goods to avoid having to sell unfinished goods at salvage value.
TERMS: GENERAL PRINCIPLES courts will generally try to reach a contract interpretation that is
valid and enforceable
OFFERS: Surrounding Circumstances
will be considered by courts in determining whether an offer exists. EX: a statement in jest, anger, bragging, and is objectively/reasonably understood to be such, will have no legal effect.
The rights of the third-party beneficiary do not vest until: (3)
(i) it manifests assent in a manner invited or requested by the parties; (ii) it learns of the contract and detrimentally relies on it; or (iii) it brings a lawsuit to enforce its rights. Until a third party's rights have vested, a modification of the contract can take place without the consent of the third party.
ASSIGNMENT & DELEGATIONS
*ASSIGNMENT* - One party ASSIGNS away their *rights* in the contract Vs. *DELEGATION* - One party DELEGATES their *duty* under the contract Issues - *1) can you freely assign or delegate?* o Yes. Can freely assignable/delegable - no consent/notice necessary. *Exception* = when the nature of the agreement is for a specific/unique skill. EX: No one can do this but Jon. *2) when you assign/delegate, can you prevent performance by new party?* o No. Must allow new party to perform *3) If new party breaches obligation, who can the nonbreaching sue? Original party or new party?* o BOTH. Can see original party and assignee/delegate o UNLESS, you execute a novation (release, new contract) *4) can the new party change contract terms?* o No. Only acquires rights/duties that were in the original contract. *The general rule is that a writing is not required to have an effective assignment. *
Acceptances that contain new or additional conditions: under the common law
*MIRROR IMAGE RULE* - this is a counteroffer. It is a REJECTION NOT ACCEPTANCE.
Termination of Offer by Operation of Law
1) Death or Incapacity (*unless irrevocable* - due to option, etc.) 2) Destruction of subject matter (automatically terminated if the specific subject matter if the offer is destroyed before the offer is accepted) 3) Supervening illegality of Proposed Contract (court or statute makes the offer illegal)
quasi-contract
1) P conferred a benefit on D 2) P had reasonable expectation of compensation 3) D had reason to know of expectation, and 4) D would be unjustly enriched if allowed to keep benefit without paying for it. Restitution available.
Two types of unconscionability
1) Procedural: a defect in the bargaining process itself Unequal bargaining power - one party holds all the cards and can force the other into a bad deal. (Contract of adhesion) 2) Substantive: a rip-off in some term of the K Unfair surprise - party slips something unexpected into the contract; "inconspicuous risk shifter" clause
liquidated damage clauses will be follow if (2)
1) actual damages were difficult to calculate/foresee at the time of contracting 2) amount must be a reasonable forecast of damages (CANNOT BE PUNITIVES, THEY AREN'T ALLOWED IN CONTRACTS)
5 Basic Questions of Any Contracts Problem
1) has a contract been formed? (offer, acceptance, consideration) 2) what are the K's terms? what did the parties promise? 3) are there problems with a party's performance? Breach? 4) any good excuses for breaking the promise? (SOF, impractical, etc.) 5) if there aren't any good excuses, how can the injured party be made whole?
Misrepresentation - assertion of a fact that is untrue, or nondisclosure of a fact Even an innocent Misrepresentation is a defense to K enforcement when (2)
1) it is material 2) induces justifiably reliance by other party (CANNOT just be an opinion or about the future) Makes contract voidable. If misrepresentation is intentional (fraud), then damages are available in addition to rescission.
Battle of the Forms UCC rule rejecting the "mirror image rule." If both parties are merchants, alterations by a party become part of the contract UNLESS
1) materially alter the contract - changes risks or remedies; EX: warranty disclaimer 2) the contract expressly limits the terms to those of the offer 3) the offeror has already objected to that term or objects within a reasonable time
Exceptions to pre-existing duty rule
1) new consideration offered, no matter how slight 2) unanticipated circumstances not foreseen at time of contracting - new consideration not required as long as modification is fair and equitable. But ONLY if NEITHER party has performed 3) UCC does NOT follow. Modifications made in GOOD FAITH are binding without consideration.
irrevocable offers Offers can be revoked at will by the offeror, EVEN IF HE HAS PROMISED NOT TO REVOKE FOR A CERTAIN PERIOD, except in the following 4 circumstances:
1) option contract, 2) unilateral contracts that the offeree partly performed 3) detrimentally relied on, and 4) firm offers by a merchant under the Uniform Commercial Code.
reformation requirements (an action in equity to have contract's terms modified if the writing, through mistake or misrepresentation, does not incorporate the terms orally agreed on)
1) oral agreement 2) written memorandum of that agreement, and 3) writing contains a mistake Usually available for mistake or fraudulent misrepresentation EX: fraudulent misrepresentation. The seller misrepresents what is in the K and the buyer detrimentally relies (or vice versa)
Economic duress is usually not a defense. Only if two conditions are met can economic duress be a defense:
1) party threatens a wrongful act that seriously threatens the other party's property or finances AND 2) the other party has no other means to prevent the threatened loss
For offers regarding the sale of land, what two elements are required?
1) price 2) description (doesn't have to be super specific, just enough for the court to identify; even "my hunting cabin" is good enough if you only have one)
Exceptions to the writing requirements for the SOF requirements for land:
1) services contracts incidental to land (real estate broker, construction contracts) that were never really a sale of an interest in land 2) full performance by seller 3) part performance by buyer of land. Need two of the following three: a) payment of purchase price in whole or in part b) possession c) improvements
An offer may be accepted at any time before the offer is terminated (e.g., by revocation or lapse of time). The offeree must accept the offer within the time period specified. Here, the superstore's offer on Dec 15 gave the law firm one year to accept. Because it had not revoked the offer, the superstore's offer was still effective on April 15 when the law firm e-mailed an acceptance. The firm offer, made in writing and signed by a merchant, was effective from January 1 for a period of one year, and under the UCC, it was irrevocable until....
90 days thereafter. As of April 15, the offer had not been revoked; therefore, the affirmative pledge not to raise prices was still in effect. Thus, the law firm's order constituted an acceptance of the offer.
Acceptances that contain new or additional conditions: under the UCC (goods)
COUNTS AS AN ACCEPTANCE; mirror image rule doesn't apply in UCC UNLESS acceptance is made expressly conditional on approval of new conditions. EX: "I accept your offer to sell the tractor, BUT ONLY IF you wash it" UCC: "A seasonable expression of acceptance operates as acceptance unless made expressly conditional on assent to additional or separate terms."
WHAT LAW APPLIES? First step is for you to distinguish two kinds of contract law:
Common law of contracts vs. Article 2 of the Uniform Commercial Code (UCC).
mirror image rule
A common law rule that requires that the terms of the offeree's acceptance adhere exactly to the terms of the offeror's offer for a valid contract to be formed.
offer
A promise or commitment to perform or refrain from performing some specified act in the future. *must manifest a commitment to do something*
Lost Volume Seller
A seller who *can recover lost profits* from a defaulting buyer even though the seller sold the item to another buyer, where the seller has other similar items and would have made two sales had the original buyer not defaulted.
merchant's firm offer
An offer made by a merchant in a signed writing that promises the buyer the offer will remain open for a specific period of time, it MAY NOT BE REVOKED. If a time is not stated, then a reasonable time; but *NEVER longer than 3 months* (even if time stated is longer than 3 months, it is only irrevocable for 3 months) It *does not require consideration* to be binding.
CONTRACTS OVERVIEW MNEMONIC: Love for Dogs: Treat Every Rover Terrifically. [use to remember everything you need to address on essay]
Love - Law, what law applies For - formation: offer, acceptance, consideration Dogs - defenses: lack of capacity, mistake, ambiguity, duress, SOF, etc. Treat - Terms: what are final terms? Parol evidence rule. Perfect tender? Every - Excuse: material breach? impossibility, impracticability, frustration of purpose, conditions? Rover - Remedies: money, usually. Terrifically - Third party problems.
contracts that fall within the SOF:
MYLEGS: *Marriage* (as consideration) *Year* (can't be completed within a year), *Land* (ANY interest in), *Executor*'s promise to pay estate's debt out of his own fund. *Goods* over $500, and *Suretyship*
EX: A: I'll sell you this mower for $1200. B: Would you consider $900? Is B's statement a counteroffer that kills the original offer?
NO. It's a "mere inquiry" - its negotiations, not a rejection.
Sale of Goods SOF: *Exceptions* A contract for the sale of goods worth more than $500 can be enforced without a writing, as if the party signed, if.... (all of these are based on the idea that they substitute for the guarantees of genuineness, lack of fraud, supplied by a signed writing)
SWAP *1) Specially manufactured goods* - once a substantial beginning has been made on custom-made goods not suitable for resale *2) Written confirmation by merchant* - MERCHANT'S CONFIRMATORY MEMO (buyer or seller may send) - Only applies in contracts between merchants. - merchant sends memo sufficient to bind sender - no written objection by recipient within 10 days *3) Admissions* - if you admit in court to the existence of contract, you can be bound (in pleadings, discovery, etc.) *4) Performance* - takes contract out of SOF to extent of performance
CONDITIONS - A contract may provide that a party does not have a duty to perform unless some condition is fulfilled. In that case, the party's failure to perform is justified if the condition was not fulfilled.
Something happens which triggers or relieves party of duty to perform *Condition Language* to look for: "unless" "only if" "if then" "on the condition that" "in the event" *Precedent* - conditions that occur before contract performance vs. *Subsequent* - condition occurs after contract performance Vs. *Concurrent* - event happens at the same time as contract performance *WAIVER of Condition*: eliminate the obligation. No longer required. MANY of the condition questions test on waiver.
consequential damages
Special damages that compensate for a loss that is not direct or immediate (for example, lost profits). The special damages must have been reasonably foreseeable (breaching party knew or should have known) at the time the breach or injury occurred in order for the plaintiff to collect them.
THIRD PARTY BENEFICIARY CONTRACTS -
Two people make a contract and someone else benefits. (look for 3 parties in hypo!) Typically, the 3P is suing to enforce their rights in hypo *Intended 3P Beneficiary* - typically the name is included in the contract. - Intended MAY have rights IF their rights VEST - When do rights Vest? = 2 instances o When original parties notify beneficiary o Beneficiary learns of rights and have relied on it *Incidental 3P Beneficiaries*- parties to contract didn't discuss. - Never has rights in contract
consideration
a bargained-for exchange for something of legal value. Legal value = benefit to promisor or detriment to promisee. Actually doing or promising to do something (or refrain from doing) that one is not already legally obligated (or allowed) to do
mistake
a factual error on a fundamental matter that has a material affect on the agreed exchange. Goes to the "heart" of the deal. *Mutual mistake* - both parties mistaken about the same material fact (generally IS a defense to K enforcement; unless just regarding value) *Unilateral mistake* - one party is mistaken -generally NOT a defense to K enforcement - EX: 3 electricians, one makes computational error on bid - can't get out of it unless so obvious non-mistaken party should have known
a contract is
a promise the law will enforce
Remember, to satisfy the SOF, there does NOT have to be a written contract. There only has to be...
a writing with the essential terms signed by the party being sued. It could even be an email to cancel an oral contract! EX: Guy orders 100 pounds of beef at $6/pound for cook-off over the phone. Cancels due to bad weather in an email with all essential terms (only quantity for goods). That email cancelling the order is a signed writing for the purposes of the SOF! The attempted cancellation is the very thing that makes the previously oral contract enforceable! EX: signed check with essential term(s) on memo line. Same thing!
Shipment of nonconforming goods in response to offeror's order of goods under UCC =
acceptance AND breach. UNLESS seller notifies buyer that shipment is offered as an accommodation. This is NOT acceptance/breach, but instead a COUNTEROFFER the buyer may reject NOTE: if seller sends a note of acceptance, this rule doesn't apply. The note was acceptance and the non-conforming shipment is a breach and can't be made an accommodation with a notification.
Revocation of an offer must be communicated before ....
acceptance. That communication can be indirect, as when the offeree learns from a reliable source that the land has been sold. If the buyer was unaware of the sale to the third party when the landowner received the letter and check from the buyer on April 21, the offer was not revoked, and the option contract was formed.
restitution remedy
available when there is no enforceable contract, or when there's a contract that has not been fully performed by P when breach (by P or D) occurs Used to prevent unjust enrichment
voidable contract
can be enforced by the aggrieved party or rescinded. void contract - not a contract at all; neither party can enforce
unilateral contracts
can only be accepted by performance. once performance begins, CANNOT BE REVOKED; however, just preparing to perform doesn't count as beginning performance (EX: buying materials). But may have a claim in detrimental reliance.
a party who assumed the risk of mistake...
can't use mistake as a defense to enforcement. This happens when: 1) the parties know they don't know a fact (both assume risk of mistake) EX: A sells B a shiny rock not knowing whether the rock is a diamond or cubic zirconia 2) a party is in a superior position to know a fact EX: someone is an expert in that area
reliance damages
contract damages placing the injured party in as good a position as she would have been in had the contract not been made. Any detriment incurred. Often arises when a new business is prevented from opening. Expectation damages too speculative, so reliance instead.
How does the "detrimental reliance" exception to the offeror's power to revoke and offer usually appear on the Bar?
general contractor/subcontractor scenario. If general contractor incorporates subcontractor's bid into his overall bid, wins acceptance, and then subcontractor tries to revoke, general contractor can invoke detrimental reliance to hold subcontractor to original bid.
if buyer breaches for sale of goods under UCC, seller can
get the difference between K price and RESALE price (as long as resale price is commercially reasonable) OR difference between K price and MARKET price PLUS INCIDENTALS [UNLESS COUNTS AS "LOST VOLUME SELLER"]
the goal of contractual remedies is to put parties in the positions they would have been in...
had their been no breach
Suretyship trick on SOF:
if the contract appears to be a guaranty, but in reality the primary benefit goes to the guarantor's own pecuniary interest, it is NOT within the SOF
To be sufficiently certain, an offer
must include enough of the essential terms have been provided so that a contract including them would be capable of being enforced. For goods, unless *the UCC that requires a quantity term*; but CAN be stated as the seller's output or the buyer's requirement
when an offeror terminates, it's a revocation; when an offeree terminates, it's a
rejection
Perfect tender is required for
sale of goods under UCC, but perfect performance is not required for other types of contracts. That's why it is easier to breach under UCC than CL
contracts for a lease/easement/etc. of land fall under the SOF if
they are for a year or more
Under Article 2, if a merchant offers to buy or sell goods in a signed writing and the writing gives assurances that it will be held open, the offer is not revocable during the time stated (or a reasonable time if no time is stated) except in no event may the period exceed
three months REMEMBER, IT IS *REVOCABLE* AT 3 MONTHS, NOT AUTOMATICALLY REVOKED!!!
Shipment F.A.S.
"free alongside" Used only when goods are shipped by boat. Risk of loss passes to the buyer once the goods are delivered to the dock.
HYPO 7N What if the contract between me and Gates prohibits delegation? (2) What if our contract only expressly prohibits "assignment," is delegation permissible? [Watch for this on MBE!]
(1) CAN'T DELEGATE. - NOT like assignments (that has distinction between "prohibition" and "invalidation") - with Delegations - no delegation means no delegations (2) *No assignments ALSO MEANS NO DELEGATIONS.*
(2) "This computer is guaranteed for 2 years." Express warranty?
(2) YES. Express warranty. Promise that goods will work for 2 years.
Risk of Loss in "Sale or Approval" Contracts
(buyer takes goods for trial period use but may return them even if they conform to the contract), the risk of loss does not pass to the buyer until she accepts
Assignments Cannot Substantially Change Duties or Risks of Obligor:
- EX: paying money to a different person because of assignment isn't a change in duty - EX: on the other hand, the assignment of a performance right is NOT allowable.
CONSTRUCTIVE (IMPLIED) CONDITIONS *Constructive Conditions of Performance*
- duty of each party to render performance is conditioned on the other party either rendering his performance or making a tender of his performance.
CONSTRUCTIVE (IMPLIED) CONDITIONS *Constructive Conditions of Cooperation and Notice*
- 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 that the other give him NOTICE that the performance is due. (EX: where a party could not reasonably be expected to know a fact, such as the need for repair, that triggered the duty to perform unless such notice was given)
"merchant" under the UCC
-someone who regularly deals in the goods involved or appears to have special skills or knowledge of that good -almost anyone in business IF acting on behalf of their business -
To be enforceable, an offer must (2)
1) identify the offeree 2) make the subject matter reasonably certain
when does specific performance come up?
1) land sales 2) sale of unique goods (EX: Picasso) 3) sentimental value
What if the writing provides that CarMax will not revoke the offer for six months?
3 month limit on merchant firm offer rule. You can have an offer for longer, but it is only irrevocable for the first 3 months. If you want offer to be irrevocable for longer, create an option contract by paying consideration.
THIRD PARTY BENEFICIARY VS. PROMISOR
3PB may sue promisor on the contract. Promisor may raise against the 3PB any defense he has against the promisee. Can the promisor assert the promisee's defenses? ---If the promise is absolute, the promisor cannot assert the promisee's defenses ---If the promise is NOT absolute (only promised to pay what the promisee owes the beneficiary) - then the promisor CAN assert the promisee's defenses
VOCABULARY: Contract
A legally-enforceable agreement (typically involves consideration or consideration substitute) An *express contract* is created by the parties' words (oral or written). An *implied-in-fact* contract is created by the parties' conduct. Look first for an agreement formed, then see if it's legally enforceable.
Delivery Terms and Risk of Loss
All contracts for the sale of goods require delivery of the goods. Delivery terms are important because they determine when the risk of loss passes from the seller to the buyer if the goods are damaged or destroyed.
On September 15, a highlighter manufacturer faxed a large office supply company offering to sell the supply company 50,000 highlighters for $25,000. The supply company faxed back the following communication: "We accept your offer. Please box 125 highlighters per case in post-consumer cardboard shipping boxes." Assuming the existence of a valid contract, what would its terms include?
All terms set forth in the manufacturer's offer plus all those in the office supply company's purported acceptance that did not amount to a material alteration of the manufacturer's offer and to which the manufacturer did not object within a reasonable time. *READ EVERY ANSWER CHOICE!*
Advertisements as offers
An ad is NOT an offer (merely invitation to deal) unless there's a quantity. But recall Mink Stole and Carbolic Smokeball exceptions. MINK exception: if specific as to quantity and how to accept (EX: be first in line with $1 and you get $100 mink coat). Court: this is valid acceptance. Carbolic Smokeball: buy our smokeball and if you still get sick from flu you get $100 reward. Customer buys and uses. Sues to collect; company tries to argue ads are not offers. Court: here you were specific and customer fulfilled conditions, so company is liable for reward.
EXCUSE FOR NONPERFORMANCE 5.4 A LATER AGREEMENT EXCUSING ORIGINAL OBLIGATIONS *b. Modification*
An agreement to replace an existing contract with a new one. A modification takes effect immediately (i.e., excuses original obligations immediately). *don't forget modification requires new consideration under the common law; only "good faith" under UCC*
OFFER: Missing Terms *TIME*
If an agreement does not specify the time in which an act is to be performed, the law implies that is to be performed *within a reasonable time*
(2) If Gates does not provide Calandrillo with adequate assurance, what are my rights against him?
Buyer can treat that as an anticipatory repudiation of the contract and thus Buyer's obligations under the contract.
Formation Defenses - MUSIC MUD!
Even if you have mutual agreement supported by consideration contracts may be unenforceable because there is a defense: MUSIC MUDA! 1) mistake 2) unconscionability 3) SOF 4) illegality 5) capacity 6) misrepresentation 7) undue influence 8) duress 9) ambiguity
Conditional Acceptance
Conditional acceptance is always a counter-offer under Common Law (Restatement 2nd §59) and UCC (UCC 2-207[1]). HOWEVER, the counteroffer that results from a conditional acceptance CANNOT be accepted by performance. If the parties ship or accept goods after a conditional acceptance, *a contract is formed by their conduct*, AND THE NEW TERMS ARE NOT INCLUDED.
If a *quantity term is missing* from an *offer to purchase goods*, that statement
CANNOT BE AN OFFER. EX: "I'd like to buy a few widgets" But remember, quantity can be stated as the seller's output or the buyer's requirements.
Four Exceptions Where an Offer Cannot Be Revoked: 4. Starting to Perform a Unilateral Contract
Can't revoke once performance has begun. Irrevocable for a reasonable time necessary to complete performance. NOTE: The offeree is NOT bound to complete performance, and there is no acceptance until performance is complete. *Distinguish: Preparations to Perform* - substantial preparations to perform (as opposed to beginning performance) do NOT make the offer irrevocable, but MAY constitute detrimental reliance sufficient to make the offeror's promise binding to the extent of the detrimental reliance.
HYPO 7K Batman assigns the right to payment from Gotham City to Robin as a gift. Batman later assigns the same right to charity. To whom should Gotham City make payment?
Charity. Last gratuitous assignment.
SOF & Marriage
Contracts in consideration of marriage are subject to SOF, but NOT a promise to marry!
Adequacy of Consideration Is Irrelevant =
Courts do not look into the adequacy of consideration. Totally irrelevant. Even a mere peppercorn in the eye of the beholder may suffice. Courts don't want to go down the rabbit hole of trying to value consideration
CONSIDERATION—MAKES THE AGREEMENT THAT WAS FORMED LEGALLY ENFORCEABLE
Definition of Consideration: "Bargained-for legal detriment/benefit." Can be a promise in exchange for a promise (the usual case), performance or even forbearance.
SELLER'S WARRANTIES OF QUALITY IN A SALE OF GOODS (ARTICLE 2) Express Warranty
Describe the goods, promise facts about the goods, showing a sample or model, but NOT an "opinion." (just "puffing up") Any affirmation above is part of the *basis of the bargain*
Discharge by Substituted Contract
Enter into second contract, revokes first. Can be express or implied.
Implied Affirmation after Gaining Capacity
Exam Tip: Look for a minor retaining the benefit under K after reaching 18. That's implied affirmation.
(3) What if the modification is fair in light of an unanticipated change in circumstances?
Exception to pre-existing duty rule. Modification is fair and equitable. EX: Excavator agrees to do job, but then discovers there is unexpected granite that makes it 10x harder. Wants more money. This is fair in light of unanticipated change in circumstances.
Multiple Assignments—Which Assignee Gets to Collect? b. Assignments for Consideration Are More Durable—
First One Wins General Rule: The first assignee for consideration prevails over all subsequent assignees as well as prior gratuitous assignees. Exception: A later assignee for consideration prevails if (1) he does not know of the earlier assignments (BFP), AND (2) is the first to get payment from OR a judgment against the obligor. Exam Tip: Analyze each assignment in the order it was made to see if it was valid.
Promissory Estoppel as a Substitute for Consideration
Foreseeable reliance may make a promise enforceable, even without consideration! Promissory Estoppel Elements: 1) promise 2) reasonably foreseeable that promisee would rely on promise to her detriment 3) justice requires enforcement of promise Exam Tip: Promissory estoppel is the right answer ONLY if there is no consideration. TIP: A valid contract is better than an agreement enforced by PE because some states limit recovery under PE to that which "justice requires."
HYPO 6J I agree to buy a custom-made stamp from Seller featuring the Calandrillo name and unique artwork to help market our raw honey business. I breach. What are Seller's damages?
Full Contract Price This is custom-made goods. Seller can't resell
HYPO 5G Same facts, except they agree that only if John does the yardwork for a year, then Gabrielle will discharge the $500 debt. What are Gabrielle's rights if John does not do the yardwork as promised?
Gabrielle can sue under the accord OR under the original $500 debt. This is an accord without satisfaction. Exam Tip: Whether you have a modification or an accord and satisfaction depends on the timing—is the underlying obligation excused right now (modification) or only later on (accord/satisfaction)? Look for "if....then" language: typically an accord and satisfaction situation.
Offeree's Silence as Acceptance?
General rule: Silence is NOT acceptance. Objective theory of formation: a reasonable person has to look at the words or actions of the parties and think a contract was made. EXCEPTION: But recall the "custom creates duty to speak" exception (eel skins case). Seller and buyer has previous custom for 5-6 months in a row where the seller sends eel skins to buyer who accepts by silence and later pays by check in the mail. In month 7, buyer refuses to pay, saying he never accepted out loud. However, you have a duty to speak if you don't want to accept where previous dealings show that silence was a reasonable means to accept.
Course of Performance
How parties performed under previous installments of this CURRENT contract. EX: S and B contract for the sale of 100 "chickens" a month for 12 straight months. The first 3 shipments under this contract are "broilers", not "stewing foul." This course of performance under these first 3 installments can help interpret what the word "chicken" means in month 4. Course of performance is the best evidence of what the parties intended.
Improper Performance as Acceptance
IS BOTH a simultaneous acceptance and breach.
Discharge by Lapse
If the duty of each party is a condition concurrent to the other's duty, it is possible that one the day of performance, neither party is in breach and their contractual obligations lapse if the contract states that time is "of the essence," the lapse will occur immediately; otherwise the contract will lapse after a reasonable time
RESCISSION: Contracts involved 3P rights
If the rights of 3P beneficiaries have already vested, the contract may NOT be discharged by mutual rescission
OFFERS: Prior Practice of the Parties
In determining whether certain remarks are an offer or preliminary negotiations, a court will look to the prior relationship of the parties involved.
How do you know if it is a "material" change?
Likely to cause "hardship" or "surprise" to the offeror.
3.5 DURESS Elements of Economic Duress
Look for two guys: "Bad guy"—makes an improper threat "Vulnerable guy"—no reasonable alternative but to agree. Reluctant gives into improper threat.
REMEDIES:
MBE questions tend to be definitional.
To Whom Do Warranties Extend?
Most states: seller's warranty liability extends to any natural person who is in the family or household of the buyer or who is a guest of the buyer's home if it is reasonable to expect that the person may use, consume, or be affected by the goods that a person suffers personal injury because of a breach of warranty
(2) I believe Bieber is 18 because he told me he was 18. Does that matter?
NO. Doesn't matter. Still lacks capacity and can use that defense.
Excusing a Condition
Occurrence of a condition may be excused by the later action or inaction of the person protected by the condition. Exam Tip: Ask who is protected, then see if she did anything to lose the protection. Two main types: a. Failure to Cooperate b. Waiver (Voluntarily Giving Up Protection)
b. Conditional Acceptance
Operates as a rejection and counteroffer.
(2) Sesame Street orally agrees to employ Big Bird for two years for $50,000. What if Sesame Street fires Big Bird after only three months?
Part performance of service contracts is NOT enough to satisfy SOF. Sesame has valid SOF defense. Here, Big Bird would have a restitution claim for the value of his services, measured NOT by contract price but by the reasonable FMV of the benefit conferred. Whatever 3 months of Big Bird's work was worth.
Frustration of Purpose vs. Impossibility/Impracticability
Party is supposed to pay will raise FOP Party that is a seller of land/goods/services will raise impossibility/impracticability. ---Paying money is never impracticable
Rights of the Obligee in Delegation
RULE: Delegating Party Always Remains Liable (Compare/ Contrast with Novation)
HYPO 7L What if Gates is unaware of the other assignments and is first to notify Gotham City of his rights?
STILL PAY THE JOKER. For Gates to prevail, (1) he does not know of the earlier assignments (BFP), AND (2) is the first to get payment from OR a judgment against the obligor.
past consideration
Something given or some act done in the past, which cannot ordinarily be consideration for a later bargain.
"Past Consideration" Is a Misnomer ≠ Consideration
Something given or some act done in the past, which cannot ordinarily be consideration for a later bargain. Typically, someone does something without any bargaining, then later the recipient promises a gift in return. This is not bargained for exchange. It is a gift promise in gratitude. Unenforceable.
Contract Modification & Interaction with SOF
The modification must be in writing only if the contract as modified (not the original contract) is within the Statute of Frauds.
(2) What if Beyoncé agrees to sign autographs for an hour in exchange for the extra $10,000?
Valid. New consideration. Doesn't violate pre-existing duty rule. This modification is effective.
Construction Contracts: Restoration and Economic Waste
When a building contract is not properly performed, the owner is entitled to the cost of fixing the defect. HOWEVER, *unless there is special significance attached to use of a particular item* (e.g. the owner is the CEO of the particular brand of copper pipe specified) *and that significance is communicated to the builder*, *a court will NOT order a remedy that results in undue economic waste.* Courts are split on the result when a party contracts to restore property and willfully refuses to do so because it is much more costly than any diminution in value of the property
3. Land Sale/Transfer of an Interest in Real Property HYPO 3M Billy Ray Cyrus alleges that Lil Nas X orally agreed to sell him the Oldtown Road Ranch for $4,000,000. Is this within the SOF?
YES. Sales of real estate are within SOF. ALSO INCLUDES: 1) leases & easements of more than a year 2) mortgages and most security liens 3) fixtures 4) minerals (or the like) or structures if they are to be severed by the buyer DOES NOT INCLUDE: 1) contracts to build or find a buyer FULL PERFORMANCE TAKES OUT OF SOF
HYPO 2T B orders a Beyoncé CD from S. S ships a Lady Gaga CD instead. Has S accepted B's offer?
YES. Shipping the wrong goods is BOTH ACCEPTANCE AND BREACH.
A debtor owed a creditor $5,000, but the debt was barred by the applicable statute of limitations. The debtor agreed to assign to the creditor a $4,000 debt that was owed to him by a third party and was coming due in a week. The debtor called the third party to inform him of the assignment. When the debt became due, the third party refused to pay the creditor. The creditor brings an action to collect the debt against the third party. Will the creditor likely prevail?
Yes, because an assignment need not be in writing to be enforceable. The creditor will prevail because the debtor has made an effective assignment of his right to collect the debt from the third party. The general rule is that a writing is not required to have an effective assignment. Here, the oral assignment to the creditor of the debtor's right to the $4,000 was effective and enforceable by the creditor.
HYPO 3Q "I agree to buy 20 dumbbells from Muscle Memory Products for $500. /signed/ Arnold Schwarzenegger." If Muscle Memory Products sues to enforce the contract, will this note satisfy the SOF against Schwarzenegger?
Yes. Sale of goods, has quantity, signature.
under Article 2, to be enforceable, a contract for the sale of goods worth at least $500 needs to be in writing, but a merchant's confirmatory memo sent within a reasonable time will
`be sufficient.
as a general rule, the offeror cannot revoke an offer AFTER
acceptance (watch out for this).
Defenses to Rescission
all equitable defenses: laches, unclean hands, etc. P's negligence is NOT a defense
Discharge by Account Stated
an account stated is a contract between parties whereby they agree to an amount as a *final balance due* from one to the other. This final balance encompasses a number of transactions between the parties and serves to merge all of these transactions by discharging all claims owed
Unless otherwise specified, an offer invites acceptance in
any reasonable manner; a promise to perform or a performance.
MISTAKE a) Mutual Mistake About a Material Fact
both parties mistaken about the same material fact (generally IS a defense to K enforcement; unless just regarding value) ---NOT future happenings Elements: 1) mistake concerns a *basic assumption* on which the contract based based ---EX: think it's. a diamond, but cubic zirconia 2) mistake has a *material effect* on the agreed-upon exchange 3) party seeking avoidance *didn't assume risk* of the mistake ---EX: one party in a better position to know, such as the contractor vs. homeowner ---EX: parties knew that their assumption was doubtful.
The builder's unconditional promise to sell created a contract even if the buyer knew of the builder's wife's interest. When a promise is unconditional, the failure to perform according to its terms is a
breach of contract. By not making his promise conditional on his wife's consent to convey her interest, the builder impliedly undertook to obtain her consent. Therefore, the contract is enforceable.
bilateral contracts
can be accepted by performance OR a promise to perform.
CONDITIONS
contract can provide that a party does not have a duty to perform unless some condition is fulfilled.
The conditional acceptance of an offer has the same effect as a
counteroffer. It is a REJECTION NOT ACCEPTANCE. EX: "Sure, I'll pay you $1000 for that if you'll throw in a TV for free"
under UCC, buyer buying replacement goods after seller's breach is called
cover. Replacement price minus contract price = damages PLUS INCIDENTALS
negotiations
discussions between parties, but with no commitment. NOT AN OFFER
acceptances are effective upon
dispatch, if properly addressed
TERMS: GENERAL PRINCIPLES If provisions appear to be inconsistent...
handwritten/typed terms will prevail over printed provisions
BATTLE OF FORMS: NON MERCHANTS
if ANY party is a non-merchant, the additional or different terms proposed by an offeree in a sale of goods are considered mere proposals to modify the contract that do NOT become part of the contract unless the offeror expressly agrees. NOTE: these rules apply to merchant confirmatory memos also
BUYER'S NON-MONETARY REMEDIES: Cancellation
if a buyer rightfully rejects goods for nonconformity, one option is simply to cancel the contract
Waiver in Installment Contracts
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.
If non-essential terms are not in the offer, courts will
imply them into the offer. EX: time of performance is not usually included in the offer. Courts will infer a reasonable time.
mailbox rule doesn't apply if offeree accepts...
in a manner not allowed under the contract. (EX: contract stipulates acceptance should be sent by FedEx and offeree sends by UPS) acceptance here is effective only upon receipt
Offeree must know of offer
in order to accept, and this is true for both bilateral and unilateral contracts. EX: if A sends B an offer and B sends A an offer unaware of each other's offers, no contract is formed even if they contain identical terms
Discharge by Impracticability
in the common law of contracts excuses performance of a duty, where that duty has become unfeasibly difficult or expensive for the party who was to perform TEST: 1) extreme and unreasonable difficult and/or expense; and 2) its nonoccurrence was a basic assumption of the parties Remember: it is never impractical/impossible to pay money
OFFER: Missing Terms The fact that one or more terms are left open does NOT prevent the formation of a contract if:
it appears the parties *intended to make a contract* and there is a *reasonably certain basis* for giving a remedy. In such a case, most courts and Art. 2 hold that the *court may supply reasonable terms* for those missing.
A written revocation of an offer is effective when it is received by the offeree. At common law, a written communication is considered to have been "received" as soon as
it comes into the physical 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 deposited. The rule for revocation is different from the rule for acceptance, which generally creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped. The offeree need not review the contents of the revocation for it to be effective.
Price can be implied into the contract by the court, UNLESS
it's a sale of land, in which case price is an essential term.
an AD is NOT an OFFER, UNLESS
it's only offered to a limited group ("first 10 callers" etc.)
Signature Requirement of SOF
liberally construed by most courts. Can be any mark or symbol made with the intent to authenticate the writing; can be printed or typed or electronic Under the UCC, a party's initials or letterhead may suffice TIP: Doesn't have to be signed by both; just the PARTY TO BE CHARGED (i.e. the person sued).
Issue spotting in contracts
look at the "provision" that the question focuses on.
In a "mixed contract," one involving a sale of both goods and services, the court will:
look to the predominant purpose of the contract. If mostly goods, UCC; if mostly services, common law.
Mental Incapacity
may disaffirm when lucid or by a later appointed legal representative Like minors, liable for necessaries Any attempt to contract with incompetent once guardian appointed is void
Acceptance by unauthorized means or improperly transmitted by unauthorized means ....
may still be effective IF ACTUALLY RECEIVED by the offeror while the offer is still in existence.
PERFECT TENDER RULE *Buyer's Responsibility for Goods After Rejection*
must NOT treat the goods as if she owns them. Must hold with reasonable care for a time sufficient to permit the seller to remove them. If the seller has no agent in the area, a merchant buyer has a further obligation to obey any reasonable instructions as to the rejected goods (e.g. arrange to reship them) If the seller gives no instructions within a reasonable time, the buyer may *reship* the goods to the seller, *store* them for the seller's account, or *resell* them for the seller's account in a public sale, or a private sale after giving the seller reasonable notice. If the buyer property resells the rejected goods, she is entitled to recover her expenses and a reasonable commission. If the buyer wrongfully exercises ownership over the rejected goods, the seller has an action against the buyer for conversion.
Limit on requirements/output contracts:
must be in good faith. Must be reasonably near stated estimate, or if no estimate any comparable prior outputs/requirements.
reformation is usually appropriate for a
mutual mistake
The general rule on public offers is this: an offer of reward is an offer to enter into a unilateral contract, and if made to the public generally, it may be accepted by anyone to whom it becomes known. One who performs the requested act has done all that is necessary for acceptance, but if he does not intend that his acts constitute an acceptance,
no contract results. Thus, where he has no knowledge of the offer, no act of his can be deemed an acceptance.
Excusing a Condition by Waiver or Estoppel
one having a benefit of a condition under a contract may indicate by words or conduct that she will not insist on that condition being met. Consideration is NOT required for a valid waiver of condition
constructive condition
one not agreed on by the parties even by implication, but which courts impose as a matter of law, in order to ensure fairness. While strict compliance with express conditions is ordinarily required, constructive conditions will only require substantial compliance to be satisfied. In bilateral contracts, each party's substantial performance is generally a constructive condition to the performance of any subsequent duties by the other party. Where one performance will take a period of time to complete while the other can be completed in an instant, completion of the longer performance is a condition precedent to the shorter performance. A party's obligation to perform a contractual duty is excused if the other party fails to satisfy a condition precedent. In a REQUIREMENTS contract, an implicit obligation/condition that all of its requirements for the good are purchased exclusively from the seller for the duration of the contract.
