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159 Cards in this Set

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Checklist for bar review - Armadillos from Texas play rap, eating tacos.
1. Applicable law
2. Formation of Contracts
3. Terms of Contract
4. Performance
5. Remedies for unexcused nonperformance
6. Excuse of nonperformance
7. Third-party problems
What is a contract?
An agreement that is legally enforceable.

- Step 1: Look first for an agreement

(initial communication - "offer", followed by termination of the offer and then look to see who responds & how she responds - "acceptance")

- Step 2: Ask, is the agreement legally enforceable?

(A promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty)
What are quasi / implied in law contracts?
They are not contracts at all. They are equitable remedies (used anytime contract law produces an unfair result):

1) π has conferred a benefit on ∆, and

2) π reasonably expected to be paid, and

3) ∆ realized unjust enrichment if π not compensated.

Measure of recovery: Contract price is not the measure of recovery. Focus on value of benefit conferred. Courts construct quasi-contracts to avoid unjust enrichment by permitting the π to bring an action in restitution to recover the amount of the benefit conferred on the ∆. The contract price is a ceiling if π is in default.
What is a unilateral contract?
Results from an offer that expressly requires performance as the ONLY possible form of acceptance.

(Offer determines whether we're dealing with a unilateral contract - the offeror-promisor promises to pay upon the completion of the requested act by the promisee)
What is a bilateral contract?
- Contract consisting of the exchange of mutual promises, i.e., a promise for a promise, in which each party is both a promisor and a promisee.

- Virtually every contract - usually involves offer that is silent as to acceptance (offer that is open to the method of acceptance)

- Assume K is a bilateral contract UNLESS (1) reward, prize, contest (2) offer expressly requires performance for acceptance
What does the common law of contracts apply to?
When it is NOT a sale of goods:

1) Service contracts

2) Real estate contracts
What does Article 2 of the UCC apply to?
- Type of transaction: the sale of goods

- Subject matter of transaction: all things movable at the time they are identified as the goods to be sold under the contract - tangible, personal property (e.g., cars, horses, hamburgers)

- Does NOT apply to the sale of real estate, services (e.g., a health club membership), or intangibles (e.g., a patent), or to construction contracts.

Note: Article 2 applies to the sale of goods regardless of the dollar amount.
What about mixed deals?

(those involving services and the sale of goods)
Mixed deal: general rule -- all or nothing/more important part -- either Article 2 applies to the entire deal or none of it -- when the c/l & Art 2 differ, Art 2 prevails in a contract for the sale of goods.

EXCEPTION: If a mixed deal contract divides payment, then apply the UCC to the sale of goods part of the contract and common law to the rest of the contract.
What is an offer?
An offer is a manifestation of an intention to contract - words or conduct showing commitment.

Basic test: whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract.

General rule regarding the CONTENT of an offer: the offer is NOT required to contain all material terms (subject to special content of offer rules which follow)
Is there an offer if there is a missing price term in a sales contract?
Common law (sale of real estate) = no offer - price and land description must be a part of the communication or it is not an offer

UCC Art 2 (sale of goods) = offer - no price requirement, offer if parties so intend - price will be a reasonable price at the time of delivery
Is there an offer if there are vague or ambiguous material terms?
No. There is NOT an offer under either the common law or UCC if there are vague or ambiguous material terms.

**Watch for following vague/ambiguous terms which do NOT create an offer: "appropriate", "fair", or "reasonable" price
What are requirements and outputs contracts?
- A contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyer's requirements OR seller's output OR in terms of exclusivity.

**Watch for the following 5 magic words in the first communication: requirements, all, only, exclusively, or solely.
Can a buyer increase requirements in a requirements contract?
- Yes, so long as the increase is in line with prior demands.

- It is assumed that the parties will act in good faith; hence, there may NOT be a tender of or a demand for a quantity UNREASONABLY DISPROPORTIONATE to:

(i) any stated estimate, or

(ii) (in the absence of a stated estimate) any normal or otherwise comparable prior output or requirements.
When can an advertisement be an offer?
General rule: An advertisement is NOT an offer -- usually is just an invitation for someone to come in and deal.

However, advertisements CAN BE offers when:

1. They are in the nature of a reward ("$500 to the person who finds my lost dog.")

2. They specify quantity and expressly indicate who can accept ("1 fur coat $10 - first come, first served.")

- The more definite the language (e.g., "I'll sell for..." or "I'll pay you $10 for..."), the more likely the statement is an offer.
How can an offer be terminated? (Four Methods)
- An offer CANNOT be accepted IF it has been terminated. An that has been terminated is "dead."

1. Lapse of time.

(offer may be terminated by the offeree's failure to accept w/in the time specified by the offer or, if no deadline was specified, w/in a reasonable period - watch for (1) date offer was made AND (2) date of response to offer; figure out how much time has passed; and if the delay is a month or more, then conclude that the offer was terminated & acceptance is ineffective)

2. Death or incapacity of either party after the offer but before acceptance terminates offer.

(Offer dies automatically; there's no awareness requirement. Exception: Irrevocable offers -- option or part performance of an offer to enter into an unilateral contract)

3. Revocation of an offer by the offeror.

4. Rejection of an offer by the offeree.

Note: Destruction of the proposed K's subject matter or a supervening illegality will also terminate an offer by operation of law.
How can an offer be revoked?
- The offeror is the ONLY person who can revoke the offer.

a. Unambiguous STATEMENT by offeror to offeree of unwillingness or inability to contract.

b. Unambiguous CONDUCT by offeror indicating an unwillingness or inability to contract that offeree is aware of.

c. Offeree must be aware of the offeror's revocation; offeree may learn of revocation from offeror OR a 3rd party.

Note: Multiple offers to multiple parties do not constitute revocation.
When does revocation of an offer become effective?
1) Revocation of an offer sent through the mail is NOT effective until received.

2) An offer CANNOT be revoked after it has been accepted.
How can an offer be rendered irrevocable?
Offers can be revoked at will by the offeror, even if he has promised not to revoke for a certain period, except in the following circumstances:

1) Options

2) Merchant's Firm Offer Under UCC Article 2

3) Reasonably Foreseeable Detrimental Reliance

4) Part Performance of a True Unilateral Contract
What are the requirements for an option?
An offer cannot be revoked if the offeror has not only made an offer but also:

1. Promised not to revoke the outstanding offer (or promised to keep the offer "open"), and

2. This promise is supported by payment or other consideration given by the offeree ("option").

("paid-for promise" - e.g., an offeror offers to sell her farm to an offeree for $1 million and promises to keep the offer open for 90 days if the offeree pays the offeror $1,000 to keep the offer open - if the offeree pays the offeror $1,000 to keep the offer open, then the original offer is irrevocable for 90 days)
What is the UCC "Firm Offer Rule"?

[BAR FAVORITE]
An offer cannot be revoked for lack of consideration during the time stated, or if no time is stated, for a reasonable time up to THREE MONTHS if:

1. Offer to buy or sell goods,

2. Signed, written promise to keep the offer open, and

3. Offeror is a merchant.

(Merchant is GENERALLY a person in business)

- An agreement with a clause prohibiting revocation for more than 3 months will be reduced to 3 months.

