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117 Cards in this Set

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What is an Offer?
An offer is the manifestation of an intention to be bound created by word or conduct. Look at the context in which the words are spoken/written and the content to see whether the content constitutes an offer.
Offers must identify the offeree or class of offerees to justify the inference that the offeror intended to create a power of acceptance.
Offers must be communicated to the offeree.
Is an Advertisement an Offer?
Regardless of what they say are not offers because there is no quantity term so an unlimited amount of people could accept.
How definite must an offer be?
1) Real estate transactions require identification of land and price terms
2) Contracts for the sale of goods require the quantity to be certain or capable of being made certain
3) In employment contracts, the duration of the employment must be specified
Requirements Contract
Come up under the UCC where the sale of goods where the quantity of goods to be sold is going to be measured by the buyer’s needs/requirements. These are ok under the UCC.
If you see the word “all” or “only” chances are its for a requirements contract. You don’t need the word “requirements,” all or only works.
There’s some uncertainty with requirements contracts because you don’t know what the need will be. The buyer can increase its demand but can’t take the seller by surprise (increase can’t be out of line with the buyer’s prior demands, even if the buyer is acting in good faith it wouldn’t be fair to suddenly double demands).
Offer Terms: Open Price Term and Other Terms
Open price term is considered to be too indefinite under common law but not under UCC.
Certain missing terms can be supplied by the court if they are consistent with the parties’ intent. Under UCC, reasonable price terms and time for performance may be supplied by the court.
A vague term may defeat performance of a contract unless acceptance or part performance makes the term clear. Contract formation fails if an offer provides a material firm will be on at a future date.
Termination of an Offer: Offeror Revokes
The offeror can terminate power of acceptance in offeree by taking back the offer. Revocation can be direct or indirect.
Direct Revocation – offeror tells offerree that he changed is mind.
Indirect Revocation – offeror engages in conduct that demonstrates he changed his mind AND the offeree is aware of the conduct
Revocation effective on receipt
Termination of an Offer: Lapse in Time
Once a stated time or reasonable time if there is no stated time lapse, the contract is terminated
Exceptions to Offeror's Ability to Revoke: Option
A promise to keep the offer open that is paid for – consideration is given in exchange for keeping the offer open. An option is a buyer buying time to make up his mind.
Merely promising to keep the offer open is not enough, you need something more, some consideration. If you give something for the option then the offeror can no longer revoke – what option is all about.
Option Contract in NY
If the offer is in writing, signed by the offeror and states that the offer is irrevocable, then the offer is not revocable during the time state or for a reasonable time, even if the offer is not supported by consideration.
Exceptions to Offeror's Ability to Revoke: Reasonably Foreseeable Reliance
In the absence of an option look for reasonably foreseeable reliance before acceptance. This is EXTREMELY rare!
Usually reliance before acceptance is not protected because you should first accept the offer and then rely on it.
Reliance will ONLY be protected and make an offer irrevocable when contractor relies on subcontractor’s bid.
Exceptions to Offeror's Ability to Revoke: Offeree Begins Performance of Unilateral Contract
REMEMBER: Unilateral contracts can be accepted only by performing
Mere preparation is not enough to make the offer irrevocable. Offeree must actually start performance for this to apply.
For NY:
Offer can be revoked until performance is completed. NY follows a minority rule here
Exceptions to Offeror's Ability to Revoke: Firm Offers
***Only applies if UCC Article 2 applies***
Need a signed written promise by a merchant to keep the offer open.
The written promise has a 3 month cap and if the agreement is for longer it will be scaled back to 3 months.
Merchant = businessman, anyone in the business world
There doesn’t have to be any payment for the promise as the signed writing takes the place of payment
If no time limit, firm offer will be for a reasonable time not more than 3 months.
Note: There can also be options under UCC if have consideration
For NY:
A signed written promise by anyone, not just a merchant, not to revoke is enough even without payment!
Offeree Rejection of an Offer: Counter Offer
This is a rejection BUT mere bargaining is not
Counter offers terminate the offer so offeror can’t accept after the counter offer is made
Remember that a counter offer is both a rejection and a new offer
What if you just say “will you take a different amount?” then that’s mere bargaining and not a rejection
Offeree Rejection of an Offer: Conditional Acceptance
Offeree agrees “on condition that…” then there is no contract because a conditional acceptance is no acceptance at all
Watch out for words like “provided that..,” “on condition that…,” “if…” = offeree saying “no”
Offeree Rejection of an Offer: Additional or Different Terms: Common Law
Common law requires that the acceptance must exactly mirror the offer (“Mirror Image Rule”)
Even if there is a trivial change, that is a rejection under the common law
Offeree Rejection of an Offer: Additional or Different Terms: UCC
There is no mirror image rule and the terms of acceptance do not have to mirror the terms of the offer. The policy is to facilitate contract formation and make it easier, rather than harder, to enter into a contract.
The offeree’s additional terms do NOT immediately become part of the contract. They will become part of the contract only if:
1) Both parties are merchants and
2) The term is not a material change and
3) The offeror doesn’t object in a reasonable time
Material change is likely to cause hardship or surprise to the offeror
Note: If the term that the offeree adds is common/customary (“usage of trade”) in the particular industry then it is not a material change
UCC favors offeror in this area!
Offeree Rejection of an Offer: Death of Either Party Before Acceptance
Offer terminates by death of a party, can’t have acceptance after that, doesn’t matter if the other party knows about the death or not
Narrow Exception:
Have an option keeping the offer open, can still accept the offer after the death as long as the acceptance is within the time the offer was kept open. Death of a party before acceptance does not terminate an irrevocable offer.
Accepting the Offer: Start of Performance
Start of performance is acceptance to enter into a bilateral contract but not unilateral contract.
If the offer doesn’t require a particular kind of acceptance it is a bilateral contract and starting performance is acceptance. With bilateral contracts starting performance carries with it a promise to finish performance.
