Va Bar - Contracts

Front 1

4 ways to make an offer irrevocable

Back 1

(i) Option
(ii) Firm Offer
(iii) Detrimental Reliance
(iv) Unilateral Contract + part performance

Front 2

Option

Back 2

Under common law, a
(i) promise to keep an offer open that is
(ii) supported by consideration
makes the offer irrevocable.

Front 3

Firm Offer Rule

Back 3

From UCC Art. 2. A firm offer requires:
(i) sale of goods;
(ii) signed, written promise to keep the offer open; and
(iii) party is a merchant (meaning: generally a person in business).

A firm offer is irrevocable (but only for up to 3 months).

Front 4

Detrimental Reliance

Back 4

Offer is irrevocable if
(i) There has been reliance that is
(ii) Reasonably foreseeable and
(iii) Detrimental

Front 5

Unilateral Contract + part performance

Back 5

The start of performance on a unilateral contract offer makes that offer irrevocable for a reasonable time to complete performance

Front 6

Seven general issues for every contracts question

Back 6

Armadillos From Texas Play Rap, Eating Tacos

Applicable law
Formation of contract
Terms of contract
Performance
Remedies for unexcused nonperformance
Excuse of nonperformance
Third-party problems

Front 7

Applicable law

Back 7

Common law is the majority rule.

UCC covers sales of goods.

For mixed contracts, generally use the applicable law of the part of the contract that predominates (pay $100k for a car and parking lessons? UCC; pay $100k for a yo-yo and lessons with the greatest yo-yo-er in the world? Common law).
However, if the contract splits up the price between the two parts of the contract, use UCC for the goods part and common law for the other part.

Front 8

Definition of contract

Back 8

(i) An agreement
(ii) That is legally enforceable

Front 9

Is initial communication an offer?

Back 9

General rule: Manifestation of commitment.

Content:
Common law says if there's no price mentioned, then it CANNOT be an offer.
UCC says if there's no price, it *can* be an offer IF the parties intended for it to be an offer.
BUT under UCC, if the price is just described as "fair/reasonable/appropriate" then that is NOT an offer: thinking goes that the parties clearly intended to continue negotiating over that term.

Front 10

Requirements contracts/Output contracts

Back 10

Buyer offers to buy _all_ of its product from seller (requirements contract), or seller agrees to sell _all_ of its output of a product to the buyer.

These are OK.

NB: increases in requirement/output from year to year are only OK if they're not unreasonably disproportionate (can't require 5 for three years running then require 25 the next).

Front 11

Context for an offer

Back 11

An ad or price quotation is NOT an offer.

Exceptions:
(i) An ad can be a unilateral offer if it is in the nature of a reward;
(ii) Ad ad can be an offer if it specifies quantity and expressly indicates who can accept (e.g., "One fur coat: $10--first come, first served.").
(iii) Price quotation can be an offer if sent in response to an inquiry

Front 12

Unilateral contract (offer)

Back 12

Very rare. An offer that can only be accepted by performance.

Two ways to create a unilateral contract:
(i) Reward, prize, or contest; or
(ii) Offer expressly requires performance _for acceptance_

Front 13

Bilateral contract

Back 13

A normal contract

Front 14

Quasi contract

Back 14

An equitable remedy when contract law leads to unjust/unfair results. Not governed by contract law, so can ignore things like consideration!

Front 15

Termination of an offer

Back 15

4 ways to terminate an offer:
(i) Lapse of time. No hard rules, just a reasonable time limit on accepting before an offer expires.
(ii) Death of a party prior to acceptance. Exception: irrevocable offers do not terminate on death of a party.
(iii) Words or conduct of offeror, aka revocation; or
(iv) Words or conduct of offeree, aka rejection.

NB: later offers to different people does not terminate prior offers!

Front 16

Revocation

Back 16

An offeror can revoke an offer (which terminates it) in one of two ways:
(i) Later unambiguous statement by offeror to offeree of unwillingness/inability to contract; or
(ii) Later unambiguous conduct by offeror of which offeree is aware that indicates unwillingness/inability to contract.

Front 17

Rejection

Back 17

Offeree can reject an offer (which terminates it) in 4 ways:
(i) Direct rejection (easy: offeree says no);
(ii) Counteroffer;
(iii) Conditional acceptance;
(iv) Additional terms.

(Last 3 are indirect rejections.)

Front 18

Counteroffer

Back 18

An indirect rejection of an offer.

A counteroffer generally terminates the offer and creates a new offer.

"Counteroffers kill"

Exception: counteroffers do not kill options.

Distinguish counteroffers from bargaining: bargaining is just a question about getting a lower price or better terms. Bargaining does not kill an offer.

Front 19

Conditional acceptance

Back 19

An indirect rejection of an offer.

A response that includes the word "accept" -- but it goes on to say "if," "only if," "provided," "so long as," "but," or "on condition that." (The Joe Biden of acceptances.)

Common law says a conditional acceptance rejects the offer and becomes a counteroffer that can be accepted by conduct.

UCC: a conditional acceptance just rejects the offer, no new counteroffer.
If original offeror still sells the goods originally offered, there will be a contract but based solely on the parties' conduct! The condition included in the conditional acceptance will not be part of that contract!

Front 20

Additional terms

Back 20

An indirect rejection of an offer (under common law).

Mirror image rule: Under _common law_, a response to an offer can only be an acceptance if it has the exact same terms as the offer. If it adds any new terms it is treated like a counteroffer rather than an acceptance.

Under UCC: You can have an acceptance that does not meet the Mirror Image. Art 2 simply requires a "seasonable expression of acceptance" meaning in most material respects the parties agree. The original offer is accepted. (Whether parties are merchants is irrelevant for acceptance.)
But is the additional term a term of the contract? ONLY if both parties are merchants AND the additional term is not "material" and the additional term is not objected to by original offeror.
Takeaway: the additional term is very rarely going to be part of the contract.

Difference from conditional acceptance? EXPRESS INSISTENCE exists there, but not here! That is why this is an acceptance under UCC but a conditional acceptance is not!