- For the firm offer rule to apply, there must be an express commitment not to revoke.
What about detrimental reliance as a limitation on the offeror's power to revoke?
An offer cannot be revoked if there has been:

1) Reliance that is

2) Reasonably foreseeable and

3) Detrimental.

- EX: General contractor using subcontractor's bid -- it's safe to treat such a bid as an offer -- if G uses S's bid to do painting work in making its bid on a contract to build a new hotel, for instance, and is awarded the construction contract, then S cannot revoke its bid because there is reasonably foreseeable detrimental reliance present.

- In other words: when the offeror could reasonably expect that the offeree would rely to her detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option K for a reasonable length of time. At the very least, the offeree would be entitled to relief measured by the extent of any detrimental reliance.
What about part performance as a limitation on the offeror's power to revoke?
- Under the 1st & 2nd Restatements & UCC Art 2, an offer for a true unilateral contract becomes irrevocable once performance has begun. The offeror must give the offeree a reasonable time to complete performance.

- Must be an offer to enter into a unilateral contract.

- Note: the offeree is not bound to complete performance - she may withdraw at any time prior to completion of performance and there is no acceptance until performance is complete.

- Distinguish Mere Preparations to Perform: substantial preparations to perform (as opposed to the beginning of performance) do not make the offer irrevocable but may constitute detrimental reliance sufficient to make the offeror's promise binding to the extent of the detrimental reliance.
What are the three methods of indirect rejection?
1. Counteroffer

2. Conditional Acceptance

3. Additional Terms to a Common Law Contract (Mirror Image Rule)
What is a counteroffer?
- A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms (e.g., "I'll take the house at that price, but only if you paint it first").

- A counteroffer generally terminates the offer and becomes a new offer. Thus, generally, where a counteroffer has been made there is no express contract unless that counteroffer has itself been accepted.

- Distinguish between a counteroffer (which constitutes a rejection) and a mere inquiry (bargaining). An inquiry will not terminate the offer when it is consistent with the idea that the offeree is still keeping the original proposal under consideration (e.g., "Would you consider lowering your price by $5,000?"). The test is whether a reasonable person would believe that the original offer had been rejected.

Tip: If the response to an offer is simply a statement with different terms, then construe as a counteroffer terminating the original offer. However, if the response to an offer is a question, then interpret as an inquiry / bargaining and the original offer is still alive.
Does a rejection of or a counteroffer to an option constitute a termination of an offer?
NO. Because an option is a contract to keep an offer open, a rejection of or a counteroffer to an option does NOT constitute a termination of the offer. The offeree is still free to accept the original offer within the option period unless the offeror had detrimentally relied on the offeree's rejection.
What is a conditional acceptance? Common law vs. UCC Art 2?

[BAR FAVORITE]
A conditional acceptance terminates the offer. Look for a response to an offer with the word "accept" followed by one of these words or phrases: "if," "only if," "provided," "so long as," "but" or "on condition that."

- Common law: a conditional acceptance acts as a counteroffer, rejecting the original offer and serving as a new offer.

- UCC Article 2: a conditional acceptance simply rejects an offer and does not act as a counteroffer.
Additional Terms to a Common Law Contract:

Mirror Image Rule vs. UCC Article 2 (2-207)

[BAR FAVORITE]
Common law mirror image rule: a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance. In order for a response to be an acceptance of an offer, it has to look exactly like the offer.

UCC Article 2 (Additional Terms Still Acceptable):

Question 1: Is there a contract? Under UCC Art 2, a response to an offer to buy or sell goods that adds new terms (but does not make the new terms a condition of acceptance -- i.e., does NOT insist on added terms) is generally treated as an acceptance -- is generally a "seasonable expression of acceptance." Whether the parties are merchants is irrelevant in answering this first question.

Question 2: Is the additional term a part of the contract? The additional term is a part of the contract only if:

(i) Both parties are merchants AND
(ii) Additional term is not "material" (fact question) AND
(iii) The additional term is not objected by the offeror.

- If one or both of the parties is NOT a merchant, then the additional term is merely a proposal that is to be separately accepted or rejected -- still have a contract.
What is an acceptance?
An acceptance is a manifestation of assent to the terms of an offer.
Who may accept an offer?
Generally, an offer can be accepted only by:

1) A person who knows about the offer AT THE TIME she accepts

AND

2) Who is the person to whom it was made (power of acceptance).

Generally, an offeree's power of acceptance CANNOT be assigned. However, if the offeree has paid consideration to keep the offer open (i.e., an option contract was created), the right to accept IS transferable unless the option otherwise provides.

**Note - Rewards: Like all offerees, the offeree of a unilateral contract must know of the offer to accept it. If the "offeree" acts without knowledge and learns of the offer later, his acts were not an acceptance. Thus, if A finds O's watch and returns it to O without knowledge of O's reward offer, A has no contractual right to the reward.
How does performance affect acceptance?
General rule: Start of performance is acceptance. Starting to perform is treated as an implied promise to perform and so there is a bilateral contract.

Exception: Start of performance is NOT acceptance of UNILATERAL contract offers. Completion of performance is required.

Again, start of performance is an implied promise to perform. Offers to enter into unilateral contracts cannot be accepted by a promise. If an offer requires "performance" for acceptance, then "performance" for purposes of acceptance of that offer means completion of performance.

Watch for fact patterns with 3 characteristics: 1st - verbal offer, 2nd - no words in response, and 3rd - start of performance, which is acceptance in a bilateral contract.
What is the Mailbox Rule?

(Distance and delay in communications)
Acceptance by mail or similar means creates a contract at the moment of dispatch ("effective at dispatch"), provided that the mail is properly addressed and stamped UNLESS:

1) The offer stipulates that acceptance is not effective until received; or

2) An option contract is involved (an acceptance under an option contract is effective only upon receipt by the option deadline).

3) If the offeree sends a rejection and then sends an acceptance, whichever arrives first is effective.

4) If the offeree sends an acceptance and then a rejection, the acceptance is effective (i.e., the mailbox rule applies) unless the rejection arrives first and the offeror detrimentally relies on it.

Note: REVOCATION by the offeror and REJECTION by the offeree are effective when RECEIVED.

**All communications other than acceptance are effective only when received.

**See CMR pp. 10 & 13-14
Is there acceptance when a seller sends the wrong goods?
The shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of the contract (acceptance + breach) unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation (i.e., explanation). The buyer is not required to accept accommodation goods and may reject them. If he does, the shipper is not in breach and may reclaim the accommodation goods, because her tender does not constitute an acceptance of the buyer's original offer (counteroffer + no breach -- no contract).
Does silence by the offeree constitute acceptance?
- Ordinarily, if a party does not say or do anything in response to another party's offer, then he or she has not accepted the offer.

- However, if π proves that both he and ∆ understood silence or inaction to mean that ∆ had accepted π's offer, then there was an acceptance. Specifically, Section 69(1) of the Restatement 2nd of Contracts provides:

(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:

(a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.

(b) Where the offeror has stated or given the offeree reason to understand the assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.

