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140 Cards in this Set

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  • Back
How do you know whether to apply the common law of contracts or Article 2 of the Uniform Commercial Code?
Article 2 applies to EVERY sale of goods (moveable, personal property).

The common law applies to all other contracts.
What does Article 2 apply to?
EVERY sale of goods (moveable, personal property)

-Can be for any price.
-Parties don't have to be merchants.
Citibank agrees to loan $60 million to american airlines so they can buy four jumbo jets. Does Article 2 apply?
No, this is still a loan, even though AA will buy jets. Common law governs.
What if a contract is for goods AND services? Should Article 2 or common law govern?
Depends. Look to which element of the contract is more important and then decide based on that.
When does Article 2A of the UCC apply?
In NY, Article 2A applies to EVERY lease of goods

noe: does not apply to lease of space in a building; only to goods
Define "contract"
A legally enforceable agreement.
How is an express contract created?

How is an implied contract created?
Express contract is created by the parties' words (oral or written)

Implied contract is created by the parties' conduct.
What is a quasi-contract?
An equitable remedy that applies whenever contract law yields an unfair result. Quasi-contract is not limited by contract rules, but is governed by equitable principles.

Note: recovery is the reasonble value of the benefit conferred, not the contract price


*throw in quasi-contract whenever there is an unfair result
What is a bilateral contract?

What is a unilateral contract?
Bilateral: an offer can be accepted in any reasonable way; flexibile

Unilateral: involves an offer that can be accepted ONLY by performance; inflexible

all contracts are bilateral unless the offer says it can be accepted only performing
Define "offer"
Offer: a manifestation of an intention to be bound, created by words or conduct.

Make sure terms are not too INDEFINITE to be enforced (requirments K okay, open price term is too indefinite under common law but okay under Article 2).

An advertisement is usually NOT an offer
When, if ever, can an advertisement be considered an offer?
An advertisement is usually NOT an offer.
(because there is usually no quantity term, so an unlimited # of people could accept)

If the ad specifies quantity (and, for example, first come first served) IT IS an offer.
What are requirements contracts and are they valid?
Requirements contract is when one buyer agrees to buy ALL OF ITS REQUIREMENTS from one seller. (triggered by words "all" or "only")

These are definite enough, even though there is no specific quantity mentioned.
Seller accepts Buyer's offer to buy all of its beans from seller for the next six years for $1 can. For the last three years, Buyer has orderd 1,000 cans. Can Buyer require Seller to deliver 2,000 cans this year?
No. This is a requirements contract. But the buyer cannot take the seller by surprise-any increase can't be out of line with the buyer's prior demands. A sudden increase would be unfair to the seller.
When, if ever, is an offer with an open price term a valid offer?
An open price term is TOO INDEFINITE under common law.

An open price term is OKAY under Article 2.
When does an offer lapse?
After a stated term or after a reasonable time has passed.
How does an offeror revoke an offer?
An offeror may revoke either

DIRECTLY: the offeror unambiguously indicates DIRECTLY to the offeree that he has changed his mind

INDIRECTLY: the offeror engages in CONDUCT that umambiguously indicates that he's changed his mind AND the offeree is AWARE of the conduct.
When is a revocation of an offer effective?
only on receipt

What are the ways for an offer to no longer be valid?
1. offer LAPSES after a stated term or after a reasonable time has passed
2. offer is terminated when offeror REVOKES the offer
3. An offer terminates when the offeree REJECTS the offer
What are the four situations when an offeror CANNOT revoke his offer?
1) Option: a promise to keep the offer open that's PAID FOR (consideration here)
2) Reasonbly foreseeable reliance BEOFRE acceptance (only w/ subcontractor/ contractor)
3) Beginning performance in an offer to enter a UNILATERAL K (on MBE only**in NY the offer CAN be revoked until performance is completed***) Preparation is not enough.
4) FIRM OFFER under Article 2 (a signed, written promise by a MERCHANT to keep an offer open)
What is a Firm Offer under Article 2?
A signed, written PROMISE by A MERCHANT to keep an offer open. Doesn't have to be paid for--signed writing takes place of consideration.

If no time period is stated in the offer, will remain open for a reasonable time, not to exceed 3 months. There is a three month cap on how long offer will remain open.