Front 21

Acceptance

Back 21

Offer can control the method of acceptance, but it usually doesn't.

Three typical (read: tricky) ways to (possibly) accept an offer on the bar:

1. Offeree starts to perform without saying anything. General rule: start of performance is acceptance. Exception: start of performance is not acceptance of unilateral contract offers--completion of performance required by definition.
NB: beginning of performance *does* make the offer irrevocable, but it is *not* an acceptance.

2. Distance and delay in communications. Mailbox rule(s).

3. Seller of goods sends the "wrong" goods. General rule: acceptance and breach. Accommodation (or explanation) exception: sending a note along saying that the seller knows the goods are wrong but offering replacement widgets; this is treated as a counteroffer (and no breach).

Front 22

Mailbox rule(s)

Back 22

4 rules for mailing stuff about formation of contract, applicable for acceptance in distance/delay situations:
(i) All communications OTHER THAN ACCEPTANCE are effective only when received;
(ii) Acceptance is GENERALLY effective when mailed (aka the "mailbox rule");
(iii) If a rejection is mailed before an acceptance is mailed, then neither is effective until received; and
(iv) You cannot use the mailbox rule to meet an option deadline.

Front 23

Who can accept an offer?

Back 23

Generally, only:
(i) A person who knows about the offer at the time she accepts; and
(ii) who is the person to whom it was made.

Offers cannot generally be assigned. Exception: options can be assigned unless the option provides otherwise.

Front 24

Reasons that agreements are not legally enforceable

Back 24

(1) Lack of consideration or a consideration substitute for the promise at issue;
(2) Lack of capacity of the person who made the promise;
(3) Statute of Frauds;
(4) Existing laws that prohibit the performance of the agreement;
(5) Public policy;
(6) Misrepresentations;
(7) Nondisclosure;
(8) Duress;
(9) Unconscionability;
(10) Ambiguity in words of agreement; and
(11) Mistakes at the time of the agreement as to the material facts affecting the agreement.

(Only consideration is hard at all.)

Front 25

Consideration analysis

Back 25

Three steps:
(i) Identify the promise breaker.
(ii) Ask whether that person asked for something in return for her promise (aka bargained for something).
(iii) Look at the person who is trying to enforce the promise and ask what requested legal detriment that person sustained.

In sum, look for bargained-for legal detriment.

In any VA essay that involves consideration, write about bargained-for legal detriment or BENEFIT--changes nothing, but it's a vocab distinction.

Front 26

Bargained-for consideration

Back 26

The legal detriment (or benefit) must have been asked for by the promisor for consideration to exist. A unilateral promise, followed by the promisee doing something that benefits the promisor, does not count as consideration because the promisor did not ask for it!

NB: promissory estoppel could apply, but this is not consideration.

Front 27

Legal detriment

Back 27

Refraining from something that you have a legal right to do counts as a legal detriment; irrelevant whether you wanted to do it or not (aka actual detriment irrelevant).

Front 28

Promise as consideration

Back 28

One promise can be consideration for another promise.

Exception: illusory promise. If a party can get out of the promise at any time for no reason, that's not valid consideration. But just giving 10 days' notice prevents it from being an illusory promise; that's a legal detriment.

Bar tip: illusory promise is almost always the wrong answer.

Front 29

Adequacy of consideration

Back 29

Irrelevant in bar exam contract law. Don't worry about sham consideration or nominal consideration--it's just not bar exam relevant. Remember that a mere peppercorn is enough.

Front 30

Past consideration

Back 30

General rule: past consideration is *not* valid consideration.

Exception (only on multi-state, not in VA): express request by promisor and expectation of payment by promisee. (Very unlikely to show up on the bar.)

Front 31

Pre-existing contractual or statutory duty rule

Back 31

Common law:
General rule: doing what you are already legally obligated to do is not new consideration for a new promise to pay you more to do merely that. Under common law new consideration is required for contract modification.
Exceptions: addition to or change in performance; unforeseen difficulty so severe as to excuse performance; third-party promise to pay.

UCC: New consideration not required to modify a sale of goods contract. Good faith is the test for changes to an existing sale of goods contract.

Front 32

Part payment as consideration for release, i.e., promise to forgive balance of debt.

Back 32

Key is whether debt is due and undisputed.

If debt is due and undisputed, then part payment is NOT consideration for release.

If not yet due (or if it's disputed), then part payment IS consideration for release.

Front 33

Substitute consideration

Back 33

Don't try to use them unless there's absolutely no consideration. There are 3:
(i) A written promise to satisfy an obligation for which there is a legal defense;
(ii) Promissory estoppel; and
(iii) Seals (not on the bar exam--forget it).

Front 34

A written promise to satisfy an obligation for which there is a legal defense

Back 34

A substitute for consideration.

This is enforceable without consideration.

Front 35

Promissory estoppel (aka detrimental reliance)

Back 35

A substitute for consideration.

Elements:
(i) Promise;
(ii) Reliance that is reasonable, detrimental, and foreseeable; and
(iii) Enforcement necessary to avoid injustice.

Don't mix this up with consideration! Consideration is doing things they were _asked_ to do. Promissory estoppel is about doing things that nobody asked them to do but we should have figured they would anyway.

Don't need to know much more than that--the law here is very unsettled so very hard to test on the bar.

Front 36

Capacity (3 groups lack it, 3 consequences)

Back 36

A defense for not enforcing an agreement that would otherwise be enforceable.

Three groups lack capacity:
(i) infant (= anyone under 18);
(ii) mental incapacitants (= lacks ability to understand agreement)--often tested via a person having Alzheimer's; or
(iii) intoxicated persons IF other party has reason to know.

Consequence of incapacity:
(i) Incapacitant gets right to disaffirm--contract can't be enforced against him/her, but he/she can enforce the contract;
(ii) Implied affirmation by retaining benefits after gaining capacity;
(iii) Quasi-contract liability for necessaries: a person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care, or shelter--but that liability is based on quasi-contract law, not contract law.

