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175 Cards in this Set

  • Front
  • Back
When does Art. 2 of the UCC apply?
Applies to the sale of goods

Goods are movable, personal property
On the MBE, when does the common law of contracts apply?
The common law of contracts applies to all contracts that are not governed by UCC Art. 2 (sale of goods)
On the NYBE, when does the common law of contracts apply?
The common law of contracts applies to all contracts that are not governed by UCC Art. 2 (sale of goods) or UCC Art. 2A (leases of goods)
In NY, when does UCC Art. 2A apply?
Applies to leases of goods
Does UCC Art. 2A apply on the MBE?
No
What is the definition of a contract?
A contract is a legally enforceable agreement
How is an express contract created?
An express contract is created by the parties’ words
How is an implied contract created?
An implied contract is created by the parties’ conduct
What is quasi-contract?
Quasi-contract is an equitable remedy
that protects against unjust enrichment
How are damages calculated in a quasi-contract action?
In a quasi-contract action, damages are calculated by the reasonable value of the benefit conferred
What is the difference between a bilateral and unilateral contract?
In a bilateral contract, an offer can be accepted in any reasonable way

In a unilateral, an offer can be accepted only by performance
What is the definition of an offer?
An offer is a manifestation of intention to be bound
Are advertisements generally offers?
No
When is an advertisement an offer?
If the advertisement provides a specific quantity term
Will the indefiniteness of a price term prevent the formation of a contract?
No. Court will read in a reasonable price
What is the one type of contract in which the indefiniteness of a price term will prevent contract formation?
Real property
What is the result in a requirements contract where there is a sudden increase in the buyer's requirements?
The seller is not bound to supply the sudden increased demand
When will an offer lapse?
An offer lapses after either:
1) Stated term, or
2) Reasonable time has passed
When can an offeror generally revoke his offer?
Any time prior to acceptance
In what two ways may an offeror revoke his offer?
1) direct revocation
2) indirect revocation
What is required in order for an indirect revocation of an offer to be valid?
1) Offeror engages in conduct that indicates he’s changed his mind, AND
2) Offeree is aware of the conduct
In what four situations is an offer irrevocable?
1) Option - promise to keep offer open, paid for w consideration

2) Foreseeable reliance prior to acceptance

3) Starting to perform a unilateral contract

4) Firm offer (Art. 2 only)
What is the effect of putting a promise to keep an offer open IN A SIGNED WRITING (without consideration), in both NY and on the MBE?
1) MBE: no effect. No consideration → not an option → offer may be revoked

2) NY: signed written promise not to revoke → enforceable w/o payment/consideration
What is the effect of starting to perform on a unilateral contract, in both NY and on the MBE?
MBE: Starting to perform a unilateral contract → offeror cannot revoke

NY: No effect. Offer of a unilateral contract can be revoked until performance has been completed
In what types of contracts will a firm offer (i.e. promise to keep an offer open) result in an irrevocable offer?
Contracts for the sale of goods under Art. 2
What is required in order to create a firm offer under Art. 2?
Merchant promises in a signed writing to keep offer open
What is the maximum time limit for a firm offer under Art. 2?
3 months
How long is does a firm offer stay open under Art. 2 if no time period is stated?
A reasonable time
What is the response of a counter-offer in response to an offer?
A counteroffer acts as a rejection of the offer
What is the effect of conditional acceptance of an offer?
A conditional acceptance acts as a rejection of the offer
Under the common law, what is the effect of an acceptance that varies the terms of the offer?
Mirror image rule: acceptance must mirror offer. Adding/changing any term (even a trivial one) operates as a rejection of the offer
Under Art. 2 of the UCC, what is the effect of an acceptance that varies the terms of the offer?
The offeree’s adding or changing a term does not prevent acceptance of the offer.

