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82 Cards in this Set

  • Front
  • Back
MBE - Applicable law
UCC Art 2 = sale of goods

common law = all other Ks
Texas Bar Exam - Applicable law
UCC Art 2 = sale of goods

UCC Art 2A = lease of goods
Contract

Express K

Implied K
K = legally enforceable agreement

Express K = created by parties' words (oral or written)

Implied K = created by parties' conduct
Quasi-K
Protects against unjust enrichment; damages are usually the reasonable value of the benefit conferred
Bilateral K

Unilateral K
Offer can be accepted in any reasonable way

Offer can be accepted only by performing:
1. Offer say sit can only be accepted by performance
2. Reward for contest or prize
Offer
Manifestation of an intention to be bound
Advertisements
Ad is not an offer unless ...

Ad specifies quantity and who can accept (then it is an offer)

ex. "One blue dress just like Lady Gaga's, only $1! First come, first served!" is an offer
Indefiniteness
See if any of the terms are too indefinite to be enforced:
1. Open price term - court will read in a "reasonable" price except for a K involving the sale of real property
2. Requirements K (Art 2) - buyer contracts to buy all of its requirements for a particular item from seller; quantity measured by buyer's needs so specific number not needed; future increases cannot be out of line with what buyer has demanded in the past (even if buyer orders in good faith, buyer cannot take seller by surprise)
Lapse
offer lapses after a stated term or after a reasonable time has passed
Revocation
Offer terminates when offeror revokes the offer

Offer can be revoked any time before acceptance

Direct revocation = offeror indicates directly to offeree that he has changed his mind about the deal

Indirect revocation = offeror engages in conduct that indicates he's changed his mind and the offeree is aware of the conduct

Timing: revocation is effective when it is received (no Mailbox Rule)
4 exceptions where an offer cannot be revoked
1. Option = promise to to keep offer open that is paid for
2. Foreseeable reliance before acceptance (ex. if contractor relies on subcontractor's bid to compute his bid for a project, subcontractor cannot revoke its offer - very rare)
3. Starting to perform a unilateral K = with a unilateral K, once offeree starts to do the job, offeror can't revoke
4. Firm offer (Art 2) = in a sale of goods, if a merchant promises in a signed writing to keep an offer open, the offer is irrevocable
Rejection
offer terminates when offeree rejects it ("inappropriate response")
Counteroffer

Conditional Acceptance
Operates as a rejection, but mere bargaining does not

Operates as a rejection (conditional acceptance is not an acceptance at all)
Acceptance Varying Offer (common law differs from Art 2)
Common law: acceptance must mirror offer ("Mirror Image Rule") - adding or changing any term constitutes rejection

Art 2: acceptance need not mirror offer (policy of Art is to facilitate K formation)
1. No mirror image rule: offeree's adding or changing a term does not prevent acceptance under Art 2 but
2. Offeree's term is included only if:
a. both parties are merchants
b. no material change
c. no objection within a reasonable time
-offeree's term often does not make it into the K
-if term is customary in the industry, it's not material
Death of party before acceptance
terminates a revocable, but does not terminate an irrevocable offer (option K)
Has the offer been accepted?
1. Language of offer controls (ex. you can accept this offer only by reporting for work on Monday)
2. Starting performance - depends on whether K is unilateral (not acceptance) or bilateral (acceptance)
3. Improper performance - differs for common law (simultaneous acceptance and breach) and Art 2 (simultaneous acceptance and breach unless seller is sending goods as an accommodation to buyer - then it's a counteroffer)
4. Offeree's silence - offeror cannot single0handedly turn offeree's silence into acceptance
Acceptance - Starting Performance - Bilateral K
Starting performance is acceptance of an offer to enter a bilateral K and carries with it an implied promise to finish the job
Acceptance - Starting Performance - Unilateral K
Starting performance is not acceptance of an offer to enter a unilateral K; only completing performance is acceptance; but once offeree starts to perform, offeror can't revoke (offeror chose this type of offer so he is stuck with the consequences)
Timing of Acceptance (Mailbox Rule)
Acceptance is effective when mailed (Mailbox Rule); policy: protects the offeree against revocation once he's mailed an acceptance