Front 37

Statute of Frauds

Back 37

A statute designed to prevent fraudulent claims of the existence of a contract. Need objective proof other than just testimony that a contract existed before claimant gets his/her day in court. Proof required is either: (1) performance; or (2) a writing signed by the D.

SoF is a barrier between litigant's asserting a contract claim and a trial on that claim. If a contract claim is "within the SoF" then the SoF requirement of objective proof must be satisfied to get through the SoF barrier to get to a trial.

Bottom line: parliament didn't think judges were clever enough to handle tricky-deceptive parties. So courts have minimized SoF's real-world application as much as possible.

Four contracts within the SoF:
(i) Promises to answer for the debts of another [suretyship];
(ii) Service contract not "capable" of being performed within a year from the time of the contract (i.e., more than a year);
(iii) Transfers of interest in real estate;
(iv) Sale of goods for $500 or more.

Front 38

SoF: Promises to answer for the debts of another [suretyship]

Back 38

"Answer for" is not merely a promise to pay another person's debts, but rather a promise to pay another person's debts only if that person does not herself pay. LOOK FOR A GUARANTEE!

Also, look for the "main purpose" exception: if the main purpose of the obligation allegedly guaranteed was to benefit the guarantor, then not even that guarantee is w/in the SoF.

NB: This is almost always the wrong answer on the bar.

Front 39

SoF: Service contract > 1 year

Back 39

Four fact patterns to watch for:

(1) Specific time period of greater than a year (i.e., it would take longer than a year to perform): SoF applies. Remember: termination is not performance!

(2) Specific time, more than a year from date of contract (the day of performance is more than a year from now, even if it would only take 10 minutes to perform): SoF applies.

(3) Task with nothing said about time: SoF does not apply. Capable means theoretically possible with unlimited resources. (Ignore what already happened.)

(4) Lifetime contracts: SoF does not apply. If you die tomorrow you worked for your whole life, so theoretically possible to perform w/in a year.

Front 40

SoF: Transfers of interest in real estate

Back 40

SoF applies to any *transfer* of interest in land. Fee simple, easements, etc. are all included.

NB: Leases of a year or less are not covered here. Super important!

Front 41

SoF: Sale of good for $500 or more

Back 41

Simple rule: $500 or more sale of goods is within the SoF. Easy.

Front 42

Satisfying the SoF

Back 42

Need objective evidence that there was an agreement. 4 main types:
(i) Performance (most important on bar exam);
(ii) Writing;
(iii) Judicial admission; or
(iv) Estoppel.

Front 43

SoF: Performance

Back 43

Performance is one way to satisfy the SoF.

Different rules for 5 different situations:
(i) Performance and transfer of real estate;
(ii) Full performance and services contracts;
(iii) Part performance and services contracts;
(iv) Seller of good's part performance as to _ordinary_ goods; and
(v) Seller of goods' part performance as to _specially manufactured_ goods.

Front 44

SoF: Real Estate contracts performance

Back 44

Performance and transfer of real estate: part performance satisfies the SoF. It requires any 2 of these 3:
(i) Improvements to the land;
(ii) Payment; and/or
(iii) Possession.

Front 45

SoF: Services contracts part/full performance

Back 45

Full performance and services contracts: Full performance by either party satisfies SoF.

Part performance and services contracts: Part performance does NOT satisfy the SoF. [Makes no sense, thus always shows up on bar exam; remember that you can't recover under contract law--but CAN under quasi-contract law!]

Front 46

SoF: Sale of Goods contracts part performance (ordinary vs. specially manufactured goods)

Back 46

We are only concerned here with part performance by the seller (other situations the law is too unsettled to test).

Seller of goods' part performance as to _ordinary_ goods: part performance satisfies the SoF but only to the extent of the part performance. (Is the question about delivered goods or not?)

Seller of goods' part performance as to _specially manufactured_ goods: SoF is satisfied as soon as the seller makes a "substantial beginning," meaning enough work done so that it's clear the work is specially manufactured.

Front 47

SoF: Writing

Back 47

A writing is a way to satisfy the SoF.

For everything other than UCC Art. 2, such a writing requires all material terms, meaning who and what. As long as the D has signed it it's good to go.

Bar tip: if only one party is mentioned as having signed the writing, assume the other party did not.

UCC Art. 2 SoF writing: it must simply indicate that there is a contract for the sale of goods and contain the quantity term -- parties names and price not needed! Generally the D has to have signed the writing (with an exception for between two merchants where there is a delay in responding).
The thinking for the merchant-to-merchant exception for D having signed the writing is that normally a merchant will respond quickly saying "What are you talking about?" It doesn't end the case, but lets P in the door, bypassing the SoF.

Front 48

SoF: Judicial admission

Back 48

A way to satisfy the SoF.

If the D admits in a pleading or testimony that he had entered into an agreement with the P but it was never put into writing, the SoF is satisfied so it can't be asserted as a defense. This makes sense because the purpose of the SoF -- preventing fraud and other false claims -- is met.

Front 49

SoF: Estoppel

Back 49

A way to satisfy the SoF.

Some cases hold that the P's reliance on the D's oral promise can estop the D from asserting a SoF defense. But this is not a majority rule, so it probably won't be on the multi-state, and not well-established in VA so maybe mention it if you have time but don't sweat it.

Front 50

Other times the SoF is indirectly relevant

Back 50

(1) Written proof of authorization to enter into a contract for someone else (equal dignity rule);
(2) Written proof of contract modification;
(3) Contract provisions requiring written *modification*;

Front 51

Equal Dignity rule

Back 51

When do we need written evidence of someone having authority to enter into a contract on behalf of someone else? The law only requires such authority be written out if the contract to be signed is within the SoF! In other words, the authorization must be of "equal dignity" with the contract.

Front 52

Written proof of contract modification

Back 52

Resolve any LEGAL issue of whether such written evidence of the modification is needed by:
(i) looking at the deal with the alleged change; and then
(ii) determining whether the deal with the alleged change would be w/in the SoF.

If so, the alleged modification must be in writing.

