Contracts

Front 1

Contracts Framework

Back 1

Eight Questions - Key Issues
(1) Applicable Law
(2) Contract Formation
(3) Statute of Frauds
(4) Terms of the Contract
(5) Performance
(6) Excuses for Non-Performance
(7) Remedies for Breach
(8) Third-Party Problems

Front 2

Key Issue #1 - Applicable Law
(What body of law applies?)

Back 2

MBE - Article 2 of UCC and Common Law

MEE - Article 2 of UCC

MSE - Article 2a of UCC and Common Law

Front 3

Article 2 applies to:

Back 3

Sale of Goods (moveable, personal property)

regardless of who parties are and what K price is

Front 4

Common Law applies to:

Back 4

all other contracts.

Front 5

Mississippi tests Article 2a, which governs:

Back 5

Lease of Goods (NOT real property)

Front 6

Key Issue #2 - Contract Formation

Back 6

Is there a valid contract? (legally enforceable agreement)
(1) Was there an offer?
(2) Was the offer terminated?
(3) Has the offer been accepted?
(4) Are there any defenses against formation?

Front 7

What is a contract? (definition)

Back 7

A contract is a legally enforceable agreement.

Can be express (words) or implied (conduct)

Front 8

Quasi-Contract

Back 8

or Equitable Estoppel or Restitution (Unjust Enrichment)

Equitable remedy that protects against unjust enrichment whenever contract law yields an unfair result. Remedy of last resort.

Recovery - Reasonable value of benefit conferred, NOT contract price.

Front 9

How can an offer be accepted?

Back 9

Bilateral contract (flexible) - Offer can be accepted in any reasonable way.

Unilateral Contract (inflexible) - Offer can be accepted ONLY by PERFORMING.

Front 10

Unilateral Contract

Back 10

Definition: A contract in which only one party makes a promise or undertakes a performance.

Two MBE fact patterns given rise to unilateral K:
(1) Express Offer
(2) Reward, Contest, or Prize Offer

Front 11

Bilateral Contract

Back 11

A contract in which each party promises a performance, so that each party is an obligor on that party's own promise and an obligee on the other's promise.

Front 12

Bar Exam Tip:

Back 12

Look FIRST for an agreement (an offer that's been accepted) - THEN see if it's legally-enforceable.

Front 13

First Step of Agreement Process: Was there an offer?

Back 13

Offer definition - A manifestation of an intention to be bound.

Front 14

Advertisement

Back 14

General Rule - an advertisement is NOT an offer.

Exception: UNLESS it specifies the quantity.

Front 15

Indefiniteness

Back 15

See if any of the terms are too indefinite to enforce:
(1) Quantity - Article 2 Requirements Contracts - Definite enough, event hough there's no specific quantity mentioned. ("B offers to buy 'all its requirements' from S for six years for $1/can.") NOTE - cannot demand a quantity that is way out of line with its previous requirements. UNFAIR.

(2) Open Price - the court will read in a REASONABLE PRICE EXCEPT in a contract for sale of real property.

Front 16

Second Step of Agreement Process: Was the Offer Terminated

Back 16

4 ways to terminate offer:
(1) Lapse
(2) Revocation
(3) Rejection
(4) Death of a Party Before Acceptance

Front 17

Lapse

Back 17

An offer lapses after a STATED TERM or after REASONABLE TIME has passed.

Front 18

Revocation

Back 18

An offer terminates when the offeror REVOKES the offer.

General Rule - An offer can be revoked any time before acceptance. How? 2 ways:
(1) Direct Revocation
(2) Indirect Revocation

4 Exceptions to General Rule: (So 4 ways Irrevocable)
(1) Option
(2) Foreseeable Reliance Before Acceptance
(3) Starting to Perform a Unilateral Contract
(4) Article 2 Firm Offer

Timing - Revocation of an offer is ONLY effective upon RECEIPT. (NO mailbox rule)

Front 19

Direct Revocation

Back 19

The offeror indicates directly to the offeree that he has changed his mind about the deal.

Front 20

Indirect Revocation

Back 20

(1) The offeror engages in conduct that indicates he's changed his mind AND (2) the offeree is AWARE of the conduct.

Front 21

Option

Back 21

Exception #1 to general revocation of acceptance rule (in other words - offer cannot be revoked or is irrevocable)

Definition - An option is a promise to keep the offer open that is paid for (valid consideration).

Front 22

Foreseeable Reliance Before Acceptance

Back 22

Irrevocable Offer #2 (Exception #2 to Revocation):

Generally, an offeror expects offeree to accept first and then rely. If rely first, then not protected b/c it was not foreseeable. However, in rare cases (usually construction), reliance before acceptance does make offer irrevocable because offeror KNOWS that offeree is going to rely on the offer before acceptance. (subcontractor and contractor)

Front 23

Starting to Perform Unilateral Contract

Back 23

Irrevocable Offer #3 - Once offeree starts to perform, offeror can no longer revoke (b/c a unilateral contract can only be accepted by performance).

Front 24

Article 2 Firm Offer

Back 24

Irrevocable Offer #4 - In a sale of goods, if
- a merchant
- promises in a signed writing
- to keep an offer OPEN,
then the offer is irrevocable.

