Ca Bar Exam - Contracts

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I. BEGINNING OF FORMATION OF CONTRACT

Merchant

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1) Deals in goods of the kind;

2) Holds self out by occupation as having knowledge or skill peculiar to goods;

3) Knowledge or skill attributed by person's employment of intermediary that holds itself out by occupation as having knowledge or skill.

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Offer

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1) Promise, undertaking or commitment;

2) Definite and certain terms;

3) Communicated to offeree

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Offer - Advertisements

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Usually only an invitation to deal

**Only considered an offer if specific as to quanitity, price, performance and who can accept.

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Revocation of Offer

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1) Generally, can revoke anytime prior to acceptance.

2) Effective on receipt (possession only, no mailbox rule)

3) Communicates to offeree or acts inconsistenly and offeree receives correct info from reliable source.

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Irrevocable Offers

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Option K: Must be $ paid or consideration to keep open.

Merchant's firm offer:

1) Signed writing w/ intent to keep open

2) No consideration needed

3) Held open for time stated or reasonable time

4) if no consideration, held open for 90 days.

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Rejection of Offer

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1) intent not to accept

2) Effective upon receipt

3) Can be express or counteroffer

4) Rejection of option does not terminate unless offeror detrimentally relies.

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Acceptance

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Assent to terms of the offer, communicated to the offeror

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Acceptance - Unilateral v. Bilateral

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Unilateral required performance. Must give notice if offeror requests it.

Bilateral requires promise.

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Acceptance - Common Law

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Mirror image or else counteroffer.

**Make sure it is a counteroffer and not just an inquiry** "would you consider...?"

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Acceptance - UCC 2-207 Add'l terms

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1) Add'l terms valid unless made conditional on assent.

2) if merchants valid unless, a) add'l terms materially alter k, b) offer limits acceptance to terms of offer, c) offeror objects in reasonble time

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Acceptance - UCC 2-206

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A prompt promise to ship or shipment of conforming or nonconforming goods is acceptance, unless nonconforming goods are sent as an accomidation

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Acceptance - Mailbox Rule

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Effective upon dispatch unless:

1) Offer expressly states otherwise;

2) Option k, effective on receipt;

3) Rejection v. acceptance, whichever arrives first or acceptance wins if dispatched first.

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Consideration

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1) Bargained for exchange

**No gifts or past moral consideration**

2) Legal detriment

**Legal duty to do or not to do something

**No consideration if already had a pre-existing duty to perform** (look up exceptions)

3) Forebearance to sue if suit based on good faith

4) Illusory promises

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Substitute for Consideration

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1) Merchants firm offer

2) Modifications to UCC

3) Promissory estoppel

4) Promises to pay obligations barred by law.

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Formation Defenses (DIM SUM)- Duress & Incapacity

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Duress: Person voids, economic void if there is wrongful conduct

Incapacity: Under 18yo, Mentally imcompetent, intoxicated (can't understand nature of k)

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Defenses - Mistake and Ambiguity

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1) Mutual mistake of material fact is voidable

2) Unilateral mistake is voidable IF other party knew or should have known.

**No defense if AOR**

Ambiguity of term is defense, unless 1) both parties had same meaning in mind, 2) one party known or should have that other party had diff meaning in mind

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Defense - SOF (MY LEGS)

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**Goods over $500 no writing if 1) specially manufactured goods, 2) written confirmation by merchant 3) admission 4) part performance

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Defense - Merchants confirmatory memo

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No need to have signed writing by party to be charged if memo is sent confirming K, receipient had reason to know of contents and does not object w/in 10 days or receipt.

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Defense - Unconscionabilty

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Procedural: Unfairness in bargaining process

Substantive: Term unreasonably one-sided or against public policy, unleass term is reasonably to protect legitimate interest.

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Defense - Misrepresentation/Fraud

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Fraud in execution: Void

Misrep/fraud to induce: Voidable

**Contract is void if consideration or subject is illegal**

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II. BEGINNING OF TERMS OF CONTRACT

Parol Evidence

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Evidence of a prior or contemporaneous negotiation or agreement that contradicts, modify, or vary terms of K is inadmissible if the written K is intended as a complete and final expression of the parties.