Partial Impossibility
only discharges duty to extent of impossibility; duty to fulfill rest of contract, even if it adds more expense
mailbox rule does NOT apply to ___ contracts
option. Effective upon receipt only
TERMS: GENERAL PRINCIPLES The court will construe words according to their...
ordinary/plain meaning unless it is clearly shown that they were meant to be used in a technical sense
Generally an offeree's power of acceptance CANNOT be assigned. However, if the offeree has...
paid consideration to keep the offer open (option), the right to accept IS transferable.
Misunderstanding
peerless case ambiguous language in contract. If neither OR both parties knew of the ambiguity, there's no contract unless both parties meant the same thing If only one party was aware of the ambiguity, the contract is based on the unaware party's understanding
contracts for the sale of goods require a _____ term.
quantity
option contract
promise to hold open an offer for a certain time period in exchange for consideration. Separate contract.
Language may constitute an expression of doubt as to one's ability to perform under the contract without being an outright refusal. This will not be an anticipatory repudiation, but a...
prospective inability to perform.
An offer made by publication can be directly revoked ONLY by
publication through comparable means.
MONETARY REMEDIES (DAMAGES): *Compensatory*
put the nonbreaching party in the position she would have been in if the promise had been performed, so far as money can do this. Usually expectation damages
revocations/rejections are effective when
received
Effect of Noncompliance with SOF
renders the contract unenforceable at the option of the party to be charged (the party being sued can raise lack of sufficient writing as an affirmative. defense) If not raised as a defense, SOF is waived.
Also, multiple writings can be combined to
satisfy the SOF
A contract that falls within the SOF is not enforceable unless it is
signed by the party sought to be bound.
Partial Integration If an integration if complete, the writing cannot be contradicted or supplemented. If however, the integration is partial, the writing may not be contradicted, but may be
supplemented by proving *consistent additional terms*
Mistake by Intermediary (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 operateive unless the other party knew or should have known of the mistake
Death or physical incapacity of a person necessary to effectuate the contract serves to discharge it, but this applies in personal service contracts where the services involved are
"unique." If the services are the kind that could be delegated, the contract is not discharged by the death of the person who was to perform them. --EX: Painting a tractor probably does not qualify as a unique or artistic service that could not be delegated, so the death of the mechanic would not discharge his duties under the contract. --EX: A duty to pay is NEVER discharged by death, as payment could easily be performed by his estate after his death, so his death also will not result in a discharge of the contract by impossibility.
HYPO 6N Shirley MacLaine is fired in violation of her contract. She makes $900/week. Her former employer proves that Shirley could have gotten a comparable job paying $800/week. What are Shirley's damages?
$100 a week. 900 - 800 in similar comparable job. 800 was avoidable. She has duty to mitigate. Can't just sit on the couch. HOWEVER, the substitute employment must be comparable.
A jeweler was commissioned by a young man to design and create a set of rings (engagement and wedding) for his fiancée. The jeweler designed and created the rings in 18k gold, leaving room in the engagement ring for a large marquise-shaped diamond. The jeweler then entered into an oral agreement with a gemologist. The terms of the agreement were that the gemologist would provide the marquise-shaped diamond and the jeweler would pay the gemologist $20,000 when the jeweler received the payment from the young man. The gemologist found and cut a suitable stone and delivered it to the jeweler, *who accepted it*. The gemologist waited to be paid, and when he was not, he contacted the jeweler. The jeweler refused to pay him, arguing that their agreement was unenforceable and, anyway, the young man has not paid her. If the gemologist sues the jeweler for breach of contract, what is the gemologist's likely recovery?
$20,000, the contract price. The gemologist will be able to recover the full $20,000 contract price. Under the UCC, the contract is enforceable, despite the absence of a writing, to the extent of the goods accepted, which here is the entire amount contracted for. The proper remedy is the agreed-upon price of $20,000, which the gemologist will be able to prove by parol evidence.
A catering company entered into a written contract with a dish supplier to purchase 5,000 plastic dishes at $.10 per dish. The contract called for the supplier to deliver the 5,000 dishes to the caterer on or before October 1. On October 1, the supplier delivered only 3,000 dishes to the caterer. The supplier informed the caterer that it was experiencing manufacturing delays and would deliver the other 2,000 dishes by October 31 at the latest. The caterer accepted delivery of the 3,000 dishes, but because it had a number of catering jobs lined up for early October, the caterer was forced to purchase 2,000 dishes from another supplier at a price of $.12 per dish. The supplier demanded that the caterer pay $300 for the 3,000 dishes delivered, but the caterer refused to pay anything. If the supplier sues the caterer for breach of contract, what will the supplier recover?
$260, the price under the contract for the 3,000 dishes that were delivered less $40, which is the extra cost incurred by the caterer to obtain the balance of the dishes. The supplier will recover $260. Dishes are movable goods, and so Article 2 of the UCC applies. Under Article 2, when goods fail in any respect to conform to the contract, the buyer may accept the goods [UCC §2-601] and pay the contract price for the goods accepted [UCC §2-607]. However, the buyer has a right to offset its damages. When a seller fails to deliver goods as promised, the buyer may "cover" under UCC section 2-712 by making a reasonable purchase of substitute goods, and then may recover as damages the difference between the contract price and the "cover" price. Here, the difference between the contract price and the cover price is $40 (2,000 plates � $.02).
A buyer entered into a written contract to purchase from a seller 1,000 sets of specially manufactured ball bearings of a nonstandard dimension for a price of $10 per set. The seller correctly calculated that it would cost $8 to manufacture each set. Delivery was scheduled for 60 days later. 55 days later, after the seller had completed production of the 1,000 sets, the buyer abandoned the project requiring use of the specially manufactured ball bearings and repudiated the contract with the seller. After notifying the buyer of his intention to resell, the seller sold the 1,000 sets of ball bearings to a salvage company for $2 per set. The seller then sued the buyer for damages. What damages should the court award to the seller?
$8 per set, representing the lost profits plus the unrecovered cost of manufacture The Uniform Commercial Code controls in this situation. The seller is entitled to be put in the position it would have been in if the contract had been performed. The proper measure of damages here is set out in UCC 2- 708(2), which provides that a seller is entitled to the profit the seller would have made ($2 per set), plus an allowance for costs reasonably incurred ($8 per set), minus payments received for resale of the goods ($2 per set) - here, the salvage. Accordingly, the seller should recover $2 + $8 - $2 = $8 per set.
A landscaper entered into a written contract with a developer to landscape a 30-house subdivision at a price of $4,000 for each house. The contract provided for payment of the $120,000 only on completion of the landscaping for all the houses. After completing 20 houses, the landscaper demanded payment of $80,000. The developer refused. The landscaper then walked off the job without doing any landscaping on the other 10 houses. The developer refuses to pay the landscaper. If the landscaper sues the developer, what damages should the court award the landscaper?
$80,000, less the developer's damages resulting from the breach. The landscaper may recover $80,000 less the developer's damages resulting from the breach. A contract is *divisible* if it is possible to apportion the parties' performances into corresponding pairs. Here the landscaper's and developer's performances can be apportioned into corresponding pairs: for each house landscaped by the landscaper, there is a corresponding payment of $4,000 owed by the developer. The contract itself states the price as $4,000 per house, rather than $120,000 for the entire job. If a party performs some of the units of a divisible contract, he is entitled to the agreed-on price for those units even if he fails to perform the other units. However, the right to the contract price for the units performed is offset by the damages arising from the breach of the remaining units.
Common Law Expectation Damages HYPO 6D I agree to paint Gates's house for $10,000. I breach. He pays another painter $13,000 to paint the house. How much can Gates recover from me? (2) Same facts, except that Gates refuses to pay me after I have started painting his house. I have already spent $5,000. I expected to clear $1,500 in profit. What are my damages? (3) If my profits were uncertain, what would my reliance damages be? (4) What would restitution damages be?
(1) $3000. He expected to get house painted for $10k. Has to pay $13k to second painter. What did he EXPECT? Only to pay $10k. Thus, he is owed $3k. (2) $6500. Expectation damages: put non-breaching party in place they expected to be in. Down $5000, expected to be up $1500. $6500 required to reach expectation. (3) $5000. Reliance damages put nonbreaching party in position they would have been in if no contract were made. (4) Restitution damages - value of the benefit conferred by nonbreaching party. What's the reasonable FMV of the benefit of getting house painted? Not necessarily contract price.
PERFORMANCE OF CONTRACTS FOR A SALE OF GOODS (ARTICLE 2) *7) Buyer's Obligation to Pay* - What are the payment terms buyer has to meet?
(1) Cash unless otherwise agreed. (2) A check is okay, but seller can refuse it. But that gives buyer an additional reasonable time to come in with the cash.
HYPO 6I If I sell it to Eva for $100, can I recover the $900 difference from Sofía? (2) What if I decide not to sell the car at all?
(1) MARKET DAMAGES - if seller resells in bad faith, damages are limited to contract price - market price. (Here, market price is unknown) (2) Still get Market damages. Original contract price - market price.
HYPO 5C Martha contracts to decorate my house, payable on completion. After Martha starts the job, I tell her I am not going to pay [= "Anticipatory Repudiation"]. What are Martha's rights? (2) What if I tell Martha the next day that I've changed my mind, and will pay her as promised [= "Retraction"]?
(1) Martha has been the victim of an anticipatory repudiation and has the right to: a) suspend her own performance obligations (excused from finishing decorating) b) can sue immediately for breach. (2) Retraction. Repudiations CAN be retracted so long as they have not been relied upon yet. Reimposes the duty under the contract on Martha.
HYPO 6F B contracts to buy carpeting for $2,500. S does not deliver. The market price for similar carpeting is $2,700. B pays $6,000 for much better carpeting. Can B recover the $3,500 difference between cover price and contract price? (2) Then what are B's damages? (3) What if B does not buy any replacement carpeting at all?
(1) NO. Buyer has to cover in good faith. Can't buy much better carpeting and get cover damages. That would be taking advantage; not good faith. (2) MARKET DAMAGES: $2700 - $2500 = $200 (3) Still gets market damages. Does NOT have to cover. If they don't cover, give market damages.
HYPO 7O Felix Hernandez has a contract with the Seattle Mariners (he's their star pitcher). There is no contract language prohibiting delegation or assignment. Can Felix delegate his pitching duties to Calandrillo? (2) Can Felix delegate to Clayton Kershaw?
(1) NO. Felix has special skills. (2) NO. Special skills person can't delegate even to others with similar or even better special skills. Would need a novation. - Novation requires mutual agreement by both original parties to substitute a new party to do the work.
HYPO 3K ABC orally agrees to employ Chris Harrison as host of the Bachelor for the rest of his life. Is a writing required? (2) What if ABC orally agreed to employ Chris Harrison for three years?
(1) NO. He could die within a year. (2) YES. Are within the SOF. Must be in writing.
HYPO 4R Lonzo Ball contracted to buy new sneakers from Nike. He paid before the shoes arrived at his home. Did Lonzo impliedly accept the sneakers by paying for them in advance? (2) The sneakers arrived at Lonzo's L.A. house more than three months ago, but he's been too busy helping his dad set up basketball leagues in Europe to open up the box. Has Lonzo impliedly accepted the sneakers?
(1) NO. Merely paying for goods upfront is NOT acceptance. Still must get a reasonable opportunity to inspect the goods. (2) YES. This is a buyer keeping goods for more than a reasonable time to inspect. Exam Tip: If there's a long delay between receipt & complaint (more than 1 month), look for implied acceptance.
HYPO 3A I agree to sell my 2010 Toyota Prius to 17-year-old Justin Bieber. Bieber later refuses to go through with the deal. Can I enforce the agreement against Bieber?
(1) NO. Minor has a lack of capacity defense. Has the right disaffirm and get out of the contract.
HYPO 7I Does Batman's assigning his right to the payment substantially change Gotham City's duties? (2) Can Gotham assign its right to Batman's security services to Metropolis?
(1) NO. Not a substantial change; Just as easy to pay Robin as Batman. (2) NO. This is a substantial change in Batman's duties, not enforceable.
HYPO 4S In July, B buys a sleeping bag from S. The contract provides that the sleeping bag is insulated for temperatures as low as 10 degrees [express warranty]. B uses the sleeping bag for various warm weather camping adventures throughout the summer. When B goes camping in October, she learns that the sleeping bag is not insulated for temperatures as low as 10 degrees. Can B reject the goods? (2) Can B revoke her acceptance of the goods?
(1) NO. Really long delay. Implied acceptance. (2) HOWEVER, buyer CAN revoke acceptance of goods by showing (1) substantial impairment of the value of the goods, AND (2) it was difficult to discover. Here, this qualifies. She bought the good for cold weather, and it was not easily discoverable over the summer.
HYPO 2HH Grandpa promises to give his granddaughter $2,000 as a gift. In reliance, Granddaughter quits her job as a bookkeeper. Then Grandpa dies and his estate reneges. Was there consideration for Grandpa's promise to give Granddaughter the $2,000? (2) Can Granddaughter enforce Grandpa's promise on any other ground?
(1) NO. There was no bargained-for exchange. This is just a gift promise. (2) Yes. Promissory estoppel. 1) grandpa made a promise 2) reasonably foreseeable that she would rely to her detriment on that promise (here, she quit job) 3) justice requires enforcement of promise
HYPO 6B Le'Veon Bell signs a contract with the Pittsburgh Steelers for $8M/year. Bell breaches. Can the Steelers get specific performance? (2) Same facts but now Bell breaches and goes out to play for the competing Baltimore Ravens. Can the Steelers get an injunction barring Bell from playing for Baltimore?
(1) NO. Would violate 13th amendment - involuntary servitude. (2) YES. Courts are willing to enjoin employees from working for competitors. "Negative specific performance."
HYPO 4L Chryssa contracts to buy a floor model couch from Costco. She's to pick it up at the loading dock. Before she does, the couch is ruined by yuppie kids jumping all over it. Does Chryssa still have to pay?
(1) No. Non-carrier case. Merchant seller risk of loss until buyer takes possession of the goods.
HYPO 5L Ida Hogh hires Van Gogh to paint her portrait. If Van gets hurt and cannot paint, is he liable? (2) What if Ida had hired Van to paint the exterior of her barn rather than her portrait? (3) If Van paints the portrait, but Ida dies, is her estate liable for the contract price?
(1) No. Special artist with special skills, he is excused. (2) No special skills needed to paint barns. Van Gogh is not excused. (3) YES. It is not impossible for buyers to pay money under contracts after death - their estates get the obligations. Her estate will have to pay. TYPICALLY NEVER IMPOSSIBLE TO PAY MONEY.
HYPO 4I You buy an oven for your home from Al's Kitchen Appliances. The contract provides: "All parts are guaranteed for two years" [= express warranty] and "Al's liability is limited to replacement parts" [= "limitation of remedy"; not a "disclaimer"]. A year later, a defect in the oven causes a fire that destroys your kitchen. Can you get damages from Al's? (2) What if you were also injured in the fire?
(1) Probably not. Seller can limit buyer's remedies for breach of an express warranties. As long as the limitation is not unconscionable at the time the contract was entered into. (2) YES. Limiting buyer's remedies for personal injury in the case of consumer goods is presumed to be unconscionable.
HYPO 6K Don Draper hires Martha Stewart to redo his office. The contract provides for damages of $100/day for each day Martha is late. Martha finishes 20 days late. Is the liquidated damages clause valid? (2) What if the contract provides for $2,000 in damages in the event that Martha is late, no matter how late she is? (3) Will Don get any damages if the liquidated damages clause is struck down as a penalty?
(1) Probably yes, as long as that $100/day was a reasonable forecast, and damages were difficult to forecast. (2) NO. This is a penalty. Can't have liquidated damage clause that operates as a penalty. Bears no relationship to probable damages. *Exam tip: any single lump sum that doesn't vary with breach severity is likely to be a penalty.* Must be proportionate to harm. (3) YES. He still gets expectation damages. If he can prove $100/day with reasonable certainty, he gets these expectation damages. If not certain, can get reliance damages.
HYPO 6H I contract to sell my 2010 Toyota Prius to Sofía Vergara for $1,000. Sofía breaches the contract. A week later, I sell the car to Eva Longoria for $800. What are my damages? (2) What if I sell the car to Eva for $1,000?
(1) RESALE DAMAGES: $1000 (original contract price) - $800 (resale price) = $200. - fulfills expectations. (2) None. - remember there are NOT punitive damages in contract law.
HYPO 4K What if the coffee was shipped by Starbucks FOB Seattle? (2) What if it's any other city (e.g., FOB New York)?
(1) Shipment contract because Starbucks is based in Seattle. Seller must (1) get goods to common carrier, (2) make shipment arrangements (3) notify buyer. At that point, risk of loss shifts to buyer. (2) Destination contract. Seller bears risk of loss until coffee arrives in NY
HYPO 4F Which of the following are express warranties? (1) "This ring is solid 24 carat gold"
(1) YES, express warrant. Any statement of fact or description of the goods is an express warranty.
HYPO 3P Ariana Grande contracted in writing to buy 20 tubes of hair gel for $20 each from L'Oréal [20 x $20 = $400]. L'Oréal claims that they and Grande later agreed to modify the contract to make it 40 tubes [40 x $20 = $800]. Does the modification have to be in writing? (2) What if L'Oréal instead claimed the number of tubes was later reduced to 10 [10 x $20 = $200]? (3) Same facts, except the original written contract prohibited oral modification. What result?
(1) YES, new modified contract is a sale of goods for more than $500. Within SOF, need writing. (2) No writing required. As modified, it is only $200. (3) Now modification has to be in writing. Parties can "create their own SOF" by having a clause that modifications have to be in writing. Exam Tip: Under common law, clauses that prohibit oral modification are not enforceable so you can generally modify a contract orally under common law, even if you have agreed not to! Under Art 2: clauses that prohibit oral modification ARE enforceable
Obligor Liability to Assignee After the Assignment HYPO 7J Can Robin sue Gotham City if he is not paid for Batman's work? (2) If Batman fails to perform the services, can Robin still collect from Gotham City? (3) In May, Batman assigns his rights under the contract to Robin. Unaware of the assignment, Gotham City makes the June payment to Batman. Is Gotham City liable to Robin?
(1) YES. Assignee has the right to sue the obligor directly. Robin can collect even though Gotham never dealt with him. (2) NO. Defense of non-performance. Obligor has same defenses against assignee as assignor. (3) NO. If you're totally unaware assignee exists, not liable. However, if aware, must pay assignee.
HYPO 6C B buys goods on credit on May 10. B is insolvent on May 22, when B received the goods. S demands their return on May 29. Does S have a right under Article 2 to get the goods back? (2) What if B had sold the goods to a third party on May 25?
(1) YES. Assuming the reclamation requirements are satisfied: 1) Buyer insolvent at time received goods 2) 10 days after RECEIPT of goods -Meets requirements here. (2) If the goods are gone, so is the Seller's reclamation right. Have to show that Buyer had the good at the time of the reclamation demand.
HYPO 4D The lease says nothing about sleeping arrangements. J.Lo claims that before signing the lease, the manager promised to "throw in the bridal suite for free." Can J.Lo get this promise into evidence? (2) But: What if the written lease also said: "This contract is limited to the terms herein" [a "merger clause"]?
(1) YES. Assuming the writing was only a partial integration. You can bring in evidence to add to the deal, but NOT contradict the written terms. (2) NO. This is a merger clause - merging all prior understandings into the four corners of this document which makes it a COMPLETE INTEGRATION. If you have a complete integration, parol evidence is NOT admissible. Exam Tip: If you see partial or complete integration in answer, it's probably wrong. Note: Later Events: The Parol Evidence Rule is irrelevant. ----If you see bad stuff happening AFTER the contract is formed, parties trying to change terms, that's not a parol evidence issue (which only look backwards to events before the writing).
HYPO 5P Ariana Grande contracts to buy a house from Taylor Swift, provided it is appraised for at least $2 million. The house is appraised for $1,999,900. Is Grande excused from buying the house? (2) Can Grande sue Swift for breach because the house did not appraise for at least $2 million?
(1) YES. Express conditions are strictly construed. She can waive that condition if she wants. (2) NO. Express conditions do NOT create obligations. Conditions are NOT the same as promises. - To have the right to sue for breach, she would have had to PROMISE that the house would be at least $2M. - Here, this is simply an express condition that was not satisfied. - CONDITIONS DO NOT CREATE OBLIGATIONS/BREACH.
HYPO 4G You buy a bicycle from Big Wheel Cycles. Is there an implied warranty of merchantability? (2) Big Wheel Cycles sells you a delivery van. Is there an implied warranty of merchantability?
(1) YES. Merchant of that kind of good makes an implied promise that it will be fit for its ordinary foreseeable purposes. (2) NO. Even though a merchant, NOT in the business of regularly selling delivery vans. Must be a merchant that regularly sells that type of good.
HYPO 7H The Batman-Gotham contract provides, "Rights under this contract are not assignable." Batman assigns the right to payment to Robin anyway. Can Robin collect from Gotham City? (2) Same facts, except that the contract states, "All assignments under this contract are void."
(1) YES. Prohibition language. As long as Robin didn't know of the prohibition. (2) NO. Invalidation language. Completely negates the assignment. No rights are transferred. Exam Tip: If it's a close call, opt for prohibition over invalidation => therefore, assignee can still collect if she did not know of the prohibition.
SOF & Sale of Goods for $500 or More (Article 2) HYPO 3N Bill Gates orally agreed to buy a computer from Calandrillo for $500. Is a writing required? 2) What if price was $400?
(1) YES. Sale of goods $500 or more. (2) NO. Sale of goods under $400. But remember UCC still applies! All sales of goods at any prices.
Promisor's Liability To the Third-Party Beneficiary HYPO 7B Calandrillo pays Eddie Vedder $25,000 to sing for Chryssa on her birthday. Can Chryssa recover from Eddie Vedder for breach if Vedder does not perform as promised? (2) What if Calandrillo's check to Eddie Vedder had "bounced"? (3) Chryssa invited Beyoncé to hear Eddie Vedder sing, but Eddie Vedder did not show up. Can Beyoncé recover from Eddie Vedder for breach of contract?
(1) YES. The whole point of 3P beneficiary law is that 3P can enforce contract. (2) Promisor has the defense of non-payment against both promisee and 3P beneficiary. (3) NO. Beyonce is a mere *incidental beneficiary.* - intended 3P beneficiaries can enforce; incidental 3P beneficiaries CANNOT enforce. Exam tip: look for 3Ps that are NOT named - likely incidental
HYPO 7D Can Calandrillo and Eddie Vedder modify or rescind their contract before Chryssa learns about it? (2) Chryssa learns of the contract and invites Beyoncé to hear Eddie Vedder. Can Calandrillo and Eddie Vedder still modify or rescind their contract?
(1) Yes. Here rights as intended 3P beneficiary have not vested. She doesn't know contract exists. Modification permissible (2) NO. Here, 3P beneficiary's rights have "vested" because she has learned of the contract and relied upon it. Cannot modify/cancel UNLESS contract provides otherwise in terms.
HYPO 5B I hire Martha Stewart to decorate my house. She finishes, except for one bathroom. What are my rights?
(1) common law contract for services. This is a minor breach. Can get damages for that breach, whatever the monetary value of expectation of that breach. But you are not excused from paying on contract because Martha has substantially performed.
HYPO 2A J.Lo orally agreed to work for Columbia Pictures for five years for $10 million per film. After "Gigli" bombed, Columbia refused to pay her for the film. The Statute of Frauds bars J.Lo from enforcing the contract (oral employment contract for more than one year). Can she recover from Columbia?
(1) contract analysis: NO. SOF defense to enforcement of the deal. (2) How much can she recover in restitution? -reasonable FMV of services she rendered. The FMV of the benefit conferred
HYPO 5Q Britney contracts to have her driveway paved and to pay $10,000 if she is satisfied with the work. What if everyone likes the work except for Britney? (2) What if Britney contracts with an artist to paint her portrait instead?
(1) reasonable person standard Nothing personal or artistic about paving driveways. If reasonable person is satisfied, Brittney should have to pay. (2) Subjective standard. All that matters if Britney is personally satisfied.
(2) What if Martha quits after decorating only one room?
(2) Material breach - excuses your performances. Can sue for damages right away, and don't have to perform. If Martha has conferred some benefit, she might be able to get restitution for the value of that work if you can find someone to cover within the original contract price.
(2) Chryssa contracts to buy a couch at a garage/ estate sale. Owner tells her where it is located in the back bedroom and how to pick it up. Before Chryssa picks up the couch, it's ruined by bargain hunters jumping all over it. Does Chryssa still have to pay?
(2) Yes. Non-carrier case, non-merchant seller. Seller "tendered" goods by telling Chryssa where the goods were and how to get them.
(3) What if the contract required me to pay Martha $25,000 for each room she decorated?
(3) *DIVISIBLE CONTRACT* - material breach rule is applied on a unit by unit basis. You go through each room. Martha substantially performed on that room and that is entitled to the $25k.
(3) Seller uses a sample or model [TRICK Q!—don't say it's "implied"]. Express warranty?
(3) YES. Models/samples are an Express warranty that the goods will work as the model/sample did. [Implied warranties are implied by law].
(4) All parts of my widgets are "top notch" or "best quality." Express warranty?
(4) NO. NOT an express warranty. This is just "puffing." Merely an opinion, NOT an express warranty.
ACTIVITY Bill Gates receives a letter from Pearl Jam inviting him to replace Eddie Vedder in a new version of the group. On August 8, Gates mails a letter to the band accepting their offer. On August 9, he changes his mind and calls the group to politely decline. On August 10, Pearl Jam receives Gates's letter of acceptance. If Pearl Jam brings an action against Gates for breach, how should the court rule?
(A) For Gates, because a letter is too indefinite to be an offer. (B) For Gates, because Pearl Jam received his rejection via phone call before they received the acceptance letter. - WRONG. Doesn't matter. Acceptance is already effective on Aug 8, mailbox rule. *(C) For Pearl Jam, because Gates's letter accepting the offer was effective when mailed.* (D) For Pearl Jam, because Gates's rejection was oral.
ACTIVITY A wholesale seller of televisions e-mailed a message to the owner of a retail electronics store, stating that he had recently received a new shipment of 200 X-Brand televisions that were available for sale to the store owner. In a return e-mail, the store owner agreed to purchase the televisions, but added that it would be easier, given his limited space, if the wholesaler delivered 50 of the televisions each month for the next four months. The wholesaler e-mailed back to the store owner, saying that he would only ship the entire order of 200 televisions now. There was no further communication. If the wholesaler then tenders the 200 televisions, how may the store owner legally respond? (A) Reject the entire delivery. (B) Accept the entire delivery. (C) Demand that the wholesaler deliver 50 televisions a month for the next four months. (D) Accept 50 televisions and reject the rest.
(A) Reject the entire delivery - WRONG. This is not a nonconforming tender (in which case the buyer DOES have the right to reject the entire delivery. This is a tender that conforms with sellers offer and the buyer accepted. Buyer doesn't have right to reject. *(B) Accept the entire delivery. - CORRECT. Wholeseller objected to buyer's additional delivery term, so it is not part of the deal; but acceptance is still valid for entire contract for 200 TVs.* (C) Demand that the wholesaler deliver 50 televisions a month for the next four months. - WRONG. Installment delivery term didn't become part of contract because seller objected to it. If seller hadn't objected, then it would have been part of deal (assuming it was not material). (D) Accept 50 televisions and reject the rest. - Buyer only has option to accept some and reject others if she can show that Seller is in breach. There is no breach by Seller here. Buyer cannot choose to accept some and not others.
ACTIVITY Carol's Construction Co. agreed to pave all of Farmer Fran's driveway for $10,000. Rising asphalt costs led Carol and Farmer Fran to later agree in writing that Carol could omit the portion of Fran's driveway behind the barn (saving $2,000) and still receive the full contract price. Under the general rule, this subsequent written agreement is: (A) Enforceable as a novation, which superseded the original paving contract. (B) Enforceable, because an agreement modifying a contract for the sale of goods (the asphalt) needs no consideration to be binding. (C) Enforceable, on the theory that Carol gave up her right to breach the contract in reliance on Farmer Fran's agreement to the modification. (D) Unenforceable for lack of consideration, even though it is in writing.
(D) Unenforceable for lack of consideration, even though it is in writing. PRE-EXISTING DUTY RULE
The revocation of an offer terminates the offeree's power of acceptance if it is communicated to him before he accepts. An offer may be effectively terminated if the offeree indirectly receives (3)
(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.
Risk of Loss in "Sale or Return" Contracts
(the buyer takes goods for resale but may return them if she is unable to resell them) Treated as an ordinary sale and above rules apply. If the goods are returned to the seller, the risk remains on the buyer while the goods are in transit
Legal Value Element
*1) Adequacy of Consideration* - is NOT usually inquired into by courts unless complete "sham" consideration that is devoid of value. But if there is a possibility of value in the thing bargained for, consideration will be found even if the value never comes into existence. *2) Legal Benefit/Detriment* *3) Pre-existing Duty Not Consideration*
Exceptions to the Parol Evidence Rule [so the evidence gets in]:
*1) Correct a Clerical Error* (e.g., a typo) -admissible. Not contradicting writing; just correcting typo. *2) Establish a Defense Against Formation* - NOT contradicting writing. Just want out of the contract. - asserting fraud, misrepresentation, etc. - agreement process itself was flawed. *3) Interpret a Vague or Ambiguous Term*—Parol Evidence Is Okay *4) Add to a Partially Integrated Writing*—Parol Evidence Is Okay --->Partial integration = A final statement of the terms included, but not a complete statement of all terms agreed to 5) admissible to show a *condition precedent to the existence of a contract.* ---EX: I will buy this rug, but only if I can close on the house I want to put it in. 6) *collateral agreements* (related to the subject matter but not part of the primary promise) and does not conflict with it. ---RS: "naturally omitted terms doctrine": terms admitted if they (1) do not conflict with written integration, and (2) would not ordinarily be included 7) *true consideration* - evidence showing consideration wasn't paid 8) *subsequent modifications* - not barred
VII. THIRD-PARTY PROBLEMS
*1) Entrustment* -Original owner has no rights against a bona fide purchaser (BFP). *2) Third-Party Beneficiary* -Intended beneficiary can enforce her rights under the contract once those rights have vested. [But unintended beneficiary CANNOT] *3) Assignment of Rights* -Need language of present transfer; -can't substantially change obligor's duties; -last-in-time rule for gratuitous assignments, -first-in-time rule for assignments for consideration. *4) Delegation of Duties* - Permitted unless contract prohibits, or special skills are involved.
Article 2 Provisions on Interpreting Contracts
*1) Gap-Filler Terms* - goods require quantity term; any other terms can be filled by UCC gap-fillers *2) Price* - if not set or agreed upon, then *reasonable price at the time of delivery* *3) Time for Shipment or Delivery* - reasonable time *4) Time for Payment* - time and place at which buyer is to receive the goods *5) Assortment* - if contract provides that an assortment of goods is to be delivered (EX: shirts in various colors) and does not specify which party is to choose, the assertment is at the *buyer's option*. ---If party who has the right to specify the assortment does not do so seasonably, the other party is excused from any resulting delay and may either proceed in any reasonable manner (choose a reasonable assortment) or treat the failure as a breach
EXCEPTIONS TO PERFECT TENDER RULE *1) INSTALLMENT CONTRACTS*
*1) INSTALLMENT CONTRACTS* - the right to reject is more limited. ---*An installment* can only be rejected if the nonconformity *substantially impairs the value of that installment and cannot be cured* ---*Whole contract is breached ONLY* if the nonconformity *substantially impairs* the value of the *entire contract*
III. DEFENSES Flaws in the agreement process
*1) Incapacity* - Of defendant; look for implied affirmation and necessities. *2) Ambiguity* - No contract if both parties have a reasonable interpretation, but if one does not, then innocent party's meaning governs. *3) Mutual Mistake* - Must go to a material fact (market value is not material). *4) Unconscionability* - Unfair surprise & oppressive terms; tested as of the time of formation, not in hindsight *5) Duress* - Improper/wrongful threat, which leaves no reasonable alternative but to agree *6) Statute of Frauds* i.e., where you need a writing to enforce a contract ["MYLEGS"] *7) Other Defenses in book*: illegality; fraud; misrepresentation (not as frequently tested, and obvious issue if they are tested).
Common Instances of Procedural Unconscionability
*1) Inconspicuous Risk-Shifting Provisions* - standardized printed form contracts often contain a material provision that seeks to shift a risk normally borne by one party to the other. ---courts invalidate these provisions if they are *inconspicuous* or *incomprehensible* to average person *2) Adhesion Contracts - Take it or Leave it* - unconscionable if the signer is unable to procure necessary goods from any seller without agreeing to similar provision *3) Exculpatory Clauses* - cannot use to evade liability for intentional wrongful acts ---those regarding negligent acts may be unconscionable if inconspicuous, but usually upheld if activities are obviously dangerous (EX: skiing) *4) Limitations on Remedies* - liability limits for property damage is NOT unconscionable unless it is inconspicuous. ---However, if K limits remedy to a remedy that fails in its purpose, it will be ignored (EX: contract limits remedies to repair, but item is not repairable)
Equitable Defenses Available In addition to standard contract defenses, an action for specific performance is subject to the equitable defenses of (3)
*1) Laches* - P took to long to bring action; prejudices D *2) Unclean Hands* - P is guilty of wrongdoing in the transaction sued upon *3) Sale to BFP*
Promisor's Satisfaction as Condition Precedent
*1) Mechanical Fitness, Utility, Marketability* - a condition of satisfaction is fulfilled by a performance that would satisfy a *reasonable person* ---Immaterial whether promisor was not personally satisfied *2) Personal Taste or Judgment* - if the K involves personal taste (EX: portrait), a condition of satisfaction is fulfilled only if the promisor is *personally satisfied* ---MUST BE IN GOOD FAITH
Battle of the Forms Provision
*1) Mirror Image Not required* ---Art 2 abandoned the mirror image rule, providing instead that the proposal of additional or different terms by the offeree in a definite and timely acceptances does NOT constitute a rejection and counteroffer, but rather is effective as an acceptance, UNLESS the acceptance is expressly made conditional on assent to the additional or different terms. Whether the terms become part of the contract depends on whether or not both parties are merchants. REMEMBER: Mirror image rule still applies for all contracts other than sale of goods.
SELLER'S NON-MONETARY REMEDIES: *RECLAMATION from Bailee*
*1) On Buyer's Insolvency* ---The seller may stop delivery of goods in the possession of a carrier or other bailee if he discovers that the buyer is insolvent (unless the buyer paid cash) *2) On Buyer's Breach* ---The seller may stop delivery if buyer breaches the contract or seller has a right to withhold performance pending receipt of assurances
4 Irrevocable Offer Situations
*1) Option Contract* - must have consideration *2) Detrimental Reliance* - when the offer can reasonably foresee that the offeree will rely to his detriment. Creates promissory estoppel, which substitutes for consideration. Consideration creates an option contract that is irrevocable. *3) Merchant's Firm Offer* - (Merchant - someone that sells goods of this kind) - signed writing promising to keep open. *4) Unilateral contract* - where the offeree has begun performance
OFFER: Definiteness of Subject Matter A court can only enforce a promise if it can tell with reasonable accuracy what the promise is. The required terms depend on the type of contract:
*1) Real Estate* - must identify the *land description and price* ---deed description not required, just needs to be identifiable ---courts will NOT supply a missing price for realty *2) Goods* - *quantity* must be certain or capable of being made certain ---see next card for requirements/outputs *3) Employment* - *if duration is not specified,* the offer, if accepted is construed as creating a contract *terminable at the will of either party* *4) Services* - the *nature of the work* must be included
CONSTRUCTIVE (IMPLIED) CONDITIONS *Order of Performance* -
*1) Simultaneous Performance Possible* - conditions concurrent: each a condition "precedent" to the other. Hence, absent excuse, each party must first tender his own performance if he wishes to put the other side under a duty of immediate performance resulting in breach if he fails to perform *2) One Performance Takes Time: Condition Precedent* If one performance will take a period of time to complete while the other can be rendered in an instant (EX: payment), completion of the longer performance is a constructive condition precedent to the execution of the shorter performance.