Offers to enter unilateral contracts, having the “only by” can only be accepted only by COMPLETING performance. Just starting to perform is not acceptance and don’t have to finish the performance.
If it’s a unilateral contract with the “only by” language and the offeree starts performance, it is too late for the offeror to revoke the offer.
In a unilateral contract once the offeree starts to perform the offeror can no longer revoke but the offeree hasn’t accepted the offer – that’s why its called unilateral (or one sided), the offeror is bound but the offeree is not.
Accepting the Offer: Improper Performance
Common Law: It operates as acceptance of an offer and as a simultaneous breach.
Article 2 of UCC: Same result as common law = simultaneous acceptance and breach however there is a narrow exception:
If send the wrong goods “as an accommodation” there is no acceptance and therefore no breach
Accepting the Offer: Offeree's Silence is Not Acceptance
Offeror cannot single handedly turn the offeree’s silence into acceptance (because there’s too much chance that the offeree would be bound against her will)
For NY:
Unsolicited goods are considered unconditional gifts
When is acceptance effective?
Mailbox Rule: Acceptance is effective when it’s mailed - want to protect the offeree against revocation. Once the offeree drops the acceptance in the mailbox he knows that the offeror is bound, can rely on the fact that a contract has been formed.
If acceptance gets lost in the mail it doesn’t matter, the burden of loss is on the offeror. Most of the time the acceptance gets to the offeror but if it doesn’t, it doesn’t matter, just the mailing of the acceptance makes it an acceptance.
Exceptions to the Mailbox Rule
1) Doesn’t apply if the offeror or offer provide otherwise. Mailbox rule is just a fallback, if there is something saying otherwise than don’t apply mailbox rule
2) Doesn’t apply to an irrevocable offer. Offeree doesn’t need the protection of the mailbox rule if there is an irrevocable offer. If acceptance “only by” getting it at a certain date and don’t get it than mailbox rule doesn’t apply and no acceptance.
3) Mailbox rule applies if offeree accepts offer and then tries to reject UNLESS the rejection gets there first AND the offeror relies on the “overtaking rejection.”
4) If there is a rejection, then acceptance – whichever arrives first is effective. It’s essentially a race.
Defenses Against Formation: Defendant lack of capacity
1) Infants: people under 18
2) People who are intoxicated
3) People who are mentally incompetent
Incapacitated people can impliedly affirm the contract after they regain/attain capacity (like when a minor becomes 18). It only matters if the defendant is incapacitated at the time of contract. Incapacitated plaintiffs can bring suits.
An incapacitated party is liable for necessaries (food, shelter, medical care) but only on a quasi-contract basis – only liable for reasonable value of benefit conferred
Defenses Against Formation: Defendant lack of capacity in NY
Infancy: By statute, infants cannot void contracts in the following situations:
1) 14½ year old or older who contracts for life insurance
2) Educational loans by those 16 or older
3) All contracts by 18 year olds
4) Realty contracts related to marital home
5) Contracts involving artistic or athletic services
Mental Incapacity: Adjudicated Incompetent = Contract void
Unadjudicated Incompetent = Contracts not voidable unless incompetent can restore other party to previous position
Defenses Against Formation: Durress
Physical Duress: If enter agreement just because physical harm is threatened against you, contract is invalid
Economic Duress:
Look out for:
1) A threat to break an existing contract unless the other party gets another/better deal
2) Other party agrees only because he needs to get the first deal done
3) There is NO other alternative – seller is the only source
Defenses Against Formation: Misrepresentation/Non-disclosure of a Material Fact
Under contract law even an honest or innocent mistake/misrepresentation/non-disclosure it can be fatal flaw as long as it is material
Defenses Against Formation: Mutual Mistake
This is the Typical case in the bar exam
Has to go to the fact something exists or what something is but not what something is worth
Not bound if there is a mutual mistake of a MATERIAL fact, needs to be central to or a significant aspect of the contract
If the mistake is to market value it is generally not considered material – should have had the good/service appraised before agreeing to the contract price
Defenses Against Formation: Unilateral Mistake
Generally does not constitute a fatal flaw because it is too easy for one party to invent the fatal flaw
If the other party is aware of the mistake then it can provide a defense against formation
Defenses Against Formation: Consideration: Pre-Existing Duty under the UCC
There is no Pre-Existing Duty Rule, don’t need consideration, just good faith, for a modification.
o UCC doens’t want lack of consideration to get in the way of a good contract as long as there is good faith – don’t need to use consideration to police modifications.
Defenses Against Formation: Consideration: Pre-Existing Duty under theCommon Law
Consideration is required for modification = “Pre-Existing Duty Rule”
Pre-existing duty only applies to the 2 parties, not 3rd party beneficiaries
On the multistate it doesn’t matter if the modification is in a signed writing
Pre-Existing Duty Exceptions:
New or different consideration promised
Promise to ratify a voidable obligation (like when a minor reaches majority)
Preexisting duty owed to a third person rather than the promisor
There is an honest dispute as to the duty or
There are unforeseen circumstances sufficient to discharge a party
Defenses Against Formation: Consideration Issues
1) “Past consideration” is NOT consideration at all
2) Adequacy of consideration is irrelevant – just need a bargain!
3) Contract Modifications
4) Promise Forgiving of Disputed Debt: Part payment is consideration for a promise to forgive the rest of a DISPUTED debt.
5) Written promise to pay a debt, collection of which is barred by statute of limitations, is enforceable even without consideration.
6) Promissory Estoppel: If there is no consideration, promissory estoppel can serve as a substitute for consideration
Defenses Against Formation: Consideration in NY
Past consideration IS binding if it is expressly stated, can be proved, and is signed by the promisor
Pre-Existing Duty Rule does not apply if the modification is contained in a signed writing – signed writing takes the place of consideration and just need a modification to be in writing and signed.