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Parol Evidence Add'l Term

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Where writing is final, but not complete, parol evidence is admissible to add term.

**Can't be fully integrated (if parties intended term to be part of k, would they have put it in?)

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Parol Evidence is admissible to:

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1) Prove a defense

2) Prove a condition precedent

3) Prove problems w/ consideration

4) Prior valid agreement which is incorrectly reflected in the writing

5) A collateral agreement if it doesnt contradict

6) Subsequent modification

7) Interpret the terms

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Modification - Common Law

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**Consideration is needed to modify**

Can be modified orally even if K forbids it b/c oral modification is interpreted as contemporaneously modifying the no-oral-mod. provision

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Modification - UCC

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**No consideration needed to modify in good faith**

An oral mod. is not enforceable if K forbids it unless the aggreived party has relied on oral mod.

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III. THIRD PARTY RIGHTS

Third Party Bene's

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Two parties contract w/ mutual shared intent to benefit 3rd party.

Must be intended, not incidental

1) Identified in promise;

2) Receives performance; OR

3) Has relationship w/promisee indicating intent

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Third Party Bene's - Vesting

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Rights vest when:

1) Manifests intent to the promise;

2) Brings suit to enforce; OR

3) Materially changes position on reliance on promise.

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Third Party Bene's - Who can sue

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1) 3PB vs. Promisor (promisor can raise defense he had against promisee)

2) 3PB vs. Promisee (Creditor can sue on old debt; Donee cant sue unless DR

3) Promisee v. Promisor

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Assignment of RIghts

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Can assign just about any K as long as it is not prohibited by law and does not substantially change obligor's risk.

**Assignment of right to service is substantial change**

If K restircts assignment, assignee must be aware of restiction clause.

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Assignment - Revocability

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Revocable: Gratuitous assignement unless in writing, performance rendered or DR.

Irrevocable: Assignment for consideration

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Assignment - Subsequent Assignments

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Step 1: Eliminate al invalid assignments

Step 2: If there is assignment for consideration, eliminate gratuitous assignment

Step 3: First assignment for consideration wins

Step 4: If only gratuitous assignments, last one wins

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Delegation of Duties

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Generally all duties can be delegated EXCEPT:

1) Duties involving personal skill or judgment

2) Change in obligee's expectancy

3) Contractual restriction

4) Legal restriction

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Delegation of Duties - Liability

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1) Delegator remains liable

2) Delegate liable if he assumes the duty

3) Assignment of K or rights under the K construed to include delegation and assumption of duties

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Novation

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Substitutes a new party for an original party to the K and requires assent of all parties and completely release original party

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IV. PERFORMANCE

Conditions

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An event, the occurence or non occurence of which will create, limit or extinguish the absolute duty to perform

**If condition is not in control of promisee, the courts will construe as a promise and not a condition**

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Satisfaction of Conditions

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Express - literal compliance

Personal satisfaction - good faith

Constructive condition - substantial performance

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Excuse of Conditions

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1) Failure to cooperate/prevention

2) Voluntary disablement - engaging in conduct making him unable to perform

3) Waiver or estoppel

4) Breach of K

5) Substantial performance

6) Impossibility, impracticability, FoP

And....

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Excuse of Conditions - ...Anticipatory Repudiation

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Unequivocal repudiation of K before performance is due.