(c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.
What are the legal reasons for why an agreement may not be legally enforceable?
A contract is more than an agreement. Some agreements are not legally enforceable. Legal reasons for not enforcing an agreement include:

1. Lack of consideration (or a consideration substitute for the promise at issue)
2. Lack of capacity of the person who made that promise
3. Statute of Frauds
4. Existing laws that prohibit performance of the agreement
5. Public policy
6. Misrepresentations
7. Nondisclosure
8. Duress
9. Unconscionability
10. Ambiguity in words of agreement; and
11. Mistakes at the time of the agreement as to the material facts affecting the agreement.
What is consideration?
Courts will enforce a promise as a contract only if it is supported by consideration or a substitute for consideration. Basically, two elements are necessary to constitute consideration ("bargained-for legal detriment"):

(i) There must be a bargained-for exchange between the parties; and

(ii) That which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee.
What does "bargained for" mean?
- Asked for by the promisor IN EXCHANGE for her promises.

- I.D. the person who is not doing what he allegedly agreed to do and ask yourself, did he ask for anything in exchange for his promise?

- If he did not ask for anything in exchange for his promise, it is NOT consideration no matter how much of a benefit it was.

- In order to be consideration, it must have been "asked for in exchange."
What does "legal detriment" mean?
- Doing something not legally obligated to do.

- Not doing something legally entitled to do.
How should you analyze consideration questions on the bar exam?
- I.D. the promisor (∆) & ask what did he bargain for? I.D. the promisee (π) & ask what did she incur?

Go through the following three steps:

1) Identify the promise breaker, i.e., the person who is not doing what she promised to do.

2) Ask whether that person asked for something in return for her promise, i.e., bargained for something.

3) Look at the person who is trying to enforce the promise and ask what requested legal detriment that person sustained.

In sum, look for bargained-for legal detriment (asked for by the promisor IN EXCHANGE for her promises).
Forms of Consideration
1. Performance (doing something not legally obligated to do)

2. Forbearance (not doing something legally entitled to do)

3. Promise to perform (exception: illusory promise)

4. Promise to forbear
Can a promise be consideration?
- Yes, a promise CAN be consideration because an exchange of conditional promises satisfies the mutuality requirement.

- However, if only one party is bound to perform (i.e., the condition is entirely within the promisor's control), the promise is ILLUSORY and will not be enforced (e.g., "S promises to sell her house to B unless she changes her mind").

- The requirement of mutuality calls for consideration to exist on both sides of a contract (although the benefit of the consideration generally need not flow to all parties).
What about the adequacy of consideration?
- NOT relevant in contract law.

- A mere peppercorn is enough.
Does past consideration constitute consideration?

[BAR FAVORITE]
General rule: NOT consideration

(a promise given in exchange for something already done does not satisfy the bargain requirement - there is no bargain involved when one party gives a gift to another - e.g., "In consideration of your having done X, I promise you $1,000")

Exception: EXPRESSLY requested by promisor and expectation of payment by promisee

(if a past act benefited the promisor and was performed by the promisee at the promisor's request or in response to an emergency, a subsequent promise to pay for that act will be enforceable)
What is the preexisting contractual or statutory duty rule?
Common Law, General Rule: Doing what you are already legally obligated to do is not new consideration for a new promise to pay you more to do merely that. There's NO new detriment. Under common law, new consideration is required for contract modification.

Exceptions - There is consideration if:

*1) Addition to or change in performance (new / different consideration is promised)

*2) Unforeseen difficulty so severe as to excuse performance

*3) 3rd party promises to pay

4) Honest dispute as to the duty

5) The promise is to ratify a voidable obligation (e.g., a promise to ratify a minor's contract after reaching majority, a promise to go through with a contract despite the other party's fraud)

UCC Article 2: No preexisting legal duty rule. New consideration is not required to modify a sale of goods contract. Good faith is the test for changes to an existing sale of goods contract -- under the UCC, you can modify a contract w/o new consideration so long as it's done in good faith.
Is part payment consideration for a release?

(i.e., promise to forgive balance of debt)

[BAR FAVORITE]
- Key is whether the debt is due and undisputed. If debt is due and undisputed, then part payment is NOT consideration for release.

- An agreement not to collect the rest of a payment owed is NOT enforceable without new consideration.

- Exception: if it is a debt, not yet due or is disputed, then the early payment serves as new consideration.
Is a written promise to satisfy an obligation for which there is a legal defense enforceable without consideration?

[BAR FAVORITE]
- Yes. A written promise to satisfy an obligation (debt) for which there is a legal defense (barred by S.O.L.) is enforceable without consideration.

- The writing is the substitute for consideration.

- The new promise is enforceable, NOT the promise barred by the S.O.L. limitation.

- Example: D owes C $1,000. Legal action to collect this debt is barred by the S.O.L. D writes C, "I know that I owe you $1,000. I will pay you $600." While there is not new consideration for D's new promise, C can still enforce the new $600 promise because the writing serves as a consideration substitute.
Does a seal constitute a substitute for consideration?
NO. The majority rule is now that a seal is NOT a consideration substitute.
What is promissory estoppel / detrimental reliance?

[THE MOST IMPORTANT CONSIDERATION SUBSTITUTE]
Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing --

Elements:

1. Promise followed by

2. Reliance that is reasonable, detrimental and foreseeable creating a situation where

3. Enforcement is necessary to avoid injustice

(A promise is enforceable if necessary to prevent injustice if the promisor should reasonably expect to induce action or forbearance of a definite and substantial character and such action or forbearance is in fact limited. It may be limited as justice requires.)
Consideration v. Promissory Estoppel...
Consideration: always a story about someone doing something they were asked to do.

Promissory Estoppel: always a story about someone doing what they were NOT asked to do.

Example: L leases a building to T. L sends T a letter promising to renew the lease without a rent increase. T paints the building. Notwithstanding her promise and T's painting the building, L increases the rent. T sues L for breach of contract. Is T's painting the building "consideration"? NO. Promissory estoppel? YES.
Legal reason for not enforcing an agreement -- defendant promisor's lack of capacity:

Who lacks capacity to contract?
1. Infants - under 18

2. Mental incompetents - lack ability to understand the agreement

3. Intoxicated persons - if the other party has reason to know of the intoxication
What are the consequences of the legal incapacity to contract?
1. Right to disaffirm contract by person without capacity (such contracts are voidable)

2. Implied affirmation by retaining benefits after gaining capacity

(it is as if you made a new agreement when you retain the benefits without complaint/objection after gaining capacity)

3. Quasi-contract liability for reasonable value of necessaries

(a person who does NOT have capacity IS legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter but that liability is based on quasi-contract law, not contract law -- there is NO K liability on the part of a person who is still incapacitated, even for necessaries -- under quasi-contract, equity, courts look not at the agreed upon price but at the value of the benefit conferred)
What is the STATUTE OF FRAUDS defense?
- A S.O.F. is a statute designed to prevent fraudulent claims of the existence of a contract. It makes it harder to make such a false or fraudulent claim by requiring the claimant have proof that a K exists through either performance or a writing signed by the person who is asserting that there was no such agreement before the claimant gets its day in court.

- Look for the word, "oral."

