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Contracts and Sales

Contracts And Sales

by amendelsohn, May 2015

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	Seven General Issues: Armadillos From Texas Play Tennis, Riding Elephants	Applicable law Formation of contracts Terms of Contract Performance Third-party problems Remedies for unexcused nonperformance Excuse of nonperformance
	Unilateral Contract	Results from an offer that expressly requires performance as the only possible method of acceptance (offeror requests a performance rather than a promise). A agrees to X, "only by"....
	Bilateral Contract	Results from all other offers (promise exchanged for a promise). Usually the offer is silent as to the method of acceptance. Assume it's a bilateral contract unless 1) reward, prize, contest; 2) offer expressly requires performance for acceptance An offer for a bilateral contract may be accepted either by a promise to perform or by the beginning of performance.
	Quasi Contract	Equitable remedy
	Applicable Law	Common law: largely case law ---Applies to sales of services, sale of real estate (like a house), sale of intangibles (like patent), construction contracts. Articles 1 and 2 of the UCC ---UCC (Article 2) applies to contracts that are primarily for sales of goods (i.e. tangible, personal property) Mixed deals: If the contract involves a sale of goods and services, you either apply ONLY UCC or ONLY common law, depending on whether the goods or services is the more important part of the deal. For example, if buying a yo-yo and receiving 10 lessons from Yo Yo Ma for $40K, clearly the lessons (serviceS) are the more important part, so apply common law. ----EXCEPTION: If the contract expressly divides payment, then apply UCC to the sale of goods part and common law to the rest. Example: K provides for $10 for the yo yo and $39,990 for the lessons.
	Formation of a Contract	A contract is an agreement that is legally enforceable.
	Agreement: Overview of the issues	Issues to look for in an agreement: 1) the initial communication ("offer"); 2) what happens after the initial communication ("termination of offer"); and 3) who responds and how she responds ("acceptance")
	Agreement issue 1: Is the initial communication an offer?	General test: manifestation of commitment. An offer is the offeror's manifestation of willingness to contract. Look for words or conduct showing commitment by that person. Basic test is whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract. ---If the initial communication creates a legal obligation for offeror and an opportunity for offeree, then it's an offer. Specific problems to watch for (no offer if these problems are present) In a common law contract: Missing price term ----in Sale of goods (UCC), can have an offer without any mention of price as long as parties so intend. In sale of real estate, no price or land description (both are required) Vague or ambiguous material terms (applies for both common law and UCC). Look for "appropriate," "fair," or "reasonable" price. A vague term in a contract can be cured by part performance. Exception: Requirements contracts and output contracts are VALID. Requirements contract says buyer will buy "all" his grits from seller or "exclusively" or "solely" from seller. ---Buyer can increase requirements so long as the increase is in line with prior demands. Unreasonably disproportionate increases are invalid. An advertisement or price quotation is generally not an offer ---Exceptions: 1) advertisement can be a unilateral offer if it is in the nature of a reward; 2) advertisement can be an offer if it specifies quantity and expressly indicates who can accept; 3) price quote can be an offer if sent in response to an inquiry
	Agreement issue 2: Was the offer terminated?	An offer cannot be accepted if it has been terminated. An offer that has been terminated is dead. There are four methods of termination 1) Lapse of Time: either the time stated or a reasonable time. A lapse of a month or more could be sufficient. 2) Death of a party prior to acceptance: General rule is that death or incapcity of either party after the offer, but before acceptance, terminates the offer. Exception: irrevocable offers (see #3) 3) Revocation of offer with words or conduct that offeree is aware of: Can be by later unambiguous statement by offeror to offeree of unwillingness or inability to contract, OR by later unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of. ---Mere making of multiple offers does NOT constitute revocation. ---Irrevocable offers: 1) Option: an offer cannot be revoked if the offeror has not only made an offer but also (i) promised to not revoke (or promised to keep the offer open) AND (ii) this promise is supported by payment or other consideration ("option"). 2) UCC “Firm Offer Rule”: An offer cannot be revoked for up to three months if (i) offer to buy or sell goods, (ii) signed, written promise to keep the offer open (doesn't have to be specified), and (iii) party is a merchant (a person in business). NY applies this rule to sales of goods, but does not impose 3 month limit (open for time stated or for reasonable time). 3) Reliance: an offer cannot be revoked if there has been (i) reliance that is (ii) reasonably foreseeable and (iii) detrimental. 4) The start of performance pursuant to an offer to enter a unilateral contract makes that offer irrevocable for a reasonable time to complete performance. Mere preparation is not enough to make it irrevocable. This is NOT the case in NY, where offer can be revoked until performance is completed. 