Note: not every signed written promise by a merchant is a firm offer. Also need a promise to keep the offer open.
In NY, if a person (not a merchant) makes a promise in writing to keep an offer open, can the person revoke?
No. In NY, a signed written promise not to revoke is enough. Even without consideration. Even if not a sale of goods.

Note that under NY law, you don't have to be a merchant!
Does a counteroffer operate as a rejection?
Does bargaining?
A counteroffer operates as a rejection but mere bargaining does not.
Is a conditional acceptance valid?
No, it operates as a rejection.
Does an acceptance containing additional or different terms operate as a rejection?
COMMON LAW: operates as a rejection under mirror image rule (acceptance must mirror offer).

ARTICLE 2: acceptance does not have to mirror offer; additional terms do not prevent acceptance.
However, the additional terms will ONLY become part of the contract if a) both parties are merchanges; b) the term is not a "material" change and c)the offeror does not object within a reasonable time.
*so additional/different terms almost never become part of contract
*not a material change if term added is common or customary in the trade
Does death of a party terminate

a) an offer?
b) an irrevocable offer?
a) Normally, death of either party before acceptance terminates an offer.

b) But death of party before acceptance does not terminate an irrevocable offer.
Is START of performance acceptance of an offer to:
a) enter into a bilateral contract?
b) enter into a unilateral contract?
a) yes start of performance is acceptance of an offer to enter into a bilateral contract. starting performance carries with it a promise to finish performance.

b) an offer to enter into a unilateral K can only be accepted by COMPLETING performance
O offers P money to paint her house white. P does not respond with words; instead P paints the house red. Has P accepted O's offer so that O can sue for breach of K?
yes. Improper performance operates as acceptance of an offer and as a simultaneous breach.
B orders a Britney CD from S. S ships a Incubus CD with a note that says "I'm out of Britney, sending this as an accommodation in the hope it meets your needs" Has S accepted and breached?
No--if the seller tells the buyer he is sending wrong goods as an accommodation, no acceptance and no breach.
When is an acceptance effective?
Mailbox rule: an acceptance is effective when MAILED.
What are the exceptions to the mailbox rule that an offer is effective when mailed?
1) rule doesn't apply if the offer provides otherwise
2) does not apply to an irrevocable offer
3) if person accepted, then rejected, rule doesn't apply if the rejection gets there first AND the offeror relies on the "overtaking rejection"
4) rule doesn't apply where rejection letter was sent first; then it's whichever arrives first is effective (race)
When does a defendant lack capacity?
When he is
1) under 18
2) intoxicated
3) mentally incompetent
When a defendant lacks capacity, can the K be enforced against the plaintiff? Against the defendant?
an incapacitated DEFENDANT has the right to disaffirm (avoid) the K; the plaintiff does not need capacity and cannot disaffirm.
When can an incapacitated party be held liable?
1) when he impliedly affirms a K by retaining hte benefit of the K without complaint after gaining (or regaining) capacity
2) an incapacitated party is liable for necessaries (food, shelter, clothing) but ONLY on a quasi-contract basis
What are the characteristics of economic duress?
1) a threat to break an existing K unless another K is agreed to
2) other party agrees because he needs to get deal done
3) no other alternative

a seller taking advantage of a favorable situation (raising prices in season) does not amount to duress
If a seller makes an honest (but material) mistake in his representations, is buyer bound?
no--even an innocent or honest mistake by seller relieves buyer
What is a mutual mistake of a meterial fact?

Is K enforceable?
1) whether something exists
2) what something is
3) NOT what something is worth

No, mutual mistake is an excuse.
Is buyer bound if he made a unilateral mistake?
Yes. Mere fact that one party had a mistaken belief about the facts is not a fatal flaw in the agreemetn process, unless the other party took advantage of it.
Define consideration
Consideration is "bargained-for legal detriment/benefit"

Can take the form of a promise, performance, or forbearance
When, if ever, can past consideration apply in a future setting?
on MBE: NO, never. Past consideration is not consideration at all, even if promise is in writing.