AMBIGUITY/MISUNDERSTANDING If the contract includes a term with at least two possible meanings, the result depnds on the parties' awareness of the ambiguity:
*1) neither party aware* - no contract unless both parties intended the same meaning *2) both parties aware* - no contract unless both parties intended the same meaning *3) one party aware* - binding contract based on what the ignorant party reasonably believed to be the meaning of the ambiguous words
Risk of Loss Hierarchy Look for the following things in the order listed here:
*1. Agreement Allocates Risk* - The agreement of the parties controls. If contract says "buyer bears risk of loss" then buyer bears the risk. [Won't happen on the Bar; too obvious.] *2. Breach* - Breaching party bears risk. *3. Delivery by Common Carrier (e.g., UPS, Amtrak)* --->Risk of Loss shifts to buyer when seller completes its "delivery obligations." *4. Non-Carrier Cases (e.g., buyer picks up or the seller delivers directly)* --->Risk of Loss depends on whether the seller is a merchant.
Modification vs. Accord/Satisfication
*Accord* - the parties agree to accept a different future performance in satisfaction of the original obligation ---usually arises when dispute over amount due OR payment/performance is overdue ---if accord isn't satisfied, original obligation is enforceable *Modification* - parties want to change their agreement. The duties of the parties change immediately, and original terms are no longer in effect and can no longer be enforced. ---typically occurs BEFORE performance is due *Similarities*: both require offer, acceptance, consideration
BATTLE OF THE FORMS: MERCHANTS - *Additional terms* usually included
*Additional terms* usually included If BOTH parties are merchants, additional terms in the acceptance WILL be included in the contract UNLESS: 1) they *materially alter* the original terms (EX: change party's risk or remedies) 2) the offer *expressly limits acceptance to the terms* of the offer 3) the *offeror has already objected to the terms, or objects in a reasonable time* after notice of them is received.
Is Assignment Revocable or Irrevocable?
*Assignments for VALUE CANNOT be revoked* 1) assignment done for *consideration* 2) assignments taken as security for *preexisting debt* *Gratuitous Assignments CAN be revoked* *EXCEPTIONS* - gratuitous assignments CANNOT be revoked if: 1) the obligor has already performed 2) a token chose (i.e. a tangible claim, such as a stock certificate) is delivered 3) an assignment of a simple chose (i.e. an intangible claim, such as a contract right) is put in writing; or 4) the assignee can show detrimental reliance on the gratuitous assignment (estoppel)
Best word to include to get points on the essay?
*BECAUSE*
Starting Performance as Acceptance: Need to Distinguish Bilateral vs. Unilateral K Offers
*Bilateral Contract* Starting performance is acceptance and carries with it an implied promise to finish the job. *Vs. Unilateral Contract* Starting performance is not acceptance; only completing performance is acceptance.
Bilateral vs. Unilateral Contracts
*Bilateral*: both parties promise to perform - An offer can be accepted in any reasonable way; i.e., offer is OPEN as to the method of acceptance. *Unilateral*: 1 party performs ONLY if other party performs -An offer can be accepted only by performing. -Contract is formed once the act is completed *Exam Tip*: Look for 3 magic words—"offer" can be accepted "only by"; OR a reward offer. Otherwise, assume it's Bilateral. Modern view under UCC and 2nd RS is that all contracts are bilateral unless clearly indicated otherwise by the language or circumstance; and that all offers are "indifferent"; meaning can be accepted by performance or promise.
Construction Contracts
*Breach by Owner*: *1) before or during construction* - builder entitled to profits that would have resulted from the contract plus any costs expended *2) after completion* - builder entitled to full contract price plus interest *Breach by Contractor/Builder*: The measure of damages is the cost of completion plus reasonable compensation for delay ---most courts allow the builder to offset or recover for work performed to date to avoid unjust enrichment ---If breach is only late performance, the owner is entitled to damages incurred because of late performance Breach by Both Owner and Contractor: The courts attempt to strike a fair balance in awarding damages.
IMPOSSIBILITY AS AN EXCUSE *Destruction of Something Necessary for Performance*
*Common Law* Destruction of subject matter of K provides an excuse for nonperformance. *Sale of Goods (Article 2)* - Same rule, but two trick questions. *1) Risk of Loss*: A seller who bore risk of loss when goods were damaged or destroyed is excused by impracticability. *2) Unidentified Goods* - Seller is excused only if the goods that were damaged or destroyed had been "identified to the contract."
Provisions Prohibiting Oral Modification
*Common law* - clauses preventing oral modification are not effective *UCC* - no modification clauses ARE effective ---If the contract is between a merchant and nonmerchant, this provision requires the nonmerchant's signature *Waiver* - if the parties attempt to orally modify a contract that requires written modification (either because of a contract clause or the SOF), it is technically ineffective as a modification, but it CAN operate as a waiver if the other party has changed position in reliance on the waiver ---a waiver affecting an executory (not yet performed) portion of the contract may be retracted if she notifies the other party that strict performance of the waived terms is required (but the waiver may not be retracted if the other party detrimental relied on it)
IV. TERMS *Conduct as Source of Terms*
*Conduct as Source of Terms* (1) Course of performance; (2) course of dealing; (3) usage of trade [take in this order of importance].
Intended 3P Beneficiaries: Creditor vs. Donee Beneficiaries
*Creditor* - a person to whom a debt is owed by the promisee *Donee* - a person whom the promisee intends to benefit gratuitously
THIRD PARTY BENEFICIARY VS. PROMISEE
*Creditor* beneficiary can sue the promisee on the existing obligation between them AND may sue the promisor, but may only obtain one satisfaction. *Donee* beneficiary has NO RIGHTS TO SUE the promisee unless grounds for detrimental reliance remedy already exist
EXCUSE FOR NONPERFORMANCE *Common Law Contracts*
*Damages* - Injured party can recover damages for any breach of contract, whether the breach is material or not. *Excuse* - But ONLY A MATERIAL BREACH provides an excuse to suspend innocent party's performance. *material breach* - undermines the substantial benefit of the bargain
PERFORMANCE OF CONTRACTS FOR A SALE OF GOODS (ARTICLE 2) *3) Installment Contracts = Substantial Impairment Rule, Not Perfect Tender*
*Definition of Installment Contract*: Requires or authorizes seller to deliver in separate installments (otherwise, seller must deliver the goods in a single delivery). *Rejection Under Installment K*: - *Perfect Tender Rule does not apply to installment contracts*, so it's harder for buyer to reject. -*Buyer may reject only for substantial impairment.*
Buyer's Obligation to Pay & Right to Inspect
*Delivery and Payment are Concurrent Conditions* *1) noncarrier cases* - unless otherwise agreed, a sale is for cash and the price is due concurrently with tender of delivery. *2) carrier cases* - prices is due only at the time and place where buyer receives the goods. ---*shipment case*: price due when goods put in hands of carrier ---*destination case*: price due when goods reach destination *IN OTHER WORDS, PAYMENT IS DUE WHEN RISK OF LOSS PASSES* *Payment by Check* - sufficient unless seller demands cash and gives buyer time to get it. *Installment Contracts* - the seller may demand payment for each installment if the price can be so apportioned *Buyer's Right of Inspection* - before she pays UNLESS the contract provides for payment COD or otherwise indicates that the buyer has promised to pay without inspection
FAILURE OF AN EXPRESS CONDITION = EXCUSE OF PERFORMANCE Definition of express condition?
*EXPRESS CONDITION* Language in a K—Limits obligations created by other contract language, but does not create an independent obligation. NOT a promise. Express conditions do NOT create obligations. Not the basis of a suit for breach of contract. Look for words like "if," "as long as," "when," "provided that," "on condition that" and "unless." *Rule: Strict Compliance Required with Express Conditions* - close is not good enough. It must be perfectly met
(4) Lil Nas X authorizes an agent to sell the ranch. Must the agent's authorization be in writing?
*Equal dignities rule*: the authorization of an agent to enter into a deal only has to be in writing if the underlying deal must have been in writing. So here, *yes*, since real estate sale.
VI. REMEDIES *Monetary Remedies: Expectation Damages*
*Expectation damages* - Put the injured party in the same place as full performance. *Buyer's Remedy:* - 1) Cover price - contract price if covers in good faith; 2) market price - contract price if doesn't cover in good faith. 3) But if buyer keeps non-conforming goods, give the value as promised minus value as delivered. *Seller's Remedy:* 1) Most common: Contract price minus resale price if resell in good faith 2) Contract price minus market price if choose not to resell or don't resell in good faith 3) Contract price if you can't resell (EX: custom made goods) *But a lost volume seller, who isn't made whole by a resale, gets her lost profit.* - merchant with lots of inventory.
Sale of Goods Damages (Article 2) Award expectation. *Buyer's Damages if Seller Breaches* Three options:
*FOR EACH OF THE BELOW ADD INCIDENTAL & CONSEQUENTIAL DAMAGES MINUS EXPENSES SAVED* *1. Cover Damages*: Cover Price Minus Original Contract Price -If buyer covers (replacement transaction after breach) in good faith without unreasonable delay -Most common *2. Market Damages*: Market Price Minus Contract Price (AKA "Benefit of the Bargain" Damages) - generally used if buyer doesn't cover in good faith or doesn't cover at all. - market price determined at time buyer learns of breach - *ALSO USED: when Seller anticipatorily breaches* *3. Loss in Value (AKA Warranty Damages)*: Value as Promised Minus Value as Delivered -Used if buyer keeps non-conforming goods. - could have rejected, but decides to keep imperfect goods. Can still get damages - NOTICE to seller within a reasonable time after she discovers or should have discovered defect
Sale of Goods Damages (Article 2) Award expectation. *Seller's Damages if Buyer Breaches* Four options:
*FOR EACH OF THE BELOW ADD INCIDENTAL DAMAGES (NOT CONSEQUENTIAL) MINUS EXPENSES SAVED* *1. Resale Damages*: Contract Price Minus Resale Price -If seller resells in good faith [usual measure]. *2. Market Damages*: Contract Price Minus Market Price -If seller does not resell in good faith or does not resell at all. - Market price determined at time/place of delivery *3. Full Contract Price (AKA "Action for Price")*: If Seller Cannot Resell the Goods -Often the case in custom-made goods - ALSO: if the goods have been lost or damaged at a time the risk of loss was on the buyer *4. Lost Profit*: If Seller Is a *Lost Volume Dealer* -if other measures are inadequate because the seller could have made an additional sale. -Look for merchant that has a lot of inventory. -The dealer has lost the profit it would have made on the initial sale!
RISK OF LOSS IN A SALE OF GOODS Issue: When goods are damaged before buyer gets them and neither buyer nor seller is to blame, who bears the Risk of Loss?
*If Seller Bears Risk* Seller must provide new goods to buyer for no additional cost, or be liable for breach. *Vs. If Buyer Bears Risk* Buyer must still pay the contract price even though goods are destroyed!
Exceptions to SOF Usually where there's less chance of fraud:
*Land* - Leases of one year or less not subject to SOF; "part performance." = 2 out of 3 (buyer pays money, makes improvements, or takes possession) gets you out of SOF *One-Year* - Full performance proves to the court that the deal was actually made. No SOF defense. *Suretyship* - "Main purpose" exception. *Sale of Goods* - SOF defense doesn't apply if: (1) Goods accepted by or paid for by the buyer; (2) custom-made goods; (3) judicial admissions; and a (4) merchant's confirmatory memorandum.
Minor vs. Material Breach
*Minor Breach* - obligee *gains the substantial benefit of her bargain* despite defective performance ---does NOT relieve aggrieved party of performance; just gives a right to damages *Material Breach* - obligee *does NOT receive the substantial benefit of the bargain* ---Nonbreaching party (1) may treat the contract as at an end (no counterperformance required); AND (2) has an immediate right to all remedies for breach of the entire contract
VI. REMEDIES *Other Monetary Remedies*
*Monetary Damages* - The usual contract remedy *Punitive Damages* - Not generally available in a breach of contract action. *Liquidated damages* - Look for a graduated amount ("reasonable forecast"). Lump sum that does not vary = "penalty." *Incidental damages* - Costs of arranging a substitute transaction or caring for goods with respect to which a breach has occurred. - ALWAYS RECOVERABLE. *Consequential damages* - Special damages; recoverable only if they were foreseeable at the time of contract. *Avoidable damages* - Can't recover damages that could have been reasonably avoided. Duty to mitigate.
VI. REMEDIES *Non-Monetary Remedies*
*Non-Monetary Remedies* -Rarely awarded; have to show that monetary remedies are inadequate *Specific Performance*: Available for real property & "unique" goods. *Seller's Right to Reclaim Goods* - Within 10 days if buyer was insolvent when it got the goods.
BUYER'S NON-MONETARY REMEDIES: Right to Replevy Identified Goods
*On Buyer's Prepayment* ---If buyer has made at least part payment of goods that are identified under a contract and the seller has not delivered the goods, the buyer may replevy the goods from the seller in 2 circumstances: 1) the seller becomes insolvent within 10 days after receiving the buyer's first payment; OR 2) the goods were purchased for personal, family, or household purposes. In either case, the buyer must TENDER any unpaid portion of the purchase price to the seller. *On Buyer's Inability to Cover* ---Additionally, the buyer may replevy undelivered, identified goods from the seller if the buyer, after reasonable effort, is unable to secure adequate substitute goods (cover)
V. EXCUSE FOR NONPERFORMANCE
*Other Party's Breach* - Under common law, only a material breach provides an excuse. *Anticipatory Repudiation* - Like a material breach, but can be retracted if no reliance on it. *Failure to Give Adequate Assurance* - If there are reasonable grounds for insecurity, a party can, in writing, request adequate assurance of the other party's performance; failure to give adequate assurance is treated as an anticipatory repudiation. *Later Agreement* Rescission; modification ("now"); accord & satisfaction ("then"); novation. *Impossibility* Where a later, unforeseen event makes the seller's performance impossible. *Frustration of Purpose* Where a later, unforeseen event frustrates the buyer's main purpose. *Failure of Express Condition* Protected party is "off the hook" if express condition is not completely satisfied. Strict performance rule.
IV. TERMS *Parol Evidence Rule*
*Parol Evidence Rule* - Cannot use any prior agreement to contradict a later writing. -But CAN bring in extrinsic evidence to (1) fix clerical error, (2) explain ambiguous term or (3) establish a defense
IV. TERMS Performance of Common Law vs. Goods Contracts
*Performance of Common Law Contract* -Substantial performance is all that's required (no material breach). *Vs. Performance of Sale of Goods Contract* *Perfect Tender Rule*: Seller must make perfect tender of the goods. *Cure* - Seller has an option to cure if (1) the time for performance has not expired, or (2) Seller had "reasonable grounds" to believe improper tender was okay. *Buyer's Right to reject* - Buyer has the right to reject if tender is not perfect, except in an installment contract (where a substantial impairment standard applies). *Right to revoke acceptance* - Only if a latent defect substantially impairs the value.
Conditions vs. Promises
*Promise* - commitment to do or refrain from doing something. If a promise is unconditional, the failure to perform is a breach *Condition* - means either 1) event or state of the world that must occur or fail to occur BEFORE a party has a duty to perform; OR 2) an event or state of the world, the occurrence or nonoccurrence of which RELEASES a party from his duty to perform. ----A condition is a "promise modifier"
*3. Delivery by Common Carrier (e.g., UPS, Amtrak)* 3P delivery service. *BAR EXAM'S FAVORITE*
*Risk of Loss shifts to buyer when seller completes its "delivery obligations" NOT when actual delivery occurs* *TWO TYPES OF DELIVERY OBLIGATIONS:* *1st possibility: Shipment Contract* - PRESUMED in absence of agreement -Seller must get the goods to a common carrier, make delivery arrangements, and notify buyer. --->Risk of Loss passes to the buyer when the goods are *delivered to the carrier* *2nd possibility: Destination Contract* Seller must get the goods all the way to a specific destination (usually, where buyer is located). -Seller bears risk of loss longer: until the goods are *tendered to the buyer at the destination.*
IV. TERMS Risk of Loss
*Risk of Loss* - Delivery by Common Carrier - Risk passes when seller completes delivery obligations. (Note: In a shipment contract, buyer may bear the risk of loss before it gets the goods!) - *Shipment*: ROL passes when (1) Seller must get the goods to a common carrier, (2) make delivery arrangements, and (3) notify buyer.--->Risk of Loss passes to the buyer when the goods are delivered to the carrier - *Destination Contract*: Seller must get the goods all the way to a specific destination (usually, where buyer is located). *Delivery by Other Means* - Depends whether seller is a merchant. - Merchant seller: seller bears until buyer receives - Nonmerchant seller: risk of loss passes on "tender" of goods to buyer.
HYPO 5A Seller contracts to sell 50 purple tee shirts to Buyer. Seller delivers 49 purple tee shirts and one gold tee shirt. What can Buyer do?
*Sale of Goods (Article 2)* - If seller's performance is not perfect in every respect ["Perfect Tender Rule"], buyer has pretty much free reign. *Buyer has 3 options: 1) reject all, 2) accept all, or 3) reject some & accept the rest* Exam Tip: Note: Whichever option buyer chooses, buyer can still get damages.
Contents of Writing to Satisfy the SOF
*Sale of Goods* - Must contain a quantity term and be signed by the defendant. *All Other Contracts* - Must contain all material terms and be signed by the defendant.
EXCEPTIONS TO PERFECT TENDER RULE *2) SELLER'S RIGHT TO CURE*
*Seller can cure by notice and new tender within time for performance* *Seller's right to cure beyond original contract time* ---Generally no right to cure. ---However, if the seller *reasonably* believed the nonconforming goods would be acceptable has a *further time to cure* beyond the original contract time ---EX: trade practices or prior dealings with buyer led seller to believe goods would be acceptable ---EX: seller could not have known of defect despite proper business practices
Seller's Obligation of Tender and Delivery: Carrier Cases
*Shipment Contracts* - unless agreed otherwise, the seller need not see that the goods reach the buyer, but only put the goods in the hands of a reasonable carrier under contract, tender documents needed to take possession and notify buyer of shipment *Destination Contracts* - the seller must, at the destination, put and hold conforming goods at the buyer's disposition
Mnemonic for remembering when a writing signed by the party to be charged is NOT required for a sale of goods for $500 of more, is SPAM:
*Specially* made goods *Performance* *Admission* in court *Merchant's confirmatory memo* All 4 take out of SOF
Seller's Obligation of Tender and Delivery: Non-Carrier Cases
*Tender of Delivery* - seller must put and hold conforming goods at the buyer's disposition for a time sufficient for the buyer to take possession. ---Must give the buyer notice reasonably necessary to enable her to take possession of the goods ---Tender must be at a reasonable hour *Place of Delivery* - unless otherwise agreed, the seller's place of business (if he has none his residence)
Void vs. Voidable vs. Unenforceable Contracts
*Void* - totally without legal effect from the beginning; and cannot be enforced by either party ---EX: agreement to commit a crime. *Voidable* - one that one or both parties can elect to avoid by raising a defense that makes it voidable ---EX: infancy or mental illness --->*aggrieved party may elect to enforce* *Unenforceable* - otherwise valid agreement that may not be enforced due to a defense extraneous to contract formation ---EX: SOL or SOF
IV. TERMS *Warranties under UCC Article 2*
*Warranties under UCC Article 2* 1) Express: Statement of fact, promise, description of the goods, use of sample or model. 2) Implied Warranty of Merchantability: Seller must be a dealer in goods of the kind. 3) Implied Warranty of Fitness for Particular Purpose: Seller must know/have reason to know that buyer has a special purpose in mind & is relying on seller to select suitable goods. IMPLIED WARRANTIES ARE IMPLIED BY LAW *Limitations on Warranties* - 1) Disclaimer of implied warranties; 2) limitation on buyer's remedies permitted as long as not unconscionable
Types of Express Conditions
*a. Condition Precedent* An event that must occur before performance is due -EX: I will lease the gym space from you for $1,000 IF I first sell 2,000 memberships. [usually tested]. -Selling the 2,000 memberships must occur first before any duty to pay arises. It is an express condition precedent. *b. Condition Subsequent* An event that happens afterwards that cuts off an existing duty -EX: I will lease the gym space for $1,000 until the zoning changes from commercial to residential only
OFFER: Missing Terms *PRICE*
- except for land, the failure to supply price does NOT prevent formation if the parties intended to form a contract without the price being settled. *GOODS: Art 2* provides that the price will be *reasonable price at time of delivery*
*Non-Carrier Cases* Parties did not intent the goods would be moved by a common carrier (e.g. buyer picks up or the seller delivers directly)
--->Risk of Loss depends on whether the seller is a merchant (doesn't matter if buyer is merchant or not) *Merchant-Seller* -Seller bears Risk of Loss until buyer takes possession of the goods. - Why? Merchants are repeat players and can buy insurance against the risk of loss (or just increase prices) *Non-Merchant-Seller* -Risk of Loss passes sooner: buyer bears Risk of Loss once seller "tenders" the goods (makes them available to buyer: tells buyer where they are and how to get them).
Two elements of consideration:
1) *bargained-for exchange* between the parties ---the promise induce the detriment AND the detriment induce the promise; GIFT FAILS this requirement 2) that which is bargained for must be considered of *legal value* [benefit to promisor or detriment to promisee]
When do the rights of the 3P beneficiary vest? A 3P can enforce a contract ONLY if his rights have vested. This occurs when he: (3)
1) *manifests asset* to a promise in the manner requested by the parties 2) brings a *suit to enforce* the promise; OR 3) *materially changes position in justifiable reliance* on the promise Prior to vesting the promisee and promisor are free to modify or rescind the beneficiary's rights without consulting the 3P Once the 3P's rights vest, the promisor and promisee cannot vary his rights without his consent. TIP: If the 3P beneficiary is bringing suit in the call of the question, the act of bring suit vests his rights!
*Sale of Goods (Article 2)* -No Mirror Image Rule -The offeree's adding or changing a term does not prevent acceptance under Article 2 (as long as there is a "seasonable" expression of acceptance). However.... *Offeree's Term Is Included Only If:* (3)
1) Both parties are merchants 2) Not a material change and 3) No objection to it within a reasonable time. Exam Tip: The offeree's term sometimes does not make it into the contract!
EXCEPTIONS to SOF (i.e., where you don't need a Writing) *Merchants' Confirmatory Memo* One party can use its own signed writing to satisfy the SOF against the other party if:
1) Both parties are merchants and know of contents; 2) Writing claims agreement & has quantity; and 3) There's no written objection within 10 days. Exam Tip: Typically, two merchants agree over the phone and one sends a written confirmation to the other. Article 2 lets one merchant use its own confirmation to satisfy the SOF against another merchant.
CONDUCT AS A SOURCE OF TERMS: 3 Categories?
1) Course of Performance 2) Course of Dealing 3) Usage of Trade (The above is the order of importance. Of course, above all of these are the terms of the contract. If the contract defines the terms, that governs)
Excuse of Condition by Anticipatory Repudiation *anticipatory repudiation* (AR) occurs when a promisor, prior to the time of performance, indicates that he will not perform when the time comes. If the following requirements are met, anticipatory repudiation will excuse performance: (2)
1) Executory Bilateral Contract - AR applies only if there are executory (unperformed) duties on both sides 2) AR Must be Unequivocal - must clearly indicate he cannot or will not perform
Problems that arise from successive assignments of the same rights
1) If the first assignment is revocable, a subsequent assignment revokes it. 2) if the assignment is irrevocable, the first assignment will usually prevail over a subsequent assignment, UNLESS the second assignee is a BFP, AND 1) the subsequent assignee gets the first judgment against the obligor 2) the subsequent assignee gets the first payment of a claim from the obligor 3) the subsequent assignee gets delivery of a token chose 4) the subsequent assignee is the party to a novation releasing the assignor; or 5) the subsequent assignee can proceed against the first assignee on an estoppel theory
TERMINATION—SECOND STEP OF AGREEMENT FORMATION PROCESS 4 Methods of Termination:
1) Lapse of Time 2) Revocation 3) Rejection 4) Death
II. FORMATION Agreement Formation Process (3 stages: Offer, Termination, Acceptance) *2nd stage = Termination of Offer—4 Ways:*
1) Lapse of Time: After a reasonable time, if no time is specified. 2) Revocation: Look for indirect revocation (offeror conduct + offeree awareness). 3) Rejection: An inappropriate response (a counteroffer or conditional acceptance). 4) Death before Acceptance Terminates a revocable offer (but NOT a contract)
3.6 STATUTE OF FRAUDS (SOF)—MOST COMMONLY TESTED TOPIC WHEN IS A WRITING REQUIRED? Most oral contracts are enforceable. Only certain kinds of contracts need a writing to be enforced (i.e., the ones that fall "within the SOF"). 6 Major SOF Categories: "MYLEGS"
1) Marriage 2) Year 3) Land Sale 4) Executor 5) Goods $500+ 6) Surety These areas are those particularly concerned about fraud, so require writing.
Exceptions to Pre-Existing Duty Rule:
1) New or different consideration promised 2) Promise to ratify a voidable obligation (EX: promise to ratify a minor's contract after reaching majority) 3) Preexisting duty is owed to a third person instead of the promisor 4) honest dispute as to the duty 5) unforeseen circumstances sufficient to discharge a party (EX: impracticability) or if the modification is fair and equitable in view of unanticipated circumstances 6) UCC - no preexisting duty rule. Just requires GOOD FAITH
PERFORMANCE OF CONTRACTS FOR A SALE OF GOODS (ARTICLE 2) *6) Consequences of Rejection/Revocation of Acceptance (3)*
1) Return: Buyer can return the goods at seller's expense. 2) Refund: Buyer can get back any money buyer has paid. 3) Damages: Buyer can get damages for breach of contract.
*TWO TYPES OF DELIVERY OBLIGATIONS for CARRIER CASES* *1st possibility: Shipment Contract* - PRESUMED 3 ELEMENTS:
1) Seller must get the goods to a common carrier, 2) make delivery arrangements, and 3) notify buyer. Risk of Loss passes to the buyer when the goods are *delivered to the carrier* *Exam Tip*: Look for a shipment contract, where buyer bears Risk of Loss before it gets the goods! It's counterintuitive—that's why it's tested so often!
CREATION OF A CONTRACT When a suit is brought in which one party seeks to enforce a contract or to obtain damages for breach, a court must first decide whether there was in fact a contract. In making this determination, a court will ask three basic questions:
1) Was there *mutual assent*? ---one party accepted the other's offer. 2) Was there *consideration* or a substitute? 3) Are there any *defenses* to contract formation?
Offer: In deciding whether a communication creates a reasonable expectation that the offeror is willing to enter into a contract, ask 3 questions:
1) Was there an expression of a promise, undertaking or commitment to enter into a contract (INTENT )? 2) Was there certainty and definiteness in the essential terms? 3) Was there communication of the above to the offeree?
Liquidated Damages Upheld if damages: (3)
1) Were difficult to estimate at the time of the contract, and 2) Are a reasonable forecast of probable damages (at the time of making the contract), but 3) Cannot operate as a "penalty." RECOVERABLE EVEN IF NO ACTUAL DAMAGES
EXCEPTION #1 to Past Consideration Rule Where a past obligation is unenforceable because of a technical defense (SOL), that obligation WILL be enforceable IF: (3)
1) a new promise is made 2) in writing, OR 2) partially performed
PERFECT TENDER RULE *Right to Reject Cut off by Acceptance* A buyer accepts when (3)
1) after a reasonable opportunity to inspect, she indicates to the seller that they conform OR that she will keep then despite nonconformity 2) she fails to reject within a reasonable time after tender or delivery OR fails to seasonably notify the seller of her rejection; OR 3) she does any act inconsistent with the seller's ownership
What Rights May Be Assigned? Generally, all contractual rights may be assigned. EXCEPTIONS: (3)
1) an assignment that would *substantially change the obligor's duty or risk* 2) an assignment of future rights to *arise from future contracts* (not future rights in already existing contracts) 3) an assignment *prohibited by law* (wage assignments in some states)
Rescission: Unilateral contract where only one party owes an absolute duty cannot be rescinded by mutual agreement For an effective rescission in a unilateral contract where the offeree has already performed, the rescission promise must be supported by one of the following:
1) an offer of new consideration by the nonperforming party 2) elements of promissory estoppel (detrimental reliance) 3) manifestation of an intent by the original offeree to make a gift of the obligation owed her
What is necessary for an effective assignment?
1) assignor must manifest a present intent to immediately and completely transfer her rights 2) the right being assigned must be adequately described (but it is not necessary to use word "assign") NOTES: ---assignment does NOT have to be in writing ---consideration is NOT required: gratuitous assignments permitted
three categories of termination
1) by offeror - revocation (any time before acceptance) 2) by offeree 3) by operation of law
Retraction of repudiation may retract at any time before his next performance is due unless the other party has
1) canceled, 2) materially changed position in reliance of the repudiation, or 3) otherwise indicated that she considers the repudiation final.
A duty of immediate performance with respect to a conditional promise does not become absolute until the conditions (2)
1) have been performed, or 2) legally excused
Breach of accord/satisfaction by CREDITOR by suing on original contract, the debtor has two options:
1) raise the accord agreement as an equitable defense and ask that the contract action be dismissed 2) wait until she is damaged (creditor is successful in his action on the original contract) and then bring an action at law for damages for breach of the accord contract
SOF Writing Requirement Writing does NOT have to be formal; can be a receipt, letter, check with info on memo line, email, or a written offer accepted orally. SOF requires only a writing that: (3)
1) reasonably identify the subject matter of the contract 2) indicate that a contract has been made between the parties, and 3) state with reasonable certainty the essential terms CAN ALSO BE A SERIES OF WRITINGS TAKEN TOGETHER
Effect if Court Finds Unconscionable Clause
1) refuse to enforce contract, or 2) enforce the remainder of contract without the clause 3) limit the application of the clause TIP: unconscionability is seldom a good defense on the MBE. Look for a big differences in bargaining power before selecting
*Sale of Goods (Article 2)* - If seller's performance is not perfect in every respect ["Perfect Tender Rule"], buyer has pretty much free reign. Buyer has 3 options:
1) reject all, 2) accept all, or 3) reject some & accept the rest Exam Tip: Note: Whichever option buyer chooses, buyer can still get damages.
Mutuality of Consideration Consideration must exist on both sides. If only one party is bound to perform, the promise is *illusory* and will not be enforced. However, courts often supply IMPLIED promises (EX: party must use best efforts) to infer mutuality:
1) requirements/outputs contracts ----language is important here. ----VALID: "All the widgets I require/you produce" ----INVALID: "All the widgets I want/you want to sell me" 2) conditional promises; unless the condition is entirely within the promisor's control 3) contracts where a party has the right to cancel, if that right is somehow restricted (EX: must give 60 days notice) 4) exclusivity agreements; courts will find implied promise to give best efforts 5) voidable promises 6) unilateral and option contracts 7) gratuitous suretyship promises made before or at the same time that consideration flows to the principal debtor
How get specific performance (an equitable remedy)?
1) show legal remedy inadequate - no amount of money will make whole 2) administration not unduly burdensome on courts, AND 3) contract terms are certain and definite.
Excuse of Condition by Substantial Performance Generally, the condition of complete performance may be excused if the party has rendered substantial performance. (this will not overcome an express condition however).
1) substantial performance arises if breach is minor 2) inapplicable if breach is willful 3) damages offset - the other party will be able to mitigate by deducting damages suffered due to the first party's incomplete performance 4) generally inapplicable to sale of goods - doctrine of substantial performance doesn't apply under UCC
Frustration of Purpose Elements
1) supervening act or event leading to the frustration 2) at the time of contracting the parties did not reasonably foresee the act/event 3) the purpose of the contract has been completely or almost completely destroyed by this act/event 4) the purpose of the contract was realized by both parties at the time of making the contract TIP: Watch for facts showing that a person has rented a venue for a specific purpose known to the owner and a subsequent event (storm, death) that was not reasonably foreseeable renders the purpose moot.
*IMPOSSIBILITY ELEMENTS* The occurrence of an unanticipated or extraordinary event may make contractual duties impossible to perform. The duties under the contract may be discharged.
1) the *nonoccurrence of the event was a basic assumption* of the parties in making the contract, and 2) *neither party has assumed the risk of the event's occurrence*, If there is impossibility, each party is excused from duties that are yet to be performed. If either party has partially performed prior to the existence of facts resulting in impossibility, that party has a right to recover in quasi-contract for the reasonable value of his performance. While that value is usually based on the benefit received by the defendant (unjust enrichment), it also may be measured by the detriment suffered by the plaintiff (the reasonable value of the work performed).
In determining whether a breach is material or minor, courts consider (6)
1) the amount of benefit received by the nonbreaching party 2) the adequacy of compensation for damages to the injured party 3) the extent of part performance by the breaching party 4) Hardship to the breaching party 5) negligent or willful behavior of the breaching party 6) the likelihood that the breaching party will perform the remainder of the contract
Methods of Revocation of Gratuitous Assignments
1) the death or bankruptcy of the assignor 2) notice of revocation by the assignor to the assignee OR the obligor 3) the assignor taking performance directly from the obligor 4) subsequent assignment of the same right by the assignor to another *TIP: This is where the obligor's peril comes in. The obligor does not necessarily know whether an assignment was gratuitous or for value.* ---Suppose the obligor, after notice of the assignment, renders performance to or pays the assignor. If the assignment was revocable, it is revoked by the assignor's acceptance, and the obligor is discharged. ---If, however, the assignment was for value, the obligor is not discharged by his performance or payment to the assignor. The obligor remains liable to the assignee.
Part Performance takes a sale of goods out of the SOF when: (2)
1) the goods have been specially manufactured 2) the goods have been either paid for or accepted ---but only to the extent of partial payment or acceptance TIP: If the part performance rendered takes the contract out of the SOF, the performing party has the option of suing on the contract for expectation damages rather than merely in restitution for the value of the benefit conferred.
Indirect revocation requires (3)
1) the offeree receives correct information 2) from a reliable source 3) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
Generally, taking advantage on a person's economic needs is NOT duress. HOWEVER, withholding something someone wants or needs will constitute economic duress if (2)
1) the party threatens to commit a wrongful act that would seriously threaten the other contracting party's property or finances; and 2) there are no adequate means available to prevent the threatened loss
Divisible Contract: Three Requirements
1) the performance is divided into two or more parts 2) number of parts due from each party is the same 3) the performance of each part by one party is agreed on as the equivalent of the corresponding part from the other TIP: Any time you see a CL contract with a price per unit you should consider divisibility A statement in a contract that payment is to be made only on completion of all units is construed as merely stating a time for payment, rather than as a condition making the contract indivisible.
RESTITUTION: *Plaintiff Breaches When NO CONTRACT INVOLVED* Quasi-contract action if (4)
1) the plaintiff has conferred a benefit on the D 2) the P conferred the benefit with the reasonable expectation of being compensated 3) the D knew or had reason to know of the P's expectation; and 4) the D would be unjustly enriched if he were allowed to retain the benefit ALWAYS FIRST LOOK FOR CONTRACT ALLOWING RELIEF; but if there isn't one, quasi--contract may provide a remedy if P suffered a loss or rendered services.
Breach: When does it occur?
1) the promisor has an absolute duty to perform 2) this absolute duty has not been discharged. Nonbreaching party must show that she is willing and able to perform but for the breaching party's failure to perform
Covenant Not to Compete most courts will grant specific performance to enforce if:
1) the services are unique (thus rendering money damages inadequate) 2) the covenant must be reasonable as to its geographic scope and duration (no longer than 2 years) 3) must not harm the public
Whether the additional or different terms proposed by the offeree during acceptance ultimately become part of the contract depends on whether or not both parties are merchants. If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract. They do not become part of the contract unless the offeror expressly agrees. If both parties are merchants, additional terms in the acceptance become part of the contract unless (3)
1) they materially alter the terms of the offer, 2) the offer expressly limits acceptance to the terms of the offer, or 3) the offeror has already objected to the terms (or objects within a reasonable time after notice of them is received). Between merchants, some courts treat different terms in an acceptance the same as additional terms; other courts apply the knockout rule (i.e., conflicting terms are knocked out and replaced by gap-filling terms under the UCC).
Effect of Anticipatory Repudiation The nonrepudiating party has four alternatives
1) treat the AR as a total repudiation and sue immediately 2) suspend his own performance and wait to sue until performance date 3) treat the repudiation as an offer to rescind and treat the contract as discharged. 4) ignore the repudiation and urge the promisor to perform (but this does NOT waive her rights to sue for breach, etc. if the promisor doesn't perform)
Elements of Undue Influence
1) undue susceptibility to pressure by one party 2) excessive pressure by the other party.
A traditional unilateral contract occurs in ONLY two situations:
1) when offeror clearly states acceptance can only occur by performance 2) where there is an offer to the public, such as a reward offer.
Acceptance of Offer for Unilateral Contract
1. *not accepted until performance completed* - beginning of performance may create option such that the offer is irrevocable but offeree not obligated to continue performance 2. *notice* - generally offeree not required to give offeror notice that she has begun the requested performance but it is required to notify offeror w/in reasonable time after completion; no notice required if: 1) the offeror waived notice 2) the offeree's performance would normally come to the offeror's attention within a reasonable time
I. APPLICABLE LAW
1st step: what Law applies?: Apply Article 2 to a sale of goods and the common law to all other transactions.
TIP: All contracts for goods require a delivery address. Merely indicating an address for shipment does NOT make a contract a destination contract.