The offeree’s term is included only if:
1) Both parties are merchants
2) Term is not a material change
3) No objection w/in a reasonable time
What is the effect of the death of a party prior to acceptance of an offer?
Death of a party before acceptance terminates a revocable offer, but NOT an irrevocable offer
In what ways may a bilateral contract be accepted?
A bilateral contract may be accepted in any reasonable way
In what way may a unilateral contract be accepted?
ONLY completing performance is acceptance of a unilateral contract
Under the common law, what is the effect of improper performance of a contract?
Improper performance = simultaneous acceptance and breach
Under Art. 2, what is the effect of improper performance of a contract?
Improper performance = acceptance and breach, unless seller is sending goods as an accommodation to the buyer
What is the effect of an offeree's silence on acceptance of an offer?
silence does not constitute acceptance
In general, at what time does an acceptance become valid?
Mailbox rule: Acceptance is effective when it is mailed
What are the 4 exceptions to the mailbox rule?
1) Offer provides otherwise
2) Irrevocable offer
3) Offeror relies on an overtaking rejection
4) Rejection sent first
What are the defenses to contract formation? (8)
1) Lack of capacity
2) Economic duress
3) Misrepresentation/nondisclosure of a material fact
4) Ambiguity/misunderstanding
5) Mistake
6) Lack of consideration
7) Public policy
8) Unconscionability
What kinds of people lack capacity to form a contract?
1) minors
2) intoxicated
3) mentally incompetent
What is the rule regarding an incapacitated person's rights under a contract?
An incapacitated person may disaffirm a contract as a defendant, but may still act as plaintiff under the contract
What is the one situation in which an incapacitated person is liable as a defendant under his contract? Under what theory may plaintiff recover?
A contract for necessities.

Plaintiff may recover under a theory of quasi-contract
When is economic duress a defense to contract formation?
1) Threat to break existing contract, AND
2) No reasonable available alternative
In an ambiguity/misunderstanding situation, what is the effect if neither party was aware of the misunderstanding?
There is no contract
In an ambiguity/misunderstanding situation, what is the effect if only one party was aware of the misunderstanding?
contract exists with the term as understood by the party who was unaware of the misunderstanding
What is the effect of a mutual mistake as to the monetary value of a contract?
Mistake as to the value of a contract is not a defense to contract formation
What is required in order for a mutual mistake to be a basis for a defense to contract formation?
The mistake must be regarding a material fact
When is a unilateral mistake a defense to contract formation?
A unilateral mistake is a defense only if the other party knew or had reason to know of the mistake
What is the definition of consideration?
Consideration = bargained-for legal detriment/benefit
What three things can serve as a basis for consideration?
1) Promise
2) Performance
3) Forbearance
What is the effect of PAST consideration, in both NY and the MBE?
MBE: past consideration is not consideration

NY: past consideration is consideration if expressly stated in a signed writing and can be proven
Under the common law, what is required in order for a contract modification to be valid?
New consideration
Under the common law, what is the effect of a signed writing on the modification of a contract w/o consideration, in NY and on the MBE?
MBE: no effect → still must have consideration

NY: modification signed and in writing → no need for consideration
Under Art. 2, what is required in order for a modification of a contract to be valid?
Good faith. There is no requirement for new consideration
What is the deciding factor in determining the effect of partial payment of a debt in "consideration" for forgiveness of the rest of the debt?
Whether the debt was in dispute.

If the debt is in dispute, partial payment is consideration for forgiveness of balance

If the debt is not in dispute, partial payment is not consideration for forgiveness of the balance
What is the effect of a signed writing, on a partial payment made in forgiveness of the balance of a debt, in both NY and on the MBE?
MBE: no effect

NY: do not need consideration if promise to forgive is signed and in writing
What is promissory estoppel?
Foreseeable reliance may make a promise enforceable even without consideration
What two kinds of contract clauses are unenforceable under public policy?
1) Covenant not to compete

2) Exculpatory clause
What factors will a court look at to determine the validity of a covenant not to compete?
1) scope of the covenant (geographic and duration)

2) need for the covenant (uniqueness of services)
What are the two kinds of unconscionability?
1) substantive

2) procedural
When is writing generally required under the statute of frauds, in both NY and on the MBE (5)?
1) Transfer of an interest in real property
2) Performance cannot be completed w/in one year
3) Sale of goods of $500 or more
4) Lease of goods for $1,000 or more
5) Suretyship
What are the two exceptions to the statute of fraud's writing requirement w/r/t the transfer of an interest in real property?
1) Leases of one year or less
2) Part performance
What is the part performance exception to the statute of fraud's writing requirement w/r/t the transfer of an interest in real property?
Requires two out of three of the following:

1) Buyer is in possession of the property
2) Buyer made some payment
3) Buyer made improvements to the property
What is the statute of frauds requirement w/r/t lifetime contracts, in NY and on the MBE?
1) MBE: lifetime contracts are not w/in the statute of frauds → no writing required

2) NY: lifetime contracts are w/in the statute of frauds → writing required
What is the exception to the statute of fraud's writing requirement w/r/t contracts that "cannot be completed w/in one year"?
Full performance. Performance has been made in full by P → D has no SOF defense
What are the 4 exceptions to the statute of fraud's writing requirement w/r/t contracts for the sale of goods $500 or more?
1) Goods accepted or paid for by the buyer
2) Custom-made goods
3) Judicial admission
4) Merchant’s confirmatory memo
When is the the "custom-made goods" exception to the statute of fraud's writing requirement for contracts for the sale of goods of $500 or more applicable?
If seller has made a substantial start and the goods are not suitable for sale in the ordinary course of the seller’s business → outside SOF
What is the "merchant's confirmatory memo" exception to the statute of fraud's writing requirement for contracts for the sale of goods of $500 or more?
One party can use it’s own signed writing to satisfy the SOF against the other party if:
1. Both parties are merchants
2. The writing claims a prior oral agreement
3. The writing is signed
4. The writing has a quantity
5. There is no written objection w/in 10 days
When does the statute of fraud's writing requirement for leases of good of $1000 or more apply?
This requirement only applies in NY to contracts under UCC Art. 2A
What is a surety?
A surety is a promise to “answer for” the debt of another. It is essentially a promise to be a backup if the original party to the contract does not perform
What is the exception to the statute of fraud's writing requirement w/r/t a suretyship? How does it apply in both NY and on the MBE?
Main purpose exception

MBE: where the surety’s main purpose in making the promise was to benefit himself → no writing is required

NY: No main purpose exception
When must a modified contract be in writing under the statute of frauds?
If the contract as modified (i.e. after modification) is w/in the statute of frauds
What NY-specific transactions must be in writing under the statute of frauds?
1) Assignment of an insurance policy
2) Promise to pay a discharged debt
3) Agreement to pay a finder’s fee or broker’s commission (except to an attorney, auctioneer, or real estate agent)
In order to satisfy the statute of frauds, what must a written contract for the sale of goods contain?
a. A quantity term, and
b. Be signed by the party to be charged w breach of contract (i.e. defendant)
In order to satisfy the statute of frauds, what must a written contract for the lease of goods under Art 2A (NY ONLY!) contain?
1) State it’s a lease
2) Include quantity
3) State duration
4) State rental payments
5) Be signed by defendant
In order to satisfy the statute of frauds, what must a written contract for anything other than the sale or lease of goods contain?
1) contain all material terms, and
2) be signed by the defendant
What is the parol evidence rule?
Keeps out evidence of a prior or contemporaneous agreement (either oral or written) that contradicts a later writing
What are the four exceptions in which parol evidence may be used, despite the parol evidence rule?
1) Correct a clerical error
2) To establish a defense against formation
3) To interpret a vague or ambiguous term
4) To supplement a partially integrated writing
What is a partially integrated agreement?
Partially integrated writing = final statement of the terms included, but not a complete statement of ALL the terms that the parties agreed to
What is the effect of the parol evidence rule on events that occur after an agreement has been reduced to writing?
None. The parole evidence only applies to what happened prior to a contract's reduction to writing
What are the three types of conduct that can inform the meaning of a contract term (in descending order of important)
1) Course of performance (What the parties did under this contract)

2) Course of dealing (What the parties did under prior contracts with each other)
3) Usage of trade (What others in the trade do in similar contracts)
In what kinds of contracts do express and implied warranties apply?
Art. 2, sale of goods
When is a seller liable for a breach of an express warranty?
A seller is liable for breach of an express warranty if the buyer could have relied on the express warranty (i.e. must be a basis of the bargain)
What are the 4 kinds of express warranty?
1) statement of fact
2) promises
3) descriptions of goods
4) use of a sample or model
Can an opinion form the basis of an express warranty?
No
What are the two kinds of implied warranty?
1) implied warranty of merchantabilty