Front 53

Contract provisions requiring written modifications

Back 53

Under common law, contract provisions requiring that all modifications be in writing are not effective--ignore contract language!

Under the UCC, contract provisions requiring written modifications are effective unless waived.

Front 54

Illegality

Back 54

A reason not to enforce an agreement.

Illegal subject matter: doing something facially illegal, like murdering for hire.

Illegal purpose: doing something perfectly legal (like flying to Miami) but for an illegal purpose (to buy drugs there).

Agreements with an illegal subject matter are not enforceable at all. Agreements with an illegal purpose are enforceable if P did not have reason to know of the D's illegal purpose.

Front 55

Public Policy

Back 55

A reason not to enforce an agreement.

Only thing that could really come up on the bar is an exculpatory agreement that exempts intentional or reckless conduct from liability or a covenant not to compete without a reasonable need or reasonable time or place limits.

Front 56

Misrepresentation

Back 56

A reason not to enforce an agreement. Almost always on the bar exam.

Look for:
(i) A statement of "fact" before the contract;
(ii) By one of the contracting parties or her agent;
(iii) That is false; and
(iv) induces the contract.

No wrongdoing required for material misrepresentations.

One word summary: misrepresentations MATTER.

Front 57

Nondisclosure

Back 57

A reason for not enforcing an agreement.

Generally, a person making a contract has no duty to disclose what she knows. Wrongdoing requirement for nondisclosure defense to be applicable: there has to be a fiduciary-like relationship or concealment (but this never comes up on the bar).

One word summary: nondisclosures are IRRELEVANT.

Front 58

Duress or Undue Influence

Back 58

A reason not to enforce an agreement.

Physical duress (gun to the head) or economical duress (really bad guy threatening to breach an existing contract who takes advantage of a vulnerable D who has no reasonable alternative). Very unlikely to show up on the bar exam.

Undue influence: Special relationship between two parties and improper persuasion of the weaker by the stronger.

Front 59

Unconscionability

Back 59

(1) Part of contract law generally, not just sale of goods;
(2) Empowers a court to refuse to enforce all or part of an agreement.

(i) Two basic tests: unfair surprise (procedural) and oppressive terms (substantive) are (ii) tested as of the time the agreement was made (iii) by the court.

Make sure to mention both procedural and substantive unconscionability in an essay response.

Front 60

Ambiguity in words of agreement [Raffles v Wichelhaus]

Back 60

A reason not to enforce an agreement.

There will be no contract if
(i) parties use a material term that is open to at least two reasonable interpretations; and
(ii) each party attaches different meanings to the term; and
(iii) neither party knows or has reason to know the term is open to at least two reasonable interpretations.

Example: two ships named Peerless coming in on different months.

But if one party knows there is ambiguity, then there IS a contract under the terms as understood by the party that did not know there was ambiguity.

Front 61

Mistake of Fact Existing at Time of Contract

Back 61

A reason not to enforce an agreement.

Differentiate between misrepresentation and mistake of fact because there is relief for the former but not the latter.

Mutual, material mistake of fact: relief only if both parties are mistaken (not just uncertain) about existing facts. Even then, no relief for mistake if the person seeking relief *bears the risk* of mistake.

Example: contract for sale of cow who both parties believed to be barren, seller wants out. [Note: this is not misrepresentation because no one told anyone anything that turned out to be untrue.]
Outcome: Contract is not voidable by S if S bears the risk of mistake.

On the bar, assume everyone bears the risk for their own mistakes.

For unilateral mistake of fact, there will only be relief where the other party had reason to know of the mistake (i.e., palpable mistake).

Front 62

Terms of the Contract

Back 62

Everyone agrees there is a contract, we just don't agree on what the precise terms are. Look to:
(1) Words in the written contract;
(2) Words of the parties not in the written contract and the parol evidence rule
(3) Conduct; or
(4) UCC for terms in sales of goods contracts ("default" terms).

Front 63

Words of a Written Contract

Back 63

Primary but not exclusive source of terms in a contract. Even when there is one, the Parol Evidence Rule can change some stuff.

Front 64

Parol Evidence Rule (PER)

Back 64

Triggering facts: (i) final written contract; (ii) earlier words of one or both parties.

Treat PER questions like evidence questions: the issue is always whether the evidence is admissible (aka can be considered), and the admissibility often depends on the purpose for which the evidence is to be introduced.

Vocab:
(a) Integration: written agreement that court finds is the final agreement, triggers the PER.
(b) Partial integration: written and final, but not complete.
(c) Complete integration: written and final and complete. [b and c are almost always wrong answers; they are also only relevant to PER fact pattern #5: adding to a written deal]
(d) Merger clause: contract clause such as "This is the complete and final agreement" -- persuasive but not conclusive.
(e) Parol evidence: words of a party (or parties). It's always words, and ones that came before integration (i.e., before the writing was recorded). They can be written or oral words.

Front 65

PER fact patterns

Back 65

(1) Changing/contradicting terms in the written deal: Parol evidence cannot ever be considered for this purpose!

(2) Mistake in integration, i.e., clerical error: A court may consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration, i.e., a mistake in reducing the agreement to writing.
Common example: numbers get reversed when writing things down.

(3) Defenses, i.e., getting out of a written deal: most often used for misrepresentation defense. PER doesn't prevent court from considering parol evidence for the limited purpose of determining whether there is a defense (misrepresentation, fraud, duress, etc.).

(4) Ambiguity: court can always consider parol evidence to resolve ambiguities in the written deal.

(5) Adding to the written deal: PER says no parol evidence to add terms unless (i) written agreement was a partial integration or (ii) the additional terms would ordinarily be in a separate agreement.

Front 66

Conduct as a source of contract terms (3 types)

Back 66

3 forms of conduct, in order of how important they are:

(1) Course of performance: same people, same contract. If the contract has been performed a certain way in the past without objection, that can become a term of the contract.

(2) Course of dealing: same people, different but similar contract. If prior contracts between the two parties were performed a certain way, then that lends credence to the idea that the new contract includes that as a term.