A contract that does not contain a FOB term or any other term explicitly allocating the risk is presumed a SHIPMENT CONTRACT.
OFFER—FIRST STEP OF AGREEMENT FORMATION PROCESS Definition of Offer
A manifestation of an intention to be bound (as judged by a "Reasonable Person"/Objective standard). subjective intent of offeror does NOT matter. An offer creates a power of acceptance in the offeree and 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.
Merchant vs. Nonmerchant
A merchant is one who generally deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved. For Art. 2 provisions dealing with *general business practices* (Statute of Frauds, confirmatory memos, firm offers, modifications) *almost anyone in business* can be deemed a merchant. But with respect to provisions that require the party be a *merchant with respect to goods of the kind involved in the subject transaction* (implied warranty of merchantability) construe merchant much more narrowly.
Effect of a Merger Clause
A merger clause recites that the agreement is the complete agreement between the parties. The presence of a merger clause is usually determinative in large commercial contracts. For other contracts, the modern trend is to consider it as one factor in determining integration
EXCUSE FOR NONPERFORMANCE 5.4 A LATER AGREEMENT EXCUSING ORIGINAL OBLIGATIONS *Mutual Rescission*
A mutual agreement to cancel the contract. NOTE: for rescission to be effective, each party must have some performance remaining under the contract (i.e. it must be executory). *A party to a contract may not unilaterally rescind it if the contract is valid (i.e., in the absence of mistake, misrepresentation, etc.). However, both parties to a contract may agree to rescind and discharge their contractual duties as long as the duties are still executory on both sides*. CAN BE ORAL (unless SOF or Article 2) ---This is true even if the contract to be rescinded expressly states that it can be rescinded only by a written document, unless the subject matter of the contract falls within the SOF or the contract for the sale of goods (Art 2 requires written rescission or modification if the original contract requires it)
EXCUSE FOR NONPERFORMANCE 5.3 FAILURE TO GIVE ADEQUATE ASSURANCE (ARTICLE 2)
A party with reasonable grounds for being insecure about the other party's performance may, in writing, request adequate assurance that the other party will perform in accordance with the contract. If you ask for adequate assurances in writing, and don't receive them, you can treat that as an *anticipatory repudiation.* The innocent party is now excused from performances.
SOF & Suretyship
A promise to "answer for" (i.e., guarantee) the debt of another person. But watch out: not a mere promise to pay $$ Exam Tip: Surety category is regularly tested as WRONG answer.
Four Exceptions Where an Offer Cannot Be Revoked: 1. Option Contract
A promise to keep the offer open that is paid for. Consideration in exchange for promise to hold open offer. Offeror can no longer revoke.
A large producer of bread wrote to a distributor of flour, asking, "How much will you charge to supply my needs for flour for the next year?" The distributor replied in writing that it could supply the producer with all the flour it would need next year at a specified price per pound. The producer wrote back, "Your offer to supply me with flour is hereby accepted, provided that you agree to a 10% discount if payment is made within 10 days from date of billing." What should the producer's reply concerning a 10% discount be characterized as?
A rejection of the distributor's offer. The producer's reply is a *conditional acceptance, which is a rejection* of the offer. This question deals with the "battle of the forms" provision of the UCC. Under section 2-207 of the UCC, an acceptance containing additional or different terms is effective unless the offeree expressly makes his acceptance conditional on assent by the offeror to the additional terms. When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer. The conditional acceptance is essentially a new offer, and the original offeror may form a contract by expressly assenting to the new terms. Here, the producer made his acceptance conditional on the distributor's assent to the 10% discount. Thus, his communication is a rejection of the distributor's offer.
Discharge by Release
A release and/or contract not to sue will serve to discharge the contractual duties. Must be in writing and supported by new consideration or promissory estoppel
RESCISSION
A remedy whereby a *contract is canceled* and the *parties are returned to the positions they occupied before the contract was made*. Grounds: *1) mutual mistake of a material fact* *2) unilateral mistake if the other party knew* or should have known of the mistake *3) unilateral mistake if hardship by the mistaken party is so extreme* it outweighs the other party's expectation under the contract *4) misrepresentation* of fact or law by either party as to a material fact that was relied upon *5) other grounds*: duress, undue influence, illegality, lack of capacity, failure of consideration NOTE: if the P has paid money to the D, she is entitled to restitution in addition to rescission
Restitution: "Losing" Contracts
A restitutionary remedy is desirable in the case of a "losing" contract (the actual value of 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.
Timing of Revocation
A revocation is effective on receipt [no Mailbox Rule].
LIMITATIONS ON WARRANTY LIABILITY IN A SALE OF GOODS Disclaimers
A seller can disclaim implied warranties, but not express warranties. Implied warranty disclaimers must be *CONSPICUOUS* writing. ---implied warranties can also be disclaimed by course of dealing, course of performance, or usage of trade
PERFORMANCE OF CONTRACTS FOR A SALE OF GOODS (ARTICLE 2) *2) Option to Cure (a "Second Chance")*
A seller who fails to make perfect tender may have an option to cure. Whether seller has that option usually depends on whether the time for performance has expired. *a. Time Has Not Expired* Seller has the option to cure. *b. Time Has Expired* Seller does NOT have an option to cure UNLESS there is "reasonable grounds" for thinking that her improper tender would have been acceptable. --->Exam Tip for when grounds are reasonable: Look for info in facts about past deals between Seller & Buyer in which Buyer didn't insist on perfection.
Right to Damages for Failure of Condition
A waiver severs only the right to treat the failure of the condition as a total breach; but the waiving party does NOT waive her rights to damages.
Modification: Oral
A written contract CAN be modified orally. However, the modification must be in writing if the contract AS MODIFIED falls within the SOF. Thus for a sale of goods contract, if the contract AS MODIFIED is for $500 or more, it must be in writing. If the contract AS MODIFIED is for less than $500, no writing is necessary REMEMBER: Parol Evidence Rule does NOT apply to SUBSEQUENT oral modifications
Time-Barred Debt as an Exception to the Consideration Rule
A written promise to pay a debt, collection of which is barred by statute of limitations, is enforceable even without consideration.
On April 15, a wholesaler of tulip bulbs telephoned a local nursery and offered to sell to the nursery 80 gross of tulip bulbs for $8,000, not including delivery charges. The nursery accepted immediately. On April 17, the nursery sent the wholesaler an email confirming the deal for the sale of 80 gross of tulip bulbs for $8,000, and stating that it anticipated a waiver of the delivery charges because of the size of the order. On May 3, the wholesaler telephoned the nursery and stated that, due to a poor growing season for tulips, it would not be able to supply any tulip bulbs to the nursery. If the nursery brings suit against the wholesaler and the wholesaler asserts the Statute of Frauds as a defense, will the nursery prevail? A) Yes, because its April 17 email contained the quantity term. B) Yes, because its April 17 email contained the price term. C) No, because the nursery's April 17 email varied the terms of the wholesaler's offer. D) No, because the wholesaler is the party to be charged and has signed nothing.
A) Yes, because its April 17 email contained the quantity term. Because the quantity was stated in the April 17 email, the Statute of Frauds is satisfied and the nursery may prevail. This contract is for the purchase and sale of goods; thus, the UCC applies. The Statute of Frauds requires that a contract for the sale of goods for $500 or more be evidenced by a writing signed by the party to be charged. This writing must contain the essential elements of the agreement. The quantity term is the key to the sufficiency of a memorandum, and here the writing includes the quantity term. Thus, the writing complied with the Statute of Frauds. (B) is wrong because all other terms (including price) may be proved by parol evidence. The UCC requires only that the memorandum contain (i) quantity, (ii) the signature of the party to be charged, and (iii) a writing sufficient to indicate that a contract was formed. [UCC §2-201] (C) is wrong because it does not bear on the Statute of Frauds issue, but rather on the issue of the additional terms, which will not prevent a contract from being formed between merchants. (D) is wrong because UCC section 2-201(2) provides that, in a deal between merchants, *a writing confirming the deal sent by one party will bind both parties, unless the other party objects in writing within 10 days*. -Here, the wholesaler did not object within 10 days, and so the nursery's email confirmed the deal. Thus, the wholesaler can be charged even though the wholesaler has not signed the memorandum.
II. FORMATION Agreement Formation Process (3 stages: Offer, Termination, Acceptance) *3rd stage = Acceptance*
ADDRESS IN ESSAY IN THE FOLLOWING ORDER: Distinguish bilateral from unilateral contract; apply Mailbox Rule. *Common Law* - Acceptance must mirror the offer (Mirror Image Rule). *Article 2* - Additional term does not prevent acceptance (no Mirror Image Rule), but the offeree's additional terms usually don't become part of the contract (unless both parties are merchants and no material alteration or objection). *Consideration* - Need a bargained-for exchange; if none, look for promissory estoppel (reliance).
2.4 ACCEPTANCE—THIRD STAGE OF AGREEMENT FORMATION PROCESS
Acceptance is a manifestation of assent to the terms of the offer. Language of the Offer Controls the Manner of Acceptance
Seller's Right to Demand Assurances
Actions or circumstances that increase the risk of nonperformance by a party to a contract but do not clearly indicate that performance will not be forthcoming may NOT be treated as an AR. However, if there are *reasonable grounds for insecurity* with respect to a party's performacne, the other party may demand *in writing* assurances that the performance will be forthcoming at the proper time. Until he receives assurances, he may suspend his own performance. If the proper assurances are NOT giving within a reasonable time (ex: 30 days), he may treat the contract as repudiated "I'm not sure I'm going to perform" = reason to demand assurances "I'm not going to perform" = AR
Restitution Damages AKA "implied in law" contract; quasi-contract, quantum meruit
Alternative to contract damages Based on preventing *unjust enrichment* when one has conferred a benefit on another without gratuitous intent. compensation determined by the amount of benefit unjustly conferred on the breaching party *measure of damages*: the value of benefit provided the defendant (or detriment suffered by plaintiff if benefit is difficult to measure or would achieve an unfair result) Can be used whether there was a contract or not.
EXCUSE FOR NONPERFORMANCE 5.4 A LATER AGREEMENT EXCUSING ORIGINAL OBLIGATIONS *c. Accord/Satisfaction*
An accord is an agreement to accept a *different* performance in future satisfaction of an existing duty. The duty is suspended by the accord, but is not excused UNTIL the accord is satisfied (performed). Must show that accord is satisfied (performed) before the old obligation is excused. Must be supported by consideration; even if consideration is of less value it will work if it is a DIFFERENT TYPE OR PAID TO A 3P.
EXCUSE FOR NONPERFORMANCE 5.4 A LATER AGREEMENT EXCUSING ORIGINAL OBLIGATIONS *d. Novation*
An agreement to substitute a new party for an existing one. Elements: 1) previous valid contract 2) an agreement among all parties, including the new party (or parties) to the contract; 3) the immediate extinguishment of contractual duties as between the original contracting parties; and 4) valid and enforceable new contract
NON-MONETARY REMEDIES A. Specific Performance
An equitable remedy, available only if monetary damages are inadequate to compensate the injured party. --Exam tip: OFTEN the WRONG answer. Availability of specific performance depends on the nature of the contract—1) land vs. 2) goods vs. 3) services. Reason specific performance are unfavored: courts don't want to get involved in babysitting parties that hate each other. Money is easier. TIP: watch for a fact pattern in which a party is seeking to specifically enforce a contract containing a liquidated damages clause; such a clause does NOT make the legal remedy inadequate
Avoidable (Mitigation) Damages—Subtract These
An injured party cannot recover damages he could have avoided ("mitigated") with reasonable effort. DUTY to MITIGATE Must refrain from piling up losses after she receives notice of the breach; must not incur further expenditures or costs; and must make reasonable efforts to cut down her losses by procuring a substitute performance at a fair price. *Employment Contracts* - if breaching employer can prove a comparable job in the same locale was available then damages will be reduced by the wages that the P would have received *Manufacturing/Construction Contracts* - duty to mitigate after breach by not continuing work. However, if completion will decrease damages, it will be allowed. *ARTICLE 2: GOODS* - NO DUTY TO MITIGATE. Can always just use market damages if buyer doesn't cover or seller doesn't resell. ---However, seller cannot bring an action against hte buyer for full contract price unless the goods cannot be resold at any price or were damaged or lost when the risk of loss was on the buyer
1. Lapse of Time
An offer lapses after a stated term OR after a reasonable time has passed.
3. Rejection of Offers
An offer terminates when the offeree rejects it (an "inappropriate response"). Effective when received. Exam Tip: Watch out for offeree responses that look like acceptance but are actually rejections: counteroffers, conditional acceptances, and additional terms.
2. Revocation
An offer terminates when the offeror revokes the offer. General Rule: An offer can be revoked any time before acceptance. *Direct Revocation*: The offeror indicates directly to the offeree that he has changed his mind about entering the deal. Vs. *Indirect Revocation*: The offeror engages in conduct that indicates she's changed her mind and the offeree is aware of the conduct. ---Offeree MUST be aware of revocation for it to be effective
A court order requiring a breaching party to perform under the contract or face contempt of court charges is also known as:
An order for specific performance is essentially an order from the court directing the breaching party to perform as promised under the contract or face contempt of court charges. In contrast, an injunction is usually a court order prohibiting someone from doing a specified act. Although a mandatory injunction may order a party to perform a particular act, an order requiring a party to perform under the contract or face contempt is an order for specific performance, not an injunction.
THIRD-PARTY PROBLEMS: ENTRUSTMENT (ARTICLE 2)
An owner who entrusts goods to a *merchant who deals in goods of the kind* (i.e., a dealer) has no rights against a bona fide purchaser (BFP), AKA "buyer in the ordinary course of business". ---"Entrusting" includes both delivering goods to the merchant and leaving purchased goods with the merchant for later pickup or delivery. BFP cuts off rights of entruster (but a lien creditor would NOT) EX: Amy leaves her watch with Jeweler for repairs. Jeweler sells the watch to Zoe, who does not know that Jeweler has no right to sell. Zoe gets good title as against Amy because Zoe is a buyer in the ordinary course. Amy's only remedy is to sue Jeweler for damages.
ARTICLE 2
Applies to a sale of goods ["goods" are moveable, personal property]
COMMON LAW
Applies to any other contract [services, construction, land sale, etc.]
Perfect Tender Rule: Sale of Goods
Article 2 does not follow CL "substantial performance" doctrine. Instead, if goods or their delivery fail to conform to the contract in any way, the buyer may reject all, accept all, or accept any commercial units and reject the rest
knockout rule
As applied in many states, the view that when a buyer and seller engage in a battle of the forms and different terms are exchanged, both the seller's and buyer's differing terms drop out and substitute UCC gap fillers complete the contract.
A distributor of electric toy trains and a hobby shop owner entered into a written contract providing that the distributor will tender to the shop owner four dozen of a popular electric train set at a price of $100 apiece, to be delivered no later than October 31, to take advantage of the holiday shopping season. The shop owner chose to order from this distributor because its price for the train set was lower than that of other distributors. Shortly after the shop owner placed his order, the distributor raised its prices due to a sudden surge in popularity of that train set. Because the distributor did not have enough train sets to accommodate everyone due to the surge of orders, it decided to deliver train sets only to those buyers who had ordered them at the increased price. The distributor notified the shop owner that it would not deliver the train sets it ordered. The shop owner filed an action to force the distributor to deliver the train sets at the agreed-upon price. Will the court compel the distributor to deliver the train sets to the shop owner? A) No, because a contract for the sale of goods is not subject to specific performance. B) No, because the shop owner can buy them from another distributor. C) Yes, because the shop owner will not be able to buy them from another source at the contract price. D) Yes, because time is of the essence.
B) No, because the shop owner can buy them from another distributor. Because the shop owner can cover (i.e., buy the train sets from another source), a court will not grant specific performance. If the seller fails to deliver goods under a valid contract, the buyer has a number of remedies available, including the right to cover and the right to obtain specific performance if appropriate. A buyer may obtain specific performance of a contract for the sale of goods if the goods are unique or in short supply, but that does not appear to be the case here because the other distributors carried that train set. Thus, the shop owner can buy the train sets from another distributor and get the difference between the cost of the substitute goods and the contract price.
HYPO 4Q One day, Krispy Kreme delivers only 99 donuts instead of 100 at 9:01 a.m. instead of 9am. What are BARBRI's rights?
BarBri cannot reject. NO PERFECT TENDER RULE IN INSTALLMENT CONTRACTS. Can only reject for "substantial impairment" that can't be cured in subsequent deliveries; which is not the case here.
On January 1, a singer entered into a written contract with the owner of a nightclub to sing nightly at the nightclub for a period of two years at $54,000 per year, commencing February 1. On January 25, the singer phoned the nightclub owner and told him that he had not finished relocating from out of state and might not be ready to start singing until February 10. Furious, the nightclub owner located a substitute act for the month of February. Can the nightclub owner bring an immediate suit against the singer?
Because the singer's statement did not amount to an anticipatory repudiation of the contract, the nightclub owner may not bring an immediate suit for breach of contract. Anticipatory repudiation requires that the promisor unequivocally indicate that he cannot or will not perform when the time comes, or act in a manner rendering him unable to perform. When this happens, the nonrepudiating party may treat the anticipatory repudiation as a total breach and sue immediately. Here, the singer merely expressed doubt that he would be able to perform. An expression of doubt does not constitute an anticipatory repudiation.
HYPO 2I Subcontractor S submits a bid to do the plumbing work on a school project for $10,000. General Contractor G relies on S's bid in computing its own bid, and wins the overall school building project. Can S still revoke its offer?
Bids = offers NO. Here there is foreseeable detrimental reliance. When the subcontractor submits her bid she knows that the general contractor to rely on the bid.
An expert in lifting and emplacing equipment atop tall buildings, contracted in a signed writing to lift and emplace certain air-conditioning equipment atop a builder's building. An exculpatory clause in the contract provided that the expert would not be liable for any physical damage to the builder's building occurring during installation of the airconditioning equipment. There was also a clause providing for per diem damages if the expert did not complete performance by a specified date and a clause providing that "time is of the essence." Another clause provided that any subsequent agreement for extra work under the contract must be in writing and signed by both parties. With ample time remaining under the contract for commencement and completion of his performance, the expert notified the builder that he was selling his business to a man who was equally expert in lifting and emplacing equipment atop tall buildings, and that the man had agreed to "take over the expert-builder contract." If the builder refuses to accept the man's services, which of the following clauses in the expert-builder contract will best support the builder's contention that the expert's duties under the contract were not delegable without the builder's consent? A: The exculpatory clause. B: The liquidated-damage clause. C: The "time is of the essence" clause. D: The extra-work clause.
Brief Explanation A is correct. The exculpatory clause was the only non-delegable duty in the contract. The builder has a substantial interest in who performs the work because the builder, not the expert, is liable for any physical damage to the building that occurs during the installation. The man could cause more damage than the expert would have, thus leaving the builder more exposed to liability. "Delegation" refers to duties (not rights) under a contract. A party who wishes to have another person perform his duties under a contract delegates them. However, when performance of a duty is delegated, the delegator remains liable for the duty. The obligee can but is not required to explicitly agree to accept the delegate's performance in substitution for that of the delegator. This is known as a "novation," and the obligee must expressly agree to accept the delegate's performance in lieu of the delegator's and release the delegator from liability. Consent to the delegation is not enough to insulate the delegator from liability. Generally, all contractual duties may be delegated by the party with the duty to perform the obligation (called the delegator) to a third person (known as the delegate). *However, some duties are considered non-delegable*, including where: (i) the other party has a substantial interest in having his original promisor perform the acts required by the contract; (ii) the contract involves special judgment or particular skills; (iii) the delegatee is a competitor of the obligee or there is a special trust or relationship between the delegator and obligee; or (iv) there is a contractual restriction on delegation. A is correct. The exculpatory clause holds the builder responsible for any physical damage caused by the installation of the air conditioner. It gives the builder a substantial interest in who is performing the work; the builder chose to hire the expert based on his skillset when it comes to carrying out these types of duties. Even though the expert assured the builder that the man has an equal level of expertise, the builder did not hire the man himself and has no other reason to believe that the man is equally skilled. As such, the builder would have a substantial interest in this delegation given that the man could end up causing more damage than the expert would have if he had been the one to perform. This would cause the builder to face greater liability for damage than he had expected when hiring the expert.
HYPO 5D Calandrillo contracts to buy computer chips from Bill Gates. Calandrillo learns from other buyers that Gates's recent deliveries have contained lots of defective chips. What can Calandrillo do?
Buyer can request adequate assurance that the chips will be perform as expected under the contract. Buyer has reasonable grounds that chips might not be good. Theory: once Buyer receives adequate assurance it will give Buyer peace of mind.
HYPO 4M Seller contracts to deliver 50 purple tee shirts to Buyer. Seller delivers 49 purple and 1 gold tee shirt instead. What are Buyer's rights?
Buyer has to right to reject everything. Seller hasn't met perfect tender responsibility.
A testator, whose nephew was his only heir, died leaving a will that gave his entire estate to charity. The nephew, knowing full well that the testator was of sound mind all of his life, and having no evidence to the contrary, nevertheless filed a suit contesting the testator's will on the ground that the testator was incompetent when the will was signed. The testator's executor, offered the nephew $5,000 to settle the suit, and the nephew agreed. If the executor then repudiates the agreement and the foregoing facts are proved or admitted in the nephew's suit against the executor for breach of contract, is the nephew entitled to recover under the prevailing view? A: Yes, because the nephew-executor agreement was a bargained for exchange. B: Yes, because the law encourages the settlement of disputed claims. C: No, because the nephew did not bring the will contest in good faith. D: No, because an agreement to oust the court of its jurisdiction to decide a will contest is contrary to public policy.
C is correct. When the nephew contested the will based on the testator's incompetency, he was acting in bad faith because he knew the testator was of sound mind. Thus, his offer not to sue would not constitute valid consideration because the promisor must believe, in good faith, that his claim is valid in order to be a bargained-for exchange. The majority of agreements that qualify as legally enforceable contracts contain a bargained-for exchange in the legal positioning between the parties, i.e., valuable consideration. While substitute doctrines may permit enforcement of an agreement, only the presence of valuable consideration on both sides of the bargain will make an executory bilateral contract fully enforceable from the moment of formation. Simply stated, consideration is the price one pays for enforcing a contract in court. A promise will be found to be supported by consideration if two things are true: (i) the promise must benefit the promisor OR be a detriment to the promisee (i.e., the promisee is giving up something of value or circumscribes his liberty in some way to suffer a "legal detriment"); and (ii) there is a bargained-for exchange between the parties (i.e., the promisor makes his promise in exchange for the promisee's legal detriment). The first "legal detriment" element is commonly at issue in cases where it is unclear whether one party has really given anything up in the bargain. Courts will not inquire into the adequacy of the detriment to evaluate the effectiveness of the consideration offered. As long as the promisee suffers some detriment, no matter how small, the court will not find consideration lacking merely because what the promise gave up was of much less value than what he received. The second "bargain" element is usually at issue in non-business situations, such as a promise to give a gift. The primary purpose of the "bargain" requirement is to prevent the enforcement of promises that, in reality, just promise to make gifts. In those scenarios, the promise to give the gift is not enforceable not only because the promise is not part of the bargain, but also because no legal detriment is suffered by the promisee. A promise to give a gift also applies in certain business scenarios, especially promises to allow tenants to renew leases or any other quasi-option contract scenario. Even in a business context, a promise may NOT be enforced because of a lack of requisite bargaining. 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 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. C is correct. In suing the executor for breach of contract following the settlement agreement, the nephew will not prevail because his initial suit was in bad faith. Consideration requires a bargained-for exchange, which requires valuable consideration on both sides of the agreement. A promise not to sue on a claim MAY be valid consideration IF the promisor (the person threatening to sue who then offers not to sue in exchange for something) believes in good faith that the claim is valid. However, if the promisor is aware that he does not have a valid claim to begin with, there is no consideration. Here, the nephew did not provide consideration when he agreed to settle his claim against the testator's estate because he knew that he was surrendering an invalid claim.
A manufacturer and a buyer entered into a written contract for the manufacturer to produce and sell to the buyer 2,000 widgets at a price of $20 per widget. The contract expressly provided that the buyer shall have no liability under the contract unless 2,000 widgets are delivered to the buyer at his place of business no later than July 1. On July 1, 1,800 widgets meeting the buyer's specifications were tendered by the manufacturer. The remaining 200 widgets were tendered on July 5. The buyer refused to accept any of the widgets. In an action by the manufacturer against the buyer, which of the following would best support the manufacturer's case, assuming it can be proven? A) The buyer had orally agreed, just prior to the time the written contract was executed, to accept and pay for partial deliveries of the widgets. B) Widgets are a unique product produced only by the manufacturer and in a size and tolerance that varies with the needs of each purchaser. C) Delivery of the 200 widgets on July 1 was delayed by a storm which disrupted the shipper's activities, and was not the manufacturer's fault. D) A drop in the buyer's credit rating from good to fair had caused the manufacturer not to produce and tender the full 2,000 widgets on or before July 1.
C) Delivery of the 200 widgets on July 1 was delayed by a storm which disrupted the shipper's activities, and was not the manufacturer's fault. The storm delay would best support the manufacturer's case. The storm may have made delivery on time impossible, which may excuse performance under the *doctrine of impracticability of performance*. This defense can be used not only to excuse performance totally, but *also to excuse the delay in full performance*. Impracticability discharges the duty to perform to the extent of the impracticability; so if the storm rises to the level of impracticability and prevented the delivery of the 200 widgets, the manufacturer's duty to perform with respect to those widgets would be discharged. In other words, failure to make perfect tender would be excused to the extent of the short delivery. Of course, it is possible that the storm would not amount to impracticability or that the manufacturer assumed that risk, but this remains the manufacturer's best argument because it is the only one with any possibility to succeed.
ACTIVITY On January 1, Batman assigns the right to payment from Gotham City to Robin as a gift. On February 2, Batman promises to assign the same right to Ben Affleck, his latest alter ego. On March 3, Batman sells the same right to The Joker, shortly before he was hanged, for $100. On April 4, Batman sells the same right to Bill Gates for $1,000. As of April 4, whom should Gotham City pay?
C- correct answer. (A) Robin, the first gratuitous assignee. (B) Affleck, the last gratuitous assignee. ---PROMISES TO ASSIGN NEVER WORK. (C) The Joker, the first assignee for consideration. (D) Gates, the last assignee for consideration.
HYPO 6E B contracts to buy carpeting for $2,500. S does not deliver. The market price for similar carpeting is $2,700. What are B's damages if B pays $2,800 for the same carpeting?
COVER DAMAGES situation. - Cover Price Minus Original Contract Price $2800 - 2500 = $300 As long as buyer covers in good faith, give difference between original contract price and cover price.
EXCEPTIONS to SOF (i.e., where you don't need a Writing) 1) Land Sale/Real Property Exceptions to SOF
Carved out where there is less chance of fraud a. Leases of One Year or Less - can be oral. Legislative exception to protect tenants - has to be more than one year to be subject to SOF b. "Part Performance" of Real Estate Sale K Need 2 out of 3: 1) some payment, 2) possession, and/ or 3) improvements ---> can satisfy SOF without a writing.
DEFENSES LACK OF CAPACITY
Categories a) Minors (under 18); b) intoxicated (even voluntarily intoxicated if the other party knew and took advantage); c) mentally incompetent. General Rule: An incapacitated defendant has the right to disaffirm the contract any time before majority or shortly thereafter (she does not have to disaffirm, but she can if she wants to avoid the contract). ---However, the contract is BINDING on the ADULT If the minor choses to disaffirm, she must return anything she received under the contract *that still remains* at the time of disaffirmance. ---No obligation to return any part of the consideration that has been squandered, wasted, or destroyed.
c. Acceptance Adding Terms/Varying Offer
Common law differs from Article 2. *Common Law*: Acceptance must mirror the offer ("*Mirror Image Rule*"); if the offeree adds terms, it is a rejection! *Vs. Sale of Goods (Article 2)* -No Mirror Image Rule -The offeree's adding or changing a term does not prevent acceptance under Article 2 (as long as there is a "seasonable" expression of acceptance). However.... *Offeree's Term Is Included Only If:* -Both parties are merchants -Not a material change and -No objection to it within a reasonable time. Exam Tip: The offeree's term sometimes does not make it into the contract!
Contract Modification Issue: Is There Consideration to Enforce the Modification?
Common law rule differs from Article 2. *Common Law* *New consideration is required to modify a contract*. -Performing a preexisting duty is not enough ["*Preexisting Duty Rule*"]. *Exam Tip* - Look for someone asking for more $$ to do the exact same thing that they originally promised to do. *Vs. Sale of Goods (Article 2) Modifications*—*Need NO Consideration* -Consideration is NOT required to modify a contract for the sale of goods, *but you must have Good Faith*.
Consequential Damages = Indirect Results from Breach *BUYER ONLY!*
Consequential damages ONLY recoverable if 1) reasonably foreseeable to the breaching party at the time the contract is formed of the buyer's requirements; 2) subsequent loss resulting from those needs could not reasonably be prevented by cover. Often consist of *lost profits*; *FORESEEABILITY IS KEY!*🔑 ---If seller knows that the goods are *necessary for manufacturing*, he should know that his breach would cause a loss of profits [Note: Consequential damages are NOT available to a Seller under Article 2.]
Satisfaction of Third Party as Condition Precedent
Construction contracts often include a condition requiring the satisfaction of the owner's architect or engineer. Most courts require the *actual personal satisfaction* of that person. ---MUST BE HONEST AND IN GOOD FAITH
Restrictions on Assignments
Contract Language Controls Distinguish a clause that "prohibits" assignment from one that completely "invalidates" assignment. *Prohibition language* - assignment invalid; HOWEVER, an assignee that didn't know of the prohibition language can still collect *Invalidation language* - stronger than prohibition language: "all assignments are null and void and will have no effect" -Assignee will NOT be able to collect on assignment. The general rule is that a writing is not required to have an effective assignment.
HYPO 2V On July 1, Elon Musk offers to sell his original Tesla Roadster to Mark Zuckerberg for $1 million. On July 2, Zuckerberg mails an acceptance. On July 3, he receives a letter revoking the offer. Result? (2) What if the acceptance got lost in the mail?
Contract formed on July 2nd. Doesn't matter if Elon sent first, because acceptances are effective when mailed, revocations upon receipt. (2) If acceptance gets lost in the mail, that is IRRELEVANT. Acceptance still valid. Might have trouble proving acceptance, but that's not going to be on the bar. Acceptance valid.
(3) What if S had not disclaimed all warranties, but had merely added "Monday delivery"?
Contract formed, and additional term is part of the deal as long as merchant to merchant deal.
(3) What if the baseball bat was one of Babe Ruth's, but is worth only $50,000 not $100,000 like they thought? [TRICK Q!]
Contract is enforceable. Mutual mistake just as to the value of the subject matter is not enough to rescind contract for mutual mistake. Remember: courts don't inquire as to the adequacy of consideration; she got what she bargained for: it was used by Babe Ruth.
SOF: Year
Contracts which cannot possibly be competed in 1 year or less are subject to SOF—look at dates! Measuring year begins from date of agreement Exam Tip: It does not matter if performance actually takes more than a year. As long as full performance within a year was theoretically possible, no writing is required by the SOF. HOWEVER, full performance by one party removes it from SOF TIP: Watch for contracts measured by a lifetime. A person can die in a year.
Incidental Damages
Costs to the injured buyer or seller of transporting/ caring for goods after a breach and of arranging a substitute transaction = *always recoverable.* Costs incurred in dealing with a breach, finding a substitute, caring for the goods, etc.
ACTIVITY A Tesla dealer contracts to sell a Model X out of its regular inventory to Mark Zuckerberg for $100,000. The dealer would have made a $10,000 profit. Zuckerberg breaches. A week later, the dealer sells the same car to Jay Inslee for $100,000. The market price of the car is $95,000. What are the dealer's damages? (A) Contract price of $100,000. (B) Resale damages of $0. (C) Market damages of $5,000. (D) Lost profit of $10,000.
D - lost volume seller gets lost profits. (A) Contract price of $100,000. ---NO. This would be a windfall that makes nonbreaching party much better off than if breach had not occurred. Tesla still has the car. (B) Resale damages of $0. ---TRICK. This is only the correct answer if there was only one car to sell. Can only make one profit. But here, this is a car dealer, so it lost a sale. Would have had two sales, and two profits. (C) Market damages of $5,000. ---IRRELEVANT. (D) Lost profit of $10,000. --- Lost volume seller gets lost profit. Look for merchant that has a lot of inventory. Exam Tip This is how it is always tested on the MBE: a dealer resells the same goods for the same price. The bar examiners are trying to trick you into saying the dealer's damages are $0, but don't be fooled! The dealer has lost the profit it would have made on the initial sale!
A victim, injured by a driver in an auto accident, employed an attorney to represent him in the matter. The victim was chronically insolvent and expressed doubt whether he could promptly get necessary medical treatment. Accordingly, the attorney wrote into their contract his promise to the victim "to pay from any settlement with the driver compensation to any physician who provides professional services for the victim's injuries." The contract also provided that the attorney's duties were "non-assignable." The attorney immediately filed suit against the driver. The victim then sought and received medical treatment, reasonably valued at $1,000, from the doctor, but failed to inform the doctor of the attorney's promise. After receiving a bill from the doctor for $1,000, the victim immediately wrote the doctor explaining that he was unable to pay and enclosing a copy of his contract with the attorney. The victim then asked the attorney about payment of this bill, but the attorney requested a release from their employment contract, stating that he would like to refer the victim's claim to a colleague and that the colleague was willing to represent the victim in the pending lawsuit. The victim wrote a letter to the attorney releasing him from their contract and agreeing to the colleague's representation. A copy of this letter was sent to the doctor. The colleague subsequently promised the attorney to represent the victim and soon negotiated a settlement of the victim's claim against the driver which netted $1,000, all of which was paid by the victim to creditors other than the doctor. The victim remains insolvent. In an action by the doctor against the attorney upon the attorney's employment contract with the victim, the attorney is likely to argue in defense that A: the anti-assignment clause in the attorney's contract with the victim is void as against public policy. B: the attorney has relied to his detriment on the victim's letter of release. C: third parties cannot acquire valid claims under an attorney-client contract. D: the doctor has not materially changed his position in reliance upon the attorney's employment contract.
D is correct. A third party acquires standing to enforce a promise only if that party is an intended beneficiary of the promise, such as where the promisor must know that the promisee intended to confer a benefit on the beneficiary. *The promisor and promisee retain the power to modify or discharge a duty owed to an intended beneficiary unless and until the beneficiary's rights vest. The beneficiary's rights will vest if he materially changes his position in justifiable reliance on the promise or manifests assent to the promise at the request of the promisor or promisee.* The doctor appears to be an intended beneficiary of the agreement between the victim and the attorney, since the promise to pay "any physician" who treats the victim's injuries manifests an intent by the parties to confer standing on the doctor to enforce the promise. The doctor's rights as beneficiary did not vest, however, before the victim and the attorney discharged the duty when they executed the release. Although the doctor received notice of the promise, he did not rely on it, since the services were rendered before he received notice of the promise.
4. Death or Insanity Operates to Terminate an Offer
Death or insanity of either party before acceptance terminates a revocable offer. But Warning: death doesn't automatically terminate a contract that has already formed, nor an irrevocable offer (EX: option). Obligation goes to estate of deceased.
Implied Warranty of Fitness for a Particular Purpose
Definition: The goods are fit for buyer's particular purpose. Key Facts: Seller knows buyer has a special purpose and is relying on seller to select suitable goods. Note: Seller does NOT have to be any kind of a merchant at all!
Implied Warranties in Sale of Goods Cases: 1. Implied Warranty of Merchantability
Definition: The goods are fit for their ordinary purpose. Key Fact: Seller is a merchant who deals in goods of the kind. If so, automatically implied by law under the UCC Article 2 is that the goods come with the implied warranty of merchantability that they are fit for the ordinary foreseeable purpose for which they are used. IMPLIED BY LAW. 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 an absolute liability that is imposed on certain sellers.
DELEGATION OF DUTIES TO A THIRD PARTY
Delegation is a transfer of contract *duties*, not a transfer of rights. General Rule: Contractual duties may be delegated to another party without the consent of the person to whom performance is owed (the "obligee"). Exceptions: 1) Contract Language Controls 2) Person with Special Skill or Reputation; involves personal judgment and skill 3) special trust was reposed in the delegator by the other party to the contract 4) delegation would change the obligee's expectancy (EX: requirements and output contracts)
WHAT IS AN ADEQUATE WRITING TO SATISFY THE SOF?
Depends on the nature of the contract. *Sale of Goods (Article 2)* - Must contain a *quantity* and be *signed by party to be charged with breach* [i.e., the defendant]. *Vs. Common Law Contracts: - Writing must have all material terms and be signed by the defendant.* - who is the contract between? - what is the contract about? - signed by D
HYPO 5K Buyer contracts to buy 500 computers from Seller. After the contract is formed but before delivery, fire destroys one of Seller's warehouses. Thousands of computers are destroyed. Is Seller excused from performing?