- Three primary S.O.F. issues:

1. Is the contract within the Statute of Frauds?

2. If so, is the Statute of Frauds satisfied? (if yes, no S/F defense)

3. Is there a Statute of Frauds defense?
What types of agreements are covered by the Statute of Frauds?
The material terms of these contracts must be evidenced by something in writing signed by the party to be charged (i.e., the person to be sued) - "MY LEGS":

1. Promises in Consideration of MARRIAGE (see card 53)

2. Service contracts not capable of being performed within one YEAR from the time of the contract (see card 54)

3. LAND: Transfers of Interest in Real Estate of a Term of More Than One Year (see card 55)

4. EXECUTOR or Administrator Promises to Pay Estate's Debts Out of His Own Funds

5. Sale of GOODS for $500 or more (see card 56)

6. SURETYSHIP promises -- a promise to answer for the debt or default of another (see card 57)

[Also: leases of goods with the payment totaling $1000 or more]
Promises in Consideration of Marriage
- A promise the consideration for which is marriage must be evidenced by a writing (i.e., the S.O.F. applies).

- Not merely a promise to marry, but rather a promise to do something or refrain from doing something IF we marry.

(i.e., promises that induce marriage by offering something of value other than a return promise to marry -- e.g., "if you marry my son, I will give the two of you a house")
Service Contract NOT capable of being performed within a year from the date of the agreement

(i.e., more than one year)
- Is there any way the service K can be performed within a year of the date of the agreement? It is NOT how long he is actually working, for instance when in the employment setting; rather, it is whether there is ANY WAY he can finish within a year of the time of the employment agreement. Any time it is NOT capable of being performed within a year of the time of the agreement, you're within the S.O.F. and a writing signed by the party to be charged is required.

- Effective Date: the date runs from the date of the agreement and NOT from the date of performance.

- Termination or possibility of irrelevance:

1) Specific time period, more than a year - SOF applies

(it is irrelevant that you can terminate early)

2) Specific time, more than a year from date of contract - SOF applies

(look for date when agreement made + specified date for performance -- if more than one year, from date of K, SOF applies)

3) Task (nothing said about time) - SOF does NOT apply

(tasks are always capable of being performed within a year - ignore what actually happens - the key: what might have happened with unlimited resources)

4) Lifetime K's - SOF does NOT apply

(e.g., a promise to "employ until I die" or "work until I die" - not within SOF b/c it's capable of performance w/in a year since a person can die at any time)
Transfers of Interest in Real Estate of a Term of More than One Year
- A promise creating an interest in land must be evidenced by a writing. This includes not only agreements for the sale of real property, but also: leases for more than 1 year, easements of more than 1 year, fixtures, minerals/structures if to be severed by the buyer and mortgages (and most other security liens).

- K's to build a building or to find a buyer for a seller (e.g., a broker's contract) do NOT come within the SOF.

- **A lease for one year is NOT within the SOF because it is not a "transfer of an interest in real estate of a term MORE than one year."
Goods Priced at $500 or More
- A contract for the sale of goods for a price of $500 or more is within the SOF & generally must be evidenced by a signed writing to be enforceable.

- However, a writing signed by the party to be charged is NOT required for a sale of goods, even if for $500 or more, if SWAP applies:

1) Specially Manufactured Goods

2) Written Confirmation by a Merchant (Confirmatory Memo Rule)

3) Admission in Court (party to be charged admits in court K for sale was made)

4) Performance (if goods are either received and accepted or paid for, K is enforceable)
Promises to Answer for the Debts of Another (Suretyship)

**MBE examiners' favorite wrong answer!**
- Statute of Frauds applies -- must be evidenced by a writing signed by the party to be charged

- Not merely a promise to pay, but rather a promise to pay if someone else does not -- LOOK FOR A GUARANTEE -- secondarily liable

- Main Purpose Exception: if the main purpose or leading object of the promisor is to serve a pecuniary interest of his, the contract is NOT within the SOF even though the effect is still to pay the debt of another.

(e.g., homeowner promises to pay contractor's debt to building supplier if contractor does not pay, so contractor can obtain supplies to work on homeowner's house)
How is the Statute of Frauds satisfied?
1. Performance

2. Writing

3. Judicial Admission of Sale of Goods Agreement

(if ∆ asserting SOF defense admits in pleading / testimony that he entered into an agreement with the π, the purpose of the SOF -- protection against fraudulent / false claims of an agreement -- is fulfilled & so the SOF is satisfied -- no SOF defense)

- If SOF is applicable, then requirements of the SOF must be satisfied in order for the agreement to be enforceable. If the requirements of the SOF are not satisfied, there is a SOF defense. And, if there is a SOF defense asserted and established, there is no legally enforceable agreement -- no contract liability.
Performance (Statute of Frauds)
The statute of frauds can be satisfied by performance. The rules for satisfaction of the S/F by performance vary depending on whether the contract is:

1) service contract

2) a sale of goods contract

3) real estate transfer contract
Performance and Services Contracts (Statute of Frauds)
1) Full performance by either party satisfies the SOF

2) Part performance of a service contract DOES NOT satisfy the SOF

-- If SOF not satisfied, the agreement is unenforceable, recovery could NOT be had under K law, but maybe under quasi-contract.
Performance and Sales of Goods Contracts (Statute of Frauds -- UCC)
-- Seller's Part Performance of Ordinary Goods K's

General Rule: part performance of a K for the sale of goods satisfies SOF but only to the extent of part performance.

(1) Delivered Goods - If the lawsuit is about goods that have been delivered, then there is NO SOF defense b/c the SOF has been satisfied by part performance (including partial delivery).

(2) Undelivered Goods - If the lawsuit is about undelivered goods, then there is a SOF defense and the SOF has NOT been satisfied by the part performance.

-- Specially Manufactured Goods

- If the K is for the sale of goods that are to be specially manufactured, then the SOF is satisfied as soon as the seller makes a SUBSTANTIAL BEGINNING of making or obtaining the goods.

- Look for: “made-to-order,” “specifically manufactured,” “custom-made.”
Performance and Transfers of Interests in Real Estate (Statute of Frauds)
1) In order to satisfy the SOF, if it is a transfer of an interest in real estate, part performance requires any 2 of the 3:

(i) full or part payment (ii) possession and (iii) improvements

2) Full payments alone by buyer of real estate does NOT satisfy the SOF.
How can the SOF be satisfied by a writing?
--Statutes of Fraud other than the UCC's:

Look at (i) the contents of the writing or writings - ALL MATERIAL TERMS test (who and what) and (ii) who signed the writing - signed by the person to be charged, i.e., the defendant (the person who is saying that there is no such agreement)

1) ID parties
2) K's subject matter
3) Terms and conditions
4) Recital of consideration
5) Signature of party to be charged


--UCC Statute of Frauds:

Look to contents and who signed. The writing must indicate that there is a K for the sale of goods AND must contain the quantity term. The writing must generally be signed by the person to be charged (∆).

--"Answer Damn Letter" Exception:

Both parties must be merchants AND the person who receives a signed writing with a quantity term who claims there is a K fails to respond within 10 days of receipt. Need 1) sale of goods 2) both parties are merchants 3) signed writing sent claiming there is a K for a specific quantity of goods and 4) NO objection from 10 days of receipt. Satisfies SOF even though ∆ didn't sign anything.