Don’t need consideration to be released from a claim if the promise to forgive the balance of a debt is in a signed writing
Defenses Against Formation: Illegality at the time of Agreement
If the nature of the agreement is illegal it is unenforceable
The agreement itself is not illegal so it can be enforced as long as the other party didn’t know about the illegal subject/objective of the other
Defenses Against Formation: Public Policy: Covenant Not to Compete
Courts will narrow/invalidate covenants if they operate to restrain trade
Look at the scope the covenant and the need for the covenant
Court needs to find the geographic and time limits reasonable
Also check to see if there is a need for the covenant in the first place – was there a reasonable need for this protection (ex: may need employee with unique skills to have a limit on going immediately to work for a competitor)
The Court’s concern here is to balance freedom of contract and restraint of trade
Defenses Against Formation: Public Policy: Exculpatory Clause
Can eliminate liability for negligence, but not for gross negligence or intentional torts
Defenses Against Formation: Unconscionability
Clause or contract that “shocks the conscionable of the Court”
Look at terms or unfair surprise at the time that the parties enter into agreement
It doesn’t matter if the contract or clause looks unconscionable later on
***This isn’t tested very often. If you’re on the NY bar exam and this is all you see, look again! There will be another issue!***
2 kinds of unconscionability:
1) Substantive: the terms of the agreement are unfair
Like promising to be another person’s slave for certain amount of money would be struck down
2) Procedural: the process by which the agreement was reached was unfair
Usually involves fine print, legalese, and/or unequal bargaining power
Statute of Frauds: Transfer of an interest in Real Estate/Property
Note: Almost all oral agreement questions deal with statute of frauds in asking whether the oral agreement is sufficient.
The transfer of real property doesn’t have to involve a sale of real estate: easement, leases, and other transfers of an interest in real property are covered by the statute of frauds.
Remember: If the contract concerns something on the property (like contract to build a house) then it’s not a transfer of property and not within the statute of frauds
Short term lease exception:
There is an exception for short term leases = 1 year or less and its enforceable even without writing
Statute of Frauds: Service contract that cannot be fully performed in one year
Note: Ignore what actually happens – it doesn’t matter! Look at what might have happened under the terms of the contract
If it is theoretically possible to perform within 1 year then statute of frauds doesn’t apply
Specific tasks don’t present statute of frauds problems since in theory any task can be fully performed within one year
Lifetime Contracts:
For multistate, lifetime contracts do not fall within the statute of frauds because in theory you could die in one year and the contract could be fully performed (work for X for the rest of your life)
Specific Time Period:
A specific time period greater than 1 year falls within the statute of frauds.
The clock starts to run at the time of the agreement, not when performance begins – if it is a few days over a year than it is within the statute of frauds!
Duration of performance is irrelevant, it just matters when the performance will happen (if it’s only for 1 day 2 years after the agreement then its still subject to the statute of frauds – if it can’t be performed fully within 1 year of the agreement it is subject to the statute of frauds)
Statute of Frauds: UCC
UCC statute of frauds requires a writing for sale of goods worth $500 or more
Note: Statute of Frauds applies to sale of goods for exactly $500 – bar exam may try to trick you with this**
Statute of Frauds: Lease of Goods
A lease of goods where the lease payments total $1,000 or more falls within the statute of frauds
This is UCC Article 2A’s Statute of Frauds so in NY only!
Will make you calculate it yourself, look at total payments
Statute of Frauds: "Answer For"
A promise to “answer for” the debt of another – these are guarantees within the statute of frauds.
This is limited to a guarantee – look for language like “if the Debtor did not pay”
Look for that specific language making the guarantee a backup – then within the statute of frauds and requires writing
Statute of Frauds: Estate Representative
A promise by an estate representative to use her own funds to pay estate expenses
Statute of Frauds: A promise given in consideration of marriage
Prenuptial and postnuptial agreements are within the statute of frauds
Mere promise to marry is not within the statute of frauds as it’s not in consideration of marriage so no writing is required
Statute of Frauds: Other agreements falling within the Statute in NY
Other Agreements that fall within the Statute of Frauds in NY:
Lifetime contracts (since NY interprets “lifetime” to mean contract is not performable within 1 year)
Promise to pay discharged debt
Assignment of insurance policy or promise to name beneficiary of such policy
Contracts to pay commission or finder’s fee, unless attorney, auctioneer or licensed real estate is involved
“Equal dignities rule” – in agent/principal relationship, if dealing with “interest in land,” agent must be authorized in writing or principal must ratify
Remember: Statute of Frauds is NOT applicable where there has been part performance of a lease agreement
Statute of Frauds: Contract Modifications
Statute of frauds applies to contract modifications only if the contract as modified falls under the statute of frauds
Common Law:
Clauses requiring a modification to be in writing are NOT enforceable
UCC Article 2:
Clauses requiring modifications to be in writing ARE enforceable
What kind of writing do you need under the Statute of Frauds?
1) UCC Article 2 Statute of Frauds:
For sale of goods the writing must include a quantity term and be signed by the defendant (the party asserting a statute of frauds defense). Reasoning: Don’t want plaintiff to just be making it all up – need proof the defendant was a pat of it
2) USS Article 2(a) Statute of Frauds
Writing has to state that:
a) It is a lease
b) The number of items leased
c) The term
d) The rental payments, and
e) It must be signed by the defendant
Remember this is only tested on the NY bar!