Depends. Only if the computers that were destroyed were already identified to the contract. "Identified" to the contract - particular goods are tagged, already set aside for the Buyer. Otherwise, if the goods are unidentified, interchangeable, then the Seller has no excuse.
A building that is the subject of a contract between its owner and a contractor is completely destroyed by an act of nature. If the contractor was working on a renovation, the destruction _____________; if the contractor was constructing the building, the destruction ________________.
Discharges the contractor's duties by impossibility; does not discharge the contractor's duties The total destruction by an act of nature of a renovation in progress discharges the contractor's duties by impossibility. If a contract's subject matter is destroyed without the fault of either party, the contractual duties are discharged. If the original building no longer exists, it is impossible to renovate it. The construction of a new building, even if destroyed during progress, is not impossible and thus will not discharge the contractor's duty to perform. However, if the destruction was not caused by the contractor, courts typically will extend the time for the contractor to perform. Discharge by impracticability occurs when performance is possible, but can be accomplished only with extreme and unreasonable difficulty or expense. It is impossible, not impracticable, to renovate a building that no longer exists. Moreover, discharge by frustration may not be raised by the contractor in either case. His purpose in entering into the contract was to make money. Frustration occurs when the purpose of the contract has become valueless by virtue of a supervening event. Frustration of purpose would be a valid defense of the owner in the contract for renovation. Without the building, there is no point in paying to renovate it.
A golf pro entered into an employment contract with a country club to be its golf pro. The agreement specified that the golf pro would run the pro shop and provide private instruction to members from April through September of each year for the next five years, at a monthly salary of $5,000, plus instructional fees. During those months, the club's other instructor was playing on the professional tour and was unavailable. On March 15, the club's manager received an e-mail from the golf pro, stating: "Made the final cut in Sarasota Winter Open. May not be able to get to club by April 1. Could be delayed until 5th if playoff necessary." The club's manager asked his attorney whether he should bring an immediate action against the golf pro for breach of contract. Which of the following is the most accurate advice for the manager?
Do not file suit; the golf pro has not repudiated the contract. *This is a favorite MBE question*. *The best advice is not to file suit because the golf pro's e-mail does not constitute an anticipatory repudiation*. Language may constitute an expression of doubt as to one's ability to perform under the contract without being an outright refusal. This will not be an anticipatory repudiation, but a prospective inability to perform. If there is an anticipatory repudiation, then the nonbreaching party can (i) sue for damages, (ii) contract with a third party, or (iii) do nothing. If the fact pattern language amounts to a prospective inability to perform, the innocent party may suspend performance until he receives adequate assurances that performance will be forthcoming. Here, the golf pro's e-mail does not constitute an anticipatory repudiation because he merely states that he "may not" get to the club by April 1.
While negligently driving his father's uninsured automobile, the 25-year-old son crashed into an automobile driven by a woman. Both the son and the woman were injured. The father erroneously believing that he was liable because he owned the automobile, said to the woman: "I will see to it that you are reimbursed for any losses you incur as a result of the accident." The father also called a physician and told him to take care of the woman and that he would pay the bill. The son, having no assets, died as a result of his injuries. One of the son's creditors wrote to the father stating that the son owed him a clothing bill of $200 and that he was going to file a claim against the son's estate. The father replied: "If you don't file a claim against my son's estate, I will pay what he owed you." If the creditor did not file an action against the son's estate, would the creditor succeed in an action against the father for $200? A: Yes, because the creditor had detrimentally relied on the father's promise. B: Yes, because the father's promise was supported by a bargained-for exchange. C: No, because the creditor's claim against the son's estate was worthless. D: No, because the father at most had only a moral obligation to pay the son's debts.
Explanation B is correct. The father sought the creditor's forbearance in exchange for the father's promise to pay the creditor. It makes no difference that the creditor's consideration benefited a third party instead of the father. A is incorrect. Promissory estoppel based on detrimental reliance is only relevant when there is NOT an enforceable contract. Since there is an enforceable contract between the father and the creditor, detrimental reliance will not be the basis for the success of the creditor's action. C is incorrect. If the creditor believed in good faith that his claim against the son's estate was valid, then the forbearance of his legal right to sue is adequate consideration. D is incorrect. The father's payment is not based on his moral obligation. Instead, the father's promise to the pay the creditor was made in exchange for the creditor's promise not to exercise his legal right to bring suit against the son's estate.
THIRD-PARTY BENEFICIARY
Fact Pattern: Two people enter a contract intending to benefit a third party. EXAMPLE: Calandrillo pays Eddie Vedder $25,000 to sing for Chryssa on her birthday. *PARTIES* *1) Intended Beneficiary* [Usually Named in the Contract] -A person who is not party to a contract, but has rights under the contract because it was intended to benefit her [Chryssa]. --->Intended Third party beneficiary CAN enforce directly. --->[Incidental beneficiaries CANNOT enforce] *2) Promisor* - The party who promises to perform for the 3rd party [Eddie Vedder]. *3) Promisee* - The party who secures the promise [Calandrillo].
Failure of Condition vs. Breach of Contract
Failure of a condition is NOT A BREACH, but it discharges the liability of the promisor whose obligations on the conditional promise never mature. Failure of a promise is a BREACH THAT LEADS TO LIABILITY
Timeliness of Performance
Failure to perform by the time stated in the contract is not a material breach if performance is rendered within reasonable time after the stated time, UNLESS 1) contract by its nature makes timeliness essential 2) contract expressly provides that time is of the essence Merely including a time for performance does NOT make time of the essence
On February 1, the owner of a bowling alley read in a magazine an ad from a major manufacturer of bowling balls offering sets of 40 balls in various weights and drilled in various sizes for $10 per ball. The owner immediately filled out the order form included in the ad for the 40 balls and deposited it, properly stamped and addressed, into the mail. On February 2, the bowling alley owner received in the mail a letter from the manufacturer, sent out as part of its advertising campaign, stating in relevant part that it will sell the bowling alley owner 40 bowling balls at $10 per ball. A day later, on February 3, the manufacturer received the bowling alley owner's order. On February 4, the balls were shipped. On what day did an enforceable contract arise? A) February 1, the day the bowling alley owner deposited his order in the mail. B) February 2, the day the bowling alley owner received the letter from the manufacturer. C) February 3, the day the manufacturer received the bowling alley owner's letter. D) February 4, the day the balls were shipped.
February 4, the day the balls were shipped. The contract arose when the balls were shipped. The general rule is that an offer can be accepted by performance or a promise to perform unless the offer clearly limits the method of acceptance. Here, the offer would be the bowling alley owner's order, because a magazine ad is usually held to be merely solicitation to accept offers rather than an offer. Thus, the manufacturer accepted and the contract was formed when it shipped the balls. (A) is wrong because the bowling alley owner's order was an offer to buy, and no contract could be formed until that offer was accepted. (B) is wrong because this is a case of crossing offers; even though both offers contain the same terms, they do not form a contract. (C) is wrong because no contract will be formed until there has been an acceptance, and, as stated, the bowling alley owner's letter was merely an offer.
PERFORMANCE OF CONTRACTS FOR A SALE OF GOODS (ARTICLE 2) *5) Buyer's Revocation of Acceptance of the Goods*
General Rule: A buyer cannot revoke acceptance of goods. Exception: If the non-conformity *substantially impairs the value of the goods AND was difficult to discover* (i.e., it was a *latent* defect).
Timing of an Acceptance
General Rule: Acceptance is effective when mailed as long as the mail is properly addressed ("Mailbox Rule"). [Policy: Protects the offeree against revocation once she has mailed an acceptance.]
SELLER'S NON-MONETARY REMEDIES: *RECLAMATION* Unpaid Seller's Right to Reclaim Goods (Article 2)
General Rule: Not available under Article 2 (Note: seller may have rights under bankruptcy law, but that's beyond the scope of this lecture.) Exception: If (1) *buyer was insolvent* when it received the goods on credit, and (2) *seller makes a demand within 10 days after buyer received them*. - In this situation, the Seller CAN get reclamation of goods. Exception to exception: Seller can reclaim goods at any time (not limited by 10 day rule) if buyer misrepresented its solvency to seller in writing within three months before delivery.
Limitation of Buyer's Remedies for Breach of Warranty
General Rule: Seller can limit buyer's remedies for breach of any warranty (express or implied) as long as the limitation is NOT unconscionable ---EX: "remedy for breach of warranty is limited to repair or replacement" is valid. Exception: Limiting buyer's remedies for personal injury in the case of consumer goods is presumed to be unconscionable.
Specific Performance 2) Sale of Goods (Article 2)
General Rule: Specific performance is available only if the goods are *unique* or there are "other proper circumstances" (e.g., an inability to "cover" - to buy similar goods in the market). Exam tip: watch out for artwork, antiques, custom-made goods. Can't cover.
Rescission and Modification of 3rd Party Deals
General Rule: The promisor and promisee can rescind or modify the contract until the rights of the 3rd party have "vested." 3P beneficiary's rights "vest" when she learns of the contract and relies upon it. Cannot modify/cancel UNLESS contract provides otherwise in terms.
Buyer's Damages for Breach of Warranty
General: difference between goods tendered and as warranted measured at time/place of acceptance
Acceptance of Offer for Bilateral Contract
Generally, acceptance must be communicated (unless otherwise specified)
Generally, the right to receive goods under a requirements contract is not assignable because the obligor's duties could change significantly. EXCEPTION?
However, the UCC allows the assignment of requirements contracts if the assignee acts in good faith not to alter the terms of the contract.
Valid Assignments Must Have Language of Present Transfer HYPO 7F What if Batman promises to assign the right to receive the $200,000 payment to Robin?
INVALID. Assignment requires language of PRESENT transfer. ---cannot be "I promise" or "I will assign" READ CAREFULLY ON EXAM!
(4) What if the promise to pay the extra $5,000 is made by Kanye West, not by Coachella? [TRICK Q!]
If a 3P comes in and promises to pay more for the same performance, THAT PROMISE IS ENFORCEABLE. 3P exception to the pre-existing duty rule. Why? Beyonce didn't owe a duty to Kanye
Excuse of a Condition by "Divisibility" of Contract
If a contract is divisible and a party performs of the units of the 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 COA for failure to perform the other units and may withhold his counterperformance for those units
Effect of Condition: Equitable Remedy
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 enrichment
Remedies if Contract is within SOF
If a contract violates the SOF, in almost all cases a party can sue for the reasonable value of the services or part performance rendered, OR for the restitution of any other benefit that has been conferred
EXCEPTIONS to SOF (i.e., where you don't need a Writing) c. Judicial Admission—Satisfies SOF
If a defendant admits under oath that she had a deal, then she will lose her SOF defense. Ex: "Yeah, we agreed, but it was only oral, not in writing." Just agreed under oath there was a deal. The court is no longer worried about fraud.
Excusing a Condition a. Failure to Cooperate
If a party having a duty of performance that is subject to a condition (i.e. she is protected by the condition) prevents the condition from occurring the condition will be excused if the prevention is WRONGFUL.
Fraudulent Misrepresentation (Fraud in the inducement)
If a party induces another to enter into a contract by using a fraud (asserting info she knows is untrue) the contract is voidable by the innocent party if she *justifiably relied* on the fraudulent misrepresentation. TIP: a fraudulent misrepresentation need not be spoken or written; it can be induced from conduct by concealing a fact, frustrating investigation of a fact, or falsely denying knowledge of a fact. Nondisclosure of a fact is NOT misrepresentation UNLESS it is material or fraudulent
Contracts Calling for Installment Payments
If a payment is not made in installment contract, there is only a partial breach. The aggrieved party is limited to recovering only the missed payment, not the entire contract price. However, the contract may include an *acceleration clause* making the entire amount due on any late payment, in which case the aggrieved party may recover the entire amount.
Restitution: Breach by Plaintiff
If 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 by the breach
Good Destroyed Before Risk of Loss Passes
If goods that were *identified when the contract was made* are destroyed: 1) without fault by either party, and 2) before the risk of loss passes to the buyer, then ---the contract is avoided (i.e. seller's performance is excused). If the goods were NOT identified until after the contract was made, the seller in this situation would have be prove impracticability to be discharged
Effect of Running of Statute of Limitations
If the SOL on an action has run, it is generally held that an action for breach may be barred. NOTE: only judicial remedies are barred; the running does NOT discharge the duties. Thus, if the party who has the advantage of the sOL subsequently agrees to perform, no new consideration is required. While lapse discharges a contract, the SOL merely makes it unenforceable in court.
SELLER'S NON-MONETARY REMEDIES: *Right to Withhold Goods*
If the buyer fails to make a payment due before delivery, the seller may withhold delivery. Also, if the seller discovers the buyer is insolvent, and the goods are sold on credit (but must deliver if buyer tenders cash)
Effect of Breach on Risk of Loss
If the buyer has a right to reject the goods, the risk of loss does NOT pass to the buyer until the defects are cured or she accepts the goods despite the defects *Revocation of acceptance* - if the buyer rightfully revokes acceptance, the risk of loss is treated as having rested on the seller from the beginning to the extent of any deficiency in the buyer's insurance coverage. TIP: If the seller ships nonconforming goods, it eliminates the importance of determining whether a contract is a shipment or destination contract. If the goods are nonconforming, the risk of loss remains on the seller.
Disclaimer of Implied Warranties by Examination or Refusal to Examine
If the buyer, before entering into the contract, has examined the goods or a sample or model as fully as she desires or has refused to examine, there is no warranty as to defects that a reasonable examination would have revealed
Illegality
If the consideration or subject matter of a contract is illegal the contract is void. Exceptions: 1) the P was unaware of the illegality while the D knows of illegality 2) the parties are not in pari delicto (one party is not as culpable as another) 3) the illegality is the failure to obtain a license when the license if for revenue-raising purposes rather than for protection of the public If the PURPOSE behind a contract is illegal, the contract is VOIDABLE by a party who was 1) unaware of the purpose, or 2) aware but did not facilitate the purpose AND the purpose does not involve serious moral turpitude
EXCUSE FOR NONPERFORMANCE: *IMPOSSIBILITY*
If the nonoccurrence of the event was a basic assumption of the parties in making the contract, and neither party has assumed the risk of the event's occurrence, duties under the contract may be discharged by impossibility. A later unforeseen event that makes performance impossible may provide seller with an excuse. ---must be "objectively" impossible for anyone, even Superman, to perform ---"subjective" impossibility (where the duties could be performed by someone else) isn't enough. Must arise AFTER formation; if it arises before formation, analyze under mistake. Each party is discharged from duties arising under the contract that haven't been fulfilled. Either party may sue for rescission and restitution Under Article 2, the doctrine is called *impracticability*. *Remember: it is never impractical/impossible to pay money*
HYPO 3B What if Bieber does not disaffirm the contract and continues to use the Prius after he turns 18?
Implied affirmation. Minor who lacks capacity only gets a reasonable time to disaffirm. Once you turn 18, give a month or so, but after that, minor has to pay for it.
Four Exceptions Where an Offer Cannot Be Revoked: 2. Firm Offer (Article 2)
In a sale of goods, if 1) a *merchant* 2) offers to buy or sell goods in a *signed writing*; and 3) the writing *gives assurances that it will be held open* then the offer is irrevocable for the time stated, or if no time is stated, for a reasonable period not to exceed 3 months. ---the 3 month limit applies even if merchant promises to keep it open longer (UNLESS consideration is paid) Note: Under Article 2, the terms "merchant" and "signed" are broadly defined. -merchant - anyone acting on behalf of business - signed - any authentication (EX: letterhead) NO CONSIDERATION REQUIRED
Method of Acceptance
In any manner, reasonable under circumstances - unless offeror specifies method of acceptance *Offers to Buy Goods for Current or Prompt Shipment* ---UCC; construed as inviting acceptance EITHER by a PROMISE TO SHIP OR PROMPT SHIPMENT of conforming OR nonconforming goods
Rights & Liabilities of Assignee vs. Assignor
In every assignment *for value* the assignor warrants that 1) he has not made a prior assignment of the same right 2) the right exists and is not subject to any undisclosed defenses; and 3) he will do nothing to interfere with the assigned right. The assignee may sue the assignor for breach of any of these warranties. However, the assignor will not be liable to the assignee if the obligor is incapable of performing
FRUSTRATION OF BUYER'S PRIMARY PURPOSE HYPO 5O Krell rents a loft for Thanksgiving Day because of its great view of the upcoming Thanksgiving Day parade. The parade is cancelled unexpectedly just before Thanksgiving. Does Krell have to go through with the deal to rent the loft?
It depends. Only if the landlord AND tenant knew that was the main purpose. If the central purpose of the contract is undermined, and both parties understood that was the central purpose of the contract, then you have excuse due to frustration of purpose.
Rejection Sent First, then Acceptance HYPO 2Y Elon Musk offers to sell the Roadster to Mark Zuckerberg for $1 million. Zuckerberg mails a rejection letter on July 8 and then mails an acceptance letter on July 9. Is Musk bound?
It depends. Whichever arrives first prevails. Offeree loses protection of the mailbox rule by sending rejection first.
A gourmet food company entered into a long-term contract with an airline, under which the food company would supply the airline with 5 million gourmet dinners over a five-year period at a special rate of $2 per unit. The food company insisted as a term of the contract that the airline agree to purchase from a microwave supplier, and to install in each of its planes, a microwave oven specifically designed to heat frozen dinners, in part because the food company owned considerable stock in the microwave supplier. The contract between the food company and the airline had a clause that authorized "oral modifications by the contracting parties." One month after the contract was signed but before any dinners were delivered, the airline informed the food company that it would have difficulty complying with the provision requiring purchase of the supplier's microwaves because the supplier's products had increased dramatically in price. Subsequent negotiations between the food company and the airline led to an oral agreement to increase the price per dinner to $2.08 per unit and eliminate the supplier's microwave requirement. If the supplier sues the airline for enforcement of the contract, what will be the most likely result?
Judgment for the airline, because the supplier's rights had not vested when the modification took place. This is a favorite MBE question. The airline will prevail because the supplier's rights had not vested at the time of the modification. The rights of the third-party beneficiary do not vest until: (i) it manifests assent in a manner invited or requested by the parties; (ii) it learns of the contract and detrimentally relies on it; or (iii) it brings a lawsuit to enforce its rights. Until a third party's rights have vested, a modification of the contract can take place without the consent of the third party. The proper analysis is that the supplier's rights have not vested. Even if the supplier was aware of the contract, and even if the supplier was pleased with it, the supplier had not assented to the contract in any manner, had not detrimentally relied, and had not brought suit on the contract before it was modified. Therefore, the supplier's rights had not vested, and the contracting parties were free to modify the contract. Moreover, notwithstanding the oral modification clause, while the oral modification will be enforceable between the food company and the airline only if an exception to the Statute of Frauds applies (e.g., the parties admit the modification or perform the contract as modified), it is doubtful that a court would allow the supplier to use the Statute to prevent the parties from admitting their modification. Thus, the modification is valid
Duress/Undue Influence
K induced are voidable and may be rescinded as long as not affirmed.
CONTRACTS & SALES ESSENTIALS Love For Dogs: Treat Every Rover Terrifically
KEEP THIS IN YOUR MIND. IT WILL HELP YOU ADDRESS ALL POTENTIAL ISSUES ON ESSAY! Follow this sequence in addressing issues on the essay. L = Law F = Formation: Offer/Termination/Acceptance/Consideration D = Defenses T = Terms E = Excuse R = Remedies T = Third-Party Problems
TERMS WORDS OF THE PARTIES Parol Evidence Rule (P.E.R.)
Keeps out evidence of a prior or contemporaneous agreement (either oral or written) that contradicts a later final writing. Final writing supersedes prior writings because it is more reliable.
three general limits on damages:
MUST BE 1) reasonably certain - can't be speculative 2) foreseeable - especially consequential DAS 3) unavoidable - duty to mitigate -EX: get fired, have to find COMPARABLE work
SOF: MYLEGS
Marriage 1-Year Prong: Only if full performance within 1 year is impossible. Land: Any interest in real property, not just a sale. Executor: Goods Sale for $500 or More Exactly $500 is within the Statute of Frauds. Suretyship: A promise to pay if the debtor doesn't pay.
HYPO 1D Calandrillo buys a 2010 Toyota Prius for $8,000 from his next door neighbor. The price includes a free lesson on making it up hills. Article 2 or not?
Mixed contract rule: all or nothing rule - what's the predominant purpose? Apply either CL or UCC depending on what is the more important part of the transaction. Here, the car purchase is more important, which is a good, and thus UCC applies
SOF & Sale of Goods for $500 or More (Article 2)
Must be in writing to satisfy SOF NOTE: writing is sufficient even if omits/incorrectly states a term; but the contract is not enforceable beyond the quantity of goods shown in the writing
ACTIVITY A woman went to her local department store and told the salesperson that she wanted a coat that was extremely warm. The salesperson went into his stockroom and brought out four different styles of very warm coats. The woman tried on each of the four but did not like the way any of them looked. While walking around the store, however, the young woman saw a coat she did like and told the salesperson to bring one in her size. The salesperson brought her the coat, and he said that it was made of the finest cashmere and would probably last for years. The young woman tried on the coat and told the salesperson that she would take it and paid him. After wearing the coat twice, however, she decided it was not warm enough for her climate. She took the coat back to the department store and demanded her money back. The store refused. If the woman sues the department store for breach of contract, is she likely to prevail? (A) Yes, the store breached the implied warranty of fitness for particular purpose. (B) Yes, the store breached the implied warranty of merchantability. (C) Yes, the store breached an express warranty. (D) No.
NO. (A) Yes, the store breached the implied warranty of fitness for particular purpose. ----wrong, she declined the salesperson's advice (B) Yes, the store breached the implied warranty of merchantability. ----wrong. All that says is that good is fit for ordinary purpose. No implied warranty that it will be a super warm coat. (C) Yes, the store breached an express warranty. ---wrong. Only express warranty was showing a sample and saying it was made of cashmere. (D) No.
(2) A contract provides for the sale of a machine "as is" or "with all faults." The contract says nothing else about quality. Are there any implied warranties under this contract?
NO. "as is" or "with all faults." [= magic words that make implied warranties disappear]
EXCEPTIONS to SOF (i.e., where you don't need a Writing) 2) Full Performance of Service K Satisfies the SOF, but Part Performance Does Not HYPO 3U Sesame Street orally agrees to employ Big Bird for two years for $50,000. Big Bird works for two years, but Sesame Street refuses to pay. Does Big Bird need a writing to satisfy the SOF?
NO. Even though a 2 year employment contract, we have full performance. No one would work for two years unless the really had an employment agreement.
Excusing a Condition a. Failure to Cooperate HYPO 5R Bill Gates agrees to buy my house provided he obtains a $1,500,000 mortgage at 5% or less. He makes no effort to get a mortgage. Gates claims that the express condition was not satisfied [i.e., he didn't get a mortgage], so he is excused. Is he right?
NO. Go thru these steps in answering question: (1) Who was protected by the condition? - Bill Gates (2) Did he do anything to forfeit the protection? - Yes. Didn't cooperate. (3) Result? - Loses protection of the condition. Can no longer rely on the protection. Must cooperate in good faith.
HYPO 2K Monday: I offer to sell my Prius to J.Lo. Tuesday: I mail her a revocation. Wednesday: J.Lo accepts my offer. Thursday: She receives my revocation. Is my revocation effective?
NO. Revocations are effective upon receipt, not when sent. Revocation after acceptance is BREACH
HYPO 3J Edward Scissorhands alleges that on February 1, 2020, W orally agreed to have Edward cut down all the trees on his ranch. Is this agreement within the SOF?
NO. No date specified. In theory, Edward can finish in a year.
HYPO 2B The Yankees advertise tickets in the NY Post: "Incredible offer! Ticket special for $19." Offer?
NO. A million people might try to accept; and Yankees aren't in breach. Merely an invitation to deal.
Increase in the Cost of Seller's Performance = NO Excuse HYPO 5N Burger King agrees to buy imitation meat for its Impossible Burger from a vendor for $2.00/pound. An outbreak of veggie flu causes the market price to double. Is the vendor excused from performing?
NO. An increase in cost is not enough usually to excuse contract performance. It has to a really extreme, unreasonable. Costs just going up is a normal risk people take in making fixed cost contracts. Even if they don't make a profit anymore, that's just too bad.
(3) A contract says that there are "NO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS" instead of using a "magic" phrase. Are there any implied warranties?
NO. As long as disclaimer was CONSPICUOUS. Two ways for sellers to disclaim implied warranties: 1) "as is" or "with all faults"; or 2) CONSPICUOUS disclaimer. Conspicuous: written so that a reasonable person would notice it.
HYPO 4A Jennifer Lopez signs a lease for the Grand Ballroom at the Beverly Hills Hotel for her wedding. J.Lo claims she could select any ballroom and has a fax from the Beverly Hills Hotel sent before the written lease supporting her claim. If J.Lo asks the court to reform [rewrite] the contract, can she get the fax into evidence?
NO. Basic parol evidence bar. Cannot contradict the terms of a final writing. Exam Tip: A Parol Evidence Rule problem requires a FINAL writing, so if the fact pattern tells you that the parties only orally agreed, you have a SOF problem, not a Parol Evidence problem.
HYPO 6M Hadley contracts with Baxendale to ship a broken mill shaft back to the manufacturer for repair. Baxendale delays in shipping the shaft. Hadley does not have another shaft. As a result, Hadley's mill is shut down for 2 extra weeks. Can Hadley recover the $20,000 in profit it lost during that 2-week period?
NO. Because the lost profits of the Mill owner were NOT foreseeable at the time of formation. Baxendale had no idea that this would cause lost profits, etc. Must have told the courier upfront what the consequences would be before she would be on the hook.
(2) I have no contract with Gates. Bezos tells me, "Paint Gates's house and I will pay you $10,000." Is Bezos's promise to pay me within the SOF?
NO. Bezos is NOT a guarantor. Merely a promise to pay money for services. Not a surety situation. common trick question.
HYPO 2J Meg Ryan offers me $10,000 to paint her house. Her offer states that it can be accepted only by painting the house. I start painting the house. Can Meg still revoke?
NO. Can't revoke once performance on unilateral contract has begun. Irrevocable for a reasonable time necessary to complete performance.
HYPO 3R Scully mails Mulder a signed note: "I accept your offer." Does the note satisfy the SOF?
NO. Cannot answer who? or what? No material terms. Does not satisfy SOF.
(2) Brady orally agrees to buy a boat for $50,000. Seller takes a $10,000 deposit from Brady. Seller does not deliver the boat. Brady sues. Does Seller have a SOF defense?
NO. Cannot apportion a boat the way you did footballs in the previous example. Here, Brady's deposit takes the whole boat outside the SOF.
HYPO 4H A contract for a machine provides that "all parts are guaranteed for two years" [express warranty]. What if it also provides that "all warranties are disclaimed"?
NO. Cannot make an express warranty/promise then break it through disclaimer. Express warranties cannot be disclaimed.
HYPO 2L Jeff Bezos offers to sell his house to Bill Gates for $500,000. Gates responds, "I will only pay $490,000." Bezos refuses. Can Gates later accept Bezos's $500K offer?
NO. Counteroffer is a rejection that killed the original offer. Can't accept $500,000 offers.
(2) What if Edward doesn't actually finish the job until August 1, 2021, over a year later?
NO. Doesn't matter that it actually takes longer than a year. In theory, he could've gotten it done in less than a year.
HYPO 7A Michael Phelps takes his watch to a jeweler to be repaired. The jeweler wrongfully sells the watch to Ryan Lochte. Can Phelps get his watch back from Lochte?
NO. Even though it was Phelps's watch and rightful owner, Lochte is a BFP. Law wants BFP to be able to have confidence in their purposes. Phelps can still sue jeweler for conversion. Exam Tip: On the bar, the facts are always the same—an owner takes jewelry or a car in to be repaired by a merchant who also sells that particular kind of good. BFP wins. [again must be buying from merchant]
HYPO 4T I contract to sell Bill Gates my 2010 Toyota Prius. Our contract requires him to pay me by 5 p.m. Sunday. Gates gives me a personal check at 5 p.m. Sunday. If I refuse his check, is Gates in breach?
NO. Even though the general rule is that you have to pay in case, checks are generally okay unless otherwise agreed. He is not in breach. But you don't have to take Gate's check; however, Gates get an additional amount of time to obtain cash to pay.
HYPO 2U I leave a note on your outline at the break: "I offer to sell you my Prius for $8,000. If I don't hear from you by 9 tonight, you've accepted." You say nothing. Have you accepted my offer?
NO. General rule: silence is not acceptance. Offeror cannot unilaterally turn offeree's silence into acceptance.
IMPOSSIBILITY AS AN EXCUSE Supervening Governmental Regulation = Excuse Due to Impossibility HYPO 5M A Seattle manufacturer contracts to sell desks of Washington pine to a California retailer. Washington then passes a law forbidding cutting down Washington pine trees. Must the manufacturer perform as promised?
NO. If performance becomes illegal, that equals an excuse due to impossibility.
HYPO 2R Gates's offer states that I can accept *only by* painting the house [= unilateral]. I start painting the house. Have I accepted the offer so that I am bound to finish the job?
NO. In unilateral contract, starting performance is not acceptance; only completing performance is acceptance.
HYPO 5H John contracts to do yardwork for Gabrielle. Later, John, Calandrillo, and Gabrielle agree that Calandrillo will do the work instead. If Calandrillo does not do the work, is John liable for breach?
NO. John's duty to do the yardwork are excused by novation. Gabrielle gave up the right to sue John because of the novation. NOTE: In a novation situation, all the parties are in on the new deal. Two parties substituting a new guy to do the work. Original party's obligation are excused.
HYPO 5E John contracts to do yardwork for Gabrielle. Before John does the work, he and Gabrielle agree to rescind the contract. If John does not perform, can Gabrielle sue him for breach of contract?
NO. John's performance is excused due to rescission. Both exchanged mutual promises to rescind the deal. NOTE: for rescission to be effective, each party must have some performance remaining under the contract. If John had already finished yardwork, then they agreed that Garbrielle doesn't have to pay, that would not work.
(2) Fox News signs this letter: "We agree to employ Judge Judy as an expert legal consultant for three years at a salary of $45 million per year. /signed/ Rupert Murdoch." Judy quits after one month. Fox sues Judy for breach. Does the letter satisfy the SOF against Judy?
NO. Judy, the party to be charged with breach didn't sign.
(3) Cyrus alleges that Lil Nas X orally agreed to have him build a fence around Oldtown Road Ranch. SOF?
NO. Just because real estate is in the fact pattern doesn't automatically mean you are within the SOF. This is not a land sale, or a transfer of an interest in land. Just a contract to build a fence.
HYPO 3T Bill Gates alleges that Jeff Bezos orally agreed to sell him Bezos's Mercer Island mansion for $4,000,000. Gates has paid Bezos the entire $4,000,000. Does Gates's full payment satisfy the SOF?
NO. Just one out of three. Not enough to satisfy SOF without a writing. Would have to take possession or make improvements also. Do NOT have to do all three. Just have to do 2/3.
HYPO 5J Kourtney contracted to sell her BMW to Khloe for $50,000. After risk of loss passed to Khloe, the car was destroyed by a fire. Is Kourtney excused from performing due to impracticability? [TRICK Q!]
NO. Kourtney doesn't need any excuse since the risk of loss had already passed to the Buyer. If the risk of loss hadn't passed, then the Seller might have needed an excuse, and if the subject matter of the contract had been destroyed that might be an excuse.
HYPO 2G CarMax makes a written offer on CarMax letterhead to sell a 2011 Tesla Roadster. The offer states that CarMax will not revoke for two weeks. Can CarMax still revoke its offer?
NO. Merchant firm offer. Signed, merchant, sale of goods, promising to hold offer open.
HYPO 2D On January 1, I offer to sell Bill Gates my 2010 Toyota Prius for $8,000. My offer does not contain a termination date. Can Gates accept my offer on December 31?
NO. More than a reasonable time has passed. Exam Tip: Watch out for dates separated by more than 1 month; raise issue of termination due to lapse of time. TOTC: banana offers shorter than steel.
HYPO 3E Alex Rodriguez agrees to sell Serena Williams a baseball bat for $100,000. Neither was aware the baseball bat had been destroyed two days earlier. Does Serena still have to buy the bat?
NO. Mutual mistake about the existence of the subject matter. Grant Serena relief.
AMBIGUITY/MISUNDERSTANDING HYPO 3D B and S contract for the delivery of cotton on the ship "Peerless." B means the ship sailing in October. S means the ship sailing in December. Is there a contract?
NO. No meeting of the minds. Both talking about different ships. Both had reasonable differing interpretations. Ambiguity that neither party knew about or had reason to know about. No contract, so no remedy for either party. HOWEVER, if one party knew or should have know that there were two ships named Peerless, then hold the ambiguity against the party that knew or should or known.
(2) Vs. Pete Davidson alleges that Ariana Grande promised to marry him. Is this promise within the SOF?
NO. Not a promise in consideration of marriage. Not a SOF situation.
(2) What if, instead, the note read: "I agree to sell 20 dumbbells to Schwarzenegger for $500. /signed/ Muscle Memory Products." Can Muscle Memory use this note to satisfy the SOF against Schwarzenegger?
NO. Not signed by the party to be charged.
I offer my Prius to Beyoncé for $8,000 and I promise to keep my offer open for a week if Beyoncé pays me $100. She pays the $100. Can I still revoke?
NO. Now there's consideration. The option contract is formed and takes away the power of the offeror to revoke.
Exceptions to Mailbox Acceptance Rule Offer States Otherwise HYPO 2W Elon Musk offers to sell his original Tesla Roadster to Mark Zuckerberg for $1 million. His offer states, "Your acceptance must be received by July 9." On July 9, Zuckerberg mails his acceptance. Musk receives it on July 11. Is Musk bound?
NO. Offeror can override the mailbox rule and control timing of acceptance.
HYPO 2P Chris Harrison e-mails Hannah Brown a job offer that states, "You can accept this offer only by reporting for work on Monday." Hannah e-mails back, "I accept!" Has she accepted the offer?
NO. Offeror controls the manner of acceptance. She has to show up on Monday.
(3) Bezos tells Gates he bought the Prius from me. Can Gates still accept my offer?
NO. Once Bezos communicates to Gates he has the Prius, he has received an indirect revocation.
(2) BUT: Once I start painting, can Gates still revoke? [Recall Brooklyn Bridge Hypo]
NO. Once performance of a unilateral contract begins, that takes away the power of the offeror to revoke the offer. NOT in breach if does not finish because contract has not yet be formed since acceptance does not occur until performance is complete.
HYPO 4E After signing the written lease, the manager promised J.Lo that the Hotel would "throw in the bridal suite for free." Does the P.E.R. prevent J.Lo from getting this promise into evidence?
NO. Parol evidence relates to stuff BEFORE the writing. Exam Tip: Stuff happens AFTER K formation = Modification analysis, not P.E.R.—i.e., is there new consideration? SOF?
HYPO 2BB Snooki helps JWoww move into her new home. Later, JWoww promises to pay Snooki $300 for helping her move. JWoww now refuses to pay. Was there consideration for JWoww's subsequent promise to pay Snooki $300?
NO. Past "consideration" is NOT consideration. Something given or some act done in the past, which cannot ordinarily be consideration for a later bargain. Has a right to renege on that gift promise. Cannot bargain for something that has already happened in the past.
HYPO 2DD Beyoncé contracts to sing at the Coachella Music Festival for $20,000. On arrival, she demands $30,000. Coachella agrees. After Beyoncé performs, Coachella refuses to pay her the extra $10,000. Is there consideration for Coachella's promise to pay Beyoncé the extra $10,000?
NO. Pre-existing duty rule. Modification not supported by consideration. Can't get paid $30k for something you already agreed to do for $20k without giving additional consideration.
HYPO 1A Bill Gates contracts to buy Greenacre. Does Article 2 apply?
NO. Real estate sales governed by common law
HYPO 1B Angelina Jolie hires Lindsay Lohan to babysit her kids. Does Article 2 apply?
NO. Service contracts governed by common law
HYPO 2N Landlord sends Tenant a signed lease that says nothing about pets. Tenant adds, "Tenant may keep a pet," signs the lease and returns it to Landlord. Has Tenant accepted Landlord's offer?
NO. Tenant violated the mirror image rule. Can't alter terms in acceptance of offer under common law. This is a rejection/counteroffer.
Irrevocable Offer—NO Mailbox Protection HYPO 2X Elon Musk offers to sell his Tesla Roadster to Mark Zuckerberg for $1 million. Zuckerberg pays Musk $3,000 to hold the offer open until July 9 [= option K]. On July 9, Zuckerberg mails an acceptance. On July 11, Musk receives it. Is Zuckerberg's acceptance effective?