Exceptions:
1. Offer states otherwise
2. Irrevocable offer (if offer is irrevocable, offeree doesn't need the protection of the Mailbox Rule)
3. Offeror relies on overtaking rejection (where an acceptance is sent first, but rejection arrives first)
4. Rejection sent first - Mailbox Rule doesn't apply (race - whichever gets there first is effective)
Lack of Capacity
1. Categories: minors, intoxicated, mentally incompetent
2. General rule: incapacitated D has right to disaffirm the K (he doesn't have to disaffirm, but he can if he wants to avoid the K)
3. Implied affirmation: retaining benefit of K without complaint after gaining (or regaining) capacity - offeror can enforce K now
4. Exception: incapacitated party is liable for necessaries (food, shelter, etc) but only on a quasi-contract (only owes the reasonable value of the necessary item, not K price)
Ambiguity/Misunderstanding
B and S contract for delivery of cotton on the "Peerless." B means the one sailing in May. S means the one in July. Neither knows or has reason to know there are 2 ships named Peerless. Result = no contract

If B knew or had reason to know that there were 2 ships named Peerless, then ... result = contract on S's terms; innocent party's meaning will govern because B could have cleared up confusion
Mistake
1. Mutual mistake about a material fact - if the mistake involved a crucial aspect of the agreement, there is no K
-Mistake as to value is not considered material so buyer is stuck with the deal (should have had it appraised)

2. Unilateral mistake - not a defense; there is a K
-one party's mistake isn't fatal unless other party knew or had reason to know about it
Lack of Consideration
Definition = bargained for legal detriment/benefit (can bargain for promise, performance, or even forbearance)

Past consideration - not consideration at all; cannot bargain for something that has already happened

Adequacy of consideration - irrelevant (as long as there is a bargain)
Contract Modification
Common law: new consideration is required to modify a K (performing a preexisting duty is not enough = "Pre-existing Duty Rule"); rationale - prevent fraud/extortion in the middle of performance

Sale of goods (Art 2): consideration is not required to modify a K for the sale of goods, but you must have good faith reason to make modification
Partial Payment of a Debt
Depends on whether debt is in dispute - if no dispute, there must be new consideration for creditor's promise to forgive balance since debtor already owed creditor now
-if dispute, then there is consideration (rationale - law favors settlement of disputed claims)
Time-Barred Debt
written promise to pay debt, collection of which is barred by statute of limitations, is enforceable even without consideration (writing takes the place of consideration here)
Promissory Estoppel as a Substitute for Consideration
Foreseeable reliance may make a promise enforceable, even without consideration
Statute of Frauds - when writing is required
most oral Ks are enforceable; only certain kinds of ks need a writing to be enforced ("within the Statute of Frauds")

1. Interest in real property (sale or lease; transfer of interest in land)
2. Performance cannot be completed within a year (doesn't matter if performance actually takes more than a year; as long as full performance within a year is theoretically feasible, no writing is required by SOF)
3. Sale of goods for $500 or more (Art 2)
4. Lease of goods for $1,000 or more (Art 2A - Texas only)
5. Suretyship (promise to "answer for" the debt of another)
6. Contract modification (must be in writing only if K as modified - not the original K - is within SOF)

Note: under common law, clauses the prohibit oral modification are not enforceable so you can always modify a K orally under the common law, even if you have agreed not to (but there must be new consideration for the modification)
Statute of Frauds - satisfactory writing
Depends on nature of K ...

1. Sale of Goods (Art 2): must contain a quantity and be signed by party to be charged with the breach (defendant)

2. Other Ks: must have all material terms and be signed by D
Statute of Frauds - Exceptions
1. Real property
a. Leases of 1 year or less (exception to ensure short-term leases not invalidated by SOF)
b. Part performance (need some payment and permanent improvement)
2. 1-year prong: full performance destroys SOF defense
3. Sale of goods for $500 or more
a. Goods accepted/paid for by buyer (only applies to goods accepted or paid for, not whole K)
b. Custom-made goods (if seller has made a substantial beginning and goods not suitable for sale in ordinary course of seller's business)
c. Judicial admission (pleading, testimony, or in court)
d. Merchants' confirmatory memo - one party can use its own signed writing to satisfy SOF against other party if:
i. both parties are "merchants";
ii. writing claims prior oral agreement and has quantity term; iii. no written objection within 10 days
(ex. 2 merchants agree over the phone and one follows up with a written confirmation; Art 2 lets a merchant use its own confirmation to satisfy the SOF against another merchant)
4. Suretyship - if main purpose was in promisor's own interest
Parol Evidence Rule
keeps out evidence of prior agreement (either oral or written) that contradicts a later writing

assumes a later writing is more reliance than anything that came before

parol evidence rule problem requires a writing so if the fact pattern involves an oral agreement, its a SOF problem, not parol evidence rule problem
Exceptions to Parol Evidence Rule (so evidence gets in)
1. Correct a clerical error (typo)
2. Establish a defense against information (when one party seeks a rescission because of a misrepresentation)
3. Interpret a vague or ambiguous term (court applies plain or obvious meaning of word if term isn't vague)
4. Supplement a partially-integrated writing (a final statement of the terms included, but not a complete statement of all terms agreed to) - permissible if K doesn't appear to be complete on its face