In NY: past consideration is binding if it's expressly stated in a signed writing and can be proved.
When does the adequacy of consideration matter?
Never. As long as there's a bargain, adequacy is irrelevant.
Is consideration required to modify a K?
COMMON LAW: Consideration is required to modify a contract (pre-existing duty rule)
**BUT, in NY, pre-existing duty doesn't apply if modification is contained in a SIGNED WRITING
*pre-existing duty does not apply to a promise made by a third party

ARTICLE 2: consdieration is NOT requires to modify a K (NO pre-existing duty rule)
A owes Visa $2500. The debt is due and UNDISPUTED. A and Visa orally agree that if A pays $2,000 immediately, Visa will forgive the other $500 in debt. A pays's Visa the $2,000 but Visa sues for other $50. Was the $2,000 consideration for Visa's promise?

What if agreement was in writing?
No, because the debt was not in dispute. (note: if the debt was DISPUTED the release is enforceable)

On MBE: no, because no debt in dispute.

In NY: you don't need consideration if the promise to forgive the balance of the debt is in a signed writing
Is a written promise to pay a debt, collection of which is barred by statute of limitations, enforceable without consideration?
Yes, the writing serves as a substitute to consideration in both NY and on MBE
What is promissory estoppel?
When there is no consideration, serves as a substitute. Applies when you have a promise and FORESEEABLE, DETRIMENTAL RELIANCE on the promise
Are covenants not to compete enforceable?
A court will invalidate or narrow a covenant not to compete that operates as a restraint of trade. Consider both the SCOPE and NEED for the covenant. Court looks for "reasonable"
Are exculpatory clauses enforceable?
These can limit liability for negligence, but not for gross negligence or intentional torts.
What is the standard for unconscionability?
Substantive: The TERMS of the agreement are unfair.

Procedural: The PROCESS by which the agreement was reached was unfair (fine print, legalese, unequal bargaining power)

*look for oppressive terms or unfair surprise that would shock the conscience of the court AT TIME OF AGREEMENT (later on is irrelevant)
What does "within the S/F mean"?
Means K has to be evidenced by a writing.
Main categories that fall within S/F

2-Year: if service K can’t be fully performed w/in 1 year
3-Land and Leases/interests in real property: exception for short term (under 1 year) leases
4-Executor: when executor of estate personally agrees to take debts of the estate herself
5-Goods: K’s for sales of goods GREATER $500 must be written.
6-Suretyship: like a guarantor, you can send me the bill if he fails to pay
a) Oral K for sale of real estate. Valid?

b) Oral K for an easement. Valid?
a) No, land w/in S/F.

b) No, easements, leases, other transfers of real property are w/in S/F

**lease is w/in S/F but there is an exception for short term leases (1 year or less)
What's the standard for determining whether a service K needs to be in writing?
A service K that CANNOT be fully performed within one year from date of agreement w/in S/F.
**Key is to ignore what actually happens and see what could have happened.
**if party’s death w/in 1 year of making K would make a K fully performed, then K is NOT w/in S/F.
**Lifetime contracts "employed for life" not w/in S/F on MBE BUT lifetime K DOES fall w/in S/F in NY
Is a K for a specific task (build my house) w/in S/F?
No, specific tasks don't present a S/F problem since, in theory, any task could be completed w/in 1 yr
The key is not to look at what actually happens and see what COULD HAVE happened.
When does the clock start to run (for determining one year under S/F)?
clock starts to run at the time of the agreement, NOT when the performance is going to begin
Gateway alleges that Roger orally agreed to lease a computer for one year for $300 a month. Is this w/in the S/F?
Yes, a lease of goods where the lease payments total $1,000 or more w/in S/F. Article 2A in NY
Here, this is $3,600
Debtor owes Creditor $1,000. Creditor alleges that Guarantor orally agreed to pay the $1,000 if the Debtor did not pay. Within the S/F?
Yes, this is a guarnatee. Guarantor is liable only if the debtor did not pay.
When is a promise by an estate representative w/in S/F?
whnen she promises to use her own funds to pay estate expenses.
Miscellaneous provisions of NY S/F includes:
the assignment of an insurance policy, an agreement to pay a commission or finders fee.
When does the S/F apply to MODIFICATIONS?
Only if the K AS MODIFIED (not the original K) falls w/in the S/F
Bob has a written K to work for Jane for nine months for $50,000. The K prohibits oral modification. Jane and Bob orally agree to modify the K to make it 10 months for $75,000. Effective?
Yes, because under common law, clauses that require a modification to be in writing are NOT ENFORCEABLE.