NO. There's no mailbox rule acceptances for option contracts! Offeror must be received by deadline. Offer effectively only upon receipt. The mailbox rule seeks to protect an offeree against revocation once she has mailed an acceptance; however, there is no need for that protection in an option contract where the offeror is obligated to hold open the contract offer.
HYPO 2M Disney sends Bill Clinton an offer to appear in the film, "Waiting to Inhale." Bill agrees on the condition that he gets top billing. Is there a contract?
NO. This a conditional acceptance, which is NOT an acceptance, but a rejection and counteroffer. True of UCC goods offers also. Express conditions on acceptance act as rejections/counteroffers.
(2) A-Rod agrees to sell Serena a baseball bat for $100,000. Both believe it was used by Babe Ruth. After the agreement, they learn that it was not. Does Serena still have to buy the bat?
NO. This is a mutual mistake regarding the existence of the subject matter. They both assumed that it was a bat used by Babe Ruth. Fundamental mistake about the subject matter of the bargain. Serena can use the defense of mutual mistake.
Solar City accepts Tesla's offer. For the last three years, Tesla has ordered 100,000 batteries a year. Can Tesla require Solar City to deliver 1 million batteries this year?
NO. Unreasonable increase in buyer's demands. Buyer can increase demands, but only if it is in line with prior demands. Only reasonable increase.
HYPO 3L On May 1, 2020, Club Galaxy orally agreed to have Enya perform at its New Year's Eve Bash on December 31, 2021. Is their oral agreement enforceable? [TRICK Q!]
NO. Within the SOF. Performance can't occur within one year of date of formation. Date of performance is more than year from date of formation.
Consideration Is Not Required to Make a Valid Assignment HYPO 7G Must Robin give Batman consideration to make the assignment valid?
NO. You can make gift assignments. - No consideration required - Very easily revoked (usually by 2nd gift assignment)
(3) Gates contracts to sell Calandrillo goods on credit. Later, Gates learns that Calandrillo has failed to make payments to other suppliers. Can Gates demand that I pay cash?
NO. You cannot use "adequate assurance" provision to rewrite a contract or demand a particular kind of assurance. Can't rewrite the deal.
(2) John and Calandrillo agree that Calandrillo will mow the lawn without getting Gabrielle's consent. If Calandrillo doesn't do the work, is John liable for breach?
NOT a novation, but a mere delegation (where one party goes on on their own to find a replacement party). NOT an excuse. Delegations do NOT excuse the original party's obligations. John is still on the hook. Gabrielle did not consent.
EXCEPTIONS to SOF (i.e., where you don't need a Writing) b. Custom-Made Goods
Need to show a "Substantial beginning" to satisfy SOF—i.e., enough is done to show that the goods are custom-made/not suitable for sale to others. If Buyer orally agrees to buy size 19 cowboy boots that are pink, green, purple with "Bubba" on the side; and then Bubba cancels his order. Seller can collect on order as long as seller has made a substantial beginning. Theory: substantial beginning provides proof to the court that a deal was actually made.
EXCEPTIONS to SOF (i.e., where you don't need a Writing) 3) Sale of Goods for $500 or More (Article 2 SOF) a. Goods Accepted or Paid for by Buyer HYPO 3V Tom Brady orally agrees to buy 50 regularly-inflated footballs for $100 each. Seller takes Brady's check for $2,000 for the first 20 footballs and cashes it. Seller refuses to deliver any footballs. Brady sues Seller for breach. Does Seller have a SOF defense?
No and yes. No SOF defense for the 20 footballs that Tom paid for. He can prove that he already sent the check. Seller WILL have a SOF defense for the next 30 footballs.
A bakery offered a chef a permanent full-time job as a pastry chef at a salary of $3,000 per month. The chef agreed to take the position and to begin work in two weeks. In her employment application, the chef had indicated that she was seeking a permanent job. One week after the chef was hired by the bakery, a hotel offered the chef a position as a restaurant manager at a salary of $3,500 a month. The chef accepted and promptly notified the bakery that she would not report for work at the bakery. Is the bakery likely to prevail in a lawsuit against the chef for breach of contract?
No, because a contract for permanent employment would be interpreted to mean the chef could leave at any time. Many employment relationships are considered "employment at will," meaning employment may be terminated at any time, for any reason, by either party. The termination of at-will employment by either party does not result in a breach. *A position that is characterized as "permanent" establishes an employment-at-will relationship.* The issue here is the interpretation of the term "permanent employment" in the bakery-chef contract. It is well established that "permanent employment" means "employment-at-will." In an employment-at-will relationship, either party can terminate the agreement at any time, without the termination being considered a breach (unless the termination were to violate an important public policy - which is not the case here). Accordingly, the chef is not liable for breach of contract.
On July 1, a cattle breeder, who was planning to retire soon, sent a note to his neighbor offering to sell his prize bull for $15,000. On July 10, the neighbor, who was also a cattle breeder, wrote the following note to the retiring breeder: "I have decided to take the bull. I will give you a cashier's check on delivery on Saturday, July 28." The retiring breeder did not respond. The retiring breeder did not want to deliver the bull on July 28 and did not think that the delivery day was agreed to. Instead, he delivered the bull on Monday, July 30. The neighbor refused the delivery and stated that he had found another bull he likes better. The retiring breeder sues the neighbor for breach of contract. Is the retiring breeder likely to prevail?
No, because he did not deliver the bull on July 28. The retiring breeder will not prevail because he did not deliver the bull on July 28. This is a contract for a sale of goods and thus is governed by the UCC. Under the UCC, an acceptance with additional terms does not constitute a rejection and counteroffer, but rather is an effective acceptance unless made expressly conditional on the assent to the additional terms. Here, the neighbor accepted the offer and added the additional term of a delivery date. Thus, there was a contract. Whether additional terms become part of the agreement depends on whether both parties are merchants. If both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless they materially alter the terms of the offer, the offer expressly limited the acceptance to its terms, or they are objected to within a reasonable time. Here, both parties are breeders in the cattle business and, thus, are merchants. The change in the delivery date does not materially change the offer (i.e., it does not change a party's risk or remedies), the offer did not limit the acceptance to its terms, and the retiring breeder did not object. Therefore, the July 28 delivery date became part of the contract. By delivering the bull on July 30th, the retiring breeder breached the contract.
On March 1, a builder entered into a contract with a buyer to build a home on land the builder owned and then transfer it to the buyer for $350,000. The builder and the buyer agreed that construction would be completed on August 1, and that escrow would close on the transaction on August 15. The contract also contained a time-is-of-the-essence clause at the insistence of the buyer, whose lease on his current home was set to expire on September 1. State law required that a home builder have an architect's certificate of completion before any residence could be conveyed to a purchaser. The builder employed his own architect to design and oversee construction of his custom homes. Construction of the buyer's house was not completed until August 5. On August 8, the builder discovered that his architect had left the country without preparing the certificate of completion for the home. The builder was not able to obtain the certificate until August 20. When the builder attempted to place the deed and certificate of completion into escrow, he learned that the buyer had canceled escrow on August 16 and refused to proceed with the purchase. The builder sold the home nine months later for its then-reasonable market value of $330,000. He brings an action for damages against the buyer, seeking $20,000, the difference between the contract price and the amount he ultimately received for sale of the house. Will the builder recover?
No, because he was late in delivering the deed and certificate of completion into escrow. Because time was of the essence in the contract, the builder's tardiness in delivering the deed and certificate of completion was a material breach, thus excusing the buyer from her duty of performance. When a promisor is under an absolute duty to perform, and this duty has not been discharged, the failure to perform in accordance with the contract will constitute a breach of the contract. A minor breach (where the obligee gains the substantial benefit of her bargain despite the breach) affords a remedy to the aggrieved party but does not relieve him of his duty of performance under the contract. If the breach is material, the nonbreaching party may treat the contract as at an end (i.e., any duty of counterperformance owed by him is discharged) and will have an immediate right to all remedies for breach of the entire contract. Generally, failure of a promisor to render timely performance, although a breach, will not be material. However, where the contract by its terms, in conjunction with the surrounding circumstances, establishes that time is of the essence, failure of timely performance will be a material breach. The contract between the buyer and the builder contained a clause stating that time was of the essence because the buyer's lease on his current home was expiring September 1. Thus, when the builder failed to deliver the deed and certificate on time, as per his contractual duties, this failure constituted a material breach. Because the breach is material, the buyer may treat the contract as at an end, and the duty owed by him to pay the agreed-upon purchase price is discharged. Therefore, the builder will recover nothing.
On July 1, a cattle rancher offered to sell his ranch to a dairy farmer for $150,000. The dairy farmer paid the cattle rancher $1,000 to hold the offer open for a period of 30 days. On July 10, the dairy farmer wrote to the cattle rancher, telling him that he could not pay more than $100,000 for the ranch, and that if he would not agree to accept that amount, he would not go through with the deal. The dairy farmer received no reply from the cattle rancher. On July 29, the dairy farmer mailed a letter to the cattle rancher telling him that he accepted his offer to sell the ranch and enclosed a check for $150,000. The cattle rancher received this letter on August 1. Has a contract been formed between the parties for the sale of the ranch?
No, because the cattle rancher did not receive the dairy farmer's acceptance within 30 days. No contract was formed because the cattle rancher did not receive the dairy farmer's acceptance within 30 days. Under the mailbox rule, acceptance by mail or similar means creates a contract at the moment of dispatch. However, the *mailbox rule does not apply to option contracts*. An acceptance under an option contract is effective only upon receipt. Here, an option contract existed because the dairy farmer paid the cattle rancher $1,000 to hold the offer open for 30 days. The dairy farmer mailed his acceptance within 30 days but it was not received by the cattle rancher within the 30-day period, so the acceptance was not effective. The option specified the period of time during which the offer would remain open, after which the offer terminated. *an option contract is irrevocable for the time period stated. Thus, not even the dairy farmer himself could revoke the offer within the 30-day period.*
An art collector was interested in buying a painting from his neighbor. The neighbor told the collector that he could have the painting for $30,000. The collector wanted to think the purchase over. Therefore, the two agreed in writing that the neighbor would keep the offer open for 30 days in exchange for $500, which the collector paid. The terms of the written agreement provided that the offer would expire at 11:59 p.m. on September 30 if the collector failed to accept by that time. On September 20, the collector telephoned his neighbor and told him, "The more I think about it, the less I think that I want your painting." The neighbor responded, "That's your decision to make." On September 26, one of the neighbor's friends was visiting him, saw the painting, and offered his friend (the neighbor) $35,000 for it. On September 27, the neighbor mailed a $50 check to the collector with a letter stating that he was terminating his offer to the collector regarding the painting and refunding 10% of the money that the collector paid him to keep the offer open. He mailed the letter at 11:59 p.m. on September 27. The collector received the letter at 11:30 a.m. on September 29. On September 28, at 9:30 a.m., the collector mailed a letter to his neighbor stating that he had decided to purchase the painting and a certified check in the amount of $30,000 was enclosed. Two hours later, the neighbor sold the painting to his friend for $35,000. The neighbor received the collector's letter on October 1 and immediately mailed the check back to the collector. Can the collector maintain a successful legal action against his neighbor?
No, because the collector's power to accept lapsed before he effectively accepted. The collector's power to accept lapsed because the option contract specified that the offer would expire at 11:59 p.m. on September 30. Hence, the power had to be exercised prior to that time and it was not. *The mailbox rule does not apply to the exercise of options*. In such cases, acceptance is effective when received by the offeror, here on October 1.
A retailer entered into an oral contract with an office supply wholesaler to buy 100 file boxes for an upcoming back to school sale at the retailer's store. The wholesaler agreed to deliver the file boxes in two weeks at a cost of $4 per file box. A week later, the retailer phoned the wholesaler and asked if she could increase her order to 200 file boxes. The wholesaler agreed. The wholesaler delivered the 200 file boxes as promised, but the retailer accepted only 150 upon discovering that she lacked storage space for all 200. May the wholesaler recover damages with respect to the 50 file boxes that were not accepted?
No, because the contract as modified was for $800. The wholesaler may not recover damages. Under the UCC Statute of Frauds, a contract for the sale of goods for $500 or more is unenforceable unless evidenced by a writing signed by the party sought to be held liable. The original contract was for $400 and, thus, was not within the Statute. Whether a modification must be in writing to be enforceable depends on whether the entire contract price as modified is within the Statute. Here, the retailer and the wholesaler modified their original contract to 200 file boxes, bringing the total price to $800. Thus, the modification was unenforceable under the Statute of Frauds, and the wholesaler cannot collect damages with respect to the 50 unaccepted file boxes.
An owner of a piece of waterfront property contracted in writing with a contractor to rebuild the owner's dock in accordance with plans and specifications prepared by the owner. The agreed contract price was $50,000, $25,000 of which was payable on May 1 when the job was to commence and the balance due upon completion of the work. On March 1, the contractor notified the property owner that the contractor would lose money on the job at that price, and would not proceed with the work unless the property owner agreed to increase the price to $80,000. The property owner did not respond to the contractor, instead making a written contract with a third party to repair the dock, commencing May 1, for $60,000, which was the fair market cost of the work to be done. On May 1, both the contractor and the third party showed up at the dock to begin work, the contractor telling the property owner that he had decided to take the loss and would repair the dock for $50,000 as originally agreed. The property owner dismissed the contractor and allowed the third party to begin work on the dock. In a contract action by the contractor against the property owner, is the contractor likely to prevail?
No, because the contractor in legal effect committed a total breach of contract. The property owner will prevail because the contractor breached. When the contractor notified the property owner on March 1 that he would not perform his obligations on a binding contract unless he was given more money, he committed an anticipatory breach. That breach gave the property owner the right both to terminate the contract and to engage a new contractor to complete the work. The property owner was not required to give notice to the contractor to exercise that right
One Saturday, the owner of an art gallery and her friend were discussing art after the friend had helped the owner move some furniture in her home. The friend mentioned that he was very fond of a particular artist. The gallery owner asked her friend if he would like to buy a painting by the artist, entitled "Tears of a Clown," recently consigned to the gallery. The friend said that he would love it, but he only had $2,700. The gallery owner told her friend that she would let him have the painting for that price. The friend knew that the painting was priced at $7,000. He immediately wrote out a check for $2,700 and gave it to the gallery owner, who told him to visit the gallery on Monday to pick up the painting. On Sunday, a salesperson at the gallery sold "Tears of a Clown" to a gallery customer. Neither the salesperson nor the customer knew of the agreement between the gallery owner and her friend. The customer took the painting with him on Sunday. When the friend arrived at the gallery on Monday, the painting was gone. Can the friend obtain specific performance from the gallery owner?
No, because the painting was sold to a bona fide purchaser for value and enforcement against the gallery owner is no longer feasible. The salesperson sold the painting in good faith to a customer. Because the gallery owner no longer actually has the painting, there is no way to specifically enforce her agreement to convey it to her friend. Specific performance is granted when: (i) there is a valid contract; (ii) the legal remedy is inadequate; (iii) enforcement is feasible; and (iv) mutuality of remedy is present. The gallery owner and her friend had a contract, pursuant to which the gallery owner promised to sell her friend the painting for $2,700. Although this was an oral contract for the sale of goods for a price exceeding $500 and thus subject to the Statute of Frauds, the contract is removed from the Statute by the fact that the friend tendered full payment for the painting. Thus, the oral nature of the agreement is no hindrance to its validity. Moreover, a painting, by its nature, is unique, rendering the legal remedy (damages) inadequate. However, feasibility of specific performance against the gallery owner is lacking here. The salesperson sold the painting to a customer who paid value for it and was unaware that the gallery owner had already agreed to sell it to her friend. The salesperson also was unaware of the gallery owner's agreement with her friend. With the subject matter of the contract having been transferred in good faith to a third party, there is no feasible means to enforce against the gallery owner her agreement to sell the painting to her friend. Thus, the right to specific performance is cut off
A shopkeeper loaned a long-time employee $1,500 from his personal bank account because a family illness was causing the employee unexpected financial difficulties. Because the employee had proved himself to be trustworthy, there was no writing evidencing the loan and no payback date established; it was understood that the employee would repay the loan when he was able to do so. Sometime later, the shopkeeper's nephew asked him if he could help fund a business that he was starting up. Because most of the shopkeeper's assets were currently tied up, he asked his employee if he would be in a position to repay the $1,500 loan. The employee promised to repay the loan on the following Monday, so the shopkeeper told the employee to pay the $1,500 directly to his nephew. Immediately thereafter, the shopkeeper informed the nephew to expect $1,500 from the employee on the following Monday. When Monday came, the employee decided he would rather tender the money to the shopkeeper than to someone he did not know, and the shopkeeper accepted the money. If the nephew never receives any money from the shopkeeper, will he succeed in an action against the employee for the $1,500?
No, because the shopkeeper's acceptance of the $1,500 from the employee revoked the shopkeeper's gift to the nephew. The shopkeeper validly assigned his right to receive the money to his nephew. However, this assignment was revocable, and it was revoked when the shopkeeper accepted the money from the employee. *A creditor's right to receive money due from a debtor is a right that can be assigned, regardless of whether the debt is evidenced by a writing*. By telling the employee to pay the money to the nephew, the shopkeeper manifested an intent to transfer his rights completely and immediately to the nephew. Neither a writing nor consideration was required for this assignment to be valid. However, these factors do not affect revocability. *This assignment was not given for value. Such a gratuitous assignment is generally revocable*. An *exception to this rule arises when the assignor is estopped from revoking because he should reasonably foresee that the assignee will change his position in reliance on the assignment and such detrimental reliance occurs*. Here, there is no indication that the nephew in fact changed his position detrimentally in reliance on the assignment. Consequently, the general rule of revocability of a gratuitous assignment applies. One way in which a gratuitous revocable assignment may be terminated is by the assignor taking performance directly from the obligor. By accepting the money from the employee, the shopkeeper (the assignor) took direct performance from the obligor, thereby revoking the assignment. As a result, the nephew has no right to the money.
On December 6, the owner of an electronics store sent a written request to a computer manufacturer asking for the price of a certain laptop computer. The manufacturer sent a written reply with a catalog listing the prices and descriptions of all of his available computers. The letter stated that the terms of sale were cash within 30 days of delivery. On December 14, by return letter, the store owner ordered the computer, enclosing a check for $4,000, the listed price. Immediately on receipt of the order and check, the manufacturer informed the store owner that there had been a pricing mistake in the catalog, which should have quoted the price as $4,300 for that computer. The store owner refused to pay the additional $300, arguing that his order of December 14 in which the $4,000 check was enclosed was a proper acceptance of the manufacturer's offer. In a suit for damages, will the manufacturer prevail?
No, because the store owner's December 14 letter was a proper acceptance of the manufacturer's offer. Whether the letter was an acceptance depends on whether the manufacturer's letter was an offer, because an acceptance is a manifestation of assent to an offer. 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. There must be a promise, undertaking, or commitment to enter into a contract with certain and definite terms. Courts usually hold that if a statement is made broadly, such as in an advertisement or catalog, it will not constitute an offer because it is not reasonable to expect that the sender intended to make offers to all who received the advertisement; rather, the courts usually find such advertisements to be invitations seeking offers. *However, price quotations may be considered as offers if given in response to a specific inquiry.* The courts will look to the surrounding circumstances, and here a court would probably determine that the catalog that the manufacturer sent was an offer because it was sent in response to the store owner's specific inquiries about prices on a specific computer and it included delivery terms and conditions of sale.
A retail store owner e-mailed an electronics supplier an offer to buy 300 flash drives imprinted with the retailer's trademark at $2 per flash drive. The supplier immediately e-mailed back his acceptance. A week later, the retailer telephoned the supplier and truthfully explained that she had made an error in her order-it should have been for 200 flash drives. She asked if she could reduce her order to 200. The supplier thought the imprinting process was not yet completed and so agreed to reduce the order to 200. After the phone call, the supplier discovered that all 300 flash drives had already been imprinted. He delivered the 300, but the buyer accepted only 200. Can the supplier recover damages with respect to the 100 flash drives that were not accepted?
No, because the supplier agreed to the modification and his mistake was unilateral. The supplier cannot recover damages for the flash drives that were not accepted because the modification is valid and enforceable. For sale of goods contracts, a modification must be in writing if the contract as modified falls within the Statute of Frauds; i.e., if the contract as modified is for $500 or more. Here, the buyer and the supplier's original contract was for $600 worth of flash drives, but the modified contract is for $400 worth of flash drives. *Because the contract as modified is for less than $500, no writing is required to make the modification enforceable*. Moreover, a unilateral mistake is not a defense unless the other party knew or should have known of the mistake. Here, the supplier was mistaken as to whether the imprinting was done, but the mistake was unilateral-the buyer did not know that the imprinting was done and had no reason to know. Thus, the supplier's mistake was unilateral and not a defense. Therefore, the contract is enforceable only to the extent of the 200 flash drives accepted. Under the parol evidence rule, if a contract is reduced to an integrated writing (i.e., a writing reflecting the whole deal), a party may not introduce prior or contemporaneous oral statements (or prior written statements) seeking to vary the terms of the contract. Here, the contract was reflected by a writing (the e-mailed offer and acceptance), and the e-mails probably constitute an integrated writing. Here, the buyer's proof of the oral modification will not be barred by the parol evidence rule because it was made subsequent to the e-mails, and the parol evidence rule does not bar evidence of subsequent modifications.
Usage of Trade
Norms within the trade/industry. What others in the trade do in similar contracts (less important than #1 and #2). EX: Other people in the chicken industry interpret the word "chicken" to mean chickens up to 6 pounds, including broilers or fryers. That trade custom can help determine what "chicken" means in the current contract, but is the least important evidence of what the term means.
IMPOSSIBILITY AS AN EXCUSE Death/Incapacity of Essential Person as an Excuse Due to Impossibility
Not just any person; must be someone special/essential for performance A contract is NOT discharged by the death or incapacity of the person who was to perform the services if the services are a kind that can be delegated. Thus, if the contract was for personal services of a *unique* kind, like the painting of a portrait by a famous artist, the death or incapacity of that person could make performance impossible, but if the services are not unique (painting a farmer's barn), the death or incapacity of that person would NOT make performance impossible *NOTE: It is never impossible to pay, and a duty to pay is NEVER discharged by death*, as payment could easily be performed by his estate after his death, so his death also will not result in a discharge of the contract by impossibility.
Rights and LIabilities of the Parties to a Delegation
Obligee must accept performance from the delegate of all duties that may be delegated. The delegator remains liable on the contract; thus the obligee may sue the delegator for nonperformance by the delegate. The obligee may require the delegate to perform ONLY IF there has been an *assumption* (i.e. the delegate expressly or impliedly promises he will perform the duty delegated and this promise is supported by consideration or its equivalent) ---This promise creates a contract between the delegator and the delegate in which the obligee is a 3P beneficiary
(4) What if B had responded that Monday delivery was not convenient?
Offeror can keep out any term, regardless of materiality, if it objects within a reasonable time. Exam Tip: If the term is customary in the industry, it's not material.
Terms to be Agreed on Later
Often, an offer will state that some term is to be agreed on at a future date. If the term is MATERIAL it is TOO UNCERTAIN
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.
Consequences of Buyer's Acceptance
Once buyer accepts, it's too late for buyer to reject, but buyer can still get damages for seller's breach.
PERFECT TENDER RULE *Buyer's Right to Revoke Acceptance*
Once goods are accepted, the buyer's power to reject is generally terminated except: 1) the goods have a *defect that substantially impairs their value* AND 2) she accepted them on the reasonable belief they would be cured and have not been, OR 2) she accepted them because of the difficulty of discovering defects or because the seller's assurance the goods conformed. *Revocation of acceptance must occur* (1) within a reasonable time and (2) before any substantial change in the goods occurs not caused by defect.
A Delegate Who Gets Consideration Is Liable HYPO 7Q Can Gates sue Van Gogh for breach of contract?
Only if Van Gogh received consideration from Calandrillo. Generally, delegates don't get paid just for the delegation; but if they do, they are liable for nonperformance. If so, Van Gogh is liable to both Calandrillo (delegator) and Gates. - Even though there's no privity of contract between Gates and Van Gogh, anytime you see a delegation for consideration, *they create 3P beneficiary obligation*. Here, Gates is now the intended 3P beneficiary
THIRD PARTY BENEFICIARIES: Intended vs. Incidental
Only intended have contractual rights. Intended beneficiaries: 1) identified in contract 2) receives performance directly from promisor, OR 3) has some relationship with the promisee to indicate intent to benefit
a. Counteroffer
Operates as a rejection, but "mere bargaining" does not.
4.6 PERFORMANCE OF COMMON LAW CONTRACTS
Performance does not have to be perfect. *Substantial performance* is all that is required [i.e., a party cannot commit a material breach]. Relatively easy—just look to the terms of K to see what performance obligations are, and make sure there is *"substantial performance" = meets the essential purpose of the K* *"Material" Breach NOT okay* => excuses the innocent party's performance obligations.
The UCC gives a seller the right to cure a defective shipment within a reasonable time beyond the original time for performance in the contract if:
Prior dealings with the buyer led the seller to reasonably believe that the defective shipment would be acceptable The UCC provides that in cases where a buyer rejects a tender of nonconforming goods that the seller reasonably believed would be acceptable "with or without money allowance," the seller, upon a reasonable notification to the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender. A seller will probably be found to have had reasonable cause to believe that the tender would be acceptable if the seller can show that trade practices or prior dealings with the buyer led the seller to believe that the goods would be acceptable, or the seller could not have known of the defect despite proper business conduct.
pre-existing duty rule
Promise to do something you are already legally obligated to do is not valid consideration Often comes up in attempts to modify contracts. Generally can't do so without new consideration
SOF & Executor/Administrator of Estate
Promises by Executor of an estate to pay the estate's debts from some other source of funds/out of his own pockets are within the SOF [not likely to be tested].
Punitive Damages Not Available
Punitive damages are not awarded for breach of contract because the purpose of contract damages is to compensate, not punish. Exam Tip: Don't think of "good guys" and "bad guys." Contract remedies are designed to compensate the injured party, not to punish the breaching party.
In a contract for a sale of goods priced at $500 or more, if the goods are _________ or __________, the contract will be enforced even if there is no writing.
Received and accepted; paid for If goods are either received and accepted or paid for, the contract is enforceable without a writing. 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. A contract for specially manufactured goods, i.e., goods that 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, can sometimes be enforceable without a writing, but only under circumstances where the seller has reasonably indicated that the goods are for the buyer and made a substantial beginning in their manufacture or committed for their purchase before notice of a repudiation was received. There is no exception to the Statute of Frauds for unique goods. There is no exception to the Statute of Frauds for contracts in which the goods have been shipped. There is an exception once the goods have been received and accepted or paid for.
RESTITUTION: *Plaintiff Breaches When Contract Unenforceable*:
Restitution available in quasi-contract action if unjust enrichment would result ---EX: celebrity is hired to sign autographs and is paid, but dies before performance
Contract Vs. Restitution (Quasi-Contract)
Restitution/Quasi-Contract---Protects against unjust enrichment whenever contract law yields an unfair result. Restitution is the remedy of last resort. EX: X contracts with Y to build a house for Y. X becomes ill and is unable to continue after completing a third of the work. X cannot sue on the contract, but may recover the benefit conferred to Y
BATTLE OF THE FORMS: MERCHANTS - *DIFFERENT terms*
SPLIT OF AUTHORITY. 1) some courts treat the same as additional terms 2) other courts follow *knockout rule*: conflicting terms in the offer/acceptance are knocked out (because each party is assumed to object to the other) and UCC gap-fillers are substituted. TIP: Remember that there still must be a meeting of the minds or there is no contract. Look for differences in the price, quantity or quality terms—they likely indicate there isn't a sufficient meeting of the minds to constitute a contract.
OFFER: Indefiniteness An offer must be definite and certain in its terms. Basic inquiry is whether enough of the essential terms have been provided so that a contract included them would be *capable of being enforced*
See if any of the terms are too indefinite to be enforced. Watch for: -Open Price Term in Sales K—UCC vs. Common Law -Court will read in a "reasonable" price for sale of goods under UCC but not in common law (land). Exam Tip Watch out for sale of land missing price vs. sale of a car.
(2) What if S includes a note saying, "I'm out of Beyoncé, but am sending Gaga as an accommodation"?
Seller is making counteroffer. NOT a breach. Buyer has option to reject or accept.
PERFORMANCE OF CONTRACTS FOR A SALE OF GOODS (ARTICLE 2) *1) Perfect Tender Rule*
Seller must deliver perfect goods in the right place at the right time. If tender is not 100% perfect, buyer has the right to reject the goods.
*TWO TYPES OF DELIVERY OBLIGATIONS for CARRIER CASES* *2nd possibility: Destination Contract*
Seller must get the goods all the way to a specific destination (usually, where buyer is located). Seller bears risk of loss longer: until the goods are *tendered to the buyer at the destination.*
HYPO 5F John borrows $500 from Gabrielle and promises to repay her with interest. Later, Gabrielle agrees to discharge the debt now if John promises to do her yardwork for a year. John makes the promise. What are Gabrielle's rights if John does not do the yardwork as promised?
She can only go after John under the new yardwork deal. The old $500 debt that has been excused due to this modification. Modifications take effect immediately. She agreed to immediately excused debt in exchange for promise to do yardwork. She can only sue on the yardwork deal. The $500 is gone.
BUYER'S NON-MONETARY REMEDIES: Buyer's Right to Specific Performance
Similar to replevy, EXCEPT can order even if not yet identified to contract by seller Buyer's right to specific performance exists where the goods are unique or in other proper circumstances.
Specific Performance 1) Real Property/Land Sale
Specific performance is generally available because real property is considered unique (even if it's boring land - lot 77 of 100 similar units). *All land is unique.* - thus specific performance is proper.
Specific Performance 3) Personal Service Contracts
Specific performance is not available in service contracts, but injunctive relief may be. Violates 13th amendment - involuntary servitude. Also practical problem: if ordered, the employee wouldn't do a good job. Court doesn't want to monitor. Courts are willing to enjoin employees from working for competitors. "Negative specific performance."
Damages for Land Contracts
Standard for breach of land contracts: difference between contract price and the FMV of the land
HYPO 4J Starbucks Seattle contracts to ship coffee to Central Perk in New York City. Rats answer the call of nature inside the coffee containers while they are in transit. The contract is silent on who bears the risk and neither party is to blame for the rats. Who has the Risk of Loss if Starbucks shipped the coffee after the contract deadline?
Starbucks bears the risk of loss because they are in breach. The contract didn't allocate the risk of loss, but Starbucks was late in delivering coffee.
(3) What if CarMax promises not to revoke its offer, but does not state a time period?
Still entitled to merchant firm offer protection. Time period: court will fix a "reasonable" time period, not more than 3 months.
Temporary Impossibility
Suspends the duty to perform. Does not terminate contract. When performance becomes possible again, the duty "springs back" unless the burden would be substantially increased or different from original Weather is in this category.
Rights & Liabilities of Assignee vs. Obligor
The assignee can sue the obligor, as the assignee is the real party in interest because the assignee (not the assignor) is entitled to performance under the contract. Obligor has same defenses against assignee as assignor.
A large-scale bakery in the South entered into a written contract with a commercial apple orchard in the upper Midwest to purchase 200 bushels of apples at a cost of $8 per bushel. The contract provided that the apple orchard would deliver the apples "F.O.B. Louisville Railroad Depot," where the apples would be loaded onto a train headed south. The orchard assigned all of its rights under the contract to a large produce distributor which, in turn, hired a trucking company to deliver the apples to Louisville. En route to Louisville, the truck skidded off the road due to inclement weather and overturned, and the apples were destroyed. The bakery brought suit against the apple orchard for breach of contract. What will be the probable outcome of the litigation?
The bakery will recover the amount necessary to replace the destroyed apples, over the contract price. If the bakery brings an action against the apple orchard, the bakery will be able to recover the costs of replacing the destroyed apples because the apple orchard remained liable on the assigned contract and it had the risk of loss. Although most contractual duties may be assigned-unless they are personal-and the obligee must accept performance from the delegate, the delegating party (delegator) remains liable on his obligation. Thus, an assignment of a contract that includes a delegation of duties does not relieve the assignor from its duty to perform. Here, the bakery did not receive the performance that was due (the apples), so it could sue the apple orchard to recover for the breach. When a nonbreaching buyer does not receive the contracted goods, it has several options: it can cancel the contract and recover any incidental damages, or it can purchase replacement goods and sue for the cost of replacement-"cover." Damages under the latter option are measured by the difference between the contract price and the amount the buyer actually has to pay for the replacement goods.
A dealer in oriental rugs acquired an antique rug measuring 24 feet by 36 feet. A banker inspected the rug and orally agreed to buy it for the asking price of $65,000, provided he was successful in purchasing the house he was trying to buy, because it had a living room large enough to accommodate the rug. The sale agreement was later reduced to writing, but the provision concerning the purchase of the house was not included in the written agreement. If the banker is unsuccessful in acquiring the house he wants because the owner decided not to sell, and the dealer sues the banker for the purchase price, what is the most likely result?
The banker will prevail because he could not acquire the house. In general, the parol evidence rule bars oral evidence contradicting a written agreement which was intended to be a final and exclusive embodiment of the parties' agreement. However, one exception to this general rule provides that parol evidence is admissible to show a condition precedent to the existence of a contract. Here, the contract between the banker and the dealer for the sale and purchase of the rug was only to be effective if the banker acquired the house he wanted. This condition precedent may be shown by the banker despite the fact that it was not reduced to writing.
On April 1, a graduate student who owned an antique dictionary agreed to sell it to a buyer for $1,500. The written contract between the seller and the buyer provided that the dictionary would not be delivered to the buyer until April 20. Late on April 15, a fire swept through the seller's apartment building, through no fault of the seller, and the dictionary was destroyed. Fortunately for the seller, he had insurance that covered all of his damages, including compensation for the destroyed dictionary. On April 20, the seller told the buyer of the fire, but still demanded payment, claiming that the buyer was the equitable owner of the dictionary when it was destroyed, and told her that she could have obtained insurance on the dictionary had she wanted to, because she had an insurable interest in the dictionary as soon as the contract was made. The buyer refused to pay. The seller brings an action against the buyer for the $1,500. Who will prevail?
The buyer, because destruction of the dictionary avoids the contract and discharges her duty to pay. The buyer will prevail because complete destruction of the dictionary results in avoidance of the contract and discharge of her duty to pay, since the seller still had the risk of loss. Because the contract here is for the sale of goods, it is governed by the Uniform Commercial Code ("UCC"). Under the UCC, if a contract requires for its performance particular goods identified when the contract is made, and, before risk of loss passes to the buyer, the goods are destroyed without the fault of either party, the contract is avoided. [UCC §2-613] All of the elements of section 2-613 are present here. The contract required the seller's particular dictionary, which was identified at the time the contract was made. The risk of loss had not yet passed to the buyer because, in a sale by a nonmerchant such as the seller, risk of loss does not pass to the buyer until tender [UCC §2-509], and the seller never tendered the dictionary here (there was no actual tender and delivery was not due until April 20). Finally, the goods were destroyed by a fire and without the fault of either party. Thus, the contract is avoided. (The same conclusion would result under the common law doctrine of impossibility-all executory duties are discharged when the subsequent destruction of the subject matter of a contract renders performance impossible.)
A large insurance company instituted a supplemental benefit plan for its own employees. Under the plan, any employee who had worked for the company for at least 25 years would be permitted to designate a charity to receive, on the employee's retirement, a donation in the employee's name of six months' worth of the employee's salary. The plan gave participating employees an unqualified right to change the beneficiary at any time before payment was made. An employee nearing retirement enrolled in the plan and named his favorite church as the beneficiary of the donation. The church received a letter from the company informing it that the employee had named it beneficiary of his plan and indicating the approximate amount that it would receive upon the employee's retirement in 10 months. The letter did not inform the church of the employee's right to change beneficiaries before that time. Church elders, anticipating the gift, authorized restoration work to the church building, making plans to pay for the work with the funds from the employee's benefit program. Six months later, the employee converted to a different religion and changed the beneficiary of his plan to his new church. When the employee retired, the company paid the benefit to his new church. His old church, which had paid for the restoration work on its completion, demanded payment of the benefit from the company. When payment was refused, the church sued the company. Which party is likely to prevail?