- This is the ONLY place where a writing signed only by the π is enough.
When does a person need a written authorization in order to execute a contract for someone else? (SOF)
Issue is when do RULES OF LAW REQUIRE that a person have written authorization in order to execute a contract for someone else. The authorization must be in writing if the contract to be signed is within the statute of frauds, i.e. the authorization must be of “equal dignity”.
When do the rules of law require written evidence of modification of a written contract?
Sometimes there is no legal requirement of written evidence of an alleged modification of a written contract. Resolve any legal issues of whether such written evidence of of the modification is needed by (i) looking at the deal with the alleged change and (ii) determining whether the deal with the alleged change could be within the statute of frauds. If so, then, as a matter of law, the alleged modification agreement must be in writing.

1) Under common law, contract provisions requiring that all modifications be in writing are not effective – ignore the contract language.

2) Under the UCC, contract provisions requiring written modifications are effective unless waived.
Illegal Subject Matter/Illegal Purpose
- If the subject matter is illegal, the agreement is VOID.

- If the subject matter is legal but the purpose is illegal, the agreement is enforceable ONLY by the person who did not know of the illegal purpose.
Misrepresentation
- False assertion of fact OR concealment of facts that endures the K.

- Look for a (i) statement of "fact" before the contract, (ii) by one of the contracting parties or her agent, (iii) that induces the contract and (iv) that is false. No wrongdoing required for material misrepresentations.

- Contract Remedy: [rescinding the K] - NO requirement of fraud. Misrepresentation can be innocent.

- Tort Remedy: to recover $ damages, more than just getting out of the deal, the misrepresentation must be negligent OR fraudulent.
Duress / Coercion
- Physical: "sign the contract or I'll break your legs" -- contracts induced by such duress or coercion are VOIDABLE and may be rescinded as long as not affirmed.

Economic: Generally, taking advantage of another person's economic needs is not a defense. However, withholding something someone wants or needs will constitute economic duress if: (i) the party threatens to commit a wrongful act that would seriously threaten the other contracting party's property or finances; and (ii) there are no adequate means available to prevent the threatened loss. In other words, look for:

1) “bad guy” - improper threat

2) “vulnerable guy” - no reasonable alternative
Most common example of economic duress.
D has a contract to supply 1,000 lbs of kosher grits to P for Chanukah sales in 2011. D refuses to perform this contract until P agrees to buy 4,000 lbs of cheese grits in 2012. P has no other source of kosher grits and so agrees. D delivers the kosher grits. Can P get out of the agreement to buy 4,000 lbs of cheese grits in 2012.

Yes. D, bad guy, uses improper threat to breach existing contract and P, vulnerable guy, has no reasonable alternative.
Unconscionability
- This doctrine, originally applicable only to sales of goods but now a part of contracts law generally empowers a court to refuse to enforce all or part of an agreement ("unfair" terms), usually due to some unfairness in the bargaining process. Unfair price alone is not a ground for unconscionability.

- The two basic tests, (i) unfair surprise -- procedural and (ii) oppressive terms -- substantive, are tested as of the time the agreement was made by the court.

- Seldom a good defense on the MBE. That a K turned out badly for one party is insufficient in itself to give rise to unconscionability. Look for great differences in bargaining power (e.g., big company vs. average consumer) before finding a K or clause is unconscionable.
Misunderstanding (Ambiguity in Words of Agreement)
There will be NO contract IF:

1) Parties use a MATERIAL term that is open to at least two reasonable interpretations,

2) Each party attaches a different meaning to the term, AND

3) Neither party knows or has reason to know the term is open to at least reasonable interpretations.

Note: If neither party is aware or both parties are aware of the ambiguity, then no K unless both parties intended the same meaning. However, if one party is aware of the ambiguity, then there will be a binding K based on what the ignorant party reasonably believed to be the meaning of ambiguous words.
Mutual Mistake of Material Fact
There will be NO contract IF (voidable):

1) Both parties mistaken about existing facts relating to the agreement

2) Mistake concerns a basic assumption on which the K is made

(e.g., the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia)

3) The mistake has a material effect on the agreed-upon exchange; and

4) The party seeking avoidance did not assume the risk of the mistake.

KEY = whether the agreed-upon subject matter exists.

- Mutual mistake as to what it is (existence of subject matter) means the agreement is NOT legally enforceable.

- If, however, the mutual mistake is merely what it's worth (value of the subject matter), then the agreement IS still legally enforceable.
Unilateral Mistake of Material Fact
- General Rule: If only one of the parties is mistaken about facts relating to the agreement, the mistake will NOT prevent formation of a contract.

- Exceptions:

1) “Palpable Mistakes" (obvious mistakes): if the nonmistaken party knew or had reason to know of the mistake made by the other party, the K is voidable by the mistaken party - one cannot take advantage of an obvious mistake.

2) Mistakes discovered before significant reliance by the other party.
Parol Evidence Rule (Overview)
- When the parties to a K express their agreement in a WRITING with the intent that it embody the full and final expression of their bargain (i.e., the writing is an "integration"), any other expressions - written or oral - made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing under the parol evidence rule.

- An evidence rule in the sense that the issue is whether a court can consider evidence and the purpose for which the evidence is to be introduced is often determinative.

1) Underlying premise is that final written version of deal is more reliable that anything said or written earlier

2) Importance of written contract as source of contract terms, exclusionary effect of written contract on earlier (or contemporaneous) agreements as a possible source of terms of the contract.
Integration (definition)
Written agreement that court finds is the final agreement, triggers the parol evidence rule - the more complete the agreement appears to be on its face, the more likely it is that it was intended as an integration.

**Whether “complete” or “partial” normally irrelevant - either is usually a wrong answer on the MBE.
Partial integration (definition)
Written and final, but not complete
Complete integration (definition)
Written and final and complete
Merger Clause (definition)
- Contract clause such as, “This is the complete and final agreement.”

- If the agreement contains a merger clause reciting that the agreement is complete on its face, this clause strengthens the presumption that all negotiations were merged into the written document. (Persuasive, but not conclusive)
Parol evidence (definition)
1) Words of party or parties to deal

2) Can be oral or written

3) Before integration (i.e., before the agreement was put in written form)

- The P.E.R. looks back in time; it only impacts stuff before the written agreement.
Reformation (definition)
Equitable action to modify written contract to reflect actual agreement
Parol Evidence (triggering facts)
1. Written contract that court finds is the final agreement AND

2. Oral statements made at the time the contract was signed OR earlier oral or written statements by the parties to the contract
Changing / contradicting terms in the written deal (PE fact pattern)
Regardless of whether the writing is a complete or partial integration, the PER prevents a court from considering earlier agreements as a source of terms that are inconsistent with the terms in the written contract.

Exception: A court, may, however, consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration (i.e., a mistake in reducing the agreement to writing)

Triggering Facts: numbers get transposed, where words left out or where words get misspelled & each spelling is a different word.
Establishing a defense to the enforcement of the written deal (PE fact pattern)
Regardless of whether the writing is a complete or partial integration, the PER does not prevent a court from considering earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of agreement such as misrepresentation, fraud, duress (Please, let me out of the deal)
Explaining term in the written deal (PE fact pattern)
Regardless of whether the writing is a complete or partial integration the parol evidence rule does not prevent a court from admitting evidence of earlier agreements to resolve ambiguities in the written contract.
Adding to the written deal (PE fact pattern)
The PER prevents a court from admitting evidence of earlier agreements as a source of consistent, additional terms UNLESS the court finds:

(i) That the written agreement was only a partial integration or

(ii) That the additional terms would ordinarily be in a separate agreement.
PER vs. SOF
What fact will most often trigger a SOF question? "Oral." (absence of a writing)

What fact is required to trigger a PER question? "Writing."
(existence of a writing)
How does UCC Article 2 provide that a written contract's terms may be explained or supplemented by extrinsic evidence?
The words of the parties are NOT the only source of contract terms. Conduct can also be a source of contract terms. Courts look first to course of performance, second to course of dealing, then third to custom & usage to explain words in contracts or to fill gaps in contracts:

1) Course of performance
(same people, same contract - i.e., if a contract involves repeated occasions for performance by either party & the other party has the opportunity to object to such performance, any course of performance accepted or acquiesced to is relevant in determining the meaning of the contract)

- S contracts to sell 1,000 chickens a month to B for 12 months. The first three shipments are boiling hens and B does not complain.