Such clauses ARE ENFORCEABLE under Article 2.
What kind of writing will satisfy the S/F?
1. sale of goods: writing must contain a QUANTITY term and be signed by DEFENDANT
2. Lease of goods: writing must state that it's a LEASE; include the NUMBER OF ITEMS LEASES, THE TERM AND RENTAL PAYMENTS and BE SIGNED BY THE DEFENDANT (note that article 2A has more requirements than article 2)
3. all else: must contain ALL MATERIAL TERMS and be SIGNED BY DEFENDANT
Exceptions to S/F for following categories:
a) one year prong
b) real estate prong
c) sale of goods
d) guarantee:
a) one year prong-FULL performance eliminates need for a writing
b) real estate prong-"part performance" eliminates need for a writing
c) sale of goods-good buyer ACCEPTED or PAID FOR (but NOT the rest of the goods) or judicial admission or custom made goods or merchant's confirmatory memo
d) guarantee: the guarantor's MAIN PURPOSE in making the promise was to BENEFIT HIMSELF (**for MBE. *On NY bar, WOULD need a writing)
"Part performance" on a real estate contract eliminates the need for a writing. What does "part performance" mean in this context?
Requires two out of the following three things:
1) some kind of payment either partial or full
2) buyer makes improvements to the property
3) buyer is in possession of the real estate
What are the exceptions to the S/F for sale of goods?
a) goods buyer accepted and paid for but NOT the rest of the goods (seller can recover K price)

b) judicial admission: party admits in a judicial context

c) custom made goods (if not suitable for sale to others)

d) merchant's confirmatory memo...this has three requirements: 1) both parties must be merchants 2) writing must allege a prior oral agreement and 3) there must not be a response
What is the equal dignities rule?
Written authority to enter a K on behalf of another person is required if the underlying K falls within the S/F.
Rule keeps out evidence of what the parties said and wrote BEFORE they reduced the terms of their agreement to writing. Keeps out oral or written evidence that contradicts the later writing.
*We assume the later writing is more reliable than anything that came before it.
1. To correct a clerical error (typo)

2. To establish a defense against formation of an agreement (mutual mistake)

3. To explain the written contract (interpretation)

4. To supplement a "partially integrated" writing (a final statement of the terms included, but not a complete statement of all terms agreed to).
*Can apply if writing doesn't appear to be complete on its face. If K has a merger clause, can't be supplemented.
What is a merger clause?
Clause that says "this K is limited to the terms herein"

This is evidence that the writing is complete on its face, can't be supplemented via an exception to the parol evidence rule
The written lease says nothing about sleeping accommodations. Liz claims that after signing the written K, the manager promised her the Plaza would throw in the bridal suite for free. Can Liz get this promise into evidence?
Yes, the parol evidence rule looks backwards; has nothing to do with what happens after hte K reduced to writing
What are the three things (in order) the court could look to to fill gaps or explain terms in K?
1. Course of Performance: what the parties have done under THIS K

2. Course of Dealing: what the parties have done under their EARLIER K with one another

3. Usage of Trade: what others in the trade do under similar K
Which of the following are express warranties:
1) this podium is solid mahogany
2) this computer is guaranteed for 2 years
3) all parts are top quality
4) the seller's use of a sample or model
Statements of fact, promises and descriptions of the goods ARE express warranties. Mere expressions of opinion are NOT.
1) YES-fact
2) YES-promise
3) NO-opinion
4) YES
What is an implied warranty of merchantability?
Definition: goods are fit for their ordinary purpose

Key: seller must be a merchant who deals in GOODS OF THE KIND, not just ANY merchant, since this implied warranty is associated with SPECIALIZED KNOWLEDGE about the goods.
What is an implied warranty of fitness for a particular purpose?
Definition: the goods are fit for the buyers SPECIAL purpose

Key: 1) the buyer has a special purpose in mind; 2) the buyer is RELYING on the seller to select suitable goods; 3) and the seller KNOWS both of these facts

Note: the seller doesn't have to be a merchant at all
What is a seller's Warranty of Quality in a lease of goods under article 2A? (Only in NY)
same implied warranties in a lease of goods as in a sale of goods

BUT an EXCEPTION for a FINANCE LEASE: if you lease a computer from a bank, no implied warranties are made by the bank. any that exist are made by the computer co.
Can a seller disclaim warranties?
Seller CAN disclaim IMPLIED warranties, but NOT EXPRESS warranties.
How do you make a disclaimer of implied warranties effective?
Needs to be conspicuous. Ex: large priint, diff font.
Can a seller limit buyer's remedies for breach of warranty?
Can limit if the limitation is NOT UNCONSCIONALBE. However, limiting a buyer's remedies for PERSONAL INJURY is PRIMA FACIE UNCONSCIONABLE if consumer goods are involved.