NOTE - almost every business person is a merchant under Article 2's broad definition.

Letterhead enough for "signed writing"

Also, a firm offer has 3 month (90 day) time limit. Even if time not included, offer will be firm for a reasonable time not to exceed 3 months.

TRICK - watch out for things looking like firm offer that is missing PROMISE TO KEEP OFFER OPEN. All elements MUST be there.

Front 25

Rejection

Back 25

An offer terminates when the offeree rejects it ("inappropriate response").

3 ways -
(1) Counteroffer
(2) Conditional Acceptance
(3) Acceptance Varying Offer
(a) Common Law Mirror Image Rule
(b) Article 2 - NO mirror image

Front 26

Counteroffer

Back 26

Operates as a rejection (a statement), but mere bargaining does not (a question).

Front 27

Conditional Acceptance

Back 27

Making an offer conditional upon acceptance ("on the condition that/ provided that/ so long as/ if") operates as a rejection.

Front 28

Acceptance Varying Offer

Back 28

Common law differs from Article 2.

Common Law - Acceptance MUST mirror offer ("mirror image rule") - no varying or it will act as rejection.

Article 2 - An acceptance need not mirror the offer.
(1) NO mirror image rule: The offeree's adding or changing a term DOES NOT prevent acceptance BUT

(2) Offeree's term is included ONLY IF:
(a) BOTH parties are merchants;
(b) there are NO "material changes"; and
(c) Offeror does NOT OBJECT within a reasonable time.

Tip - the offeree's term often does NOT make it into the contract.

Material Change - one likely to cause hardship or surprise for offeror. Includes arbitration clause but probably not "saturday delivery". If term is customary in the industry, it is NOT material.

NOT convenient - offeror can keep out even a minor change by objecting to it within reasonable time.

Front 29

Death of a Party Before Acceptance

Back 29

Terminates a REVOCABLE offer.
So, does not terminate an option, for example.

Front 30

Third Stage of Agreement Process: Has the Offer Been Accepted?

Back 30

Generally, an offer is accepted in any reasonable way (usually by a promise).

(1) Language of the Offer Controls
(2) Starting Performance
(3) Improper Performance
(4) Offeree's Silence
(5) Timing of Acceptance (MB Rule)
(6) Exceptions to MB Rule

Front 31

Language of the Offer Controls

Back 31

Exception to general rule.

Example - Chef Tom emails Fabio a job offer that states, "You can accept this offer ONLY BY REPORTING FOR WORK ON MONDAY." Fabio emails back, "I accept." Has he accepted the offer?

No. While most offers can be accepted by a promise, this offer cannot. Here, the language of the offer controls. The language specifically states that Fabio can ONLY accept by reporting for work on Monday. Thus, he accepts only if and when he reports to work on Monday. Since he has not done that yet, he has not accepted.

Front 32

Starting Performance

Back 32

(starting performance carries an implied promise to finish job.)

Bilateral Contract - starting performance is acceptance of an offer to enter a bilateral contract and carries with it an implied promise to finish job.

Unilateral Contract - starting performance is not acceptance of an offer to enter a unilateral contract. ONLY completing performance is acceptance (NOT flexible). - distinguish from Offeror can no longer revoke the offer once offeree starts to perform but the offeree does NOT accept in this manner.

Front 33

Improper Performance

Back 33

Common Law - improper performance is simultaneous acceptance AND breach.

Article 2 Sale of Goods - Simulataneous acceptance AND breach UNLESS seller is sending the goods as an ACCOMMODATION to the buyer (magic words). Simply a counteroffer that B can accept or reject at his will no no breach.

Front 34

Offeree's Silence

Back 34

An offeree's silence is generally NOT acceptance. Offeror cannot singlehandedly turn offeree's silence into acceptance - would not be fair (might be bound against will).

Front 35

Timing of an Acceptance

Back 35

General Rule - Acceptance is effective when mailed ("Mailbox Rule"). [Policy: Protects the offeree against revocation once he's mailed an acceptance.]

Distinguish from revocation, which is only effective upon receipt.

NOTE - doesn't matter if letter gets lost in the mail - burden of loss on offeror.

Front 36

Exceptions to the Mailbox Rule

Back 36

(1) Offer provides otherwise.
(2) Irrevocable Offer
(3) Offeror relies on overtaking rejection
(4) Rejection sent first

Front 37

Offer provides otherwise

Back 37

Offeror can override mailbox rule by specifying WHEN offer must be accepted ("must be received by X date").

Front 38

Irrevocable Offer

Back 38

such as option

MB rule does not apply to an irrevocable offer because offeree already protected against revocation (which is what MB rule designed to protect against).

Policy - the offeree does not need the MB rule to protect him against revocation - the offer is already irrevocable!

Front 39

Offeror Relies on Overtaking Rejection

Back 39

(where an acceptance is SENT first, but rejection ARRIVES first)

The mere fact that rejection gets there first does not matter. MB rule will apply UNLESS offeror RELIES on the rejection.

Front 40

Rejection sent first.

Back 40

When rejection is sent first, then it is a race. Whichever is received first (between rejection and acceptance) is effective.