(3) Custom and usage: different but similar people, different but similar contract. If it's customary in the industry to use a certain term to cover a certain item, then that can become a term of the current contract.

Front 67

UCC default terms

Back 67

These include:
(i) Delivery obligations of seller of goods if delivery by common carrier;
(ii) Risk of loss;
(iii) Warranties of quality; and
(iv) Limitations on warranty liability.

Front 68

UCC default terms: Delivery obligations of seller of goods if delivery by common carrier

Back 68

A common carrier is a third-party that deals in the transport/freight business (Delta, FedEx, etc.).

(1) Shipment contracts: creates three obligations on the part of the seller:
(i) Get the goods to a common carrier;
(ii) Make reasonable arrangements for delivery; and
(iii) Notify the buyer.
In a shipment contract, a seller completes its delivery obligation before delivery is completed.

(2) Destination contracts: the seller does not complete its delivery obligation until the goods arrive at the destination (rare on the bar).

(3) FOB: Free on board -- if the city is the where the seller/goods is/are located, that means it's a shipment contract; if the city is anywhere else it's a delivery contract.

Front 69

UCC default terms: Risk of loss

Back 69

Risk of loss issues arise where (i) after the contract has been formed, but before B receives the goods, (ii) the goods are damaged or destroyed, and (iii) neither B nor S is to blame. If the risk of loss is on B, he has to pay the full contract price for the goods; if S bears it, no obligation on B and possible liability on S for nondelivery.

4 rules to determine who has the risk of loss, in order of application: [NB: title is utterly irrelevant]
(i) Agreement of the parties controls;
(ii) Breaching party is liable for any uninsured loss even though breach is _unrelated to the problem_;
(iii) Common carrier: Risk of loss shifts from seller to buyer at the time the seller completes its delivery _obligations_ (see shipment vs. destination contract);
(iv) Catch-all: Risk of loss shifts from _merchant_ seller to buyer on buyer's receipt (physical possession); risk of loss shifts from nonmerchant seller when he "tenders" (makes available) the goods. (B a merchant? Irrelevant!)

Front 70

UCC default terms: Warranties of quality

Back 70

Fact pattern: (i) Sale of goods, (ii) buyer has goods, (iii) buyer is unhappy with quality.

3 kinds of warranties:

(1) Express warranties: based on words or conduct. Look for words that promise, describe, or state facts, or getting to use a sample/model; distinguish "sales talk"/opinion.

(2) Implied warranty of merchantability. Only triggered when seller is in the business of selling goods of that kind (NB: everywhere else "merchant" is broader: pretty much any store). Warranty term implied: the goods are fit for the ordinary purpose for which such goods are used.

(3) Implied warranty of fitness for a particular purpose. Triggering facts: (i) B has a particular purpose; (ii) B is relying on S to select suitable goods; (iii) S has reason to know of purpose and reliance. Then: implied warranty that the goods are fit for that particular purpose.

Front 71

UCC default terms: Limits on warranty liability

Back 71

1) Statute of limitations: 4-year SoL which starts running from tender of delivery, not when B learns product is defective.

2) Privity (meaning P made a contract w/D): no privity, no warranty. In VA, the requirement of privity has been eliminated where the lawsuit is over personal injuries.

3) B's examination of goods: There are no _implied warranties_ as to defects which would be obvious on examination if B has gotten to examine the goods.

4) Disclaimer (e.g., "there are no warranties" in the contract):
a) Express warranties generally cannot be disclaimed;
b) Implied warranties of merchantability/fitness can be disclaimed via either (i) CONSPICUOUS language of disclaimer, mentioning merchantability, or (ii) "as is" or "with all faults."

5) Limitation of remedies: simply limits recovery.
a) Possible to limit remedies even for express warranties;
b) general test is unconscionability;
c) prima facie unconscionable if breach of warranty on consumer goods causes personal injury.

Front 72

Performance of Art 2 Contracts (bar won't test common law contract performance)

Back 72

6 Concepts routinely tested:

(1) Perfect Tender

(2) Rejection of the Goods

(3) Cure

(4) Installment Contracts

(5) Acceptance of the goods

(6) Revocation of acceptance of the goods

Front 73

UCC Performance: Perfect Tender

Back 73

Know three things:
(i) Perfect Tender only applies to sales of goods;
(ii) PT does not mean that the seller's performance must be perfect; rather the goods and the delivery must conform to the contract terms;
(iii) A less than PT by the seller generally gives the buyer the option of rejection of the delivered goods, so long as the buyer acts in good faith.

Good faith: if market price drops after contract entered into, B's good faith is often called into question--is B rejecting all the goods because they didn't conform to the contract (good faith), or because B wants out of a now-too-expensive contract (bad faith)?

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UCC Performance: Rejection of the Goods (4 things to know)

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4 things to know:
(i) Distinguish between rejection of an offer and rejection of the goods;
(ii) If S does not meet the perfect tender standard, B has the option to retain and sue for damages or reject "all or any commercial unit" and sue for damages;
(iii) B must take reasonable care of the rejected goods and should not continue to use rejected goods;
(iv) This rejection alternative is limited by cure, installment contracts, and acceptance (see later cards).

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UCC Performance: Cure

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If S fails to make a perfect tender, in two instances S will still be given a "second chance," an option of curing. NB: S does not *always* have the opportunity to cure, and B cannot compel S to cure.

The 2 situations where curing is available to S are:
(i) S had a reasonable ground to believe goods would be acceptable, perhaps with a money allowance. Look for info in the question about prior deals between B and S--that can make it reasonable for S to believe non-PT goods would be acceptable, so curing will be appropriate;
(ii) Time for performance has not yet expired. This requires an express deadline and wrong goods sent early--in that case, S can cure, but only by getting a PT to B before the express deadline.

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UCC Performance: Installment contracts

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Contract REQUIRES or AUTHORIZES (i) delivery of the goods in separate lots (ii) to be separately accepted. In such an ongoing relationship, we're less concerned with minor problems in one individual order. B only has right to reject an installment where there is a substantial impairment in that installment that can't be cured--in other words, no Perfect Tender rule here.