Test: is whehter the limitation was unconscionable at the time of the K, not at the time of the mishap. This is a question of law for the court.
What are the two types of K's a seller could make involving a common carrier?
Shipment K: the seller must get the goods to a common carrier, make reasonable delivery arrangements, and notify the buyer about the arrangements

Destination K: the seller must get the goods to a specific destination (usually the place where the buyer is located)

*assume a shipment K unless it says otherwise
When goods are damaged before the buyer gets the goods and neither the buyer nor the seller is to blame, who bears the risk of loss?
a) the agreement of the parties controls
b) Breach: breaching party bears ANY uninsured loss, even if unrelated
c) Delivery by common carrier: risk shihfts to the buyer WHEN SELLER HAS COMPLETED DELIVERY OBLIGATIONS
d) if no common carrier, the answer depends on if the seller is a merchant. If the seller IS a merchant, seller bears the risk of loss until the buyer takes possession of the goods. If the seller is NOT a merchant, the seller bears the risk of loss until the seller "tenders" the goods (makes them available)
e) if K gives the buyer the RIGHT to return the goods, key is whether buyer is buying for resale or for his own use. If for own use, risk of loss remains on the seller until buyer has accepted the goods
If K provides for delivery FOB San Antonio, what does this mean?
FOB stands for Free on Board.

If city listed is where seller is located, you have a shipment K

If city listed is where buyer is located, you have a destination K
Who bears the risk of loss if a lease of goods under Article 2A?
the Lessor bears the risk of loss, except in a finance lease.
What is the perfect tender rule?
A seller must deliver perfect goods in the right place at the right time. If the seler fails to make perfect tender, the buyer has the right to reject the goods.
*This is goods, so an Article 2 rule. Note that Article 2 holds seller to an extremely high standard.
If a seller fails to make perfect tender, can he cure his mistake?
Depends on whether the time for the seller's performance has expired (seller can correct by the delivery deadline).

Also, seller might have reasonable belief that buyer will take a again based on past flexibility (if buyer previously accepted non-conforming goods in exchange for a discount).
What is an installment sales contract?
Requires or authorizes the seller to deliver the goods in separate installments.

It doesn't matter what seller actually does, what matters is what K SAYS.
Does the perfect tender rule apply to an installment sales K?
No, the assumption is that seller will cure a defect in the course of ongoing performance. A buyer can reject in an installment sales K only if there is SUBSTANTIAL IMPAIRMENT
When does implied acceptance occur?
Occurs when the buyer keeps the goods without objection after having an OPPORTUNITY TO INSPECT.

Once a buyer accepts goods, it is too late to reject them (*unless non-conformity substantially impairs their value and was difficult to discover).

However, a buyer who accepts non-conforming goods can still get damages.
Can a buyer ever REVOKE ACCEPTANCE of goods?
General rule is that once a buyer accepts, the buyer cannot revoke acceptance.

Exception: a buyer CAN revoke acceptance only if the non-conformity substantailly impairs their value and was DIFFICULT to discover.
Can a buyer give a seller a check for the K price under Article 2?
Article 2 says checks are OKY, but a seller can insist on cash. If he does, buyer has a reasonalbe time to get it.
What is the standard for performance under the common law?
Substantial performance is all that is required (no perfect tender rule).
Under Article 2, if the seller doesn't make perfect tender, what can buyer do?
Buyer can reject ALL the goods and is excused from paying the K price. Buyer can sue seller for breach of K.
Under common law, if seller doesn't make perfect tender, what can buyer do?
Damages are available for any breach of K, but only a MATERIAL breach excuses the injured party from having to perform/pay.
What is a divisible K?
Payment is based on a per unit basis. If we are evaluating a breach, we do substantial performance on a per unit basis as well.
What is anticipatory repudiation and how does it operate?
Operates the saem way as a material breach. Provides an excuse for non-performance.

ex: After M starts the job, I tell her I'm not going to pay her. She can stop the job and sue for damages.