Front 41

Is an agreement legally enforceable? Defenses against formation.

Back 41

(1) Lack of Capacity
(2) Ambiguity/ Misunderstanding
(3) Mistake
(4) Lack of Consideration
(5) Public Policy - Covenants not to compete
(6) Unconscionability

Front 42

Lack of Capacity

Back 42

Categories: Minors (under 18); intoxicated; mentally incompetent.

General Rule - An incapacitated DEFENDANT has the right to disaffirm the contract if he wants to avoid it. If person does not disaffirm the contract and impediment gone, then person is bound - IMPLIED contract (like if person keeps using a motorcycle after 18).

EXCEPTION - An incapacitated party is liable for necessities (food, shelter, clothing, medical supplies) but ONLY on a quasi-contract basis.

Front 43

Ambiguity/ Misunderstanding

Back 43

Such as where parties are on different wavelengths.

Where neither party knows or has reason to know, then no contract because of ambiguity or mistake.

Where one person knows or has reason to know of ambiguity, then there is a contract on the innocent party's terms and their meaning governs. The other person should have cleared up the ambiguity.

Front 44

Mistake

Back 44

(1) Mutual Mistake about a material fact
(2) Unilateral Mistake

Front 45

Mutual Mistake About a Material Fact

Back 45

Where both parties are mistaken about a material fact (one crucial to contract) - no contract - parties off the hook.

Front 46

Unilateral MIstake

Back 46

One party's mistake is not a fatal flaw unless other party knew or had reason to know about mistake. Still contract.

Front 47

Lack of Consideration

Back 47

Consideration - A "bargained-for legal detriment/benefit." - can bargain for a promise, performance, or even forbearance, but NOT past consideration. Cannot bargain for something that is already done. Past consideration is NOT consideration at all.

HOWEVER in MISSISSIPPI, a WRITTEN promis based on past services is ENFORCEABLE (promissory restitution).

Adequacy of consideration is irrelevant - as long as there was a bargain. Law does not weigh.

Front 48

Contract Modification (Consideration)

Back 48

Common law - new consideration is required to modify a contract. Performing a "pre-existing duty" is not enough. [Pre-Existing Duty Rule]

Article 2 Sale of Goods - Consideration is NOT required to modify the contract, but must show good faith.

Front 49

Partial Payment of Debt not consideration if undisputed.

Back 49

If there is a promise to forgive balance of debt for promise of partial payment, the debt must be DISPUTED. (law favors settlement, but company can still recover full amount if debt is undisputed).

Front 50

Time-Barred Debt

Back 50

A written promise to pay a debt, collection of which is barred by statute of limitations, is enforceable without consideration.

Front 51

MS Contract Statutes of Limitation

Back 51

1 yr - unwritten employment K
6 yr - sale of goods under Art2
3 yr - everything else (general SOL)

Front 52

Promissory Estoppel as a Substitute for Consideration

Back 52

Foreseeable reliance may make a promise enforceable even without consideration.

Front 53

Public Policy - Covenants not to compete.

Back 53

In Mississippi, covenants not to compete must be reasonable as to time, scope, and geographic area. If not, then courts will "blue pencil," or cut it down to reasonable limits (such as 30 miles and 2 years).

NOTE - If after working somewhere, an employee has to sign a noncompete agreement by an employer, MS holds that such continued employment on the part of employee is consideration.

MS - burden of showing reasonableness is on party trying to enforce agreement. This is because non-compete agreements are "not favorites of the law."

NOT PERMITTED FOR LAWYERS.

Front 54

Unconscionability

Back 54

When K or clause shocks conscience of the court (look for oppressive terms or unfair surprise @ time of agreement). Fact that terms seem harsh later is irrelevant.
(1) Substantive - Terms of agreement are grossly unfair (slave)

(2) Procedural - Process by which agreement was reached was unfair (fine print, legalese, unfair bargaining power).

(3) Judicial Power - If court invalidates part of a contract, it can enforce the rest.

Front 55

Key Issue #3 - Statute of Frauds

Back 55

When a writing is required.

Most oral contracts are enforceable. Only certain kinds of contracts need a writing to be enforced "within the SOF."

[Defense against Formation]

Front 56

SOF

Back 56

MY LEGS

Marriage
Years
Land
Executors
Goods
Suretyships

Front 57

Marriage

Back 57

Promises made in the consideration of marriage.

While these are unusual, most of us have heard claims such as "he promised to buy me a condo in Trump Tower if we married."

Unless such an agreement is in writing, it's not enforceable as a matter of law.

Front 58

Years

Back 58

Performance absolutely cannot be completed within ONE YEAR.

If full performance within a year was theoretically possible, then no writing is required by SOF. If not writing required.

"Rest of X's Lifetime" not within SOF but a time period is.

Front 59

Land (Interest in Real Property)

Back 59

The transfer of any interest in real estate requires a writing - the buying, selling or transfer of land.

Lease???

Agent's authorization to convey RP MUST be in writing, as well.

Front 60

Executors

Back 60

Executors - This deals with estate law - promises to pay the debt of an estate from an executor's private funds must be written. However, promises to pay the debt of an estate from the estate’s funds can be oral and not subject to the Statute of Frauds.