2) Course of dealing
(same people, different but similar contract - i.e., the sequence of conduct concerning previous transactions between the parties to a particular transaction that may be regarded as establishing a common basis of their understanding)

- S contracts to sell 1,000 chickens a month to B for 12 months. Under prior chicken contracts, S sent B boiling hens and B complained.

3) Custom and usage
(different but similar people, different but similar contract - i.e., a practice or method of dealing, regularly observed in a particular business setting so as to justify an expectation that it will be followed in the transaction in question)

- S contracts to sell 1,000 chickens a month to B for 12 months. It is customary in the chicken industry to use the word "chicken" when the deal covers chickens up to six pounds including boiling hens.
No place of delivery has been agreed upon (UCC default terms)
Absent an agreement as to the place of delivery, the seller's place of business is the place of delivery UNLESS both parties know that the goods are some place else in which case that place is the place of delivery.
Delivery obligation of seller if delivery is by “common carrier” (UCC default terms)
- If there is an agreement as to place of delivery by a common carrier, then the question is what does the seller have to do to complete its delivery obligation.

- Two possible answers to question:

1) Shipment Contracts

- Seller completes its delivery obligation when it (i) gets the goods to a common carrier, and (ii) makes reasonable arrangements for delivery and (iii) notifies the buyer

2) Destination Contracts

- Seller does not complete its delivery until the goods arrive where the buyer is

- Most K's with delivery obligations are shipment K's. Watch for the use of FOB:

1) FOB followed by city where seller is or where goods are: shipment contract

2) FOB followed by any other city (where buyer is): destination contract
When do RISK OF LOSS problems arise?
1) After the contract has been formed but before the buyer receives the goods

2) the goods are damaged or destroyed and

3) neither the buyer nor the seller is to blame.
When, after the K has been entered into, goods are lost or damaged without the fault of the buyer or seller, which party has the Risk of Loss:
- If the ROL is on the buyer, he has to pay the full contract price for the lost or damaged goods

- If the seller has the ROL, no obligation on the buyer; possible liability on seller for non-delivery.

Four Risk of Loss Rules (in order)

1. Agreement of the parties controls (ROL clause in K)

2. Breach (breaching party is liable for any uninsured loss even though breach is unrelated to problem)

3. Delivery by common carrier other than seller (risk of loss shifts from seller to buyer at the time that the seller completes its delivery obligations)

4. No agreement, no breach, no delivery by carrier:

Determining factor is whether the seller is a merchant. Whether the buyer is a merchant is irrelevant.

- Risk of loss shifts from a merchant-seller to the buyer on the buyer's “receipt” of goods (physical possession required).

- ROL shifts from a non-merchant seller when he or she “tenders” the goods (making the goods available, telling buyer where goods are & how to get them).
Express Warranty
Look for words that promise, describe or state facts or for use of sample or model (e.g., "all steel," "guaranteed to operate for 2 years")

Distinguish from sales talk which is more general, an opinion (e.g., "top quality")
Implied warranty of merchantability
When any person buys any goods from any merchant, a term is automatically added to the contract by operation of law - that the goods are fit for the ordinary purpose for which such goods are used

1) Triggering fact: seller is a merchant, which here means it deals in the business of selling goods of that kind

2) Warranty: goods are fit for ordinary purposes (using the way people normally use the goods)
Implied warranty of fitness for a particular purpose
Triggering facts:

1. Buyer has particular purpose
2. Buyer is relying on seller to select suitable goods
3. Seller has reason to know of purpose and reliance

Note: unlike the implied warranty of merchantability which requires a merchant seller, this warranty is implied by any seller, merchant or not.

Key = seller needs to be told why buyer is buying the good

Warranty: goods fit for particular purpose
Disclaimer (Warranties)
Eliminates IMPLIED warranties

Express warranties generally cannot be disclaimed

Implied warranties of merchantability can be disclaimed

1) “as is” or “with all faults”

OR

2) Conspicuous language of disclaimer, mentioning merchantability
Limitation of Remedies in K
Does not eliminate warranty, simply limits or sets recovery for any breach of warranty

1) Possible to limit remedies even for express warranties

2) General test is unconscionability -- such a limitation generally will be upheld unless the limitation is unconscionable (e.g., causes the remedy to fail of its essential purpose)

3) Prima facie unconscionable if breach of warranty on consumer goods causes personal injury
Perfect Tender
General standard of Article 2. Subject to limited exceptions, the seller is obligated to deliver perfect goods.

If imperfect tender, the buyer has the option of:

(i) Rejecting the goods, or

(ii) Keeping the goods and suing for improper delivery
Rejection of Goods
Must occur BEFORE acceptance of the goods.

If the goods are less than perfect, the buyer has the option to reject “the whole” or any “commercial units” or retain and sue for damages, unless Cure or Installment Contract or Acceptance
Cure
In some instances, a seller who fails to make a perfect tender will be given a second chance, an option for curing.

Note that every seller does not have the opportunity to “cure” and that the buyer cannot compel the seller to cure.

- Time for performance has EXPIRED:

1) Seller's reasonable ground to believe would be “ok”: in very limited situations, a seller has an option of curing even after the contract delivery date. The statutory test is whether the seller has reasonable grounds for believing that improper tender would be acceptable, perhaps with a money allowance. Look for information in the question about PRIOR DEALS between that buyer and seller with such an allowance.

("previously," "past," or "prior" - triggers cure options)

2) Time for performance has not yet expired (look for K expressly providing for a delivery deadline; the wrong stuff got there early)

EX: B ordered green widgets from S to be delivered no later than 6/6. S delivers yellow widgets on 5/5. B notifies S that she is rejecting the yellow widgets. Can S cure? Yes, by delivering green widgets no later than 6/6.
Installment Sales Contract
NO perfect tender.

An installment sales contract requires or authorizes (i) delivery in separate lots (ii) to be separately accepted.

The buyer has the right to reject an installment ONLY where there is a substantial impairment in that installment that CANNOT be cured.
Acceptance of the Goods by the Buyer
1. If the buyer accepts the goods, he CANNOT later reject them.

2. Payment without opportunity for inspection is NOT acceptance.

3. Implied acceptance = retention after opportunity for inspection.

--Look for the buyer's keeping the goods without objection; fact pattern that states when buyer first received goods and when buyer first complained to seller.

--Rule of thumb: buyer keeping the goods more than one month = implied acceptance.
Revocation of Acceptance of the Goods
If a buyer accepts the goods, it CANNOT later reject the goods.