2) implied warranty of fitness for a particular purpose
What is the implied warranty of merchantability? When does it apply?
The implied warranty of merchantability states that goods are fit for their ordinary purpose

It applies if the seller is a merchant who deals in goods of the kind
When does the implied warranty of fitness for a particular purpose apply?
In order to apply:
1) Buyer has special purpose in mind
2) Buyer relies on seller to pick out suitable goods
3) Seller knows of reliance

Note: seller does not have to be a merchant
What are a lessor's warranties under Art 2A?
Same warranties under Art. 2A as under Art. 2
In a finance lease, who is subject to an implied warranty of merchantability?
The original seller of the good, not the bank
What kinds of warranties can be disclaimed?
A seller can disclaim implied warranties but not express warranties
What kind of language is necessary to constitute a disclaimer of an implied warranty?
“as is” or “with all faults” = disclaimer of implied warranties

If not one of the above phrases →
1) disclaimer must be conspicuous
2) Seller must use word “merchantability
When can a seller limit a buyer's remedies for a breach of warranty?
Seller can limit buyer’s remedies for any breach of warranty (express or implied) if the limitation is not unconscionable
What is the exception I(i.e. special case) to the rule that a seller can limit a buyer's remedies for breach of warranty?
Limiting buyer’s remedies for personal injury in the case of consumer goods is presumed to be unconscionable
What are the consequences of the risk of loss, on both the buyer and the seller?
Risk of loss on seller → Seller must provide new goods to the buyer at no extra cost

Risk of loss on buyer → Buyer must still pay the contract price
What factors are used in determining which party bears the risk of loss in a contract (in order of importance/hierarchy)
1) agreement between the parties
2) breach
3) delivery by common carrier
4) delivery by non-common carrier
What is the effect of a breach of contract, in determining which party bears the risk of loss?
The breaching party bears ROL. The breach need not relate to the loss
In analyzing risk of loss question, in which goods are shipped by common carrier, what are the two types of shipping contracts?
1) Shipment contract
2) Destination contract
What is a shipment contract?
Before the buyer assumes risk of loss, the seller must:
1) Get goods to a common carrier
2) Make delivery arrangements
3) Notify buyer
What is a destination contract?
Seller must get the goods to a specific destination before the buyer assumes the risk of loss
What is the meaning of "FOB" in a contract?
"free on board” [followed by name of city or place]

ROL passes to buyer at the named location
What is the primary factor in determining who bears the risk of loss where goods are not shipped by common carrier? (assume no agreement in the contract, and no breach by either party)
Whether the seller is a merchant
If delivery is made by a non-common carrier, when does the risk of loss pass to the buyer if the seller is a merchant?
When the buyer takes possession
If delivery is made by a non-common carrier, when does the risk of loss pass to the buyer if the seller is not a merchant?
When the seller tenders goods (i.e. telsl buyer where the goods are and how to pick them up)
Under Art. 2A, which party bears the risk of loss? What is the one exception to this rule?
The risk of loss is on the lessor.

Exception: Finance lease (ROL on the lessee)
Under Art. 2, when may a buyer generally reject performance of a contract?
Perfect tender rule: If tender is not perfect, buyer may reject the goods
Under Art. 2, when does a seller who fails to make perfect tender have an option to cure?
If time has not expired
Under Art. 2, if a seller fails to make perfect tender and time has expired on the contract, when will the seller nevertheless be allowed an option to cure?
Buyer had accepted nonconforming goods in the past
When is a contract an "installment contract"?
When it requires or authorizes delivery in separate installments
In an installment contract under Art. 2, when may a buyer reject performance?
Buyer may reject only for substantial impairment → perfect tender rule does not apply
When will a buyer be deemed to have impliedly accepted goods?
Buyer keeps goods w/o objection after having an opportunity to inspect
Under Art. 2, will a buyer who has accepted goods be permitted to thereafter reject them? Are they eligible for damages?
Once buyer accepts, cannot reject