Front 61

Goods (& Contract Modification)

Back 61

Sale of Goods for $500 or More (article 2) must be in writing - includes modifications where new K price $500 or more.

NOTE - Leas of goods for $1,000 or more under Article 2a (MS) must be in writing to satisfy Art 2a's SOF.

General rule on contract modification - must be in writing only if the K as modified (not original) is within SOF.

NOTE - if original contract prohibits oral modification, then modification has to be in writing to satisfy contract's SOF (which A2 permits).

Under common law, clauses that prhibit oral modification are NOT enforceable, so you can always modify K orally under common law even if you agreed not to. (can under A2 as stated above).

Front 62

Suretyship

Back 62

A suretyship is a promise to "answer for" the debt of another.

Any promise or contract to be a surety is governed by the Statute of Frauds and must be contained in a signed writing.

If not a "backup," then not a suretyship and does not have to be in writing to sue for enforcement.

Front 63

Satisfactory Writing (What kind of writing will satisfy SOF?)

Back 63

Depends on Nature of Contract

(1) Sale of Goods (A2) - must contain a quantity term AND be signed by party to be charged with breach (defendant).

(2) Other contracts - must contain ALL MATERIAL TERMS ("who" and "what") AND be signed by DEFENDANT.

NOTE - SOF can be one way street. One party can sue but other cannot.

Front 64

Exceptions to SOF (where there's less chance of fraud)

Back 64

(1) One Year Prong: Full Performance Exception
(2) Two Land/Real Property Exceptions
(3) Four Sale of Goods Exceptions
(4) Suretyship Exception
(5) Reliance/Estoppel

Front 65

One Year Prong: Full Performance Exception

Back 65

Full performance takes contract out of SOF and brings it into K enforcement.

Where only partial performance, writing still required to enforce K - can still recover in quasi-K for reasonable value for work done. [remember - remedy of last resort]

Front 66

Four Sale of Goods $500 or more SOF Exceptions

Back 66

(1) Goods accepted or paid for buyer (only applies to goods accepted or paid for NOT to whole contract) - deposit/down payment also takes K out of SOF.

(2) Custom-made Words - If seller has made a substantial start and the goods are not suitable for sale in the ordinary course of seller's business.

(3) Judicial Admission

(4) Merchants' Confirmatory Memo - One party can use its own signed writing to satisfy the SOF against the other party if:
(a) BOTH parties are merchants;
(b) the writing claims a prior oral agreement;
(c) the writing signed and has a quantity; and
(d) there is no written objection within 10 days.

Front 67

Suretyship: "Main Purpose" Exception

Back 67

- if surety's main purpose in making promise was to benefit himself, then no writing required.

Front 68

Reliance/Estoppel

Back 68

MBE and MEE reliance is totally irrelevant

BUT IN MISSISSIPPI EE can overcome a SOF defense involving real property or a contract that cannot be fully performed within 15 months - but NOT a K for a sale of goods.

Front 69

Key Issue #4 - Terms of the Contract

Back 69

(1) Parties' Words
(2) Parties' Conduct
(3) Seller's Warranties of Quality in an Article 2 Sale of Goods K
(4) Limitations on Warranty Liability in a Sale of Goods
(5) Risk of Loss in an A2 Sale of Goods

Front 70

Parties' Words

Back 70

Parol Evidence Rule - keeps out evidence of a prior agreement (either oral or written) that contradicts a later writing. [requires a writing]

Exceptions - evidence gets in
(a) Correct clerical error
(b) Establish defense against formation - to show flaw in process
(c) To interpret a vague or ambiguous term (if not ambiguous, court will give term its Plain Meaning)
(d) To supplement a partially-integrated writing (not complete statement)

NOTE - the PER has NOTHING to do with what happens after an agreement is reduced to writing. - Instead, modification rules would apply.

Front 71

Parties' Conduct

Back 71

Can explain terms or fill in gaps (in descending order of importance):

(1) Course of Performance - most important - what the parties did under THIS contract. Course of performance is the BEST EVIDENCE of what parties intended.

(2) Course of Dealing - What they did under prior contracts with each other. Course of dealing is more removed from this contract - it's about PRIOR deals.

(3) Usage of Trade - What others in the trade do in similar contracts. Usage of Trade is FURTHEST REMOVED from THIS contract - it's about how others act.

Front 72

Seller's Warranties of Quality in an A2 Sale of Goods

Back 72

(1) Express Warranties
(2) Implied Warranties
- Implied Warranty of Merchantability
- Implied Warranty of Fitness for Particular Purpose

Front 73

Express Warranties (of Quality in A2 Sale of Goods)

Back 73

Statements of fact, promises, descriptions of goods, and use of sample or model are express warranties, while an opinion is NOT.

Must be "basis of the bargain" - If buyer could have relied on the warranty, it was a "basis of the bargain." Note, however, that a federal case applying MS law held that a BUYER MUST PROVE ACTUAL RELIANCE in order to prevail on express warranty.

Front 74

Implied Warranty of Merchantability

Back 74

Definition - The goods are fit for their ORDINARY PURPOSE.