In limited circumstances, a buyer can effect a cancellation of the contract by revoking its acceptance of the goods.

The requirements for revocation:

1) Nonconformity substantially impairs the value of the goods

2) Excusable ignorance of grounds for revocation or reasonable reliance on seller's assurance of satisfaction, and

3) Revocation within a reasonable time after discovery of nonconformity
Payment concepts
1) Payment can be made by “any manner current in the ordinary course of business.”

2) Seller can demand cash -- cash unless otherwise agreed -- buyer can pay by check (counterpart of cash)

3) If seller demands cash, then buyer has additional reasonable time.
Remedies for Unexcused Performance:

Non-Monetary Remedies
1) Specific Performance/Injunction

2) Reformation

3) Reclamation

4) Rights of good faith purchaser in entrustment
Specific Performance/Injunction
Equitable remedy. Unclean hands, adequacy of remedy at law, etc.

1. Contracts for sale of real estate (in rem) - upon seller's breach of a K for the sale of land, buyer has a right to specific performance.

2. Contract for sale of goods: unique goods or other appropriate circumstances (“art”, “custom made”, “antique”)

3. Contract for services: NO specific performance, but possible injunctive relief such as preventing someone from working for a competitor.
Reformation
Reformation is the remedy whereby the writing setting forth the agreement between the parties is changed so that it conforms to the original intent of the parties. A reformation action is usually based on mutual mistake; i.e., the parties agree to a set of terms and the written contract fails to reflect those terms. Reformation is also possible if there is a unilateral mistake and the party who knows of the mistake does not disclose it and when the writing is incorrect because of misrepresentation.
Reclamation
- LIMITED right of an unpaid seller to get his goods back.

Elements of 2-207 -- Key facts are that:

1) The buyer must have been insolvent at the time that it received the goods,

2) That seller must demand return of the goods within 10 days of receipt (10 day rule becomes “reasonable time rule” if before delivery there had been an express representation of solvency by the buyer), AND

3) Buyer MUST still have the goods at the time of demand.

- Note: Generally a seller who delivers goods on credit has NO special right to get his goods back. It is ONLY where the seller meets the above 3 requirements contained in 2-207 for reclamation that he gets his goods back.

- If reclamation, no damages available.
Rights of Good Faith Purchaser in Entrustment

[Non In Rem Remedy]
If an owner leaves his goods with a person who sells goods of that kind AND that person wrongfully sells the goods to a third party, then such a good faith purchaser from dealer CUTS OFF rights of the original owner / entruster.
Money Damages Checklist
Expectation
Restitution
Reliance
Incidental
Consequential
Avoidable
Liquidated
Limitation of Remedies
Measures of Damages (3 approaches)
1. General Approach -- Protection of Expectation: put plaintiff in same economic (dollar) position as if the K had been performed (no breach)

2. Protection of Reliance Interest: put plaintiff in same economic position as if K had never happened

3. Protection of Restitution Interest: put defendant in same economic position as if K had never happened -- requires ∆ to return what he received from π.
Employment Contract (requirement)
Duration must be specified
General Contract Damages Policy
Compensate π, not punish ∆.

Part 7 of Article 2 reflects the general contract damages policy putting the innocent party where it would have been had the contract been performed (expectation).

Two relevant factors:

1) who breached

2) who has the goods
Damage Rules for Sales of Goods (UCC):

Seller Breaches, Buyer Keeps the Goods?
Fair market value if perfect

MINUS

Fair market value as delivered
Mistake by Intermediary (Transmission)
Usually operative as transmitted unless party should have known
Damage Rules for Sales of Goods (UCC):

Seller Breaches, Seller Keeps the Goods?
Market price at time of discovery of the breach MINUS K price

OR

Replacement price MINUS contract price

--Here, seller fails to deliver OR buyer rejects non-perfect tender.
Damage Rules for Sales of Goods (UCC):

Buyer Breaches, Buyer Has the Goods?
Contract Price, even if market price has risen or fallen.
Damage Rules for Sales of Goods (UCC):

Buyer Breaches, Seller Has the Goods?
- Contract price MINUS market price at time and place of delivery

OR

- Contract price MINUS resale price

OR

- If applicable, recover under a "lost profits" measure the difference between the contract price and the cost to the seller.
Additions and Limitations of Money Damages
1. plus INCIDENTAL

2. plus CONSEQUENTIAL

3. less Avoidable damages

4. Certainty limitation
Incidental Damages
- Costs incurred in dealing with breach: always recoverable

- Cost of finding a replacement: advertising & traveling costs
Consequential Damages
- Damages arising from π's special circumstances recoverable ONLY IF ∆ had reason to know (foreseeable) at the time of the K.

- Special Damages:

a) a loss special to this particular π
b) a loss caused by π's special circumstances
c) a loss other people would NOT have

- Triggering Facts:

a) 1st: Ask whether there is any info in the fact pattern that is special about this particular π.

b) 2nd: Did the breaching party know about the special situation at the time of the K?
Avoidable Damages
- NO recovery for damages that could have been avoided without undue burden on plaintiff.

-- Burden of pleading and proof are on the defendant.

- ∆ must plead/prove some alternative/comparable situation.
- Not part of π's case; it is a defense for ∆.
Contract Provisions Regarding Damages:

LIQUIDATED DAMAGES
- Look for K provision fixing amount of damages

- Issue will be validity: concern is whether the provision is too high & constitutes a penalty.

- Two-Part Test:

1) Whether the damages were difficult to forecast at the time the K was made; AND

2) Whether the provision is a reasonable forecast.
Contract Provisions Regarding Damages:

LIMITATION OF REMEDIES
- Attempt to establish a ceiling.

- Look for a K provision limiting the amount that can be recovered.

- Concern is whether the provision is too low (i.e., too restrictive)

- Key Points:

1) Usually are valid

2) Usually attempt to exclude consequential damages

3) Unconscionability Approach: look for procedural problems with respect to negotiations and substantive problems in terms of being unduly harsh or oppressive.
Excuses of Nonperformance of K Because of Something That Happened After K Was Made....
1. Improper Performance

2. Failure of a Performance Condition

3. Anticipatory Repudiation or Inability to Perform

4. Later Contract

5. Later, Unforeseen Event
Common law and material breach rule
Three General Rules

1) Damages can be recovered for any breach

2) Only a material breach by one guy excuses the other guy from performing

3) Whether a breach is material is a fact question (and so whether a breach is material is not likely to be a bar exam question)

Exception: Divisible Contract

When you see a numeric performance, if the party completes clearly less than half, it is a material breach, unless there is a divisible contract.
A K is divisible if:
1) the performance of each party is divided into two or more parts

2) the number of parts due from each party is the same

3) the performance of each part by one party is the agreed upon equivalent of the corresponding part from the other party
Performance Condition (definition)
A condition is a mutually agreed upon promise modifier.

It is language in a contract- not merely language in a response to an offer- that does not create a new obligation, but merely limits obligations created by other language in K

Performance conditions are created by language of K.

Watch for such words as “if”, “provided that”, “so long as”, “subject to”, “in event that”, “unless”, “when”, “until” and “on condition that”
Standard for satisfying an Express Condition
General rule: strict compliance with performance conditions
How can an Express Condition be excused
- Identify the person who benefits from or is protected by the condition

- Then look for a statement by that person giving up the benefits and protection of the condition

1) ESTOPPEL is based on a statement by the person protected by the condition BEFORE the conditioning event was to occur and requires a change of position.