Anticipatory repudiation can be retracted as long as the other party has no relied on it.

Can repudiate by conduct as well.
What is a recission agreement?
An agreement to cancel the contract. Provides an excuse for non-performance.

For it to be effective, each party must have some performance remaining under the K (otherwise there is no consideration).
Joey borrows $2000 from Rachel and promises to repay. Later, J and R agree that she will discharge the debt now, if he promises to paint her house. J promises to paint the house. What are R's rights if J does not paint?
Her only right is to sue J on the painting deal. J's obligation to pay $2000 was discharged by the MODIFICATION
What is an accord?
An agreement to accept a stated performance IN THE FUTURE in satisfaction of an existing duty.
An accord extinguishes an existing obligation only when an accord is satisfied.
ex: Joey borrows $2000 from Rachel and promises to repay. Later, J and R agree that if J paints R's house, THEN she will discharge the debt.
What is a novation?
An agreement substituting a new party for an existing party.

With a novation, all parties agree to substitution (give up rights against first party, transferred to new party).

Distinguish delegation of duties (where one party simply assigned his obligation to another party).
What are some examples of when impossibility provides an excuse for non-performance?
1) destruction of something necessary for performance (not an excuse when buyer bears risk of loss; not an excuse if item is fungible)
2) death or incapacity of a person ESSENTIAL for performance
3) supervening government regulation or order
4) frustration of purpose (usually a buyer's remedy-requires a) at the time of the K, seller knew what the purpose was and b) a later unforeseen event thwarted buyer's purpose)
What are the requirements for frustration of purpose?
1. at the time of the K, seller knew what the purpose was
2. a later unforeseen event thwarted Buyer's purpose
What is an express condition?
An express condition is K language that does not create an obligation, but limits obligations created by other K language (ex: "if" "so long as" "provided" "on condition that" "unless" and "when")
Strict compliance required.

Failure of en express condition will excuse non-performance.
What is the standard for a satisfaction clause?
ex: I will pay you $2000 if I am satisfied with the work.

Apply an objective reasonable person standard UNLESS the K deals with art or matters of personal taste.
What kind of condition is it:

Tiger agrees to let Derek use his golf clubs for $100/wk...
a) if it rains on 7/4
b) as long as Derek keeps the clubs in good repair
c) until the Mets win the world series
a) condition precedent-condition has to be filled BEFORE a party is obligated
b) condition concurrent-runs along side with the duty or obligation
c) condition subsequent-performance comes first, then an occurrence of the condition cuts it off
The occurrence of a condition may be EXCUSED by the later action (or inaction) of the person who is PROTECTED by the condition. When???
1) Failure to cooperate (ex: if buying a house is based on condition that B obtain a mortgage and B does not even try). Ask: who is protected by the condition; did the protected party say/do anything to give up that protection?

2) a person may be estopped from insisting that a condition occur (requires a LATER statement by the protected party & reliance by the other party). ex: if owner tells builder he will make payments w/o a certificate and then builder does not get a certificate
When is specific performance available?
ONLY if monetary damages are clearly inadequate to compensate the injured party.
Applies when:
a) Real property
b) Goods are 1) unique, 2) antique, 3) custom made
c) injunction (ex: prevent me from working for a competitor)

NEVER for a service K
Under Article 2, when can a seller relaim goods?
Right of Reclamation: An unpaid seller has NO RIGHT to relaim goods from a buyer unless
1) buyer was INSOLVENT when he RECEIVED the goods and
2) seller makes a demand w/in ten days thereafter (ten days starts to run on date buyer received the goods)

*don't assume buyer insolvent just because he is having financial difficulties
Britney takes her watch to Cartier to be repaird. Cartier wrongfully sells the watch to Gwen, a BFP. Can Britney get the watch back from Gwen?
No, an ENTRUSTING OWNER has no right to get her property back from a later BFP
When can a buyer request ASSURANCE?
A perty with reasonable grounds for insecurity may request adequate assurance from the other party.

If seller fails to provide adequate assurance, buyer can treat as a repudiation of the K. The seller can retract the repudiation as long as buyer hasn't relied on him.
What kind of damages are available in K law?
Monetary Damages.