3) All other prongs
Writing must contain ALL material terms (“who,” “what) and be signed by the defendant
 Remember: If the writing has all material terms but the defendant didn’t sign it then it doesn’t satisfy the statute of frauds
Statute of Frauds: Exceptions: One Year Prong
FULL performance eliminates the need for a writing
Idea is if there is full performance there is less likelihood of fraud
Part performance is not sufficient to satisfy the full performance exception
If you do have part performance you can still recover in quasi-contract for the reasonable value of the benefit performed
Statute of Frauds: Exceptions: Real Estate Prong
Part performance eliminates the need for a writing
Part performance requires 2 out of these 3 things:
1) Some kind of payment – partial or full
2) Buyer makes improvements to the property
3) Buyer is in possession of the real estate
Note: payment alone, even full payment, is not enough to satisfy the part performance exception
Statute of Frauds: Exceptions: Sale of Goods: Goods Buyer Accepted or Paid For
1) Goods buyer accepted or paid for (but not the rest of the goods)
Goods Buyer Accepted:
If you have accepted the goods then not likely to be fraud so seller can recover contract price for the goods even without a writing
If goods not yet accepted by the buyer then fall under statute of frauds – exception only applies for the goods that are accepted, not other goods not accepted yet
Narrow exception
Goods Buyer Paid for:
If seller takes payment for all the goods he can’t then complain that there is no writing for the statute of frauds
Statute of Frauds: Exceptions: Sale of Goods: Judicial Admission
If the party admits in a judicial context that a contract was made then this exception applies (in pleading, testimony, etc)
Statute of Frauds: Exceptions: Sale of Goods: Custom Made Goods
If the goods are not suitable to sale to others than this exception applies – if the seller manufactures goods to the buyer’s specifications and can’t sell to anyone else then there is little chance of fraud and no writing is required
Statute of Frauds: Exceptions: Sale of Goods: Merchant's Confirmatory Memo
Confirming prior oral agreement
Statute of frauds recognizes merchants often enter into deals over the phone and may follow up with confirmatory memos. UCC doesn’t want to get in the way of this process so made this exception.
You can use your own letter to satisfy the statute of frauds against the other party to the agreement, BUT you must meet 3 requirements:
1) Both parties must be merchants
2) The writing must allege a prior oral agreement
3) There must not be a response
Statute of Frauds: Exceptions: Guarantee
If the guarantor’s main purpose in making the promise was to benefit himself, there’s no need for writing on the MULTISTATE***
Statute of Frauds: Equal Dignities Rule
Written authority to enter a contract on behalf of another person is required if the underlying contract falls within the Statute of Frauds
Treat person’s authority with equal dignity as the underlying contract
Parol Evidence Rule
***For the bar: Any question you get on the multistate will deal with the Parol Evidence Rule – Guaranteed to get 2-3 questions on this! Almost always the same questions we will discuss now.
The Parol Evidence Rule keeps out evidence of what the parties said and wrote before they reduced the terms of their agreement to writing.
Assumes a written version of an agreement is more reliable than anything that came before it – designed to give primacy to a later writing and basically ignores everything before.
Parol Evidence Rule bars getting in evidence of prior agreement either oral or written – remember to look for the written evidence too!
Parol Evidence Rule Exceptions
1) To correct a clerical error – can always get this in!
2) To establish a defense against formation of an agreement – to show there was a mutual mistake, the contract was illegal or unconscionable, etc
In example: saying flaw in agreement process, don’t want reformation and just want out of the contract
3) To explain/interpret the written contract - show what a term means
4) To supplement a “partially-integrated” writing. “Partially-integrated” means: a final statement of the terms that are included in the writing but not a complete statement of all the terms that were agreed to
Merger clause:
Watch out for a merger clause: “This contract is limited to the terms herein”
Merger clauses are evidence that the writing is complete on its face and therefore cannot be supplemented (all of prior terms have been merged into the later writing so can’t contradict or supplement the writing)
The parol evidence rule looks backwards and has absolutely nothing to do with what happens after the terms of an agreement are reduced to writing. What happens later on are governed by the rules of modification, not parol evidence.
Conduct of Parties to Explain Contract
Course of Performance: what the parties have done in this particular contract
Course of Dealing: what the parties have done under their earlier contracts with each other
Usage of Trade: what others in the trade do under similar contracts (furthest removed from this particular contract
Seller's Warranties: Express Warranty
Statement of fact, promise about the goods, guarantees, description of the goods = express warranties.
Use of sample or model is an express warranty that you will get goods like that model/sample – seller liable for breach of that warranty
A seller’s mere expression of opinion is not an express warranty, is not actionable by the buyer. Look for big general/subjective statements
Seller's Warranties: Implied Warranties: Implied Warranty of Merchantability
Goods fit for their ordinary purpose. Seller has to be a particular kind of merchant for this warranty = a merchant who “deals in goods of the kind” or merchant that sells this particular kind of good out of its own inventory
Shoe store selling shoes implied warranty shoes are fit for their ordinary use/purpose
Shoe store selling vans does not have implied warranty since doesn’t usually sell delivery vans – no special knowledge about vans
Seller's Warranties: Implied Warranties: Implied Warranty of Fitness
Requirements:
1) Buyer has to have a special purpose in mind
2) Buyer relies on seller to select suitable goods
3) Seller has to know those facts. Seller does not have to be a merchant at all. If question tells you why a buyer wants something it almost certainly has to do with the implied warranty of fitness.
Seller's Warranties of Quality in Lease of Goods under Article 2A of UCC
Exact same warranty in lease of goods as in sale of goods but watch out for the exception:
Special rule for finance lease
Lease good from a bank who buys it from a manufacturer – no implied warranties are made by the bank, only made from the manufacturer
This is because NY legislature loves banks
Limitations on Warranty Liability: Disclaimer
A seller can disclaim implied warranties but not express warranties (since seller can’t make an express warranty on the one hand and disclaim it on the other)
If disclaim all warranties and made an express one, the express one will survive. The implied warranties will be disclaimed
To disclaim implied warranties:
1) Provide for sale of good “as is” or “with all faults” = disclaimer of all implied warranties or
2) Make the disclaimer conspicuous by large print, bold face, different font, etc – need to catch the attention of a reasonable person
Limitations on Warranty Liability: Limiting Remedies
As long as the limitation is not unconscionable and shock the consciousness of the court, a seller can limit a buyer’s remedies for breach of any warranty. However, limiting a buyer’s remedies for personal injury is prima facie unconscionable if consumer goods are involved.