If merger clause ("this K is limited to terms herein"), then K is complete on its face and cannot be supplemented - no parol evidence
Subsequent Developments
parol evidence has nothing to do with what happens after an agreement is reduced to writing - apply rules of modification
Conduct
can be used to explain terms or fill in gaps (in decreasing order of importance):
1. course of performance - what parties did under this K (best evidence of what parties intended)
2. course of dealing - what they did under prior Ks with each other
3. usage of trade - what others in the trade do in similar Ks
Seller's Warranties of Quality in a Sale of Goods
1. Express warranties
a. examples: statements of fact, promises, descriptions of goods, and use of a sample/model
b. opinion: are not express warranties
c. must be a basis of of the bargain (if buyer could have relied on express warranty, it was a "basis of the bargain"
2. Implied warranties (2 types)
a. Implied warranty of merchantability
i. definition = goods are fit for their ordinary purpose
ii. triggering fact = seller is a merchant who deals in goods of the kind (dealer) [has special knowledge about the particular goods involve din the transaction]
b. Implied warranty of fitness for a particular purpose
i. definition = goods are fit buyer's particular purpose
ii. triggering fact = seller knows buyer has a special purpose and is relying on seller to select suitable goods (seller does not have to be a merchant of any kind)
Disclaimers
seller can disclaim implied, but not express, warranties

"as is" and "with all faults": seller can disclaim all implied warranties with these two phrases

without "magic words," disclaimer must be conspicuous; without "magic words," seller must use "merchantability" to disclaim that warranty
Limitation of Buyer's Remedies
General rule: seller can limit buyer's remedies for breach of any warranty (express or implied) if limitation is not unconscionable

Exception: limiting buyer's remedies for persona injury in the case of consumer goods is presumed unconscionable (consumer protection clause)
Risk of Loss - Sale of Goods (Art 2)
1 Issue: when goods damaged before buyer gets them and no fault, who bears the risk of loss?
a. if seller bears ROL: seller must provide new goods to buyer for no additional cost, or be liable for breach of K
b. if buyer bears ROL: buyer must still pay K price
2. Hierarchy:
a. agreement: agreement of parties controls
b. breach: breaching party bears ROL
c. delivery by common carriers: ROL shifts to buyer when seller completes its delivery obligations
i. shipment K: seller must get goods to a common carrier, make delivery arrangements, and notify buyer
ii. destination K: seller must get goods to a specific destination
d. FOB, [name of place/city]
i. if place is where seller is located, shipment K
ii. if place is anywhere else, destination K
e. Non-carrier cases (buyer picks up or seller delivers goods)
i. merchant-seller: seller bears ROL until buyer takes possession (better able to insure against risk)
ii. non-merchant seller: seller bears ROL until it "tenders" goods to buyer (makes them available)
Performance of Ks for a Sale of Goods (Art 2)
Perfect tender rule = seller must deliver perfect goods in the right place at the right time; if tender is not perfect, buyer has the right to reject the goods

Option to cure = seller who fails to make perfect tender may have an option to cure; usually depends on whether time for performance has expired
a. Time has not expired - seller has an option to cure
b. Time has expired - seller does not have an option to cure unless ... seller had reason to believe buyer would take the non-conforming goods based on prior dealings
Installment Sales Ks
Definition = requires/authorized delivery in separate installments (otherwise, goods have to be delivered in a single delivery)

Buyer may reject only for substantial impairment - perfect tender rule does not apply to an installment K, so it's harder for buyer to reject (policy: assumes seller will cure the next time around)
Implied Acceptance of Goods
implied acceptance= when buyer keeps goods without objection after having an opportunity to inspect (paying isn't acceptance; must have opportunity to inspect goods first)
Consequences of Acceptance of Goods
Timing: once a buyer accepts, it's too late for buyer to reject

Damages: but a buyer who accepts non-conforming goods can still get damages for seller's breach
Buyer's Revocation of Acceptance of Goods
General rule: buyer cannot revoke acceptance of goods