The church will be able to recover against the insurance company because the interests of justice require it. Under the majority view, consideration is NOT necessary to make an agreement at least partially enforceable where the facts indicate that the promisor should be estopped from not performing. This is stating the concept of promissory estoppel without labeling it as such. Under the Second Restatement, a promise is enforceable to the extent necessary to prevent injustice if the promisor should reasonably expect the promise to induce action or forbearance and such action or forbearance is in fact induced. Here, the insurance company sent a letter to the church informing it that the employee had named the church beneficiary under his employee benefits program. The company did not warn the church that the employee had the right to change his beneficiary and should have reasonably expected that the church would rely on the promise in some way; it is not necessary in charitable contribution cases that the promisor know of a specific expenditure that the recipient made or is going to make. The church did in fact rely on the promise by authorizing and paying for the restoration work. *The church's rights as a third-party beneficiary did not vest on receipt of the letter.* In the usual case, an intended third-party beneficiary can prevent the contracting parties from rescinding or modifying the contract once his rights have vested. Vesting occurs 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. Merely being informed does not cause vesting; justifiable reliance is required. At that moment the church received notice, there was no manifestation of assent, suit, or change of position. The church was merely in receipt of information. Thus, the church's receipt of the letter, by itself, was not sufficient to vest its rights as a third-party beneficiary. *Note that even if the answer choice had included some mention of reliance, which normally could cause vesting, this would still be the wrong answer*. The parties to a contract may determine when vesting occurs, and this contract allows the employee to change the beneficiary up until the time of retirement, thus thwarting a justifiable reliance on the promise and preventing vesting.
On January 30, a company that designs and builds generators to standard industrial specifications received a *telephone* call from a buyer who ordered two generators at a price of $25,000 each. The parties agreed that delivery of the first generator would be on March 15, and the second on April 30. Payment was to be made no more than 30 days after delivery. On March 12, the company delivered the first generator, which the buyer accepted. On April 22, the company completed the second generator but had not yet notified the buyer. On April 23, the buyer, having made no payment to the company, canceled the agreement. The company brings an action against the buyer for breach of contract. How much should the company recover in damages?
The company should recover $25,000 only. Contracts for goods for $500 or more must be evidenced by a writing to be enforceable. There are three exceptions to this rule: specially manufactured goods unsuitable for resale in the seller's regular course of business, contracts admitted in court, and contracts partially accepted (enforceable to the extent of the acceptance). Here, the contract was for $50,000 and was oral. Thus, it will be enforceable only if one of the exceptions applies. The buyer's acceptance of the first generator constitutes part acceptance that will make the buyer liable to the extent of the acceptance: $25,000.
A 17-year-old boy walked into a medical clinic and requested assistance with a deep cut he received when he fell off his bike. The doctor told the boy that if he agreed to work at the clinic for 45 hours a week for four weeks, he would stitch the wound and apply a medicated bandage. The clinic typically charges $225 for such treatment. Although it seemed like a lot of work for $225, the boy needed immediate medical attention, so he accepted the offer and promised to report for work the next day, after which the doctor treated the boy's injury. On his way home from the clinic, the medicated bandage fell into a ditch and was lost for good. The boy refused to report for work the next day. The medical clinic sues the boy to recover the costs of the medical treatment. If the court rules in favor of the boy, what is the likely reason?
The contract was unconscionable. If the court rules in favor of the boy, it will be because the parties' contract was unconscionable. Unconscionability usually arises where one of the parties has substantially superior bargaining power and can dictate the terms of the contract to the other party, who has inferior bargaining power. Here, the boy told the doctor that he needed medical attention and the doctor forced him to agree to work for, in essence, $1.25 per hour in exchange for care and a medicated bandage. These facts would meet the requirements of an unconscionable contract.
A homeowner and a contractor duly executed a contract providing that the contractor was to construct a residence on a specified lot. No date was included in the contract for completion of the home. After the contractor completed 5% of the residence, a tornado demolished the construction but left the lot undamaged. Which of the following states the probable legal consequences of the tornado damage?
The contractor remains bound under the original contract, and he is not entitled to compensation for the work that was destroyed. The general rule is that a contractor is responsible for destruction of the premises under construction prior to completion. Once the residence is completed, risk of loss shifts to the owner.
An applesauce bottler wishing to redesign his factory entered into a written contract with a contractor. The contract provided that the contractor would design and install a new glass bottle system, replacing the plastic bottle system, by March 10, and the bottler would pay the contractor a total of $100,000. The contract provided for a first payment of $50,000 on completion of the design plans and a second payment of the balance after installation and successful testing of the system. The contractor presented the bottler with the finished design plan in January, and the bottler paid him $50,000. The contractor ran into difficulty procuring the parts called for by his design, and this delayed the installation. The installation and testing were completed on March 25. Disappointed by the delay, the bottler now refuses to pay the contractor anything further. If the contractor sues the bottler, which party is likely to prevail?
The contractor, because the contract did not provide that time was of the essence The late installation does not justify the refusal to pay. 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 performance does not make time of the essence. Nothing in the contract here states that time is of the essence, and the contract does not by its nature require timely performance. This is a services contract, rather than a goods contract governed by the UCC, so perfect performance is not required. Thus, late performance is treated as a minor breach that gives the nonbreaching party a right to damages but does not relieve him of his duty to perform. The bottler still has the duty to pay the $50,000 but would be entitled to an offset for the damages suffered due to the delay.
The owner of an exclusive clothing salon entered into a written agreement with a customer to sell the customer a certain full-length fake fur coat for $12,000, with delivery by December 7. On December 5, the customer went to the salon at 5:30 p.m., and the salon owner told her that her coat was ready and she could take it home with her. The customer inspected the coat and discovered that a button was missing. She told the salon owner that she would not accept the coat without the missing button. The salon owner informed the customer that his tailor had gone home for the day but he assured her that the coat could be ready with the button sewn on the next morning. Which of the following best states the customer's position?
The customer may reject the coat, but she must give the salon owner an opportunity to cure. Although the customer is entitled to reject the coat for even a minor defect such as one button being missing, she is required to give the seller an opportunity to cure this defect. Because this is a contract for the sale of goods, the Uniform Commercial Code applies. Pursuant to the UCC, if goods or any tender fail in any respect to conform to the contract, the buyer may reject the goods. This rule of perfect tender allows rejection for any defect, and does not require material breach. However, the perfect tender rule is softened by the rules allowing the seller to cure the defect by giving reasonable notice of an intention to cure and making a new tender of conforming goods within the time originally provided for performance. Here, one button missing on a $12,000 coat is a very minor defect. However, pursuant to the perfect tender rule, the customer has the right to reject the coat even for this defect. In turn, the salon owner is entitled to cure the defect by notifying the customer of his intention to do so and by making a conforming tender. The salon owner has told the customer that the tailor will sew on the button by the next day, which will result in the coat's conforming to the contract. At this point the customer must give the salon owner an opportunity to cure.
What is necessary for an effective delegation?
The delegator must manifest a present intention to make a delegation. There are no special formalities May be written or oral
A craftsperson entered into a written agreement with an electrician to install electrical wiring in her standalone garage so that she could convert the garage into a workshop. The contract contained a clause requiring all electrical work to be completed within two days and provided that the craftsperson would pay the electrician $700 for his work. After the first day, approximately half of the job was completed. That evening, a piece of a defunct satellite reentered the Earth's atmosphere and a large chunk of it crashed directly into the craftsperson's garage, catching the garage on fire and destroying it. Which of the following best describes the obligations of the electrician and the craftsperson after the crash?
The destruction of the garage discharges the electrician's duties due to impossibility, but the electrician has a right to recover for the reasonable value of the work he performed. Contractual duties are discharged where it has become impossible to perform them. The occurrence of an unanticipated or extraordinary event may make contractual duties impossible to perform. If the *nonoccurrence of the event was a basic assumption of the parties in making the contract, and neither party has assumed the risk of the event's occurrence, duties under the contract may be discharged*. If there is impossibility, each party is excused from duties that are yet to be performed. If either party has partially performed prior to the existence of facts resulting in impossibility, that party has a right to recover in quasi-contract for the reasonable value of his performance. While that value is usually based on the benefit received by the defendant (unjust enrichment), it also may be measured by the detriment suffered by the plaintiff (the reasonable value of the work performed). Here, the garage that the electrician was wiring burned down after a chunk of a satellite crashed into it. That event was of such an unexpected nature that its nonoccurrence was a basic assumption of the parties, and neither party was likely to have assumed the risk of its occurrence. Thus, it has become objectively impossible for the electrician (or anyone else) to complete the job. This impossibility will discharge both the craftsperson and the electrician from performing any contractual duties still to be fulfilled. Therefore, the electrician need not finish the wiring work, and the craftsperson is not obligated to pay the entire amount of $700. However, the electrician can recover under quasi-contract.
laches
The equitable doctrine that bars a party's right to legal action if the party has neglected for an unreasonable length of time to act on his or her rights. waited so long to sue that it's not fair.
In anticipation of pending domestic agriculture regulations that would make growing corn less profitable, a candy company entered into a contract with a corn farmer who grew a particularly good variety of corn, whereby the candy company was given the right to purchase all high fructose corn syrup refined by the corn farmer for the next five years at a price set at 95% of the domestic market price at the time of delivery. The candy company agreed to purchase no less than 1,000 liters of corn syrup a week and to use its own trucks to transport the corn syrup to its storage facilities. At the time this contract was signed, the candy company gave written notice to the corn farmer that it intended to buy all high fructose corn syrup produced by the corn farmer until further notice. Thereafter, the candy company continued to purchase all of the corn farmer's total corn syrup production until the following year. At that time, the corn farmer, by letter, notified the candy company that it could no longer deliver corn syrup to it in accordance with their agreement because the new domestic agriculture regulations had rendered growing corn unprofitable for him. If the candy company sues the corn farmer for breach of contract, is the farmer likely to prevail?
The farmer is unlikely to prevail because his refusal to deliver the corn syrup is nonjustifiable and a breach of contract. (A) is wrong because the availability of corn from other suppliers does not affect whether the farmer breached the contract. It may affect the candy company's damages.
An advertising agency specializing in aerial banners and skywriting signed a contract with a film production company that was premiering a new blockbuster film. The contract provided that the agency would advertise the film by flying over the city towing a giant streamer belonging to the film company heralding the film's catch phrase and title in large letters. This contract specified that the flight was to be conducted on the first Saturday in June at noon (the day of the local premier), and the film company was to pay the advertising agency $500 for the flight. On the designated Saturday, the advertising agency was unable to fly because of a defective fuel pump. The defective condition was entirely unforeseeable and did not occur through any negligence or fault of the agency. The film company did not pay the agency, and each of the parties has sued the other for damages. Which of the following best states the rights and liabilities of the parties?
The film company is entitled to recover damages from the advertising agency on account of the agency's failure to fly. The film company will be able to recover damages from the advertising agency because the agency's failure to fly constituted a breach of contract. The parties entered into a bilateral contract-the agency promised to fly with the streamer and the film company promised to pay for the flight. The agency breached the contract by failing to fly on the designated Saturday. *Its duty to fly was NOT discharged by impossibility*. A contractual duty to perform may be discharged by objective impossibility (i.e., no one could have performed), but subjective impossibility (defendant could not perform) is insufficient. Here, the defect in the plane constituted only subjective impossibility (if it amounted to impossibility at all) because the agency could have obtained another plane to pull the streamer. If the agency had been unable to fly the plane because of weather (e.g., a severe ice storm), its performance would have been objectively impossible, and the agency would have been discharged. However, under these facts, the film company is entitled to damages for the agency's breach.
A landowner entered into a written agreement with a real estate broker whereby the broker would receive a commission of 10% of the sale price if he procured a "ready, willing, and able buyer" for the landowner's property and if the sale actually proceeded through closing. The broker found a buyer who agreed in writing to buy the property from the landowner for $100,000, the landowner's asking price. The buyer put up $6,000 as a down payment. The agreement between the landowner and the buyer contained a liquidated damages clause providing that, if the buyer defaulted by failing to tender the balance due of $94,000 at the closing date, damages would be 10% of the purchase price. The landowner included that clause because she was counting on using the proceeds of the sale for a business venture that would likely net her at least $10,000. The buyer became seriously ill and defaulted. When he recovered, he demanded that the landowner return his $6,000, and the landowner refused. The broker also demanded the $6,000 from the landowner and was refused. The broker and the buyer filed separate suits against the landowner, with the buyer pleading impossibility of performance. The two cases are consolidated into a single case. How should the court rule as to the disposition of the $6,000?
The landowner may keep the $6,000 as liquidated damages. A liquidated damages clause is enforceable if: (i) damages are difficult to ascertain at the time of the making of the contract, and (ii) the damages are a reasonable forecast of compensatory damages. Here, the landowner was unsure what her damages would be if she did not receive the sales proceeds from the property, but $10,000 seemed a reasonable amount. Thus, both criteria for valid liquidated damages clauses are met.
Multiple Assignments—Which Assignee Gets to Collect? a. Gratuitous ("Gift") Assignments Are Easily Revoked
The last gratuitous assignee prevails over earlier gratuitous assignees because a later gift assignment revokes an earlier one. Best to be at the back of the line in assignments.
A manufacturing company was in the business of making copper tubing. A retail seller telephoned the manufacturing company's sales department and placed an order for 10,000 linear feet of copper tubing at a sale price of $2 per foot. The tubing was to be used in the production of a custom order for one of the retail seller's customers. The manufacturing company installed special equipment for the manufacture of the tubing to the retail seller's specifications and had completed a portion of the order when the retail seller again telephoned the sales department. This time, however, the retail seller canceled its order, saying it no longer had need of the tubing because its customer had been declared bankrupt and refused to pay for the order. If the manufacturing company sues for breach, will it win?
The manufacturing company will win because the contract is fully enforceable under the UCC. Tubing is a good, so Article 2 of the UCC applies. The contract is for the sale of goods priced at $500 or more (10,000 linear feet at $2/foot), so ordinarily section 2-201 would require a writing. However, section 2-201(3) provides that a writing is not required where the contract is for "*specially manufactured" goods not suitable for resale in the ordinary course of the seller's business and the seller has made a substantial beginning of their manufacture or commitments for their procurement*. Because the tubing is a custom order of unique specifications and the manufacturing company has begun manufacturing it, this exception to the UCC Statute of Frauds applies.
A mass marketer contracted with a political campaign to send out mass mailings to voters for $100,000. It subcontracted with a printer to print brochures for $20,000 over a period of several weeks. The printer would be paid on a weekly basis. After providing $15,000 of printing services the first few weeks, the printer unjustifiably refused to perform any additional work for the marketer. The marketer had paid the printer $10,000 to that point, and had to pay another printer $12,000 to print the balance of the brochures. The marketer sued the printer for breach of contract, and the printer counterclaimed for the reasonable value of the benefits conferred on the marketer and not paid. What will be the outcome of this litigation?
The marketer should recover $2,000, the excess it had to pay over the contract price to get the performance the printer had promised. The marketer should recover $2,000. The primary objective of contract damages is to put the nonbreaching party in the same position that he would have been in had the contract been performed. The normal measure of damages is expectation damages. The marketer has a legally enforceable right to have the work under the printer contract performed for $20,000. Because the marketer paid the printer $10,000 and needed to spend $12,000 to have the printing completed by a third party, the marketer has spent $22,000. This establishes the marketer's right to seek $2,000 from the printer for its breach. The purpose of contract damages is to put the nonbreaching party where he would have been had the promise been performed. For the printer to recover anything, he would have to prove that he is entitled to restitution. The breaching party will prevail in a restitution action only if the nonbreaching party seeks to keep the value of the benefit conferred without paying and, therefore, is unjustly enriched. The marketer had to pay $2,000 more than the price stated in the contract with the printer. The marketer was not unjustly enriched and, in fact, had damages of $2,000 from the breach. The printer's costs are not relevant. The printer is not entitled to recover anything.
On August 5, the owner of a hot dog plant and the proprietor of a local ballpark concession stand entered into a written agreement providing, among other things, that if the local team wins the state championship, the plant owner will deliver to the proprietor 500 hot dogs on each of the following days: September 5, 7, and 9. The price was set at 25 cents per hot dog, with payment to be made on September 10 by the proprietor to a creditor of the plant owner. On August 15, the plant owner decided that he wanted to avoid his obligation to deliver the hot dogs. The creditor has not become aware of the agreement between the plant owner and the proprietor. Which of the following is the most accurate statement?
The plant owner cannot rescind the contract without the permission of the proprietor. The proprietor must agree to a rescission of the agreement. *A party to a contract may not unilaterally rescind it if the contract is valid (i.e., in the absence of mistake, misrepresentation, etc.). However, both parties to a contract may agree to rescind and discharge their contractual duties as long as the duties are still executory on both sides*. Here, neither party has performed under the contract, so the contract will be mutually rescinded if the proprietor gives his assent to the plant owner. The creditor's rights as a third-party beneficiary of the contract have not yet vested; thus, his consent to the rescission is not needed. An intended beneficiary such as the creditor can enforce a contract only after his rights have vested, which will occur when he (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 his position in justifiable reliance on the promise. Here, the creditor has not even become aware of the agreement between the plant owner and the proprietor, so his rights cannot have vested. Conditional promises are not illusory. They are enforceable, no matter how remote the contingency, unless the "condition" is entirely within the promisor's control. Here, the fact that both parties' performance is conditioned on the team's winning the state championship does not make the contract illusory because neither party (presumably) can control the occurrence or nonoccurrence of the condition. An offer can only be revoked before it has been accepted, and here the offer has already been accepted and a contract formed. Whether the team wins the state championship is merely a condition precedent to the parties' duty of performance.
A professional baseball player visited a sick boy in the hospital. The player told the boy that in consideration of the boy's courage, he would hit a home run for him in his next game. As the player was leaving the hospital, the boy's father stopped the player and told him how important the home run could be in improving his son's spirits and health. The father told the player he would pay him $5,000 if he did hit a home run in his next game. The player agreed and took extra batting practice before his next game to improve his chances. In his next game, the player hit two home runs. The player's contract with his ball club does not forbid him from accepting money from fans for good performance. The player has now asked the father for the $5,000. If the father refuses to pay and the baseball player brings an action against him for damages, which of the following is correct under the prevailing modern rule in contract law?
The player can recover the $5,000 because the preexisting duty rule does not apply where the duty is owed to a third person. The player can recover because, under the prevailing modern rule, the preexisting duty rule does not apply if the duty is owed to a third person. Generally, contracts must be supported by consideration. A promise to perform is valid consideration, but if a person already owes a duty to perform, traditionally that performance cannot be used as consideration for another promise. Thus, under the traditional rule, the player could not enforce the father's promise to pay the player $5,000 if he hit a home run because the player gave no valid consideration in exchange for the father's promise, since the player owed a preexisting duty to his ball club to exert his best efforts to hit home runs. However, under the modern view as formulated in Restatement (Second) of Contracts, section 73, and followed by a majority of courts, a duty is a preexisting duty only if it is owed to the promisee. Thus, a promise to perform a duty is valid consideration as long as the duty of performance is not already owed to the promisee. In other words, if the duty is owed to a third party, a promise to perform given to another is valid consideration as long as it was bargained for.
Vague Terms
The presumption for missing terms that the parties intended to include reasonable terms DOES NOT APPLY FOR VAGUE TERMS that make the contract too vague to be enforced ---EX: an agreement to split the profits on a "liberal basis" HOWEVER, the uncertainty can be cured by part performance that clarifies the vague term or by acceptance of full performance. TIP: If a material term is vague, it is NOT an offer at common law or under the UCC. Look out for terms such as "appropriate" "fair" and "reasonable" which signal a possible vagueness problem.
The owner of a one-acre parcel of land with a small house on it rented the property to a professor of a nearby college at a monthly rental of $500. Several years later, after the professor got tenure, the parties orally agreed that the professor would purchase the property from the owner for the sum of $60,000, payable at the rate of $500 a month for 10 years. They agreed that the owner would give the professor a deed to the property after five years had passed and $30,000 had been paid toward the purchase price, and that the professor would execute a note secured by a mortgage for the balance. The professor continued in possession of the property and made all monthly payments in a timely fashion. When he had paid $30,000, he tendered a proper note and mortgage to the property owner and demanded that she deliver the deed as agreed. The owner refused because valuable minerals had been discovered on adjacent parcels in recent months, causing the value of this parcel of land to increase to 10 times its former value. The professor brought suit against the property owner for specific performance. If the court rules in favor of the property owner, what is the likely reason?
The professor's payments are as consistent with there being a landlord-tenant relationship between them as with there being an oral contract. If the property owner wins, it will be because the payments by the professor may be based on a valid landlord-tenant relationship. A promise creating an interest in land must be in writing to be enforceable. This includes not only agreements for the sale of real property or an interest therein, but also leases for more than one year. However, under the part performance doctrine, conduct that unequivocally indicates that the parties have contracted for the sale of land will take the contract out of the Statute of Frauds. Here, the parties had originally created a landlord-tenant relationship, and the lease would be enforceable even without a writing as a month-to-month tenancy. The continuation of the monthly payments can as readily be explained by a continuation of the lease relationship as by an oral agreement for an installment land sale contract. Thus, because the conduct does not unequivocally indicate a contract for the sale of land, the Statute of Frauds requirements will not be excepted. While part performance may create an estoppel, the professor will have a hard time proving it because the parties' conduct is consistent with a lease relationship as well.
A landowner advertised in the newspaper that he wished to sell 40 acres of land at $10,000 per acre. A rancher who was looking to expand his holdings was interested, so he came out to inspect the property. After the inspection, the rancher agreed to purchase the land for $400,000. A contract for the sale of the 40 acres was prepared and signed by the landowner and the rancher. The contract failed to state the purchase price. Later, the rancher had a change of heart and refused to complete the purchase. In the landowner's lawsuit for breach of contract, for which party would the court likely hold?
The rancher, because the Statute of Frauds would require the contract to contain the price in order to be enforced. Under the Statute of Frauds, contracts for the sale of land must be in writing. The writing must contain all essential terms, and the price is considered an essential term. (A) is wrong because although the parol evidence rule might not bar the testimony, the Statute of Frauds will prevent recovery.
A downtown department store engaged an electrician to service all electrical appliances sold by the store for a flat fee of $5,000 per month. Under a written contract signed by both parties, the store was responsible for pickup and delivery of the appliances to be repaired and the billing for the work. By its terms, the contract would continue until either party gave 180 days' written notice of its intent to terminate. Several months ago the electrician informed the store that he was losing money on the deal and was in financial trouble. He requested in good faith that the fee for the next three months be increased by $1,000 and that this increase be paid to a local bank to help pay off a loan that the bank had made to the electrician. The store orally agreed to so modify the original contract. However, the store did not pay the bank and now the bank is suing the store for $3,000. Who will prevail?
The store, because there was no consideration to support the promise to pay the bank The store will prevail, because there was no consideration to support its promise to pay the bank the additional $1,000 per month. This question looks like it concerns third-party beneficiaries, but it actually presents a consideration issue. Generally, there must be consideration for modification of a contract, and a promise to perform an act that a party is already obliged to do is not sufficient consideration (the "preexisting legal duty" rule). Here, the electrician is promising to do exactly what he was obliged to do under his original contract with the store; thus, there is no consideration to support the promise to increase the fee. Note that the modern view permits modification without consideration if it is fair and equitable in view of unanticipated circumstances. That is not applicable here. This exception contemplates an unanticipated circumstance arising in performance of the contract that makes performance more difficult or expensive.
A landowner and a purchaser orally agreed that the landowner would convey 20 acres of his 160-acre farm to the purchaser. At the time of their agreement, the landowner wrote on the back of an envelope, "I hereby promise to convey the northern 20 acres of my farm to [the purchaser] for $10,000." One month later, the purchaser tendered $10,000 to the landowner, but the landowner refused to convey the 20 acres. If the purchaser sues the landowner to convey the land and the landowner prevails, what will be the most likely reason?
The writing was not signed by the landowner. BE CAREFUL!
Jeff Bezos offers to sell his house to Bill Gates for $500,000. What if Gates had responded, "Will you take $490,000?"
This is not a rejection/counteroffer, but instead mere bargaining. Original offer is still in effect.
TIP: Watch for a fact pattern where the parties orally agree to an installment land contract. In the absence of other facts, such as a large down payment, possession plus payment does NOT unequivocally indicate a contract for the sale of land.
Those facts are also consistent with a lease; thus, the purchaser cannot enforce the contract.
OFFER: Definiteness of Offeree
To be considered an offer, a statement must sufficiently identify the offeree or a class to which she belongs to justify the inference that the offeror intended to create a power of acceptance
Timing: Disclaimers and Limitations in the Box
To be effective, a disclaimer of warranty or limitation on remedies must be agreed to during the bargaining process. Most courts hold that a warranty disclaimer or limitation on remedy included inside the package of goods is NOT effective HOWEVER, "clickwrap" disclaimers in software (boxes that appear on user's screen they must agree to before installation) ARE VALID.
Offer: Communication to Offeree
To have the power to accept, the offeree must have knowledge of the offer..
ASSIGNMENT OF RIGHTS TO A THIRD PARTY Definition
Two people make a contract; later, one (assignor) transfers his rights to a third party (assignee). - typically assigns rights to get paid The party who owes the duty (typically to pay $$ to the third party) is the obligor. EX: Batman contracts to provide security for Gotham City for $200,000. Batman ("assignor") then assigns his right to the payment to Robin ("assignee"). Robin has the right to receive payment from Gotham City ("obligor"). Exam Tip: In an assignment, two parties enter a contract and a third person (the assignee) appears later on. With third-party beneficiary, all three persons are present from the start. The general rule is that a writing is not required to have an effective assignment.
PER & Additional Terms Under Article 2
UCC follows rules above on PER. Party may add consistent additional terms, UNLESS 1) there is a merger clause 2) the courts find from all the circumstances that the writing was intended as a complete and exclusive statement of the terms Art 2 also provides that written contract's terms may be *explained or supplemented* by course of performance, course of dealing, and usage of trade, regardless of whether or not the writing appears ambiguous
Impossibility/Impracticability Under Article 2
UCC follows these principles for sale of goods. Events sufficient for discharge: - shortage of raw materials - inability to convert them into the seller's product because of contingencies such as war, strike, embargo, unforeseen shutdown of major supplier - catastrophic crop failure MERE INCREASE IN COSTS IS NOT SUFFICIENT; an increase as much as 50% has been held insufficient
Auction Contracts
UCC has special rules. *Sale by auction is complete when the auctioneer so announces by the fall of the hammer* or in another customary manner. An auction sale is with reserve unless the goods are explicitly put up without reserve. *With reserve* means that *auctioneer may withdraw the goods* at any time until he announces completion of the sale.
*What law applies?* ALWAYS INCLUDE IN EVERY SINGLE ESSAY! MAKE IT A HEADER!
UCC or common law? Does there need to be a writing?
SOL under the UCC
UCC provides *4 year SOL*. Parties may shorten the period by agreement to *no less than one year*, but they may not lengthen the period. *Accrual of Action* - SOL period starts when party can bring suit (i.e. when breach occurs) whether the aggrieved party knows about the breach or not *Breach of Warranty Actions*: breach occurs and SOL starts to run upon DELIVERY (even if buyer discovers breach much later) *Warranty Extends to Future Performance* if the there an *EXPRESS* warranty, the 4 year period doesn't start to run until the buyer should have discovered the breach *Implied Warranties Breached on Delivery* - because implied warranties cannot explicitly extend to future performance, they are breached upon delivery only.
Which of the following acts alone would be sufficient to allow enforcement of an oral contract for the sale of real property? A Possession of the property by the purchaser B Payment of the full purchase price by the purchaser C Valuable improvements to the property by the purchaser D Conveyance of the property from the seller to the purchaser
Upon the seller's conveyance of the property to the purchaser, *the seller* can enforce the buyer's oral promise to pay. Generally, under the Statute of Frauds, a promise creating an interest in land must be evidenced by a writing to be enforceable. A seller can enforce an oral land sale contract only if the seller conveys the property to the buyer. Under the doctrine of part performance, conduct that unequivocally indicates that the parties have contracted for the sale of the land will take the contract out of the Statute of Frauds. However, most jurisdictions require at least two of the following: payment (in whole or in part), possession, and/or valuable improvements.
Four Exceptions Where an Offer Cannot Be Revoked: 3. DETRIMENTAL RELIANCE:
Very rare! When the offeror could reasonably foresee 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* Often a construction hypo with a general contractor relying on subcontractor bid to get contract. ---If general contractor incorporates subcontractor's bid into his overall bid, wins acceptance, and then subcontractor tries to revoke, general contractor can invoke detrimental reliance to hold subcontractor to original bid.
II. FORMATION Agreement Formation Process (3 stages: Offer, Termination, Acceptance) *1st stage = Offer*
Watch for ad; Offers are revocable unless option, reliance, beginning performance in a unilateral contract, or a firm offer under Article 2.
Course of Dealing
What parties did under PRIOR CONTRACTS with each other. EX: S sent stewing chickens to B in last year's contract. ---That can help determine what the word "chicken" means in the current contract, but is less important than the current course of performance. Less reliable.
Election Waiver
When a condition does not occur or a duty of performance is broken, the beneficiary of the condition or duty must make an election: 1) terminate her liability, or 2) continue under the contract. If she chooses to continue, she will be deemed to have waived the condition or duty. An election waiver requires neither consideration nor estoppel (although estoppel elements are often present). Note that an election waiver *cannot be withdrawn* even if the other party has not relied on it.
Restitution: When Contract Breached
When a contract has been breached and *nonbreaching party has NOT fully performed*, he may choose to cancel the contract and sue for restitution to prevent unjust enrichment When the *nonbreaching party HAS fully performed*, he is limited to damages under the contract (which may be less than the restitutionary action, which is not limited to the contract price)
Satisfaction Clauses (Type of Condition)
Where the contract states that performance is conditioned upon satisfaction of one party or a third party, those persons must be satisfied before the other party's duties mature. "Satisfaction" is measured by a reasonable person standard unless the contract deals with art or matters of personal taste (when subjective standard applies)
HYPO 3C I rent Bieber a place to live (a "necessary") for $20,000 a month. Does Bieber have to pay?
YES, but only for the reasonable value of the apartment. No contract claim (lack of capacity defense as a minor), but still received a "necessity" (shelter) so he has to pay rough value of the apartment's worth
HYPO 3H D has a contract to supply 1,000 radar sets to P in 2020. D refuses to perform this contract until P agrees to buy 4,000 erector sets in 2021. P has no other source of radar sets and so agrees. D delivers the radar sets in 2020. Can P get out of the agreement to buy 4,000 erector sets in 2021?
YES, due to economic duress. Improper threat; and no reasonable alternative but to agree.
HYPO 2EE Donna Karan contracts to sell a dress to Heidi Klum for $4,000. Later, they agree to increase the price to $4,500. Is Heidi's promise to pay the extra $500 enforceable?
YES. As long as that modification was made in good faith. Sale of goods under UCC are NOT subject to pre-existing duty rule.
HYPO 2H I offer to sell you a machine. Before accepting, you have an expensive foundation custom-made to fit the machine. Can I still revoke my offer?
YES. Offeror expects the offeree to accept first before he relies. Offeror likely has no idea that offeree built special foundation for machine. Could not foresee reliance. Can still revoke
(4) CarMax makes a signed, written offer to sell a 2011 Tesla Roadster. Can CarMax still revoke? [TRICK Q!]
YES. No promise to hold it open. Exam Tip: In a sale of goods, look first for an option (no limits). If you do not have an option, look for a firm offer (subject to several limitations).
Excusing a Condition b. Waiver (Voluntarily Giving Up Protection) HYPO 5S Gates decides to build instead. His duty to make monthly payments is conditioned on Builder's providing an architect's certificate for that month's work certifying that the work was done correctly. However, Builder fails to obtain this certificate. Nevertheless, Gates tells Builder that he will pay even without a certificate. Must Gates pay?
YES. Steps: (1) Who was protected by the condition? - Gates (2) Did he do anything to forfeit the protection? - Yes, he waived his right. Said to the Builder that he didn't have to worry about it. (3) Result? - He must pay. NOTE: Can retract the waiver for future payments if the builder has not relied upon it yet.
HYPO 2Z Bill Gates promised to sell Jeff Bezos a puppy in exchange for his promise to pay $400. Bezos now refuses to pay. Was there consideration for Bezos's promise to buy the dog?
YES. Two parties who exchange promises, you don't need any performance to occur to have a binding contract. Promise for promise equals consideration.
HYPO 3F At the time of their agreement, Serena believed Babe Ruth was the original owner of the baseball bat, but A-Rod did not. Later, Serena learns she was wrong. Does she still have to buy the bat?
YES. Unless A-Rod committed fraud and represented to her falsely that it was Babe Ruth's bat. If he knows that she is mistaken, he must correct her misunderstanding.
4) Suretyship: the "Main Purpose" Exception Takes Us Outside of SOF HYPO 3X I buy paint on credit from Home Depot to paint Bill Gates's house. Gates orally promises to pay Home Depot if I don't pay [= suretyship]. Can Home Depot enforce Gates's oral promise against him?
YES. "Main purpose exception" If the surety's main purpose in making the promise is to benefit himself, then no writing is required. Here, Gates is getting the main benefit of his house getting painted. He's not promising to be a surety to benefit another.
HYPO 2GG MasterCard is barred by the statute of limitations from collecting the $3,000 you owe them. You write MasterCard: "I know I owe you money. I will pay you $2,000." Must you pay MasterCard $2,000?
YES. Although MC can't collect anything under the original debt; because of this new promise, if in writing, can be enforced, even without consideration.
HYPO 2C Tesla offers to buy all its requirements of batteries from Solar City for six years for $10,000/battery. Is that a valid offer?
YES. Article 2 sale of goods allows buyers quantities to be measured by the buyer's needs.
HYPO 2CC We agree that I will pay you $300 for your Billy Joel "Greatest Hits" CD. The CD is only worth $20 but I desperately want it to complete my Billy J collection. Is there consideration for my promise to pay you $300 for it?
YES. As long as there is a bargain, courts do not inquire as to the adequacy of consideration.
HYPO 2Q Bill Gates offers me $10,000 to paint his house, but does not specify how to accept [= bilateral]. I start painting. Have I accepted Gates's offer so that I am bound to finish the job?
YES. Bilateral K can be accepted by any reasonable manner. Starting performance is good enough to accept. Once she starts painting, has to finish job or in breach.
HYPO 2S Jay Inslee offers me $10,000 to paint his house green. I paint it purple. Have I accepted?
YES. Both acceptance AND breach by improper performance.
HYPO 4N Same facts, except the contract provides for delivery no later than June 6. Seller delivers 49 purple and 1 gold tee shirt on May 5. Buyer rejects them. Does Seller have an option to cure?
YES. Can cure by delivering the 50 purple shirts before June 6.
HYPO 2O B makes a written offer to buy 100 widgets from S. The offer does not mention any warranties. S's written acceptance disclaims all warranties. Is there a contract? (2) Does the contract include S's disclaimer?
YES. Contract forms. Art. 2 governs, NO MIRROR IMAGE RULE. However, it does NOT include the seller's disclaimer. Disclaimers are a MATERIAL change. Not included in contract.
HYPO 4O Same facts, except Seller delivers the 49 purple and 1 gold tee shirt on June 6 (the deadline). Buyer rejects them. In the past, Buyer had accepted gold tee shirts instead of purple ones. Does Seller have the option to cure even though the contract deadline has passed?
YES. Course of dealing between these parties shows that buyer didn't care, thus seller had reasonable grounds to think that imperfect tender would be acceptable. That will give her additional time beyond contract delivery date to cure imperfect tender. Buyer does have the right to insist on perfect tender (even though didn't in the past), but course of dealing allows seller to cure even beyond delivery date.
HYPO 7M I contract to paint Bill Gates's house for $10,000. I delegate to Van Gogh, who does a great job. Gates objects to the delegation. Does Gates have to pay?
YES. Delegations are generally permitted. Gates's consent is not required, so long as Van Gogh did a good job. Gates should have contracted to the contrary if he didn't want delegation.
HYPO 7P I contract to paint Gates's house for $10,000. Without consulting Gates, I delegate to Van Gogh [=delegation, not novation]. Van Gogh cuts off his ear and fails to paint Gates's house. Can Gates still sue me for breach of contract?
YES. Delegations do not excuse nonperformance. Gates never gave up his rights. This is NOT a novation. Novation requires mutual agreement by both original parties to substitute a new party to do the work.
HYPO 7E The contract lets Calandrillo change who Eddie Vedder will sing for. Chryssa has relied on the contract by inviting Beyoncé to hear Eddie Vedder sing. Can Calandrillo terminate Chryssa's rights?
YES. Exception: Contrary language in the contract controls. 3P cannot rely reasonably now because she should know that the contract states that it can be changed.
HYPO 2AA I promise to pay you $100 to not read romance novels by E. L. James for the next 2 months. You don't read her novels. Is there consideration for my promise to pay you $100? (2) But what if you would not have read her novels anyway?
YES. Forbearance can constitute consideration; agreeing not to do something in exchange for $100. (2) YES. It is totally irrelevant whether you would you have read it anyway. If you are giving up the legal right to do something that you otherwise could have done, that is consideration
On January 1, I offer to sell Gates my Prius for $8,000. If I sell my Prius to Jeff Bezos on January 4, can Gates still accept my offer? [TRICK Q!]
YES. Gates has no awareness of the revocation, so it is not successful. Gates can sue for breach/damages.