However, they may still recover damages
Can a buyer generally revoke acceptance of goods?
No
When can a buyer revoke acceptance of goods?
When there is substantial impairment, and the defect is difficult to discover
What are the consequences of a buyer's proper rejection of a seller's performance?
1) Return - Buyer can return the goods to seller at seller’s expense
2) Refund - Buyer can get back any money buyer has paid for the goods
3) Damages - Buyer can get damages from seller for breach of contract
May a buyer pay with a check under Art. 2?
Yes.
What are the consequences is a seller refuses to accept a check under Art. 2?
Buyer has a reasonable time to make payment in cash, even if payment deadline has passed
What is the law regarding when performance complete under a common law contract?
Performance does not have to be perfect. All that is required is substantial performance (i.e. breach not material)
Under the common law, when will a small delay in performance constitute a material breach?
When time is of the essence
What are the buyer's options, under Art. 2, if the seller fails to provide perfect tender?
1) Accept all goods (both non-conforming and conforming)
2) Reject all goods (both non-conforming and conforming)
3) Accept some goods and reject others
Under the common law, when does a breach by one party excuse performance by the other?
When the breach is material
What is the effect of an anticipatory repudiation?
Same as a breach
When can an anticipatory repudiation be retracted?
When there has been no reliance by the non-repudiating party
What is the rule re: a failure to give adequate assurance?
A party w reasonable grounds for being insecure about the other party’s performance may require in writing adequate assurance that the other party will perform in accordance w the contract

No adequate assurance provided → can treat as anticipatory repudiation
What is required in order for a rescission of a contract to be valid?
Each party must have some performance remaining
What is an accord and satisfaction?
An accord is an agreement to accept performance in future satisfaction of an existing duty. Satisfaction is performance of an accord
Under an accord and satisfaction, when is the existing duty extinguished?
Under accord and satisfaction, the existing duty is extinguished only when the accord is satisfied
What is a novation? What is required for a novation to be valid?
A novation is an agreement to substitute one party for an existing one

To be a novation, both parties must agree to the substitution
In a novation, what are the rights of the non-substituting party against the party that is to be replaced?
None. Party to be replaced is excused by the novation, and cannot be sued for breach of the party that took his place
If substitution occurs w/o the consent of one of the parties, what are the rights of the non-consenting party
If substitution occurs w/o the consent of one of the parties, non-consenting party may sue the original party to the contract
What is the doctrine of impossibility, at common law?
Destruction of something necessary for performance is an excuse for non-performance
What is the rule if impracticability under Art. 2? How does it differ from the rule impossibility under the common law?
Under Art. 2, performance may be excused if seller’s performance has become much more difficult.

Seller is excused only if the damaged/destroyed goods had been identified to the contract
What three things can constitute "impossibility"?
1) Destruction of something necessary for performance

2) Death/incapacity of an essential person

3) Supervening governmental regulation
What is the effect, under the doctrine of impossibility, of an increase in the cost of the seller's performance?
Increase in seller’s cost is almost never an excuse
Under the doctrine of impossibility, what is an "essential purpose"
Essential person = someone w a special skill or talent
What is the doctrine of frustration of purpose?
Buyer’s remedy if main purpose for the contract was frustrated by something after the contract was performed but prior to performance
What is the effect of a failure of an express condition?
A failure of an express condition limits obligations created by other contract language. It does NOT create an independent obligation
What is the general standard used to determine whether a "satisfaction clause" has been satisfied? What is the one exception to this rule?
Satisfaction is measured by a reasonable person standard

Exception: contract deals w art or matters of personal taste → subjective standard, satisfaction of buyer
When is specific performance generally available?
only if monetary damages are inadequate to compensate the injured party
What is usual remedy for breaches of contract involving the sale of real property?
specific performance
When may specific performance be had in a contract involving the sale of goods?
Specific performance available only if the goods are unique or there are other proper circumstances (e.g. inability to buy substitute goods in the market)
When may specific performance be had for service contracts?
Never
What is a seller's general right to reclaim goods under Art. 2?
Generally, an unpaid seller is not entitled to reclaim goods
In what two situations may a seller reclaim goods under Art. 2?
Exception 1
1) Buyer was insolvent when it received goods, AND
2) Seller makes demand w/in 10 days after buyer received them