Exception: if the non-conformity substantially impairs the value of the goods and was difficult to discover (it was a latent defect)
Consequences of Rejection/Revocation of Acceptance
Return: buyer can return goods to seller at seller's expense

Refund: buyer can get back any money buyer has paid for the goods

Damages: buyer can get damages from seller for breach of K
Buyer's Payment Obligation
Buyer can pay by check, but seller can refuse it; if seller refuses, buyer has an additional reasonable time to get cash
Performance of Common Law Ks
Under common law, performance does not have to be perfect - substantial performance is all that is required (party cannot commit material breach)
Excuse Based on Later Events - Other Party's Breach
Other party's breach may provide an excuse for non-performance (depends on nature of K)
1. Sale of goods (Art 2): if seller's performance is not perfect in every respect (Perfect Tender Rule), buyer has pretty much free reign - 3 options:
a. accept all goods
b. reject all goods
c. accept some goods and reject the rest
2. Common law Ks:
a. damages - insured party can recover damages for any breach of K, whether breach is material or not
b. excuse - but only a material breach provides an excuse
c. divisible Ks - where payment is on a per unit basis, the breaching party can recover the K price for any unit on which he has substantially performed
Anticipatory Repudiation
Provides an excuse for non-performance unless the repudiation is retracted (for most part, anticipatory repudiation treated like material breach)

Party can retract anticipatory repudiation (as long as other party hasn't relied on it)
Failure to Give Adequate Assurances
Party with reasonable grounds for being insecure about the other party's performance may request in writing adequate assurance that the other party will perform in accordance with the K
Later Agreement by the Parties
Rescission: agreement to cancel K

Modification: agreement to replace existing K with new one

Accord & Satisfaction: an accord is an agreement to accept performance in future satisfaction on an existing duty; satisfaction is performance of the accord

Novation: agreement to substitute a new party for an existing one
Impossibility
at common law, later unforeseen event that makes performance impossible may provide seller with an excuse for non-performance

under Art 2, it is called impracticability (seller's performance has become much more difficult)
Destruction of Something Necessary for Performance
a. Common law: destruction provides an excuse for non-performance
b. Art 2: adopts same general rule as the common law, but there are 2 trick questions to look out for:
i. unidentified goods: seller is excused only if the damaged or destroyed goods had been "identified to the contract"
ii. risk of loss: seller who bore ROL when goods were damaged or destroyed is excused by impracticability
Other grounds for impossibility
1. death/incapacity of essential person
2. supervening governmental regulation
3. increase in cost of seller's performance (on MBE, increase in seller's cost of performance almost never excuses seller - seller took risk of entering into fixed K)
Frustration of Buyer's Primary Purpose
ex. I rent Carolyn's house for Mardi Gras because of its great view of the parades; Carolyn knows why I am renting her house; parade is canceled two days before Mardi Gras; I am excused by frustration of purpose because Carolyn knew my purpose and later unforeseen event thwarted that purpose
Failure of an Express Condition
Definition = limits obligations created by other K language; does not create an independent obligation (look for words like "if," "as long as," "when," "provided that," "on condition that," "unless")

Strict compliance required

Satisfaction clauses: satisfaction mattered by a reasonable person standard unless K deals with art or matters of person state (ex. If I contract to have my house painted, I have to pay if a reasonable person would have been satisfied with the paint job; If I contract to have my portrait painted, my opinion is all that matters)
Types of Express Conditions
I agree to let Jim use my car for $1/week ...
-if it rains on July 4: condition precedent (event has to occur before obligation matures)
-as long as Jim is a Red Sox fan: condition concurrent (obligation runs alongside event)
-until the Red Sox win the World Series: condition subsequent (obligation runs until event occur)
Excusing Occurrence of a Condition
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)
a. Failure to cooperate - person must make some effort to cooperate with the condition
b. Waiver (voluntarily giving up protection)
Specific Performance
Equitable remedy, available only if monetary damages are inadequate to compensate injured party; availability of specific performance depends on nature of the K:
a. Real property - specific performance generally available because real property is considered unique
b. Sale of goods (Art 2) - specific performance only available if goods are unique or there are "other proper circumstances" (an inability to buy substitute goods in the market)
c. Service Ks - specific performance is not available in service Ks, but injunctive relief may be available (ex. injunction to prevent employee from working for competitor)
Unpaid Seller's Right to Reclaim Goods (Art 2)
General rule: not available under Art 2 (note: seller may have rights under bankruptcy law)