Triggering fact - Seller is a merchant who DEAL in goods of the kind (i.e., a dealer) - one how has special knowledge about the particular goods involved. [out of regular inventory]

Front 75

Implied Warranty of Fitness of Particular Purpose

Back 75

Definition - The goods are fit for buyer's particular purpose.

Triggering Fact - Seller knows that buyer has a special purpose in mind AND is relying on seller to select suitable goods. NOTE: Seller does NOT have to be any kind of merchant at all.

Front 76

Limitations on Warranty Liability in a Sale of Goods

Back 76

(1) Disclaimers
(2) Limitation of Buyer's Remedies
(3) Privity of contract
(4) Choice of Law

Front 77

Disclaimers

Back 77

MBE - A seller can disclaim IMPLIED but NOT express warranties.

Disclaimer must contain magic words ("as is" or "with all faults") OR has to be conspicuous (such as "NO IMPLIED WARRANTIES OF MERCHANTABILITY" OR bold face)

Under Mississippi Law, a seller CANNOT disclaim implied warranties in a sale to CONSUMER. Miss. Code Ann. section 11-7-18.

Can disclaim between merchants, specifically sale of computer hardware or software (or related services).

Also, in MS, Sale of Motor vehicle more than 6 years old and driven more than 75,000 miles can be disclaimed - must be separately signed by buyer and seller must have given buyer notice (on AG form) that non-disclaimer rule does not apply.

Front 78

Limitations of Buyer's Remedies

Back 78

General Rule - Seller can limit buyer's remedies for breach of any warranty (express or implied) if the limitation is not unconscionable.

Exception - Limiting B's remedies for PERSONAL INJURY from consumer goods is PRESUMED to be unconscionable ("prima facie"). This exception operates as a kind of consumer protection clause.

Under MS law, a limitation of remedies clause of any kind is not enforceable in sale to consumer.

Front 79

Privity of Contract

Back 79

In MS, privity of K not required to sue for breach of warranty. However, plaintiff has to show that defect was in existence when goods in hand of manufacturer.

Front 80

Choice of Law

Back 80

Mississippi law governs disclaimers, limitation of remedies, and privity of contract EVEN IF PARTIES HAVE AGREED OTHERWISE.

Front 81

Risk of Loss (ROL) in A2 Sale of Goods

Back 81

Issue: When goods are damaged before B gets them and neither B nor S is to blame, who bears risk of loss?

Reason it matters is that there are significant consequences:
(a) If Seller bears ROL, S must provide NEW GOODS to B for NO additional cost OR be liable for breach of contract.

(b) If B bears ROL, B must still pay for contract price.

Hierarchy: Look for following things in this order:
(1) Agreement (agreement of parties control)
(2) Breach (breaching party bears ROL, even if loss is unrelated to breach)
(3) Delivery By Common Carrier (ROL shifts to B when S "completes its delivery obligations.")
- Shipment K: S must get the goods to a common carrier, make delivery arrangements, and notify B.

- Destination K: S must get goods to specific DESTINATION (usually where B is)

FOB: Free on Board, followed by city, place. ROL passes to B at named location. Thus, if city/place where S is located, then Shipment K (B bears ROL). If anywhere else, Destination K (S bears ROL).

Non-carrier Cases - answer depends on whether S is a merchant.

Front 82

Non-Carrier Cases

Back 82

answer depends on whether S is a merchant.

(1) If S is a merchant, then S bears risk of loss until B takes possession of the goods (policy - S in better position to insure against risk until that point in time)

(2) S not merchant - S bears ROL until it "tenders" the goods (makes them available to B - tells B where goods are and how to pick them up)

Front 83

Key Issue #5 - Performance of the Contract

Back 83

(1) Performance of Contracts for A2 Sale of Goods
- Perfect Tender Rule
- Option to Cure
- Installment Sales Contracts
- Buyer's Acceptance of the Goods
- Buyer's Revocation of Acceptance of Goods
- Consequences of Rejection/Revocation of Acceptance
- Buyer's Payment Obligation

(2) Performance of Common Law Contracts

Front 84

Perfect Tender Rule

Back 84

Under Article 2, Seller must deliver perfect goods in the right place at the right time. If tender is not perfect, buyer has the right to reject goods.

Does NOT apply to an installment contract.

Front 85

Option to Cure

Back 85

Under A2, S who fails to make perfect tender may have an option to cure. It usually depends on whether the time for performance has expired.

If time has not expired, Seller has option to cure.

If time has expired, Seller does not have option to cure UNLESS S has reason to believe that the B would accept based on PRIOR DEALINGS (course of performance/course of dealings). [look for B being flexible about taking non-conforming goods in the past]

Front 86

Installment Sales Contracts

Back 86

Under A2, an installment contract is a contract that requires or authorizes delivery in separate installments (otherwise, the goods have to be delivered in a single delivery).

Look at language of contract.

NOTE - Buyer may REJECT ONLY for SUBSTANTIAL IMPAIRMENT: Perfect Tender Rule does NOT apply to an installment contract, so it is harder for buyer to reject.