NB: distinguish between entering into an installment contract and buying something on credit and paying for it in monthly installments.

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UCC Performance: Acceptance of the goods

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If B accepts the goods, she cannot later reject them.

3 principles:

(1) Payment w/o opportunity for inspection is not acceptance.

(2) Rejection must be timely. Failure to reject after B had reasonable time to reject is acceptance.

(3) Retention as acceptance: if B keeps the goods w/o objection, that is implied acceptance. [basically the same as #2, just the flipside]

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UCC Performance: Revoking the acceptance (3 requirements)

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Effect of revocation of acceptance: same as rejection of the goods -- B returns the goods and S returns payments made.

Requirements for revocation of acceptance:
(i) Nonconformity substantially impairs the value of the goods;
(ii) Excusable ignorance of grounds for revocation, or reasonable reliance on S's assurance of satisfaction; and
(iii) Revocation within a reasonable time after discovery of nonconformity.

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Remedies

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Just two main types:

(1) Nonmonetary remedies (in rem); and

(2) Money damages

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Nonmonetary remedies

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(1) Specific performance: not the right answer. Look for adequacy of remedy at law or unclean hands, or other parties' equity.
(a) Contracts for the sale of real estate: S contracts to sell Blackacre to B; S breaches. B *can* get specific performance. But if S sells to X, a bona fide purchaser, B *cannot* get SP.
(b) Contract for sale of goods: SP only for antiques, art, and custom-made goods.
(c) Contract for services: No SP; possible injunctive relief.

(2) S's reclamation from an insolvent B of goods: right of an unpaid S to get its goods back. Requires:
(i) B must have been insolvent _at the time it received the goods_;
(ii) S demands return of goods w/in 10 days of receipt (this deadline becomes a "reasonable time rule" if, before delivery, there had been an express representation of solvency by B); and
(iii) B still has goods at time of demand.

(3) Entrustment: Owner voluntarily gives property to another, who wrongfully sells it to B--can O get it back from B? No!

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Money Damages

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Policy: compensate plaintiff, not punish defendant. (AKA avoid the term "punitive damages" in a contracts question, it's poison!)

Vocab:
**Expectation**
Incidental
**Consequential**
Avoidable
Certainty
Reliance
Liquidated

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Money Damages: Expectation

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General idea: Money damages rules are based on protecting the expectation interest, compensating the non-breaching party for. People enter contracts expecting no breach. So (i) Look to facts for dollar value of performance w/o breach; (ii) look to facts for dollar value of performance with breach; (iii) compare the two to determine the amount of damages.

Damages rules for sales of goods, all based on three relevant facts: (1) who breached, (2) who has the goods, and (3) whether there was a later "replacement deal":
(i) S's breach
(a) B has goods: lower of([FMV - Value as delivered], [cost of repair])
(b) S has goods: higher of([FMV at time of discovery of breach - contract price], [reasonable replacement price - contract price])
(ii) B's breach
(a) B has goods: [contract price]
(b) S has goods: [contract price - resale, unless S cannot resell in which case S can recover contract price (or maybe provable lost profits)]

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Lost profits for volume seller

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Money damages when B breaches and S still has the goods and S is a volume seller. [See page 50 in handout]

If B contracts to buy goods for $1000 that are part of S's regular inventory ("off the rack"), S sells the very same item to C for $1000. Damages? Yes! S would have made two sales but for the breach. How much, though? More than zero, but less than $1000--provable lost damages. You don't need to know the number, just that there are damages and they're less than the contract price but nonzero.

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Money Damages: Incidental damages

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Incidental damages are always recoverable. Costs incurred in dealing with the breach, such as costs of storing rejected goods or finding a replacement in a services contract.

Incidental damages need not be foreseeable to be recoverable!! (They're trying to confuse you with *consequential* damages, which *do* have to be foreseeable to be recoverable.)

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Money Damages: Consequential damages

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Kind of loss that is __special__ to this plaintiff. (Use the term "consequential," but think "special"!) Only recoverable if foreseeable by D, though.

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Money Damages: Avoidable damages

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No recovery for damages that could have been avoided without undue burden on plaintiff. Burdens of pleading and proof on the D.

Examples:
(i) Continuing to perform after the other party's breach.
(ii) Turning down other, comparable opportunities.

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Money Damages: Reasonable certainty

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Damages must be proved with reasonable certainty. Look for fact pattern involving a services contract and P engaged in new business or a new business activity. Consider reliance recovery as an alternative to expectation.

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Money Damages: Reliance damages

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If there is not reasonable certainty so that P can't recover expectation interest, P can still recover out of pocket expenses, aka reliance damages.

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Money Damages: Liquidated damages

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Look for contract provision fixing amount of damages. Issue will be validity: concern is whether provision is too high -- a penalty, and thus not OK.

For liquidated damages to be valid:
(i) Damages had to be difficult to forecast (aka ascertain or predict) at time contract was made; and
(ii) Provision is a reasonable forecast.

Beware a fixed number for every breach--that is not a reasonable forecast! Instead, ranges or formulae are valid liquidated damages clauses.

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Excuse for nonperformance (7 types)

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Sometimes there is a breach but still no recovery because there was an excuse.

Overview: Look for something in the fact pattern about (1) nonperformance of contract and (2) something happening after the contract.

7 Types of Valid Excuses:
(i) Other guy's nonperformance;
(ii) Other guy says he's not going to perform (anticipatory repudiation);
(iii) Insecurity about whether the other guy is going to perform;
(iv) Improper performance;
(v) Nonoccurrence of an express condition
(vi) Later contract; and
(vii) Later, unanticipated event.

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Excuse because of nonperformance

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If the other guy doesn't perform, you don't have to fulfill your part of the contract. Super easy, but it's a base to work off of.