Seller can rebut that presumption but hard to do
You can limit the buyer’s remedies for breach of both express and implied warranties
Test for validity: whether the limitation was unconscionable at the time of the contract, not at the time of the mishap and that is a question of law for the court.
If the buyer suffered personal injury he can almost certainly recover damages because Article 2 says it is prima facie unconscionable to limit remedies for personal injury where consumer goods are involved.
Shipment Contract
Seller must get the goods to a common carrier, make reasonable delivery arrangements, and notify the buyer about the arrangements
Not required to get goods all the way to the buyer
Seller completes requirements long before buyer gets its goods
***On bar exam, assume you’re dealing with a shipment contract because that is the usual situation on the bar***
Destination Contract
Seller must get the goods to a specific destination (usually place where buyer is located)
When goods are damaged before the buyer gets the goods and neither the buyer nor the seller is to blame, who bares the risk of loss?
If seller bears the risk of loss: seller must provide new goods to buyer for no additional cost, or is liable for breach
If buyer bears risk: the buyer must still pay the contract price
The following hierarchy determines who bears the risk of loss:
Agreement of the parties controls
If there is a Breach: breaching party bears any uninsured loss, even if the loss is completely unrelated to the breach
If you find any breach at all the, breaching party has to bear the risk of loss
Risk of Loss: Delivery by Common Carrier
Risk shifts to buyer when the seller has completed its delivery obligations
FOB = “Free on Board”
It is always followed by the name of a city.
On the bar, if you have FOB followed by the city where the seller is located then you have a shipment contract.
If it’s FOB followed by the name of any OTHER city than where the seller is located (usually it’s the city where the buyer is located), then it is a destination contract.
Risk of Loss: No common carrier
(Situation where Buyer to pick up or seller to deliver) the answer depends on whether the seller is a merchant
If the seller is a merchant, seller bears the risk of loss until the buyer takes possession of the goods (logic is that a merchant seller is in a better position to bear risk of loss all the way up to the point where the buyer takes possession of the goods)
If seller is a non-merchant, seller bears the risk of loss until the seller “tenders” the goods (makes them available)
Tender = letting the buyer know where the goods are and how to get them
Buyer Right to Return Goods
If a contract gives a buyer the right to return goods: the key is whether the buyer is buying primarily for resale or his own use.
Primarily for resale (on the bar look for a “sale or return”): same rules apply
On the bar look for a “sale” or “return”
For buyer’s own use (“sale on approval”): risk of loss remains on the seller until the buyer has accepted the goods
Risk of Loss: Lease of Goods under Article 2A of UCC
The lessor bears the risk of loss, except in a finance loss
If you lease from the bank who bought it from the manufacturer, it’s a finance lease so the lessee, you, bear the risk of loss
Perfect Tender Rule
A seller must deliver perfect goods in the right place at the right time. If the seller fails to make perfect tender, the buyer has the right to reject the goods.
High standard for the seller.
Perfect Tender Rule: Option to Cure
Usually seller will have the option depending on whether or not the time for the seller’s performance has expired
Always the case when the question tells you when seller supposed to deliver and that the wrong goods arrived early
Usually if the time to perform expired there is no way to cure but there is an exception:
If buyer has been flexible in the past and took non-conforming goods instead of the goods required in the contract then seller reasonable in believing buyer may do it again so under those limited circumstances seller will still have an option to cure
Perfect Tender Rule: Installment Sales Contract
Requires or authorizes seller to deliver goods in separate installments – doesn’t matter what the seller does, just what the contract says
Assumption that in installment sales contracts the seller will cure its nonconforming performance in the course of ongoing performance
It is much more difficult for a buyer to reject in an installment sales contract. .
Perfect Tender Rule does not apply to installment sales contract – buyer can reject only if there is a substantial impairment = more difficult to reject
Perfect Tender Rule: Acceptance of Goods
Implied acceptance occurs when the buyer keeps the goods without objection after having an opportunity to inspect (don’t have to actually inspect, just keep the goods without objection when you have the OPPORTUNITY to inspect)
Acceptance of goods is a performance issue – likely to find an implied acceptance by the buyer on the bar
Merely paying for goods is not acceptance, must have a chance to inspect the goods first
On bar if there is a big break between date buyer receives goods and complains about them, the question is about implied acceptance
Once the buyer accepts goods, it is too late for the buyer to reject them. However, a buyer who accepts non-conforming goods can still get damages.
Perfect Tender Rule: Revocation of Acceptance of Goods
General rule is once a buyer accepts a buyer cannot revoke acceptance
Exception: narrow, buyer can revoke only if:
The non-conformity substantially impairs their value and the non-conformity was difficult to discover
Notice standard is “substantial impairment”
Perfect Tender Rule: Buyer's Payment Obligation
If it’s a Sunday and banks are closed: buyer gives seller a check, seller can say no but then buyer will have a reasonable amount of time to get the cash.
Performance of Common Law Contracts
In common law contracts, performance does not have to be perfect. Substantial performance is all that is required.
Substantial performance means that there is no material breach
(Material breach = no substantial performance; no substantial performance = material breach)
Almost is good enough
Other Party's Breach may provide an excuse for non-performance
1) Sale of Goods (UCC): If the Seller does not make perfect tender, the buyer can reject all the goods and is excused from paying the contract price – completely off the hook. Buyer doesn’t have to reject all of the goods but can do so and either way the buyer can sue the seller for breach of contract. Can take all the non-conforming goods and sue seller for damages, can take some of the goods or can take none of the goods (even the goods that are conforming) and can sue for damages
2) Common Law Contracts: Damages are available for any breach of contract (even relatively minor ones) but only a material breach excuses the injured party from having to perform. Although those who materially breach cannot sue based on the contract, they can still recover in quasi-contract for the benefit conferred.