Front 87

Buyer's Acceptance of the Goods

Back 87

(already concluded contract, so no looking at performance)

Under A2, when buyer keeps the goods without objection after having an opportunity to inspect, there is an implied acceptance.

Merely paying for goods is NOT implied acceptance b/c B has to have a chance to inspect first.

Consequences of Acceptance - Once buyer accepts, it is too late for buyer to reject.
- However, a buyer who accepts non-conforming goods can still get damages. (S still breached K.)

Front 88

Buyer's Revocation of Acceptance of Goods

Back 88

Under A2, the general rule is that a Buyer cannot revoke acceptance of goods. (no right to revoke after acceptance)

Narrow Exception - If the non-conformity substantially impairs the value of the goods AND was difficult to discover (i.e., latent defect), then B can revoke (reasonable time after discovery).

Two special MS rules on revocation of acceptance of goods:
(1) "Substantial" is judged by both objecting and subjective standard, so B has to show defect substantially imparis value to a reasonable Buyer as well.
(2) MS is the ONLY STATE where Seller can cure when Buyer tries to revoke his acceptance.

Front 89

Consequences of Rejection/Revocation of Acceptance

Back 89

Return - Buyer can return the goods to Seller at Seller's expense.

Refund - Buyer can get back any money Buyer has paid for the goods.

Damages - Buyer can get damages from Seller for breach of contract.

Front 90

Buyer's Payment on Obligation

Back 90

Under A2, Buyer can pay by check, but Seller can Refuse it. If Seller refuses, Buyer has an additional reasonable time to get cash (even if deadline has passed)..

Front 91

Performance of Common Law Contracts

Back 91

Under the common law, performance does NOT have to have to be perfect. Substantial performance is all that is required (i.e., a party cannot commit a material breach).

Front 92

Key Issue #6 - Excuse Based on Later Events

Back 92

(1) Other Party's Breach
(2) Anticipatory Repudiation
(3) Failure to Give Adequate Assurance (Article 2)
(4) A Later Agreement By the Parties
(5) Impossibility
(6) Frustration of Buyer's Primary Purpose
(7) Failure of an Express Condition

Front 93

Other Party's Breach

Back 93

The other party's breach MAY provide an excuse for non-performance. Whether it does depends on the nature of the contract.

A2 Sale of Goods - If Seller's Performance is not perfect in every respect, then Buyer has free reign (B may accept all, reject all, or accept some/reject rest. Regardless, B may still get damages for S's breach).

Common Law Contracts:
- Damages: available for any breach, whether it is material or not.
- Excuse: Only a material breach provides an excuse for not performing.

Divisible Contracts - Where payment is to be made on a PER UNIT basis, the breaching party can recover the CONTRACT PRICE for any unit on which he has substantially performed (contrast with contract payable in lump sum).

Front 94

Anticipatory Repudiation

Back 94

Provides an excuse for non-peformance UNLESS the repudiation is retracted, as long as other party has not relied on it.

Front 95

Article 2 - Failure to Give Adequate Assurance

Back 95

Under article 2, a party with reasonable grounds for being insecure about the other party's performance may request in writing adequate assurance that the other party will perform in accordance with the contract.

If S does not provide B with adequate assurance, B can treat refusal as anticipatory repudiation of contract.

Cannot use, however, to rewrite contract nor can require a particular kind of assurance. Just adequate - which depends on facts.

Front 96

A Later Agreement By the Parties

Back 96

(1) Rescission
(2) Modification
(3) Accord & Satisfaction
(4) Novation

Front 97

Rescission

Back 97

Consult Long Outline and/or Video

Front 98

Modification

Back 98

An agreement to replace an existing contract with a new one.

Common law - must be accompanied by new consideration????

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Accord & Satisfaction

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An accord is an agreement to accept performance in FUTURE satisfaction of an existing duty. Satisfaction is performance of the accord.

Distinguish from modification - look at language - does it take effect right now (modification) or later ("then" - Accord and Satisfaction)

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Novation

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An agreement to SUBSTITUTE a new party for an existing one.

All parties to original contract must agree or will just have DELEGATION OF DUTIES (no novation - party not consenting does not give up rights).

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Impossibility

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At common law, a LATER UNFORESEEN EVENT that makes performance IMPOSSIBLE may provide seller with an excuse for non-performance. Under Article 2, it is called IMPRACTICABILITY (seller's performance has become MUCH more difficult).

Five ways:
(1) Destruction of something necessary for performance
(2) Death/Incapacity of Essential Person
(3) Supervening Government Regulation
(4) Increase in the Cost of Seller's Performance
(5) "Force Majeure" (Act of God/Act of Nature)

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Destruction of Something Necessary for Performance

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Common Law - Destruction provides an excuse for non-performance.

A2 Sale of Goods - Article 2 adopts same general rule but there are 2 trick questions to look out for:
(1) Unidentified Goods: Seller is excused ONLY if the damaged or destroyed goods had bee "identified to the contract" (ex: tagged w/B's name)

(2) Risk of Loss - A seller who bore ROL when goods were damaged or destroyed is excused by impracticability.