Exception: if buyer was insolvent when it received the goods and seller makes a demand within 10 days after buyer received them

Exception: seller can reclaim goods at any time if buyer misrepresented its solvency to seller in writing within 3 months before delivery
Punitive Damages
not awarded for breach of contract because the purpose of K damages is to compensate, not punish
Liquidated Damages
upheld if damages were difficult to estimate and are a reasonable forecast of probable damages, but cannot operate as a penalty

ex. I hire Jim to redo my office, K provides for damages of $100/day for each day Jim is late; Jim finished 20 days late
-liquidated damages clause is valid because it is flexible, damages are graduated (increase w/delay), makes them a reasonable forecast

LDCs common in construction world
Expectation Damages (general rule)
Put injured party in as good a position as full performance (general rule for common law damages)
Expectation Damages - Sale of Goods Damages (Art 2)
1. Buyer's Damages
a. Cover Damages
b. Market Damages
c. Loss in Value

2. Seller's Damages
a. Resale Damages
b. Market Damages
c. Loss Profit
d. Contract Price
Cover Damages
cover price - contract price (if buyer covers in good faith) =cover damages
Market Damages
market price - K price (if buyer doesn't cover in good faith or doesn't cover at all) = market damages
Loss in Value
value as promised - value delivered (if buyer keeps non-conforming goods) = loss in value
Resale Damages
contract price - resale price (if seller resells in good faith) = seller's damages
Market Damages
contract price - market price (if seller does not resell in good faith or does not resell at all) = market damages
Lost Profit
if seller is a lost volume dealer, gets entire K price

dealer resells same goods for same price; dealer has lost the profit it would have made on the initial sale
Contract Price
if seller cannot resell the goods , seller gets full K price (no else would want the specially made goods)
Incidental Damages
cost to injured buyer/seller of transporting or caring for goods after a breach and of arranging a substitute transaction
Consequential Damages
damages special to this P that were reasonably foreseeable to the breaching arty at the time of the K

consequential damages are not available to a seller under Art 2
Avoidable damages
injured party cannot recover damages he could have avoided (mitigated) with reasonable effort
Entrustment (Art 2)
owner who entrusts goods to a merchant who deals in goods of the kind (a dealer) has no rights against a bona fide purchaser (BFP)

look for fact pattern where owner takes jewelry or car in to be repaired by a merchant who also sells that particular kind of good
Third-Party Beneficiary
Definition: two people enter a K intending to benefit a 3rd party

3rd-Party Beneficiary = person who is not party to a K, but has rights because K was intended to benefit him

Promisor = party who promises to perform for the TPB

Promisee = party who secures the promise

Intended Beneficiary = person to whom performance was to be given according to K; incidental beneficiary just happens to benefit from K; only intended beneficiary has legal rights

Donee Beneficiary = if promisee's purpose was to confer a gift on TPB, TPB is a donee beneficiary; if promisee's purpose was to pay off debt to TPB, TPB is a creditor beneficiary
Rescission and Modification - 3rd Party Beneficiary
Promisor and promisee can rescind or modify K until rights of TPB have "vested"

Exception: contrary language in K controls
Liability - 3rd Party Beneficiary
Promisor liable to TPB

Promisee liable to creditor beneficiary

Promisor liable to promisee
Delegation of Duties
Contractual duties may be delegated without consent of the person to whom performance is owed (obligee)

Exceptions:
a. K language controls
b. Special skill or reputation - can't substitute
Rights of Obligee - Delegation of Duties
Delegating party remains liable

Delegate who gets consideration is liable
Assignment of Rights
Two people make K; later, one (assignor) transfers his rights to a 3rd party (assignee); part who owes duty is the obligor

MBE: in an assignment, 2 parties enter K and 3rd person appears later on; with 3rd party beneficiary, all 3 persons are present from the beginning

Must have language of present transfer

Consideration is not required
Restrictions on Assignment
K language controls (distinguish clause that prohibits assignment from one that completely invalidates assignment)

Cannot substantially change duties of obligor

Obligor liable to assignee
Multiple Assignments
Gratuitous (gift) assignments are easily revoked: last gratuitous assignee in time prevails over earlier gratuitous assignees because a later gift assignment revokes an earlier one

Assignments for consideration are more durable: first assignee for consideration prevails over all subsequent assignees (as well as prior gratuitous assignees)

Exception: later assignee for consideration prevails if he does not know of the earlier assignments and is the first to get payment from or a judgment against the obligor