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Excuse because of other guy saying he is not going to perform (anticipatory repudiation) (4 things to know)

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4 things to know:

(1) Unambiguous - must be an unambiguous statement or conduct that (i) the repudiating party will not perform (ii) made prior to the time that performance was due. This has to be really really unambiguous (UCC made an easier standard: insecurity about other guy's performance).

(2) Excuse - it excuses the other party from performing.

(3) Time of recovery - Anticipatory repudiation generally gives rise to an immediate claim for damages for breach unless the claimant has already finished her performance (in which case you have to wait to recover until the contract was supposed to be up). [This makes no sense, but just learn it.]

(4) Retraction of anticipatory repudiation: it can be withdrawn (retracted) so long as there (i) has not been a material change in position by the other party. If the repudiation is timely retracted, the duty to perform is reimposed but performance can be delayed until (ii) adequate assurance is provided (think putting the money in escrow).

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Excuse because of insecurity about whether other guy is going to perform

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UCC wanted easier standard than unambiguity for anticipatory repudiation. 3 requirements for this to be an excuse in the sale of goods:
(i) If the other party's words/conduct give "reasonable grounds for insecurity";
(ii) You give written demand for adequate assurance; and
(iii) If it is "commercially reasonable" you can stop performance.

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Excuse because of other party's improper performance

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I.e., other party does not give perfect tender--but remember, that's only for Art 2 (UCC)!

Common law analogue: material breach.

(1) Every breach matters and damages can be recovered for them.

(2) Only a material breach by one party that excuses the other from performing on a common law contract.

(3) Whether a breach is material is a fact question.

(4) If there is substantial performance then the breach is NOT material. If the breach is material, then the performance was not substantial.

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Material Breach

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(Remember: this is a common law term--the (rough) UCC analogue is perfect tender)

Material breach is an excuse--the non-breaching party no longer has to perform his part (any part!) of the bargain!

Two types:

(1) Quality of performance: major screw-up. Other party is excused from performing and can collect money damages.

(2) Quantity of performance: one party doing a very small amount of her work (clearly less than half)--always a material breach.

Divisible contract corollary: In a "divisible contract" (the price is stated not as a lump sum but on a per performance basis) there can be contract law recovery for substantial performance of a divisible part even though there has been a material breach of entire contract. (AKA painting ten apartments and price is listed per apartment, not one sum for the whole job.)

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Excuse because of nonoccurrence of an express condition

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Need to know:
(i) What an express condition is;
(ii) How you can identify an express condition;
(iii) How an express condition can be satisfied; and
(iv) How an express condition can be excused.

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Express condition

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An express condition (EC) is language in a contract, but of a weird type: it limits obligations created by other contract language!

Triggering words: "if," "only if," "provided that," "so long as," "subject to," "in the event that," "unless," "when," "until," "conditioned on," and "on condition that."

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Satisfying an express condition

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General rule: strict compliance is required for satisfaction of a condition.

Exception: condition of personal satisfaction of one of the parties--honest and good faith dissatisfaction. If the condition be that X is satisfied with Y's work, X is excused from paying Y only if X's not being satisfied is *honest and in good faith*. In other words, conditions of personal satisfaction of one of the contracting parties do not have to be strictly complied with--courts simply look to whether a reasonable person would be satisfied.

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Elimination of express conditions [less important]

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Waive and prevention. [Too fact intensive to be covered on the bar--see page 59 in handout for details]

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Difference between conditions precedent and conditions subsequent [less important]

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Almost all contract conditions are conditions precedent: conditions that excuse performance until and unless they occur.

A condition subsequent occurs after the start of performance and excuse further performance.

Conditions subsequent, like conditions precedent, do not create new performance obligations but instead merely limit performance obligations otherwise created.

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Excuse by reason of a later contract (4 types)

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4 types:

(1) Rescission (cancellation).
(2) Accord and satisfaction
(3) Modification (substituted agreement)
(4) Novation

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Rescission (cancellation)

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An excuse by reason of a later contract.

Key is whether performance is still remaining from each of the contract parties (executory) in which case you can still cancel/rescind a contract.

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Accord and Satisfaction

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An excuse by reason of a later contract.

An accord is a new agreement by two already-contracting parties which, if satisfied, will excuse performance on the first contract. However, if the accord is not performed, the other party can recover on either the original obligation OR the accord.

Key triggering words: IF . . . THEN!

[This strikes me as analogous to an express condition]

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Modification (substituted agreement)

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An excuse by reason of a later contract.

An agreement by parties to an existing obligation to accept a different agreement in satisfaction of the existing obligation. Agreement itself excuses original performance, so that if the new agreement is not performed the other party can only get damages for that obligation, not the original one.

Compare with accord and satisfaction where only if the accord is performed will the original performance be excused; here, the agreement itself excuses the original performance.

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Novation

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An excuse by reason of a later contract.

An agreement between BOTH parties to an existing contract to the substitution of a new party--same performance, different party. The party getting out is excused from performance.

NB: Delegation is different: it does not require both parties to agree, and it does not excuse original party from performing.

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Excuse of performance by reason of a later, unanticipated event

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3 types:

(1) Damage or destruction of subject matter of contract
(2) Death AFTER contract
(3) Subsequent law or regulation

Look for: (i) which party is arguing that her performance is excused; (ii) what her performance was supposed to be; and (iii) whether post-contract occurrence affected the ability to perform (not just the cost of her performance).

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Damage or destruction of subject matter of contract

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An excuse by reason of a later, unanticipated event.

If the subject matter of the contract (like a venue) is destroyed by an "act of God" before performance can happen, performance is excused.

Art. 2 UCC - if it's a sale of goods, you always have to do risk of loss first.
(i) If risk of loss is on the buyer, then buyer pays--end of story.
(ii) If risk of loss is on the seller, then the buyer does not have to pay; whether the buyer can recover damages depends on the facts:
(a) If it's identified goods that are destroyed, then the buyer cannot recover anything because it's impossible for seller to perform--the goods are gone!
(b) If it's just "300 sacks of grits" (only generally identified goods, not specific ones) then the buyer can recover [FMV - contract price].

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Death after contract

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As an excuse by reason of a later, unanticipated event.