Usually EXPECTATION DAMAGES: a sum that leaves an injured party in the same position as full performance (benefit of the bargain)

Liquidated damages: LDC is valid if damages were DIFFICULT TO ESTIMATE and the clause is a REASONABLE FORECAST of probable damages (need soom flexibility--usually not valid to have a fixed figure)

Punitive damages are not awarded for breach of K, because the purpose of K damages is to COMPENSATE

Incidental: always recoverable

Consequential: only if reasonably foreseeable

Avoidable damages: rule of mitigation applies
How do you calculate expectation damages?
Common Law:
[loss in value-cost avoided]

Article 2:
Buyer's damages:
[cover-contract] if B buys substitute goods in good faith; OTHERWISE [market-contract]

Seller's damages:
[contract-resale] if good faith resale OTHERWISE [contract-market]
B contracts to buy an antique rug for $4000. B pays, but later discovers the rug is not antique. B keeps the rug and sues for damages. The rug is worth $2000. Had it been antique, it would have been worth $7000. What are B's damages?
$5000: difference btw market value of goods as promised and the market value of goods actually delivered. [$7000-$2000] if you make a good deal, you're entitled to the benefit of the bargain.
What is the "lost volume seller" and how do damages work?
Ex: Henrey contracts to buy a leather outfit out of Shops REGULARE INVENTORY for $900. H breaches. Shop sells EXACT same outfit to Janet for $900. There are no resale damages; however, Shop is a lost volume seller. Could have sold 2 otherwise. Key is that it was sold out of REGULAR INVENTORY. Damages are the LOST PROFIT (including reasonable overhead).
What are incidental damages:
The costs of caring for/transporting goods after breach, and the costs of arranging a substitute transaction (both common law and article 2)
What are consequential damages:
Damages special to this plaintiff that are REASONABLY FORESEEABLE at the TIME of the K (both common law and article 2)
What is the rule regarding avoidable damages?
You cannot recover damages that you could have avoided with reasonable effort (the rule of mitigation).

Comparable in terms of employment means the same kind of work in the same city.
Is delegation of a contract duty okay?
Generally, K duties may be delegated w/o the consent of the person to whom performance is owed.

a) contract language controls
b) duties involving special skill or reputation cannot be delegated
If a person delegates their K duty, who is liable?
The delegating party remains liable to the obligee (contrast with a novation)

The delegate is ALSO liable tot he obligee if the delgate RECEIVED CONSIDERATION
What is an assignment of rights?
Two people make a K, later, oner person transfers his rights (not obligations) under the K to a third party
What are the requirements for making an effective assignment of rights?
1. Gift assignments are valid (consideration is not necessary)
2. Assignment MUST be in writing, if $5,000 or more
3. MUST have language of PRESENT assignmnet (ex: "I assign.." not "I promise or I will..")
What are the restrictions on assignments?
1. Contract clauses govern: but distinguish a clause that merely prohibits an assignment from a clause that completely invalidates assignment. If it merely prohbits assignment, assignor is liable for breach, but assignment itself is still valid. If language invalidates assignment, not valid.

2. Court-imposed (common law) limitation: an assignment CANNOT substantially change duties of the obligor
Are requirements contracts assignable?
Are assignable as long as the assignees requirements are not out of line with the assignors
What are the rights of the assignee?
a) can sue the obligor for breach of K (creates privity)
b) the obligor has the same defenses against the assignee it would have against the assignor
c) payment by the obligor to the assignor is effective unless the obligor is aware of the assignment
Rule for a multiple assignment that is gratuitous:
if ORAL:
The last gratuitous assignee in time wins because a later gift assignment revokes an earlier one.

on MBE, the writing doesn't matter and the above rule applies.
IN NY: the writing serves as a substitute for consideration, so whomever has the written assignment will prevail
Rule for a multiple assignment that has consideration:
The first assignee for consideration wins because assignments for consideration are much more durable in nature.