Exception 2
Seller can reclaim goods at any time if buyer misrepresented its solvency to the seller in writing w/in three months before delivery
When can punitive damages be recovered under a contract?
Never
When will a liquidated damages remedy be upheld under the common law?
Upheld if:
1) Damages are difficult to estimate, AND
2) Reasonable forecast of probable damages
What are expectation damages?
Expectation damages put an injured party in as good a position as full performance They are the general rule under both the common law and Art. 2
Under a liquidated damages clause, what is the effect if the clause not a reasonable forecast of damages, but turns out to be reasonable in light of actual damages?
Common law → liquidated damages clause invalid

Art. 2 → liquidated damages clause valid
Under Art. 2, what are a buyer's three possible forms of expectation damages, and when may they be used?
1) Cover damages: Cover price – contract price, if buyer covers in good faith

2) Market damages: Market price – contract price, if buyer does not cover, or does not cover in good faith

3) Loss in value: Value as promised – value delivered, if buyer keeps non-conforming goods
Under Art. 2, what are a seller's four possible forms of expectation damages, and when may they be used?
1) Resale damages: Contract price – resale price, if seller resells in good faith

1) Market damages: Contract price – market price, if seller does not resell in good faith, or does not resell at all

Lost profit (Only if seller is a lost-volume seller)

Contract price: If seller can’t resell the goods
What are incidental damages?
1) Cost to the injured buyer or seller of transporting/caring for goods after breach
2) Cost of arranging of a substitute transactions
What are consequential damages? When can they be recovered?
Damages special to this plaintiff, that were reasonably foreseeable to the breaching party at the time of the contract

Can only be recovered if reasonably foreseeable to the breaching party
What are avoidable damages?
An injured party cannot recover damages that he could have avoided (mitigated) w/ reasonable effort
What is the rule regarding entrustment?
An owner who entrusts goods to a merchant (e.g. for repair) who deals in goods of this kind has no rights against a bona fide purchaser of those goods from the merchant

Remedy: sue the merchant for conversion
What is a third party beneficiary?
A person who is not party to a contract but has rights b/c the contract was intended to benefit him
Does an incidental beneficiary have legal rights under a contract?
No
What is a donee beneficiary?
If the promisee’s purpose was to confer a gift on the TPB, the TPB is a donee beneficiary
What is a creditor beneficiary?
If the promisee’s purpose was to pay off a debt to the TPB, the TPB is a creditor beneficiary
When may parties to a contract rescind a contract that is intended to benefit a third party?
The promisor and promisee can rescind or modify the contract until the rights of the TPD have vested

Vested = knowledge and reliance by TPB
In a contract intended to benefit a third party beneficiary, is the promisor liable to the TPD?
A promisor is liable to a TPD, unless Promisee cannot recover from promisor (E.g. b/c promisee has breached)
What is the liability of a promisee to an intended third party beneficiary?
A promisee is liable to a creditor beneficiary, but NOT to a donee beneficiary
What is the liability of a promisor to the promisee, in a contract intended to benefit a third party?
A promisor is liable to the promisee, even if TPB is a donee beneficiary
May contractual duties be delegated w/o the consent of the person to whom performance is owed?
Yes
In what situations are contractual duties not permitted to be delegated w/o the consent of the person to whom performance is owed?
1) contrary contract language

2) special skills or reputation
What are the rights of the obligee against a delegating party?
Delegating party remains liable to the obligee
When is a delegate liable to the obligee?
When the delegate has received consideration for the delegation
What kind of language must an assignment contain in order to be valid?
An assignment must have language of a present transfer. A promise to assign is not valid
Is consideration required in order for an assignment to be valid?
No
What is the effect of contract language that states "rights are not assignable"?
Assignment still valid, but Assignor liable for breach
What is the effect of contract language that states “all assignments under this contract are void”
The assignment is not effective
What are the rights of the assignee against the obligor?
Obligor is liable to the assignee, but assignee steps into assignor’s shoes
What is the effect of multiple gratuitous assignments of the same contract/rights?
The last gratuitous assignee in time prevails over earlier gratuitous assignees
What is the effect of multiple assignments of a contract/rights for consideration?

What is the exception to this rule?
The first assignee for consideration prevails over all subsequent assignees

Exception: A later assignee for consideration prevails if
1) he does not know of the earlier assignments, AND
2) he is the first to get payment from or a judgment against the obligorh