Generally, death does NOT make a person's contract obligations disappear.

Exception (very small): death of a party who is "special" person DOES excuse performance. Think of a movie star contracting to star in a movie.

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Subsequent law or regulation

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An excuse by reason of a later, unanticipated event.

Two possible situations:

(1) Later law makes performance of contract illegal -- excuse by impossibility.

(2) Later law makes _mutually understood purpose_ of contract illegal -- excuse by frustration of purpose.

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Third Party Problems

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3 types of third party problems:

(1) A person trying to enforce a contract she did not make: third party beneficiary
(2) A person trying to enforce a contract she did not make: assignment of rights
(3) Disputes arising from a person's performing a contract she did not make: delegation of duties

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Third party beneficiary

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When a person trying to enforce a contract she did not make is a third party beneficiary (TPB).

Vocab is very important:

TPB is someone who the 2 parties contract with the common intent of benefit to a third party. TPB is not a party to the contract! Still able to enforce contract, though. Example: life insurance.

Promisor makes the promise that benefits TPB. Promisee obtains the promise for TPB.

Intended/incidental: Only intended beneficiaries have contract law rights; intent of the 2 parties to the contract determine whether a beneficiary is intended or incidental.

Creditor/donee: intended beneficiaries are either donees or creditors; usually donees. Look at whether TPB was a creditor of the promisee before the contract.

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Third-party beneficiary contract rights

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Dealing with efforts to cancel/modify a TPB contract: the test is whether the third party knows of and has either (i) relied on it, or (ii) assented as requested. If so, her rights have vested and the contract cannot be canceled or modified without her consent unless the contract otherwise provides.

Who can sue whom? 4 important rules:
(i) Beneficiary can recover from promisor;
(ii) Promisee can recover from promisor [but not (i) AND (ii)--promisor can only be recovered against once];
(iii) General rule: beneficiary cannot recover from promisee;
(iv) Limited exception to (iii): creditor beneficiary can recover from promisee BUT ONLY on pre-existing debt.

Defenses: if any TPB sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee.

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Assignment of Rights

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A third party problem.

Need to know:
(i) What an assignment of a contract is;
(ii) Vocabulary of an assignment;
(iii) Limitations on assignment;
(iv) Requirements for assignments;
(v) Rights of the assignee; and
(vi) How to deal with multiple assignments.

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Assignment of a Contract: Definition

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A transfer of rights under a contract. Assignment involves 2 separate steps:
(i) Contract between only two parties;
(ii) One of the parties later transfers rights under that contract to a third party.

Need to differentiate between assignment of an offer and an assignment of a contract--can't do the former, can do the latter.

Need to differentiate between assignment of a contract and TPB--the former doesn't think about the third party at all at the time of contracting, the latter requires intent of both parties to benefit the third party at the time of contracting.

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Assignment Vocab

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Assignor: Party to the contract who later transfers rights under the contract to another.

Assignee: Not a party to the contract. Able to enforce the contract because of the assignment.

Obligor: Other party to the contract.

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Limitations on Assignment

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(1) If there is a contract provision regarding assignment, determine whether the contract (a) prohibits assignments, or (b) invalidates assignments.
(a) Prohibition: Language of prohibition takes away the right to assign but not the power to assign, meaning the assignor is liable for breach of contract but an assignee who does not know of the prohibition can still enforce the assignment (this last part is what gets tested).
(b) Invalidation: Language of invalidation (assignments are "void," "no legal validity," "no force or effect," etc.) takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee.

(2) If there's no contract language on point, common law bars an assignment that _substantially changes_ the duties of the obligor.
(a) Assignment of right to payment is never a substantial change.
(b) Assignment of right to contract performance other than right to payment is usually a substantial change on the bar.

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Requirements for Assignment

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General rule is that consideration is NOT required, but gratuitous assignments (and only gratuitous assignments) can be revoked. [A gratuitous assignment is one not supported by consideration.]

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Assignment: Who Can Sue Whom?

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5 rules:

(1) Assignee can recover from obligor.

(2) Assignor for consideration CANNOT recover from obligor. Explanation: An assignment is a transfer of rights, meaning the assignor has no more rights, and assignments for consideration cannot be revoked.

(3) Obligor has same defenses against assignee as it would have against assignor.

(4) Payment by obligor to assignor is effective until obligor knows of assignment. Similarly, modification agreements between obligor and assignor are effective if the obligor did not know of the assignment.

(5) Implied warranties of assignor in an assignment for consideration: the assignor warrants
(i) the right assigned actually exists;
(ii) the right assigned is not subject to any then existing defenses by the obligor; and
(iii) the assignor will do nothing after the assignment to impair the value of the assignment. Assignor, however, does not warrant what the obligor will do after the assignment.

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Multiple Assignments

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2 principles

(1) If all the assignments are gratuitous assignments: general rule is that the last assignee generally wins.

(2) Multiple assignments for consideration:
(a) General rule: first assignee for consideration wins;
(b) Very limited exception: A subsequent assignee takes priority over an earlier assignee for value only if he both (i) does not know of the earlier assignment and (ii) is the first to obtain (1) payment, (2) a judgment, (3) a novation, OR (4) indicia of ownership [the "four horsemen" rule].

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Delegation of Duties

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A third party problem.

A delegation is giving a duty to a third party. Delegating party does the delegating and the delegatee gets the duty.

Assignment is about giving away your rights under a contract; delegation is about giving away your duties under a contract. But on the bar exam the terminology is not so exact, so be careful.

What's delegable? Generally, contractual duties are delegable. Only (very limited) exceptions when either (i) contract prohibits delegations or prohibits assignments, or (ii) "personal services contract" that calls for VERY SPECIAL skills.

Nonperformance by delegatee: Who can sue whom?
(i) Delegating party always remains liable;
(ii) Delegatee liable only if she receives consideration from delegating party.

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Nonperformance by delegatee: Who can sue whom?

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(i) Delegating party always remains liable;
(ii) Delegatee liable only if she receives consideration from delegating party.