**Applies only to bilateral K**

**Can be retracted unless accepted or relied on**

Nonrepudiating party may:

1) sue immediately

2) suspend performance and wait to sue

3) treat as offer to rescind and discharge K

4) Ignore and urge performance

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Excuse of Conditions - ...Divisibility

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In order for performance under a K to be divisible:

1) Performanceof each party divided into two or more parts;

2) No. of parts due from each party is same;

3) Performance of each part by one party is agreed equivilant of corresponding part by other party

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Discharge of Duties - By the parties

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1) Modification of K

2) Recission of K

3) Novation

4) Accord and Satisfaction

5) Release

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Discharge of Duties - By the parties - Accord and Satisfaction

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Accord is an agreement to accept a different performance

**Requires consideration or a BFP**

Satisfaction is performance of the accord

**Discharges accord and original K**

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Discharge of Duties - By unforeseeable events - Impossibility

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1) Death or physical incapacity (unless servies can be delegated)

2) Illegality

3) Destruction of subject matter

**Under UCC, buyer does not bear ROL unless seller has completed performance of delivery**

(Look up rules for determining who bears ROL when seller is a merchant or not a merchant and goods are being shipped by common carrier)

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Discharge of Duties - By unforeseeable events - Impracticability

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Extreme and unreasonable difficulty and/or expense the non occurence of which was a basic assumption of the parties.

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Discharge of Duties - By unforeseeable events - FoP

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Unforeeable supervening event that destroys the purpose or value of the contract, and the purpose was understood by both parties when the contract was made.

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Material Breach (Common Law)

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Nonbreaching party does not receive substantial benefit of his bargain. Measure by:

1) Amount of benefit received

2) Adequacy of compensation

3) Extent of part performance

4) Hardship to breaching party

5) Negligent or willful behavior

**Material if time is of the essence**

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Material Breach - Aggreived party may...

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1) Treat the K at an end

2) immediate right to all remedies for breach of K

3) Any duty of counterperformance is discharged

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Breach - Perfect Tender (UCC)

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If goods or delivery fail to conform to contract in any way, buyer generally may reject all, accept all, or accept any commercial units and reject the rest.

**If seller has reason to think that non conforming goods will be accepted b/c of past dealings, buyer must give reasonable time to cure even if past time for performance**

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Minor Breach

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Aggreived party may recover damages, but he must still perform under the K.

**Minor if time is NOT of the essence**

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V. REMEDIES

Common Law - Damages

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Compensatory

1) Expectation (benefit of the bargain)

2) Reliance (cost of P's performance)

3) Consequential (other losses reasonably foreseeable)

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Common Law - Damages - Liquidated Damages

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Damages must be difficult to ascertain at time of formation and amount agreed upon must be reasonable forecast of compensatory damages.

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Common Law - Damages - Duty to Mitigate

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Non breaching party has a duty to mitigate damages. Damages will be reduced by amount that might have been mitigated.

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Common Law - Damages - Land Sale K

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Difference between the K price and FMV

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Common Law - Damages - Employment K

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Employer breach - Full contract price

Employee breach - cost to replace employee

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Common Law - Damages - Construction K

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Owner Breach:

1) Before construction - Builders prospective profits

2) During construction - K price minus the cost of completion

3) After completion - Full k price plus interest

Builder breach:

1) Before or during - Cost of completion plus compensation for delay

2) Late completion - value of lost use

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UCC - Damages - Nondelivery/rejection/revocation

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K price minus market price or cost of buying replacement goods if need to cover

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UCC - Damages - Nonconforming goods

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If goods are non conforming buyer can:

1) reject, cancel cand sue

2) Accept part and reject part, cancel K and sue.

3) Value of goods delivered minus value if they would have conformed.

**Once accepted buyer cannot reject, but can sue**

**If nonconforming BUT there is an accomidation then it is a counteroffer**

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UCC - Seller Damages

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1) Difference between K price and resale price

2) Difference between K price and market price

3) Lost profits

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Restitution

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Prevents unjust enrichment; measure is value of benefit conferred, not loss.

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Equitable Relief - Specific Performance

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1) Valid K

2) Satisfaction of P's conditions/performance

3) Inadequate remedy at law

4) Feasibility

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Equitable Relief - Recission

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K voidable/rescinded if mutual mistake of material fact, unilateral mistake that other party knew or should have known or extreme harshipl misrep of material factor, or duress, UI, illegality, incapacity, or faliure of consideration

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Equitable Relief - Reformation

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Writing changed to conform to parties' original intent if mutual mistake, unilateral mistake and party knows of it and does not disclose, or misrep