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Death/Incapacity of ESSENTIAL Person

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If considered essential to performance, then excused from performing contract.

painting portrait (essential - special skill) vs painting exterior of house (nonessential - could delegate duties)

If artist paints portrait and subject dies, then estate still liable for contract price - theory that anyone can pay.

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Supervening Governmental Regulation

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Excused by later government regulation.

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Increase in Cost of Seller's Performance

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On MBE - an increase in S's cost almost NEVER excuses Seller.

MS - S might be excused - Look at $ amount and % amount of increase to see if such a huge increase that S ought to be let off hook.

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Force Majeure

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Act of God/Nature - war, flood, fire, riot, strike, accident, or other cause BEYOND THE SELLER'S CONTROL under Article 2.

MBE - Force Majeure rarely works. S is excused ONLY IF the non-occurrence of the event was a BASIC ASSUMPTION on which contract was made.

In MS there is NO Basic Assumption Test - so Force Majeure is more readily available to the Seller as an excuse.

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Frustration of Buyer's Primary Purpose (Buyer's Excuse)

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B is excused by frustration if (1) S knew what B's purpose was and (2) later unforeseen event thwarts that purpose.

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Failure of Express Condition

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Defintion - Limits obligation created by OTHER contract language; it does NOT create an independent obligaiton. Look for words like "if," "as long as," "when," "provided that," "on condition that," and "unless."

Strict Compliance Required - If there is an express condition, the condition must be strictly complied with or performance excused. Not required to not perform (ex: can still buy house even if condition not complied, but the non-compliance allows buyer to be excused).

NOTE - Express Conditions do NOT create independent obligations - just limits some other obligation. So, seller cannot sue for breach of contract if condition not met.

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Satisfaction Clauses

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If there is a satisfaction clause, then "satisfaction" is measured by a reasonable person standard UNLESS the contract deals with art or matters of personal taste.

Portrait - subjective
Painting house - objective

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Types of Express Conditions

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Precedent - Occurrence of event has to happen first before party is obligated to perform.

Concurrent - Runs alongside obligation.

Subsequent - Obligation arises right now and occurrence of event cuts off duty.

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Excusing Occurrence of a Condition

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Occurrence of a condition may be excused by the later action or inaction of the person who is protected by the condition.

NOTE - every condition protects someone.

(a) Failure to Cooperate
(b) Waiver (voluntarily giving up protection) - may be retracted for future.

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Key Issue #7 - Remedies

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Non-Monetary

Monetary

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Non-Monetary Remedies

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(1) Specific Performance (depends on nature of contract)

(2) A2 Sale of Goods - Unpaid Seller's Right to Reclaim Goods (not available unless exception applies)

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Specific Performance

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Specific Performance - equitable remedy available ONLY if monetary damages are clearly inadequate. Depends on nature of K.
---Real Property: sp. perf. generally available because RP considered unique.
---A2 Sale of Goods: Spec. perf. is available ONLY if goods are unique or there are "other proper circumstances" (inability to by goods on the market). [works of art, antiques, custom made goods]
---Service Contracts: Specific performance is NOT available in service contracts (personal services), but injunctive relief may be available.

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Unpaid Seller's Right to Reclaim Goods (A2)

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General Rule - NOT available under Article 2.

Except if buyer was insolvent when it received the goods AND seller demands return within 10 days after buyer receives them.

NOTE - S has no right to reclaim goods from a third party if 3rd party was a BFP (for value without notice).

Exception to Exception - S can reclaim goods AT ANY TIME if buyer misrepresented its solvency IN WRITING within 3 months BEFORE DELIVERY.

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Monetary Damages

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(1) Punitive Damages (NO)
(2) Liquidated Damages
(3) Expectation Damages
(4) Incidental Damages
(5) Consequential Damages
(6) Avoidable Damages

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Punitive Damages

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NOT awarded for breach of contract because the purpose of contract damages is to compensate, NOT TO PUNISH.

NOTE - do not think of "good guys" and "bad guys". Contract remedies are designed to compensate the injured party, not to PUNISH the breaching party.

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Liquidated Damages

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Upheld IF damages were difficult to estimate AND are a reasonable forecast of probable damages, BUT CANNOT OPERATE AS A PENALTY.

NOTE - Doesn't matter under the common law that the liquidated damages were not reasonable forecast in light of actual damages, BUT IT DOES UNDER ARTICLE 2 (where LD have to be reasonable under either probable or actual, upheld).

If LD struck down, party is still entitled to get actual damages.

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Expectation Damages

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Put injured party IN AS GOOD A POSITION AS FULL PERFORMANCE.

Expectation Damages are the general rule.

(1) Common Law
(2) A2 Sale of Goods Damages (Buyer and Seller)

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Common Law Expectation Damages

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no formulas - just put nonbreaching party in position they "expected" to be had K been performed.

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Sale of Goods Damages (Article 2)

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Awards Expectation

(1) Buyer's Damages (3 options)
(2) Seller's Damages (4 options)

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A2 - Buyer's Expectation Damages

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(1) Cover Damages = Cover price - contract price if buyer COVERS IN GOOD FAITH. (usual)

(2) Market Damages = market price - contract price if buyer does NOT COVER in good faith or doesn't cover AT ALL.