Quasi-contract = ultimate remedy, even for those who commit material breach
Divisible Contract = payment on a per unit basis – do substantial performance on a per unit basis as well. If commit material breach still have to get payment for the work you did.
Other Party's Anticipatory Repudiation may provide an excuse for non-performance
Party must repudiate before performance is done.
If started work and then repudiated then can stop the work and sue for damages.
Anticipatory repudiation operates just like a material breach
You can retract your anticipatory repudiation as long as the other party did not rely on the repudiation (like in taking another job)
A later agreement may provide an excuse for non-performance: Rescission
An agreement to cancel the contract
For rescission to be effective need both parties to have some performance remaining under the contract = consideration for letting each other off the hook from the contract
A later agreement may provide an excuse for non-performance: Modification
An agreement substituting a new contract for an existing one
Discharge prior contract with modification
Modification takes effect immediately – right now! Look for the immediacy, word “now”
Modification comes up in different contexts/aspects within these different issues
A later agreement may provide an excuse for non-performance: Accord and Satisfaction
Accord = an agreement to accept a stated performance in the future in satisfaction of an existing duty
Satisfaction = performance of the accord
Accord extinguishes an existing obligation ONLY when the accord is satisfied
Look for the future reference, “then”
A later agreement may provide an excuse for non-performance: Novation
Agreement substitutes a new party for an existing party
Agree to the substitution means you give up your right to sue under the contract
Need consent before the substitution of a party, only lose your rights against the other party if you give them up
If not giving up your right, substituting the party, then just a mere delegation of duties and not a novation and don’t give up your rights
Doctrine of Impossibility as an Excuse for Performance: Destruction of something necessary for performance
Common Law: Later unforeseeable event making performance impossible provides an excuse for performance. Ex: destruction of something necessary for performance
Article 2 UCC: Destruction of goods: if destruction before buyer gets the goods, and the seller is not a merchant then the risk is on the seller BUT seller is excused if goods “identified to the contract” – lets the non-merchant seller off the hook if the goods are particular to the contract.
If destruction after good is tendered and buyer bears the risk the buyer is NOT excused just because the goods are destroyed
If the goods are fungible, can get it somewhere else/easily replaced, then seller not excused from performance because the seller can get it and give it to the buyer from somewhere else
Doctrine of Impossibility as an Excuse for Performance: Death or incapacity of someone essential for performance
Death/incapacitation of someone with special skills essential to the contract would be an excuse based on doctrine of impossibility
If anyone can do the task contracted for then no excuse based on death
**Need some evidence that the person who died was essential to the contract with special skills/reputation (essential) for death or incapacity to provide an excuse
Doctrine of Impossibility as an Excuse for Performance: Supervening Government Regulation or Order
If something is made illegal then excused from performing
Doctrine of Impossibility as an Excuse for Performance: Frustration of Purpose
Usually a buyer’s remedy
Look for:
1) At the time of the contract the party knew what the other party’s purpose was (know why someone’s renting the apartment – to watch the Thanksgiving parade)
2) Later unforeseen event thwarted that purpose (parade cancelled)
If the purpose just won’t be done as well, not as profitable, then not enough for frustration
Express Conditions
Language in the contract that limits obligations or duties created by other contract language
Look out for “if,” “so long as,” “provided,” “on condition that,” “unless,” and “when” – give rise to express condition
Strict compliance is required – if the condition is not fulfilled then the parties are excused
“Almost” isn’t good enough!
Express conditions do not create obligations so cannot sue based on breach of contract. Express conditions simply limit obligations otherwise created by the contract
Satisfaction Clauses
These are express conditions but you should apply an objective reasonable person standard unless the contract deals with art, aesthetics, or matters of personal taste
General rule is satisfaction = reasonable satisfaction so as long as reasonable person would be satisfied, have to comply with the contract
If the question deals with art, aesthetics or personal taste then apply a subjective standard and only care about what that party thinks
Conditions precedent/concurrent/ subsequent
Condition precedent: must be fulfilled before the obligation matures
Look for “if it…”
Most likely to encounter:
Condition Concurrent: runs along side/parallel the obligation
Look for phrases like “as long as”
Condition Subsequent: performance comes first and then occurrence of the condition cuts it off
Look for phrases like “until”
The occurrence of a condition may be excused by the later action (or inaction) of the person who is protected by the condition
Every condition protects someone, that’s what they are – don’t have to perform or can stop performing based on the condition happens
First ask: Who is protected by the condition? then: Did the protected party do or say anything to give up that protection?