2) WAIVER is based on a statement by the person protected by the condition AFTER the conditioning event was to occur and does not require a change of position
Anticipatory Repudiation
Unambiguous statement

1) that the repudiating party will not perform

2) made prior to the time that performance was due

Excuses the other party's duty to perform

Generally gives rise to an immediate claim for damages for breach unless claimant has already finished her performance

Can be reversed or retracted so long as there has not been a material change in position by the other party. If the repudiation is timely retracted, the duty to perform is reimposed but performance can be delayed until adequate assurance is provided
Rescission
Excuse by reason of later agreement

The key is whether performance is still remaining from each of the contract parties (executory)
Accord and Satisfaction
Excuse by reason of later agreement

Substituted Performance

- Accord – later agreement by parties to an already existing obligation to accept a DIFFERENT PERFORMANCE ($1000, can't accept $700)

- Satisfaction – performance of later agreement excuses original, existing obligation

1) If the new agreement (accord) is performed (satisfaction), then performance of the original obligation is excused

2) If the accord is not performed, then the other party can sue on either the original obligation or the accord
Accord v. Modification (sentence structure)
Accord: IF x, THEN original debt excused

Modification: do x instead of original obligation
Modification
Substituted agreement

Modification is an agreement by parties to an existing obligation to accept a different agreement in satisfaction of the existing obligation
Novation
Substituted Person

1) A novation is an agreement between BOTH parties to an existing contract to the substitution of a new party, i.e. same performance, different party

2) Novation excuses the contracted for performance of the party who is substituted for or replaced

3) Different from delegation: delegation does not require the agreement of both parties and does not excuse
Excuse of Performance by reason of later, unforeseen event
Performance of contractual duties (other than contractual DUTY TO PAY MONEY) can be excused under impossibility or impracticability or frustration of purpose

1) something that happens after contract formation but before the completion of contract performance

2) that was unforeseen

3) that makes performance impossible or commercially impracticable or frustrates the purpose of performance

Impossible: objective, can't be done

Impracticable: subjective, can't be done with extreme unreasonable difficulty and expense
Death after Contract
Death does not make a person’s contract obligations disappear unless “special” person
Subsequent law or regulation
1) Later law makes performance of contract illegal: excuse by impossibility

2) Later law makes mutually understood purpose of contract illegal: excuse by frustration of purpose
Third Party Beneficiary (steps)
1) ID: look for two parties contract with the intent of benefit to a third party (ie insurance beneficiary)

2) Know the vocab

3) Deal with efforts to cancel or modify

4) Know who can sue whom

5) Defenses
Vocabulary of Third Party Beneficiary
1) 3rd party beneficiary: Not a party to K. Able to enforce K others made to her benefit

2) Promisor: look for person who is making the promise that benefits the 3rd party

3) Promisee: Person who obtains the promise that benefits the 3rd party

4) Intended/incidental (if K names person “intended”; if not named “incidental”)

5) Creditor/donee: Intended beneficiaries are either donees or creditors. Usually donees. Look at whether beneficiary was a creditor of the promisee
Dealing with Efforts to Cancel or Modify (3rd party beneficiary)
The test is whether the third party knows of and has relied on or assented as requested.

If so, her rights have vested and the K cannot be canceled or modified without her consent unless the K otherwise provides
Who can sue whom (3rd party beneficiary)
1) Beneficiary can sue Promisor

2) Promisee can sue Promisor

3) Donee beneficiary can not sue promisee but creditor beneficiary can sue promisee on pre-existing K
Defenses (3rd party beneficiary)
If the 3rd sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee
What is an Assignment?
Transfer of rights under a K in two separate steps:

1) K between only 2 parties

2) One of the parties later transfers rights under that K to a 3rd party
Vocabulary of Assignment
1) Assignor: party to K who later transfers rights under K to another

2) Assignee: Not a party to K. Able to enforce K because of the assignment

3) Obligor: Other party to K
Limitations on Assignments
1. Contract Provisions: determine whether K (i) prohibits assignment or (ii) invalidates assignment

- Prohibition: language takes way the right to assign, but not the power to assign which means that the assignor is liable for breach of K but an assignee who does not know of the prohibition can still enforce the assignment (“not assignable”)

- Invalidation: takes away both right and power so there is a breach by the assignor and not rights in the assignee (“void')

2. Common Law: even if K does not limit right to assign, common law bars assignment that substantially changes the duties of the obligor

- assignment of right to payment (valid)

- assignment of right to K performance other than right to payment (barred)
Requirements for Assignment
1) General rule is that consideration is NOT required

2) Present assignment (valid) v. promise to collect and pay or promises to assign (invalid)

3) Distinguish existing but conditional rights (valid) from future rights (invalid)
Inability to Perform
On test, not doing something for money, but rather for some unique item other person has
Rights of Assignee
1) Assignee can sue obligor

2) Obligor has same defenses against assignee as it would have against assignor

3) Payment of obligor to assignor is effective until obligor knows of assignment.

- Similarly, modification agreements between obligor and assignor are effective if the obligor did not know of the assignment

4) Warranties of assignor

- Assignment for consideration, assignor warrants that he will do nothing to impair the value of the assignment (not donee assignee)

- Assignor, however, only warrants what he has done or will do; he does not warrant what the obligor will do
Gratuitous Assignments (multiple)
1) General rule: last assignment wins

- Gratuitous assignments freely revocable. Later gift revokes earlier gift.

2) Exceptions:

- A gratuitous assignment is not revocable if (i) it is the subject matter of a writing delivered to the assignee, (ii) the assignee has received some sort of indicia of ownership, or (iii) the assignee relied on the assignment in a way that is reasonable, foreseeable and detrimental

- If the gift assignment is not revokable, then it will take priority over a later assignment
Assignment for Consideration (multiple)
General rule: first assignee for consideration wins

Limited exception: a subsequent assignee takes priority over an earlier assignee for value only if he both (i) does not know of the earlier assignment and (ii) is the first to obtain:

1) payment

2) judgment

3) novation

4) indicia of ownership
Delegation (definition)
Party to K transferring work under that K to 3rd party
Relationship between assignment and delegations
1) Assignment is the transfer by a party to a K of his rights or benefits

2) Delegation is the transfer by a party to a K of his duties or burdens under the K to a 3rd party who was not a party to K
Which duties are delegable
Generally, contract delegable

The limitations on delegation are very limited

Delegations are permitted unless:

1) K prohibits delegations or prohibits assignments

2) K calls for very special skills (not even to equal, must be a novation)

3) Person to perform K has a very special reputation
What if 3rd party delegatee does not perform
1. Delegating party ALWAYS remains liable

2. Delegatee liable ONLY if she receives consideration from delegating party
Delegation for Consideration
Creates a 3rd party beneficiary obligation
Meeting of the Minds (rescission)
Parties must be of same mindset i.e. both know of valid K
Mailbox Rule: options
Acceptance of option effective when received
Partial Peformance prior to Unforeseen Event (Impossibility)
Partially performing party can receive reasonable compensation in quasi-contract