[Article 2 does not require buyer to cover.]

(3) Loss in Value = value as promised - value delivered if buyer KEEPS NONCONFORMING GOODS.

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A2 - Seller's Expectation Damages

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(1) Resale Damages = contract price - resale price if seller resells in good faith [usual measure]

(2) Market Damages = contract price - market price if seller does not resell in good faith or does not resell at all.

[Again, article 2 does not require that Seller resell goods, just as it does not require that Buyer cover.]

(3) Lost Profit = Seller gets lost profit IF seller is a LOST VOLUME DEALER. (dealer selling out of regular inventory)

Bar Exam Tip - dealer resells SAME GOODS for SAME PRICE trying to trick into saying S's damages are $0. Do not be fooled - the dealer has lost the profit it would have made on the initial sale. Entitled to both profits.

(4) Contract Price - rare, but Seller is entitled to entire/full contract price if seller cannot resell the goods (no market).

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Incidental Damages

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Cost to the injured buyer or seller of TRANSPORTING/CARING for goods AFTER a breach and of ARRANGING A SUBSTITUTE TRANSACTION.

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Consequential Damages

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Damages SPECIAL to THIS PLAINTIFF that were "reasonably foreseeable" to the breaching party at the time of the contract. [Hadley v. Baxendale]

NOTE - not available to a Seller under Article 2.

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Avoidable Damages (Common law duty to mitigate)

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An injured party cannot recover damages he could have avoided ("mitigated") with reasonable effort.

(remember, nothing in Article 2 that requires B to cover or S to resell)

If it applies - must be comparable = same kind of job in same city for example

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Key Issue #8 - Third Party Problems

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(1) Entrustment
(2) Third Party Beneficiary
(3) Delegation of Duties
(4) Assignment of Rights

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Entrustment (Article 2)

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An owner who entrusts goods to a MERCHANT who deals in goods of the kinds (dealer) has NO RIGHTS against a BFP. [Note - Implied Warrant of Merchantability and Entrustment are the 2 areas that REQUIRE not just any merchant but a special kind of merchant).

Bar Exam Tip - on bar exam, the fact pattern is 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.

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Third-Party Beneficiary (TPB)

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Definition - Two people enter into a contract INTENDING TO BENEFIT A THIRD PARTY.

Vocab:
- Third-Party Beneficiary: A person who is not party to a contract, but has rights because the contract was intended to benefit him.

- Promisor: The party who promises to perform for the TPB.

- Promisee: The party who secures the promise.

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Intended vs Incidental Beneficiary

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Intended Beneficiary - (only type of 3rd Party with rights) The person to whom performance was to be given according to the contract. An incidental beneficiary just happens to benefit from the contract. Only an intended beneficiary has legal rights.

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Donee Beneficiary

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If the promisee's purpose was to confer a GIFT on the TPB, the TPB is a donee beneficiary. If the promisee's purpose was to pay off a debt to the TPB, the TPB is a creditor beneficiary (rare).

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Rescission and Modification

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General Rule - The promisor and promisee can rescind or modify the contract UNTIL the rights of the TPB have "vested."

Vested - when third party knows of and relies on contract.

Exception - Contrary language in contract controls.

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Liability in third-party situations: Who's liable to whom?

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Promisor is liable to TPB (intended beneficiary) for breach.

Promisee is liable to a Creditor Beneficiary.

Promisor is liable to promisee.

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Delegation of Duties

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Transferred Duties

General Rule - Contractual duties may be delegated without the consent of the person to whom performance is owed (the "obligee").

Exceptions:
(1) Contract language controls (prohibiting delegation)
(2) Special skill or reputation (cannot delegate)

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Rights of the Obligee

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(person to whom performance is owed)

Delegating party remains liable to obligee (compare to novation).

A delegate who gets consideration is liable.

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Assignment of Rights

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Definition - two people make a contract; later, one (assignor) transfers his rights to a third party (assignee). The party who owes the duty is the obligor.

Bar Exam Tip - An assignment of rights transfers ONLY RIGHTS (not liability - usual case). Assignment of an entire contract transfers BOTH rights and obligations.

Assignment - two stages: two parties enter a contract and a third person appears later on.

vs.

TPB where all three people are present from the beginning.

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To have Valid Assignment

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Must have language of present transfer ("I assign," not, "I promise to assign.")

Consideration is not required. Gift assignments are valid, but are easily revoked.

Restrictions on Assignment/Assignability:
(1) Contract Language Controls (distinguish clause that prohibits assignment from one that completely invalidates it - "not assignable" - liable for breach but assignment valid vs "void" - no rights)

Cannot substantially change duties of obligor

Requirements K assignment ok as long as assignee's requirements are not out of line w/ assignor's.

Obligor liable to assignee (whole point of assignments)

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Multiple Assignments

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Gratuitous (Gift) Assignments are easily revoked - last in time prevails.

Assignments for consideration are more durable - first assignee for consideration prevails.

Analyze each assignment in order it was made to see if it was valid.

Exception - A later assignee for consideration prevails if he DID NOT KNOW of earlier assignments AND is the first to get payment from or a judgment against another.