HYPO 6L After Zuckerberg's breach (didn't buy Tesla), Seller has to store and insure the Tesla, and advertises it for sale in the newspaper in an attempt to find another buyer. Can Seller recover these expenses from Zuckerberg?
YES. Incidental damages. The costs incurred in dealing with the breach. Storing the car, ads to find new buyer, etc. TRICK on EXAM: Foreseeability does NOT matter with incidental damages. But it DOES matter with consequential damages.
HYPO 3S Fox News signs this letter: "We agree to employ Judge Judy as an expert legal consultant for three years at a salary of $45 million per year. /signed/ Rupert Murdoch." A month later, Fox fires Judy without cause. Judy sues Fox for breach. Does the letter satisfy the SOF against Fox?
YES. It answers who and what, and signed by D. All material terms.
HYPO 5I Caldwell leases his music hall to Taylor for a concert to be held on June 1. The hall burns down on May 26. Is Caldwell excused from performing?
YES. Later unforeseen event makes performance impossible.
Partial Payment of a Debt that Is Due and Undisputed = No Consideration HYPO 2FF You owe MasterCard $3,000. The debt is due and undisputed. You and MasterCard orally agree that if you pay $2,000, MasterCard will forgive the rest of the debt. If you pay $2,000, can MasterCard recover the $1,000 balance?
YES. MC can make that promise and break it because there was no consideration. You already owed $3000. However, if you agreed to pay back the debt earlier, etc. then can liquidate for reduced sum.
HYPO 3W Vera Wang Design Studios sends Victoria's Bridal Shop a signed letter "confirming our earlier oral agreement over the phone for the sale of 9 gowns for $2,700." Victoria's Bridal Shop does not respond. Will Vera Wang's letter satisfy the SOF against Victoria's?
YES. Merchant confirmatory memo rule. Victoria will lose her SOF defense. Theory: reasonable merchant would have responded right away if the other merchant was committing a fraud. Would have protested that memo was wrong.
(2) What if I had ordered paint, but not yet started painting the house? Could Meg still revoke?
YES. Mere preparation to perform is NOT the start of performance. However, if there was foreseeable detrimental reliance, you might be able to make offer irrevocable.
(3) If I refuse to convey the Prius, can Bieber enforce the agreement against me? [TRICK Q!]
YES. Minor doesn't have to disaffirm; if they still want to go through with the deal, they have the right to. The other party can't unilaterally get out of the deal, only the minor.
(2) Cyrus alleges that Lil Nas X orally agreed to lease him a cabin for the next 2 years on the Oldtown Road Ranch. Is that covered by SOF?
YES. Most transfers of interests in land if for more than a year are subject to SOF. Doesn't have to be a sale of land.
Promisor's Liability To the Promisee HYPO 7C Can Calandrillo recover damages from Eddie Vedder if he doesn't sing for Chryssa as promised?
YES. Promisor breached. Either 3P beneficiary OR promisee can sue for breach.
HYPO 1C Jeff Bezos buys a toupee from Calandrillo for $400. Does Article 2 apply?
YES. Sale of goods.
HYPO 6A Seller contracts to sell an antique painting to Buyer, then breaches. Can Buyer get the painting from Seller?
YES. Specific performance because unique good.
HYPO 4P Barbri contracts to buy 3,000 donuts from Krispy Kreme Donuts, with Krispy Kreme to deliver 100 donuts here by 9 a.m. each of the 30 days the bar review course meets. Installment contract?
YES. The contract requires delivery in separate daily installments.
HYPO 4B Before J.Lo signed the lease, the manager told her the Grand Ballroom was soundproof. It's not. J.Lo seeks rescission because of this misrepresentation. Can J.Lo get this evidence in?
YES. The evidence is offered to establish a defense to enforcement.
HYPO 2F I offer my Prius to Beyoncé for $8,000 and promise I will keep my offer open for a week. Can I revoke?
YES. There's no consideration for promise to hold it open.
HYPO 4C J.Lo signs a lease for a ballroom. J.Lo says it was specifically for the Grand Ballroom. J.Lo has a fax from the Beverly Hills Hotel sent before the written lease supporting her claim. Can the court consider the fax?
YES. This fax will be included to interpret what the ambiguous term "ballroom" means. Not contradicting the writing, just explaining the term "ballroom." Exam Tip: Note: parol evidence can be oral or written.
HYPO 3I Piper claims that Alex promised to relinquish claims to her assets if she agreed to marry her. Is this promise within the SOF?
YES. This is a classic prenuptial contract in consideration of marriage. I will no go after your assets held prior to marriage. Why contracts in consideration of marriage? Because after the parties break up and hate each other, the court is worried about the potential for fraud. People lie about what they agree to do/not do.
HYPO 3O Bill Gates agrees to have me paint his house for $10,000. Jeff Bezos chimes in, "If Gates doesn't pay you, I will." Is Bezos's promise to pay me within the SOF?
YES. This is a suretyship. Bezos is a guarantor; backup if Gates doesn't pay.
HYPO 3G Ms. Williams rents to own a bunch of different items from a Washington, D.C. electronics shop—a TV for $300, a phone for $400, and a stereo for $500. After she has paid off $1,100 of the total $1,200 price tag, she misses her final installment payment, and the Seller repossesses everything in accordance with its rights under the fine print cross-collateralization clause of the contract that it made her sign in blank. Can Ms. Williams avoid the harsh consequences of this contract?
YES. UNCONSCIONABLE. Unfair surprise; oppressive terms. No court in good conscience can enforce these terms.
HYPO 2E On January 1, I offer to sell Gates my Prius for $8,000. The next day, while giving Barbri lectures, I exclaim, "I do not want to sell my Prius to Bill Gates." Can Gates still accept?
YES. Unless Gates is in the lecture he has no awareness of attempted revocation.
A small business owner decided to retire, so she offered her long-time employee a chance to buy the business for $1 million. She promised in writing to keep the offer open to him for 90 days and to give him enough time to secure financing once he accepted the offer. Over the next few days, the employee cashed out all his retirement accounts and took a second mortgage on his home to raise the funds to purchase the business. When he approached the business owner to discuss the details of the sale, she said that she changed her mind and was revoking her offer because she did not want to retire after all. Was the owner's revocation of her offer proper?
Yes, because it was an offer that could be revoked at will. The owner's revocation of her offer was proper because the offer could be revoked at will. Generally, offers can be revoked at will by the offeror, even if she has promised not to revoke for a certain period of time. There are limitations on the offeror's power to revoke, but none of those exceptions apply in this case. Detrimental reliance can limit an offeror's power to revoke where the offeror could reasonably expect that the offeree would rely to his detriment on the offer, and the offeree does so rely. However, this usually is limited to those situations in which the offeror would reasonably contemplate reliance by the offeree in using the offer before it is accepted; e.g., when a general contractor uses a subcontractor's bid in making its own offer. Here, the offer itself included a promise by the owner to give the employee time to secure financing after the offer was accepted. Therefore, the owner had no reason to anticipate that the employee would take immediate steps to raise the purchase money before he even accepted the offer.
A buyer of a new car owed the car dealership where she purchased the vehicle $1,000 on a promissory note that was due on December 30. The buyer determined that she would be unable to pay the note on its due date, and she informed the owner of the dealership of that fact. The owner told her that she would not have to pay the debt if she bought him four tickets to a popular concert on January 15 that had been sold out for weeks, because she worked as publicist for the concert venue. She agreed to do so, and the parties memorialized their agreement in a signed writing on December 18. On January 2, the dealership filed suit against the car buyer for failure to pay the $1,000 promissory note, before the car buyer had secured the concert tickets for the owner. May the car buyer have this action enjoined by introducing evidence of the December 18 agreement?
Yes, because the December 18 agreement between the parties suspended the car buyer's obligation on the promissory note. The car buyer may enjoin the dealership's action because the dealership currently does not have the right to enforce the promissory note. A valid accord, taken alone, does not discharge the prior contract. It merely suspends the right to enforce it in accordance with the terms of the accord contract. The performance of the accord agreement, which is called satisfaction, discharges not only the accord agreement but the original contract as well. Where the accord agreement is breached by the creditor by suing on the original contract, as is the case here, the debtor may seek to have the action enjoined by raising the accord agreement as an equitable defense.
A hotelier opening a new inn in the Pacific Northwest sent letters to all known hotel and motel suppliers on June 1, alerting them to his need for such items as ice buckets, televisions, linen, and mattresses. The hotelier received a signed letter dated June 8 from a hotel supply company, stating that the company had 250 ice buckets left in stock and will sell them to the hotelier for $1 each. The company added that it must receive the hotelier's answer by November 1 and will hold the ice buckets for the hotelier until then. On July 1, the company sold 200 of the ice buckets to a competing hotel chain, which had recently opened a hotel on the East Coast. On July 2, the company sent the hotelier a fax stating it had only 50 ice buckets left for sale. The hotelier received the fax that day, but put it aside and never read it. On July 10, the hotelier notified the company that he was accepting the company's offer to sell 250 ice buckets. The company, upon receiving the hotelier's acceptance, shipped the remaining ice buckets. The hotelier sues the company for failing to deliver all 250 ice buckets. Will the hotelier prevail?
Yes, because the company promised in a signed writing to hold the offer open. The hotelier will prevail. Ice buckets are movable goods; therefore, Article 2 of the UCC applies. The June 8 letter from the supply company is a firm offer under UCC section 2-205. No consideration is required, because the company is a "merchant" (i.e., one who ordinarily deals in goods of the kind sold) of ice buckets. Where a time period for the offer is stated, the period of irrevocability is that period, except that the period cannot exceed three months. Here, the three-month period would end on September 8. The company's fax stating that it had only 50 ice buckets left to sell constitutes an invalid attempt at revocation, because it is within the three-month period of irrevocability.
The owner of an old car parked it in front of his house with a "for sale" sign in the windshield. In response to an inquiry from his neighbor, the car owner said that he would take $400 for the car. The neighbor responded, "You've got a deal." Because it was a Sunday, and the banks were closed, the neighbor told the car owner that he would come to his house with the $400 the next day at about 6 p.m. The car owner said that was fine. At 9:15 the next morning, the car owner called his neighbor and told him that when they had talked the previous day, he forgot that he had just put two new tires on that car and that he would need an extra $50 to cover their cost. The neighbor agreed to bring $450 in cash to the car owner's house at about six o'clock. Is the neighbor legally bound to pay the car owner the additional $50?
Yes, because the contract, as modified, does not need to be in writing. The neighbor must pay the car owner the additional $50 because the parties have an enforceable contract. A contract for the sale of goods (the car) was formed when the neighbor said, "You've got a deal." The parties then orally agreed to a modification of the contract when the car owner called his neighbor the next morning. Under the Statute of Frauds provision in the UCC, which applies to all contracts for the sale of goods, a promise requires a writing signed by the party to be charged to be enforceable if it is for the sale of goods of $500 or more. Here, the contract as modified is under $500, so it is enforceable even though it is not in writing. PRE-EXISTING DUTY RULE DOESN'T APPLY BECAUSE A CAR IS A GOOD DUMMY!
On January 5, a creditor lent $1,000 to a debtor under a contract calling for the debtor to repay the loan at the rate of $100 per month payable on the first day of each month. On February 1, at the debtor's request, the creditor agreed to permit payment on February 5. On March 1, the debtor requested a similar time extension and the creditor replied, "Don't bother me each month. Just change the date of payment to the fifth of the month. But you must now make the payments by cashier's check." The debtor said, "Okay," and made payments on March 5 and April 5. On April 6, the creditor sold the loan contract to a bank, but did not tell the bank about the agreement permitting payments on the fifth of the month. On April 6, the bank wrote to the debtor: "Your debt to [the creditor] has been assigned to us. We hereby inform you that all payments must be made on the first day of the month." Can the debtor justifiably insist that the payment date for the rest of the installments is the fifth of each month?
Yes, because the creditor could assign to the bank only those rights the creditor had in the contract at the time of the assignment No rule exists that requires an assignee to have notice of any contract modifications for it to be effective against the assignee's rights; rather, the assignee becomes subject to all claims or defenses, known and unknown, upon effective assignment. When one person enters into a valid contract with a second person, this contract does not contemplate performance to or by a third party. However, if one of the parties seeks to transfer her rights and/or duties under the contract to a third party, this is called an "assignment." Generally, all contractual rights may be assigned, with several exceptions. An assignment establishes privity of contract between the obligor and the assignee while extinguishing privity between the obligor and the assignor (the original contracting parties). The assignee then replaces the assignor as the real party in interest, and he 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. The assignee will generally stand in the shoes of the assignor, which means the assignee will receive the rights subject to any defenses, set-offs, and counter-claims that the obligor could have asserted against the assignor. Generally, the modification of an existing contract in a way that solely benefits one party requires new consideration so that it is not simply the performance of a pre-existing duty, but a bargained-for modification to the original contract. A condition is an event that must occur before a party is required to perform under a contract. A condition may be express, meaning the parties agreed to it. Rest. 2d. 226. A condition may be waived by the party whose performance was conditional by performing even if the condition has not been fulfilled. When the creditor told the debtor on March 1 to date the checks with the fifth instead of the first going forward, and the debtor agreed, they modified their contract regarding when the payment was due each month. The creditor also instructed the debtor to make future payments with cashier's checks. In this agreement to modify the contract, the creditor benefitted from receiving cashier's checks going forward and the debtor benefitted from the later due date each month, which is sufficient consideration for the modification. Moreover, the creditor (assignor) assigned the debtor's (the obligor) debt to the bank (the assignee), and the assignee then stands in the shoes of the assignor. As such, any valid claims the obligor had against the assignor would also be enforceable against the assignee. The debtor can this justifiably insist on the later payment date with the bank.
A debtor owed $50,000 to a creditor. One week before the statute of limitations was to expire, the debtor's mother sent the creditor a letter stating that she was sure that her son was about to pay the debt, and that if her son did not pay, she would. Relying on the mother's letter, the creditor allowed the statute of limitations to expire without bringing an action to recover the money. The debtor refused to pay the creditor. If the creditor brings suit against the mother for the $50,000, will he prevail?
Yes, because the creditor reasonably and foreseeably relied on the mother's promise. The creditor will prevail. The mother made a gratuitous promise to the creditor; she received no consideration for it (she did not ask for anything in return for her promise). The creditor's reliance in allowing the statute of limitations to lapse was not exchanged for the promise. However, even without consideration, under section 90 of the Restatement (Second) of Contracts, the creditor could enforce the mother's promise because he reasonably and foreseeably relied on the promise in declining to sue the debtor within the limitations period.
A debtor owed a creditor $1,200 on a promissory note that was due on August 1. After the debtor told the creditor that he might not be able to pay the note on its due date, the creditor agreed to extinguish the debt if the debtor, who was the manager of a discount electronics store, bought a new entertainment system that sold for $1,200 and had it delivered to the creditor's home by August 15. Because the debtor would have to pay only $600 for the system due to his manager's discount, he agreed and the parties signed a written contract on July 26. Is the new agreement between the debtor and the creditor legally enforceable?
Yes, because the debtor incurred a different obligation than he originally had. The new agreement between the two parties is enforceable as an accord. An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that he is supposed to receive from the other party, some other, different performance. Generally, an accord must be supported by consideration, but the consideration may be of a lesser value than the originally bargained-for consideration in the prior contract, as long as it is of a different type or the claim is to be paid to a third party. Here, the debtor's obligation to provide the creditor with a new entertainment system was a sufficient new consideration to form a valid accord.
A small processor of specialized steel agreed in writing with a small manufacturer of children's toys that it would supply, and the manufacturer would buy, all of the manufacturer's specialized steel requirements over a period of years at a set price per ton of steel. Their contract did not include a nonassignment clause. Recently, the toy manufacturer decided to abandon its line of steel toys, so it made an assignment of its rights and delegation of its duties under the contract to a toymaker many times larger. The large toymaker notified the steel processor of the assignment and relayed to the processor its good faith belief that its requirements will approximate those of the assignor. Must the steel processor supply the requirements of the large toymaker?
Yes, because the large toymaker acted in good faith to assure the steel processor that its requirements will approximate those of the small manufacturer into whose shoes it stepped. The contract in this question is a "requirements" contract: The steel processor must sell the small manufacturer of children's toys all the specialized steel it requires for its toys. *Generally, the right to receive goods under a requirements contract is not assignable because the obligor's duties could change significantly. In fact, here, a significant change would seem possible because the large toymaker is a larger company than the small manufacturer and its needs could be greater. However, the UCC allows the assignment of requirements contracts if the assignee acts in good faith not to alter the terms of the contract.* [UCC §2-306] (The UCC applies here because goods are involved.) Thus, assuming the large toymaker's requirements remain about the same as the small manufacturer's requirements, the steel processor would be required to honor its contract, now assigned to the large toymaker.
A bakery owner entered into a one-year written contract with a chocolate chip manufacturer whereby the manufacturer agreed to ship to the bakery owner 5,000 pounds of premium chocolate chips on the first day of each month for $12,500 per shipment. When the bakery owner opened the first shipment of chips, he found that 60% of them had melted together. He immediately called the manufacturer and reported the breach. The manufacturer offered to send replacements, but the bakery owner refused the offer and canceled the entire contract. Will the manufacturer prevail in an action against the bakery owner seeking contract damages?
Yes, because the manufacturer had a right to cure. The manufacturer will prevail in an action for damages, because the manufacturer had the right to cure the defect and was prevented from doing so. In an installment contract, an installment can be rejected only if the nonconformity substantially impairs the value of that installment. Moreover, the installment contract as a whole is deemed to be breached only if the nonconformity substantially impairs the value of the entire contract. Here, the contract is an installment contract because the deliveries are to be made in separate lots at different times. The delivery of melted chocolate chips was the first of 12 deliveries that were to be made, and there is nothing in the facts to indicate that the manufacturer could not cure the problem with this delivery and with the rest of the deliveries for the year. Thus, the nonconformity did not substantially impair the value of the entire contract. As to this installment, the bakery owner must afford the chocolate chip manufacturer the right to cure, i.e., to send replacement chips as the manufacturer had offered to do, and his failure to allow the manufacturer to do so will result in the bakery owner's breach of contract. Thus, the manufacturer would prevail in an action for damages resulting from the breach. the "perfect tender" rule, which allows a buyer to reject goods if either the goods or the delivery fail to conform to the contract in any way, is not the rule for installment contracts. In installment contracts, a defective shipment cannot be rejected if the defect can be cured.
A shoe retailer ordered by telephone 12 pairs of dress shoes from a shoe manufacturer at its list price of $500 per dozen; delivery in 20 days. The manufacturer orally accepted the offer, and immediately faxed to the retailer this signed memo: "Confirming our agreement today for your purchase of a dozen pairs of dress shoes for $500, the shipment will be delivered in 20 days." Although the retailer received and read the manufacturer's message, he rejected the conforming shipment when it timely arrived. On learning of the rejection, does the manufacturer have a cause of action against the retailer for breach of contract?
Yes, because the manufacturer's faxed memo to the retailer was sufficient to make the agreement enforceable. The manufacturer has a cause of action for breach of contract. Because the contract was for goods priced at $500, the Statute of Frauds must be satisfied under UCC section 2-201. Because both the retailer and the manufacturer are merchants, a memorandum of the terms of the sale sent by the manufacturer to the retailer satisfies the Statute of Frauds unless the retailer objects within 10 days, which she did not do. [MERCHANT CONFIRMATORY MEMO!]
A man shopping for a leather jacket at a clothing store could not decide between two jackets, so the proprietor, who knew the man and his family well, let him take one of the jackets on approval. No mention was made by the proprietor of the method of payment he expected. The man wore the jacket on a visit to his grandfather, who liked it so much that when the man told him what the jacket cost and that he had taken it on approval, the grandfather said he would buy it for him if he promised to give some of his old clothes to a favorite charity for the poor at Christmastime. The man wholeheartedly agreed to donate the clothes to the charity at Christmas. Very pleased, the grandfather called the shop and told the proprietor to send the bill for the jacket to him, which he did. Before the bill was paid and before the Christmas season arrived, the grandfather fell ill and died. The grandfather's executor has refused to pay the bill, and the man has not yet given any old clothing to the charity. Will the proprietor be able to recover the price of the jacket from the estate?
Yes, because the proprietor was the intended beneficiary of the promise between the man and his grandfather. The proprietor can recover the cost of the jacket from the grandfather's estate because the proprietor is an intended third-party beneficiary and his right to enforce the contract has vested. The rights of an intended third-party beneficiary 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 his position in justifiable reliance on the promise. Here, the proprietor qualifies as an intended beneficiary of the agreement between the man and his grandfather because the proprietor was expressly designated in the contract, he was to receive performance directly from the grandfather, and he stood in an existing contractual relationship with the man that required the man to either pay for the jacket or return it, making it likely that the young man's purpose in making the arrangement with his grandfather was to satisfy the obligation to the proprietor. The proprietor can enforce the contract because his rights vested when he sent the bill to the grandfather at the grandfather's request. Thus, the proprietor will prevail against the grandfather's estate.
An insurer offered a plan to cover an insured's catastrophic illnesses for the remainder of the insured's life in exchange for a large one-time payment at the inception of coverage. Because the program was experimental, the insurer would accept only a fixed number of applications during the enrollment period. A recent retiree in good health was one of the applicants accepted, and he enrolled in the program. He paid the one-time premium of $30,000 a few days before coverage began. The day after his coverage started, he was struck by a bus and killed. The executor of the retiree's estate reviewed the policy and immediately notified the bank to stop payment on it. The insurer then filed suit against the retiree's estate. Will the court compel the estate to pay the premium to the insurer?
Yes, because the risk of the timing of the retiree's death was assumed by both parties and built into the cost of the contract. In entering into the contract, the possibility that the retiree would die shortly after paying the premium and therefore receive virtually nothing in return should have been apparent to both parties. Actually, both parties took risks in this regard, as the retiree could have incurred medical expenses for a catastrophic illness during his lifetime that would have required the insurer to make payments far exceeding the one-time $30,000 premium. The retiree and the insurer were equally aware of these various possibilities, yet they freely entered into an agreement with this knowledge and on terms that were apparently acceptable to each of them. Despite the apparent unfairness of the result, a court generally will not interfere with the parties' right to make their own deal. Thus, the insurer is entitled to the premium.
Replevin is
a buyer's right to replevy (recover) undelivered, identified goods from a seller under certain circumstances. Replevin will lie only in cases with identified goods.
Express Contractual Provision Against Assignment
a clause prohibiting assignment of *"the contract"* will be construed as barring ONLY delegation of the assignor's duties. A clause prohibiting assignment of *"contractual rights"* generally does NOT bar the assignment, but rather merely gives the obligor the right to sue for damages. HOWEVER, if the contract provides that attempts to assign *will be void*, the parties can bar assignment. Also, if the assignee has notice of the nonassignment clause, an assignment will be ineffective.
COMPARE - CONTRACTS TO BUILD
a contractor's duty to *construct* a building is NOT discharged by destruction of the work in progress. ---Not entitled to anymore payment than contract price 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 CONTRAST: a contract to repair/remodel is discharged by the building's destruction, because there's nothing left to repair. To the extent the contractor has begun he is entitled to restitution
PROMISEE VS. PROMISOR
a promisee may sue the promisor both at law and in equity for specific performance if the promisor is not performing for the 3P
EXCEPTION #2 to Past Consideration Rule If a past act benefited the promisor and was performed by the promisee at the proisor's request OR in response to an emergency, ...
a subsequent promise to pay for that act will be enforceable
Seller's Ability to Force Goods on Buyer Limited to...
an action for price when the seller is unable to resell the goods to others at a reasonable price
Laches is
an equitable defense involving an unreasonable lapse of time in asserting a right that prejudices the defendant. It can be raised to defend an action for specific performance; the breaching party would argue that the other party delayed too long in bringing the specific performance action, and the delay caused prejudice against the breaching party.
Remember, the 3 month limit on merchant firm offers
applies ONLY to offers not supported by consideration. If there's consideration, it's an option contract, and can be held open for as long as the parties specify.
TERMS: GENERAL PRINCIPLES Contracts will be construed...
as a whole; specific clauses will be subordinated to the contract's general intent
Rejection of Option
b/c an option is a K 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 free to accept the original offer within the option period unless the offeror has detrimentally relied on the rejection
Excuse of Condition by Actual Breach
breach will excuse the duty of counterperformance; but ONLY if the breach is MATERIAL. A minor breach may suspend the duty, but will not excuse it
*Restitution of Advance Payments or Deposit if Buyer of GOODS Breaches*
buyer usually can recover 20% of purchase price or $500, whichever is less (unless seller proves greater damages) ---If valid liquidated damages clause, the seller need refund only the excess of the buyer's payments over the amount of liquidated damages
In a single delivery contract, when a buyer rejects goods due to defects, the seller may cure within the time originally provided for performance in the contract:
by giving reasonable notice to the buyer and making a new tender of conforming goods, which the buyer must then accept. If the new tender of conforming goods is made within the time originally provided for performance, the buyer does not have the option to accept or reject the goods. The buyer must accept the conforming goods.
Requirements/Outputs Contracts (Article 2)
can have a valid offer/contract even if you don't know exact quantity. Can contract for all of seller's outputs or all of buyer's requirements. Must be in good faith. Thus, there may not be a tender of or demand for a quantity *unreasonably disproportionate* to (1) any stated estimate, or (2) in the absence of an estimate, any normal or otherwise comparable prior output/requirements
Excuse of Condition by Prospective Inability/Unwillingness to Perform
conduct or words that raise doubts and give reasonable grounds to believe that the other party is unable or unwilling to perform Party with reasonable doubts may suspend further performance on her side until she receives *adequate assurances* that performance will be forthcoming. ---If the party fails to provide assurances, the innocent party may be excused from her own performance and may treat the failure to provide assurances as a repudiation *Retraction of Repudiation* - must be communicated to innocent party to be effective
Shipment of Nonconforming Goods
constitutes both an acceptance and a breach by the seller, UNLESS the seller notifies the buyer that the nonconforming foods are an accommodation, not an acceptance The buyer is not required to accept and may reject them. If he does, the shipper is not in breach and may reclaim the accommodation goods, because her tender does not constitute an acceptance of the buyer's original offer. TIP: Remember that the accommodation shipment rule applies ONLY when shipment is used as a form of acceptance. Watch out for a fact pattern in which a party accepts an order by promise to ship, and then ships nonconforming goods. This is a BREACH NOT ACCOMMODATION. There was a contract and promise to ship; the shipment was NOT the acceptance, thus accommodation is not possible.
Reliance damages
contract damages placing the injured party in as good a position as she would have been in had the contract not been made. Usually if expectation damages uncertain, impossible to know.
Employment Contracts: Breach by Employee (If NOT at-will employment scenario where either side can terminate employment without breach)
cost of replacing employee (the wages the employer must pay to a replacement employee minus the breaching employee's wages). The breaching employee may offset money owed for work done to date.
UNCONSCIONABILITY
empowers a court to refuse to enforce all or part of an agreement (or to modify agreement) to avoid unfair terms, usually due to some unfairness in the bargaining process (procedural unconscionability) ---Unfair price alone is not a ground for unconscionability The two basic tests, *unfair surprise* and *oppressive terms*, are tested *as of the time the agreement was made* by the court. *Exam Tip* - is the Bar favorite: long term contract that now looks one-sided => NOT unconscionable. Unconscionability is tested at the time of contract formation.
Two brothers who were certified public accountants worked together at a large accounting firm practicing their chosen profession. The older brother was concerned about his younger brother's apparent inability to show up at his job by 9 a.m. each morning, sober and clear-eyed. One day, after the younger brother showed up late for work yet again, the older brother told him that if he would show up at the office sober and ready to work by 9 a.m. each morning for the next 10 months, he would pay him $15,000 at the end of that time. The younger brother accepted the offer and complied with its terms from that day forward. Nine months later, the older brother died unexpectedly. One month after that, the younger brother filed a claim with his brother's estate for the $15,000. Will the younger brother prevail in his claim?
es, because he has performed under a valid contract, and thus his brother's estate must now perform. The younger brother will prevail because he has performed under a valid contract. He entered into and performed a valid unilateral contract with his brother, who offered to give him $15,000 if he showed up at the office sober and ready to work by 9 o'clock each morning for the next 10 months. He accepted by fully performing; his giving up the right to do something that he had a legal right to do constitutes valid consideration. Because the younger brother fully performed his duties under the contract, the older brother's estate is bound to perform his duties and must now pay him.
Effect of Assignment
establishes privity of contract between the obligor and the assignee while extinguishing privity between the obligor and the assignor. Once the obligor has knowledge of the assignment, he must render performance to or pay the assignee. If the obligor renders performance to or pays the assignor, he does so at his own risk. Typically, one of the parties (usually the assignee) will notify the obligor of the assignment.
Right to Choose Alternative Courses A promise to choose one of several alternative means of performance is illusory UNLESS
every alternative involves legal detriment to the promisor. The promise will NOT be found illusory if: 1) at least one alternative involves legal detriment and the power to choose rests with the promisee or a third party; OR 2) a valuable alternative (actual legal detriment) is actually selected
Good faith and fair dealing
every contract within the UCC imposes an obligation of good faith in its performance and enforcement. "Good faith" is honesty in fact and the observance of reasonable commercial standards. The common law also imposes a duty of good faith and fair dealing. A breach of this duty usually involves exercising discretion in a way that deprives the other party of the fruits of the contract.
warranties
express and implied guarantees made by a seller that an article, good or service will conform to a certain standard or will operate in a certain manner can get *damages based on* 1) difference between what they are worth in their actual state vs. promised state under warranty. 2) another option: send it back and get new goods (cure), OR 3) return the good and sue for cost of cover
OFFERS: Language such as "I quote" or "I am asking $30 for..." "I would consider selling for" are merely invitations to offer, NOT offers. *Although price quotes generall are not offers, they can be if...*
given in response to an inquiry that contains a QUANTITY term.
Insurable Interest and Identification A buyer often bears the risk of loss before receiving the goods purchased. In order to aid buyers in this situation, Article 2 ...
gives buyers a special property interest in goods as soon as they are identified as the ones that will be used to satisfy the contract (i.e. as soon as the seller sets them aside for the buyer) This special property interest is insurable
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
Discharge by Frustration of Purpose
if the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge. If the purpose has been frustrated some courts will discharge duties even if performance is technically possible.
When 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.
Typically an Ad is not an offer but instead an
invitation to deal
Excuse of Conditions by Impossibility, Impracticability, or Frustration of Purpose
is allowed!
PERFORMANCE OF CONTRACTS FOR A SALE OF GOODS (ARTICLE 2) *4) Buyer's Acceptance of the Goods*
must get a reasonable opportunity to inspect the goods. Watch out of Implied Acceptance: Buyer keeps goods after having an opportunity to inspect them.
indirect revocation
offeree gets information from a reliable 3P indicates that the offeror is no longer willing or able to contract
if offeree sends acceptance, then sends rejection, the acceptance is effective UNLESS
offeror acted in detrimental reliance upon rejection. Then the offeree estopped from enforcing contract
Unilateral Mistake
only one party is mistaken -generally NOT a defense to K enforcement - EX: 3 electricians, one makes computational error on bid Can't get out of it unless so obvious non-mistaken party knew or should have known (must have a material effect on agree-upon exchange the mistaken party must not have borne the risk
Part Performance Prior to Impossibility
party that partially performed will have a right to recover in quasi-contract at the contract rate or for the reasonable value of his performance
Revocation is effective when ....
received. Where revocation is by publication, it is effective when published. TIP: Written communication is "received" when it is delivered to a place of business through which the contract was made or another location authorized to receive this type of communication. It does NOT matter whether the recipient actually reads the communication. Courts will likely apply the same rules to phone messages.
Material Breach of Divisible Contract
recovery is available for substantial performance of a divisible part even though there has been a material breach of the entire contract
Employment Contracts: Breach by Employer (If NOT at-will employment scenario where either side can terminate employment without breach)
regardless of time of breach (before, during, after employment), standard measure is *full contract price* (can be reduced in employee fails to mitigate)
REFORMATION
remedy by which a written instrument is corrected when it fails to express the actual intent of both parties because of fraud or mistake *Mistake* - reformation requires: (1) agreement between parties, (2) agreement to put the agreement in writing, and (3) a variance between the original agreement and the writing. *Misrepresentation* - P can choose between reformation and avoidance. Must relate to the writing, NOT the subject matter (rescission and damages are proper remedy) NOTES: - Negligence does NOT bar (EX: failure to read record of agreement) - Clear and convincing evidence required to establish variance - PER and SOF do NOT apply DEFENSES: equitable defenses and BFP; or if 3P rights unfairly affected
EXCUSE FOR NONPERFORMANCE 5.2 ANTICIPATORY REPUDIATION
repudiation made in advance of the time for performance of the contract obligations An assertion or action by a party indicating that he or she will not perform an obligation that the party is contractually obligated to perform at a future time. *Provides an excuse unless the repudiation is retracted and unless it hasn't been relied upon yet* After anticipatory repudiation, injured party can: a) suspend her own performance obligations b) can sue immediately for breach. However, AR CAN be retracted so long as they have not been relied upon.
perfect tender rule
standard under the UCC that a seller's performance under a sales contract must strictly comply with contractual duties and that any deviation discharges the injured party
tender of goods
telling the buyer where the goods are and how to get them. Making goods available to buyer.
Acceptance sent first, then a rejection...
the acceptance is effective (mailbox rule applies), UNLESS THE REJECTION ARRIVES FIRST AND THE OFFEROR DETRIMENTALLY RELIES ON IT.
Dissaffirmance
the act of a minor to rescind a voidable contract under the infancy doctrine; may be done orally, in writing, or by the minor's conduct. EX: Sally, 16-year-old, can buy a car, drive it for a year, crash it, have it stolen, then disaffirm the contract and get a full refund up to age 18 (or a reasonable time after) If minor doesn't disaffirm within a reasonable time of reaching age of majority (month or two), minor is bound. Contract solidifies and is no longer voidable. EXCEPTION: Contracts for necessities/necessaries can be disaffirmed, but minor MUST PAY FOR THE VALUE OF BENEFIT RECEIVED (not necessarily contract price). Things minor needs to survive such as clothes, medicine, food, shelter, medicine. -EX: Can't take food packaging back and try to disaffirm.
A shipment contract is presumed unless ...
the contract clearly indicates otherwise—look for "FOB" (stands for Free on Board) followed by a city name. ----Risk of loss passes to buyer at the named location. -FOB followed by Seller's city = Shipment K -FOB followed by any other city = Destination K
Breach of accord/satisfaction by DEBTOR
the creditor may sue either on the original undischarged contract OR for breach of the accord agreement
Discharge by Cancellation
the destruction or surrender of a written contract will not usually, by itself, discharge the contract. If, however, the parties manifest their intent to have these acts serve as a discharge, it will usually have this effect if consideration or one of its alternatives is present
TERMS: GENERAL PRINCIPLES Ambiguities in a contract are construed against
the drafter; absent evidence of the intention of the parties
MONETARY REMEDIES (DAMAGES): *Expectation Damages*
the money required to put one party in the position she would have been in had the other side performed the contract "Compensate" for lost expectation. Expectation damages are the general rule. EX: Hairy-hand case. Surgery goes wrong. Doctor argues patient's hand was already messed up, should just get the difference in value between his current and previous condition. COURT: No. Expectation damages. Purpose of contract law is to place person in place they expected to be under contract. Here, value of expected hand minus whatever use he still had in hand.
termination of offer through lapse of time
the offeree must accept the offer within the time period specified in the offer, or if no time is specified, within a reasonable time or the offer is TERMINATED. Be suspicious of any offer not accepted in 30 days
Exception to Incapacity Defense An incapacitated party is liable for necessaries (i.e., food, shelter, clothing, or medical care), but only for
their reasonable value in restitution, NOT the contract price! Also statutory exceptions in many states for student loans, insurance contracts, agreements not to reveal an employer's proprietary info
A debtor's offer to make a partial payment on an existing debt will suffice for an accord and satisfaction if
there is a bona fide dispute as to the underlying claim or there is otherwise some alteration, even if slight, in the debtor's consideration. *Check Tendered as "Payment in Full"* ---If a monetary claim is uncertain or subject to a bona fide dispute, an accord and satisfaction may be accomplished by a good faith tender and acceptance of a check when that check (or an accompanying document) *conspicuously states* that the check is tendered in *full satisfaction* of the debt.
Warranty of Title
title is good, transfer rightful, no liens or encumbrances Arises by sale of goods from ANY seller. Disclaimer: by specific language or circumstances showign seller does not claim title
Nominal Damages
token damages ($1) when breach is shown but no actual loss is proven
Unilateral Rescission
when one party to the contract desires to rescind it but the other party desires that the contract be performed. In order to rescind, the party must have adequate legal grounds, such as mistake, misrepresentation, duress, and failure of consideration. If the other party refuses to grant rescission, the other party may file an action in equity to obtain it.
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 binding estoppel waiver. NOTE: The promise to waive a condition may be retracted at any time BEFORE the other party has changed his position to his detriment