Strict compliance is required
With an excuse the party protected gives up that protection
1) Failure to cooperate may excuse the occurrence of a condition
2) A person may be estopped from insisting that a condition occur (requires a later statement by the protected party AND reliance by the other party)
In Rem Remedies: Specific Performance
Equitable remedy available ONLY if monetary damages are clearly inadequate to compensate the injured party
Usually not the right answer on the multistate
Availability of specific performance depends in part on the nature of the contract itself
Real Property:
Viewed as unique (whether it is or isn’t): Law says there’s no monetary substitute for real property
Sale of Goods:
Under UCC specific performance is available ONLY if the goods are unique. Only unique if:
1) Work of Art or
2) Antique or
3) Custom Made Goods
Sale of Services:
Cannot get specific performance of a service contract
Would be wrong, distasteful to the court and the person probably wouldn’t do a good job
CAN get an injunction to bar employees from going to work for a competitor – courts are willing to bar this
This is sometimes called: Negative specific performance
In Rem Remedies: Equitable Defenses Available to Specific Performance
1) Laches: a claim that the plaintiff has delayed bringing the action and that the delay has prejudiced the defendant
2) Unclean Hands: a claim that the party seeking specific performance is guilty of wrongdoing in the transaction being sued upon
In Rem Remedies: Right to Reclamation
Generally an unpaid seller has no right to reclaim goods from a buyer
Exception:
1) If buyer was insolvent when he received the goods and
2) Seller makes a demand within ten days thereafter
(Seller may have additional rights under bankruptcy law but not relevant here)
***Bar Tip: don’t assume that the buyer is insolvent just because he had difficulties, the problem needs to actually say buyer was insolvent
10 day period starts to run on the date the buyer receives the goods
Note: Seller has no right to get the goods back from a third party
In Rem Remedies: Entrustment under Article 2 of UCC
An entrusting owner has no rights against a bona fide purchaser (“BFP”)
***On the bar always going to be the fact pattern: Owner takes something (watch/jewelry/car) into the merchant go be serviced or repaired and merchant sells it to someone else
UCC protects BFP and the original owner’s only right is to sue the merchant for conversion
In Rem Remedies: Right to Request Assurance under Article 2 of UCC
A party with reasonable grounds for insecurity may request adequate assurance from the other party
Need reasonable grounds and the request for assurance must be in writing
If seller fails to give adequate assurance after requested then the buyer can treat it as a repudiation of the contract but keep in mind that the seller can retract that repudiation as long as the buyer didn’t rely on it
You cannot use this provision to rewrite the contact – can’t later on make some other demand not in the contract
Nor can you demand a particular kind of assurance – you are ONLY entitled to adequate assurance and that depends on the facts and circumstances
Monetary Damages: Punitive Damages
They are NOT awarded for breach of contract because the purpose of contract damages it to compensate, not to punish (Common Law and UCC Article 2). Parties can’t put in a punitive damages clause either
Monetary Damage: Liquidated Damages
Liquidated Damages Clauses (LDC) are valid, in common law and UCC Article 2, if
1) Damages were difficult to estimate and
2) The clause is a reasonable forecast of probable damages
**On multistate these question will always be about the validity of the cost – try to figure out whether you have an enforceable LDC or a penalty clause
Flexibility: If the LDC is flexible then it is almost always valid – like a per diem or flexible formula (such as $100/day for delay)
Fixed Figure: If the LDC includes a fixed figure it is probably not valid (One size does not fit all – saying you have to pay $2,000 in damages whether 1 day or 50 days late is inflexible and invalid)
Remember the parties can’t have a punitive damages clause but can have a liquidated damages clause as long as damages were difficult to estimate and it is a reasonable forecast of probable damages
Monetary Damages: Expectation Damages: Buyer's Damages under UCC
Expectation damages are the norm here too
Buyer’s damages: cover minus contract price if buyer uses good faith or else market minus contract price. Requires buyer to use good faith to get cover minus contract! It’s ok if buyer paid more than market price as long as the buyer used good faith. Buyer can’t use seller’s breach to benefit himself – why require buyer to use good faith. Even if don’t actually buy the replacement still get the damages = difference between market and contract price
Damages are based on what the buyer would have paid if he had paid market price
Summary: buyer gets cover minus contract if he covers in good faith and otherwise gets market minus contract. Even if the buyer does nothing, he gets market minus contract price.
Exception:
Where buyer keeps nonconforming goods:
Buyer can take nonconforming goods and sell for damages.
Damages computation: get difference between market value of the goods as promised and market value of goods actually delivered
This fulfills the same principle that you put the buyer where they expected to be from the contract
If you make a good deal you are still entitled to the benefit of your bargain. Article 2 is fulfilling the buyer’s expectations
Monetary Damages: Expectation Damages: Common Law Damages
A sum that leaves the injured party in the same position as full performance (benefit of the bargain) – this is the typical measure of damages.
Common Law Damages: Loss in value minus cost avoided
Usually subtracting smaller number from larger number – look at what the loss of value is and the subtract the cost avoided
Remember need to be in the EXACT same place would have been as with performance
Monetary Damages: Expectation Damages: Seller's Damages under UCC
Contract price minus resale price or contract price minus market price
Seller must use good faith where he does a resale just like the buyer – if not, limit to difference between contract price and market price. Seller usually is damaged in a falling market where buyer can get same thing cheaper elsewhere. If decide not to resell at all the seller is still entitled to the difference between contact and market price. In essence, the seller’s damages are pretty much like the buyer’s but only in reverse: get contract minus resale as long as good faith and get contract minus market otherwise
Monetary Damages: Expectation Damages: Seller's Damages under UCC Exception of the Lost Volume Seller
Lost volume seller = Losses volume because of the breach because could have made 2 sales instead of 1
If resell for exactly the same price = lost volume seller because could have sold 2 identical goods instead of just the one
Key = sell good out of REGULAR INVENTORY
Damages = The lost profit, fulfills the expectation
Monetary Damages: Incidental Damages
The costs of caring for/transporting goods after breach, and the costs of arranging a substitute transaction (Common law and Article 2)
Ex: if have to advertise to find someone else to do the job/other replacement goods, those advertising costs are incidental; arranging a cover transaction or resale, etc
These are recoverable by either the buyer or the seller depending on who incurs those costs
Incidental damages are always recoverable and are NOT subject to a requirement of foreseeability
Monetary Damages: Consequential Damages
Special to this particular plaintiff and were reasonably foreseeable at the time of contract (Common law and Article 2)
These are subject to the requirement of foreseeability
Here talking about special circumstances, this particular plaintiff BUT to get damages they need to be reasonably foreseeable to the defendant
Need to be reasonably foreseeable at the time of contract because that’s when the parties assess the risk of performance and whether they want to be part of the contract
**More likely to encounter than incidental damages
Monetary Damages: Avoidable Damages
You cannot recover damages that you could have avoided with reasonable effort (the “rule” of mitigation)
This deals with employment contracts – subtract out what employee could have made at comparable job (same kind of job in same city)
Don’t let you sit back and do nothing when you could have avoided the damages with reasonable effort
Only required to mitigate and this is a defense so the defendant has the burden of proof
Damages in NY
For contracts for the sale of land: if the vendor cannot deliver good title because of a defect of which he was unaware, then damages equal to the down payment plus reasonable expenses. If the vendor acts in bad faith, apply the multistate rule.