Being the first to notify the obligor is NOT ENOUGH. To prevail, a later assignee would ALSO have to be the first to obtain payment from obligor or first to get judgmetn against obligor.
What is a third-party beneficiary agreement?
Two people enter into a K WITH THE INTENTION TO BENEFIT A THIRD PARTY. The intended beneficiary can enforce the K. Only an intended beneficiary (not an incidental beneficiary) has legal rights under the K.
Ex: Life insurance K

Contrast with assignment (where third party appears later on)
What is a creditor benficiary?
If a person enters into a K to benefit a third person, in order to discharge a debt he owes to the third party, the third party is a creditor beneficiary; otherwise he is a donee beneficiary
When can a promisor and promisee RESCIND OR MODIFY a contract that benefits a third party?
until the rights of the third party beneficiary have VESTED
what are the rights of a third party beneficiary?
a) can sue the breachign promisor
b) the promisor can raise the same defenses against hte third party beneficiary that it could have raised against the promisee
c) only a creditor-beneficary can sue the promisee
Can a promisee in a contract that benefits a third party recover from the breaching promisor?
yes, just as he could with any other contract. Even if the beneficiary is a donee beneficiary
In New York, when, if ever, can silence be acceptance?
ONLY when offeree
1) takes offered services
2. has reasonable opportunity to reject
3) has reason to know payment expected
In New York, when, if ever, can past consideration be consideration?
1) the promise is in writing
2) consideration in writing
3) consideration proved to be given
4) writing signed by the promisor
Statute of Frauds in New York
a) Marriage
b) One Year rule
c) Executors and Administrators
e) Goods $500 or more
f) Sureyship (NY does not follow Main Purpose Rule re these K)
g) NY--real estate fcommissions, finders fees, change of beneficiary of insurance policy
In New York, when, if ever, is consideration needed to modify a K?
No consideration needed if in writing and signed by party against whom enforcement is sought.
When does a breach of K occur?

When does a material breach occur?
When there is an absolute duty to perform and such duty has not been performed.

A material breach is deemed to have occurred when the nonbreaching party does not receive the substantial benefit of his bargain due to such nonoperformance or defective performance.
If one party breaches a K prior to the K's termination, when can the other nonbreaching party bring an action?
THe nonbreaching party may consider teh K at its end upon a abreach adn may IMMEDIATELY recover all remedies for breach of the ENTIRE K. No need to wait until the termination date of the K.
When reasonable grounds for insecurity arise, what may a party due? What does this mean for other party?
a party may demand in writing adequate assurance of due performance.
After receipt of this demand, the party whose performance is being questioned must provide assurance w/in 30 days.
this time limit is not relevant where the asking party has not canceled, materially changed his position, or otherwise considered the repudiation to be final.
the questioned party may retract the repudiationm berfore perforamnce is due if he makdes known his intention to that effect and includes assurances (ex by paying)
Failure to give assurance is NOT breach of K unless party asking repudiates.
Does an arbitration clause constitute a maerail alteration?
The court of appeals has held that includsion of an arbitration agreement materially alters a contract for the sale of goods. Thus, it will not become part of such a K unless both parties explicitly agree to it.
How is a requirements K interpreted under the UCC?
The UCC provides that when a purported agreement specifies that the quantity of goods to be sold in a transaction will be measured in terms of "requirements" the term "requirements" is to be interpreted as the actual good faith requirement needed by the buyer, except that no quantity unreasonably disproportionate to any stated estimate or other comparable prior requirements may be demanded.
What is the test for determining the unconscionability of a K?
whether in light of the general commercial background and needs of the particular parties, the clause or clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the K. A K or K provision that is held to be unconscionable will not be enforced.
When, if ever, is MORAL consideration valid?
Past or moral consideration is usually insufficient. EXCEPT where a technical defense such as the statute of limitations bars enforcement of the prior obligation and a new promise is made in writing. Here, courts will say that moral consideration is sufficient consideration for the new agreemetn or that teh existence of the prior obligation is a substitute for consideration. NEW promise will be enforceable as to the NEW terms.
When is a right to cancel not an illusory promise?
Reservation of an unqualified right to cancel or withdraw from a K at any time may amount to an illusory agreement. NOT illusory, and there is valid consideration, if the right to cancel is restricted in any way (ex: if you need to give reasonable notice).
Ellen and Calvin sign a written agreemetn wherein Ellen is apointed the exclusive retail distributor for Calvin's clothes. Is there consideration?
Yes, Calvin is agreeing to make Ellen the his exclusive retail distributor. The court will IMPLY a promise by Ellen to use her best efforts to sell the product. This is valid consideration under the UCC and common law.