Breaching Party may recover under quasi-contract for less than substantial performance, unless a statutory exception applies (ex: UCC for goods or down payment in real estate)
Delegation of Duties
1) General Rule: Contractual duties may be delegated without the consent of the person to whom the performance is owed (the “oblige”)
2) Exceptions:
a) Contract Language Controls: If contract prohibits delegation then the contact cannot be delegated. If the contract says no assignment then no delegation either
b) Duties involving special skill or reputation cannot be delegated. Even if the person has a similar skill/reputation the duty cannot be delegated
c) The delegating party remains liable to the obligee. Delegation is just a delegation of duties, delegating party remains liable. Distinguish this from a novation - If it is a NOVATION then no longer liable – excused parties are off the hook for novation
The delegate is also liable to the oblige if the delegate received consideration
Assignment of Rights
1) Definition: 2 people make a contract, one person transfers his rights under the contract to a 3rd party. Assignment transfers only rights, not obligations
2) Vocabulary:
Assignor: person who later transfers rights under a contract
Assignee: person to whom the rights are transferred
Obligor: person who owes the assigned performance
3) Requirements for Effective Assignments
Gift assignments are valid however the lack of consideration will affect revocability. If the assignment is for a sum of $5000 or more it has to be in writing. You have to have language of present assignment: have to say “I assign,” or “I hereby assign” and not “I promise” or “I will” assign
Assignment of Rights: Restrictions on Assignment
Contract Clauses:
Look for language in the contract itself: distinguish clause that merely prohibits assignment from a clause that completely invalidates the assignment. If language merely prohibits assignment then you can do it. Will be liable for breach of contract because you violate the contract BUT the assignment itself is still valid.
Language of “All assignments under this contract are void” completely invalidates assignments – not only saying “don’t do it,” but saying they won’t be valid if you do them
Court Imposed Limitation:
An assignment cannot substantially change duties of the obligor. Can always assign the right to payment absent language prohibiting that since its just as easy for one party to pay as another
It used to be the case that requirements assignments were not assignable but now they ARE as long as the assignee’s requirements are not out of line with the assignor’s
Rights of an Assignee
1) The assignee can sue the obligor for breach of contract. The assignment creates privity between the assignee and obligor – right to enforce the contract transfers to the assignee.
2) The obligor has the same defenses against the assignee it would have had against the assignor. The assignee “steps into the assignor’s shoes”
3) Payment by the obligor to the assignor is effective unless the obligor is aware of the assignment
Multiple Assignments
1) Gratuitous assignments:
The last gratuitous assignee in time wins because a later gift assignment revokes an earlier one. On the multistate, writing doesn’t matter BUT in NY written assignment means the person with the written assignment prevails. The writing stands as a substitute for consideration.
Note: Gratuitous assignments have no consideration involved, they are permitted but very fragile and easily revoked.
2) Assignments for consideration:
The first assignee for consideration wins because assignments for consideration are much more durable in nature
Remember that a PROMISE to assign is NO GOOD, you need to presently assign it for it to count.
Being the first to notify the obligor is not enough, have to also be the firs to obtain payment from or judgment against the obligor
Can sue obligor for breach of warranty of assignment that comes along with consideration if obligor gives wrong person the payment
Assignments in NY
Gratuitous Assignment: A gratuitous assignment is irrevocable IF in writing and signed by the assignor
Assignment for Consideration: NY has an additional exception to the successive assignments of the same rights rule where the assignment of a construction contract or money due thereunder is not valid until filed. Thus, a subsequent assignee in good faith, who filed first, prevails over the party who failed to file
Third Party Beneficiary
1) Definition:
2 people enter into a contract with the intention to benefit a third party. The intended beneficiary can enforce the contract.
2) Vocabulary
Third Party Beneficiary: person who did not make the contract but still has a right under it, because the contract was intended to benefit him
Promisor: person who promises to do something for the third party
Promisee: the other contracting party
Intended/incidental beneficiary: if the third party is named in the contract, he is an intended beneficiary; if not he is an incidental beneficiary. This is significant because only an intended beneficiary has legal rights.
Generally if named in contract you are an intended beneficiary, if not you aren’t, just an incidental beneficiary with no legal right
Can ONLY recover if intended beneficiary
Creditor/donee beneficiary: if the promisee’s primary reason for entering the contract is to discharge a debt he owes to the third party, the third party is a creditor beneficiary; otherwise, he is a donee beneficiary
Donee’s beneficiary is juts a gift – these are the usual case
If main purpose is to pay off a debt then creditor beneficiary = very rare
Third Party Beneficiary Rescission/Modification
The promisor and the promise can rescind or modify the contract until the rights of the third party beneficiary have “vested”
When does the third party beneficiary rights vest?
Once know about AND rely on the contract then the rights have vested
Rights of Third Party Beneficiary
1) A third party beneficiary can sue the breaching promisor. Even though there’s no privity between them, if the third party beneficiary is intended then he can sue the breaching promisor
2) The promisor can raise the same defenses against the third party beneficiary that it could have raised against the promissee
3) Only a creditor-beneficiary can sue the promissee. Relatively rare since don’t usually find a creditor-beneficiary
Donee-beneficiaries can’t sue the promissee since it was just a gift
Promissee Can Recover from Breaching Promisor
Just like any other contract, can sue a breaching party. Can also sue donee beneficiary but in that case the promisor wouldn’t have suffered very much damage