4) Rejection by words or conduct of the offeree: Express rejection is clear. There are three methods of indirect rejection. ---i) Counteroffer: A counteroffer generally terminates the offer and creates a new offer. Counteroffers do not terminate options (promise to keep open/not revoke). Note that bargaining (usually a response to offer with a question like "will you take $900 instead?") does not terminate the offer. ---ii) Conditional acceptance: A conditional acceptance terminates the offer. Look for a response to an offer with the word "accept" followed by "if," "only if," "provided," "so long as," "but," or "on condition that." Under common law, this is a rejection and becomes a counteroffer that can then be accepted. Under UCC, it's a rejection and look to the conduct of the parties to determine if there is an offer/acceptance. iii) Additional or different terms added in response to an offer: ---Common law applies the mirror image rule, where a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance. ----Under UCC, the response with additional/different terms that does NOT make the new terms a condition of acceptance (does not expressly insist on the new term) is generally treated as an acceptance, so a contract is formed. But whether the additional/different term becomes part of the contract depends on whether both parties are merchants: (i) if any party is NOT a merchant, additional/different terms are considered mere proposals to modify the contract and do not become part of the contract unless the offeror expressly agrees; (ii) if both parties are merchants, ADDITIONAL (but not different) terms in the acceptance will be included in the contract unless (a) they materially alter the original terms of the offer, (b) the offer expressly limits acceptance to the terms of the offer, or (c) the offeror has already objected to that term or objects within a reasonable time. A DIFFERENT term will be knocked out and gap will be filled by UCC.
	Agreement issue 3: Acceptance of an offer	Method of acceptance Start of performance is generally treated as acceptance, an implied promise to perform. Exception: It's NOT an acceptance of unilateral contract offers, where completion of performance is required. Distance and delay in communications: The offeror and the offeree are at different places and there are delays in receipt of communications. Four rules: 1) all communications other than acceptance are effective only when received; 2) acceptance is generally effective when mailed (mailbox rule); 3) if a rejection is mailed before an acceptance is mailed, then neither is effective until received (and whichever is received first controls); 4) you cannot use the mailbox rule to meet an option deadline (option deadline means "received by X date," so mailing an acceptance by X date won't satisfy option deadline). The seller of goods sends the wrong goods: general rule is that this is treated as an acceptance and breach. Accommodation/explanation exception: if seller sends red and explains "you ordered blue but I only have red" it is treated as a counteroffer rather than as an acceptance and breach. Person who accepts: Generally an offer can be accepted only by 1) a person who knows about the offer at the time she accepts and 2) who is the person to whom it was made. Offers cannot be assigned or sold. options can be assigned unless the option otherwise provides. ---Rewards: if I offer a reward of $500 to anyone who finds my dog, and P finds my dog but did not know about the offer of a reward, then P's return of the dog to me does not constitute acceptance. Effect of acceptance of offer: Once offer is accepted, it's no longer possible for offeror to revoke or for offeree to reject. It's a contract.
	Legally enforceable: overview of issues	Some agreements are not legally enforceable. Legal reasons for not enforcing an agreement include (1) lack of consideration or a consideration substitute for the promise at issue; (2) lack of capacity of the person who made that promise; (3) Statute of Frauds; (4) existing laws that prohibit 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.
	Reason 1 to not enforce: Lack of Consideration	Three questions to ask: 1) who is the promise breaker; 2) did that person ask for something of value in return for her promise (bargained for something); 3) did the person who is trying to enforce the promise sustain any legal detriment (giving up something you have the legal right to do). ---MUTUALITY is required: if only one party is bound to perform, the promise is illusory and will not be enforced. ---Reservation of an unqualified right to cancel or withdraw at any time would be considered an illusory promise. ---A promise to provide "All I want" is illusory A promise can constitute consideration: If B promises to buy S's house and S promises to sell his house to B, S's promise to sell is consideration for B's promise to buy and B's promise to buy is consideration for S's promise to sell. Past consideration is generally not treated as consideration. Example: Apu saves Lisa’s life. Homer is so grateful that he promises to pay Apu $3,000. Homer later changes his mind. No consideration for promise because Homer didn't bargain for anything. ---Exception: expressly requested by promisor and expectation of payment by promisee. Example: Homer sees Lisa in danger and asks Apu to save her, knowing that Apu would expect to be paid. After Apu saves Lisa, Homer promises to pay Apu $3K. There is consideration. ---Under NY General Obligations Law, a promise in a signed writing (by promisor) that expressly acknowledges past consideration is enforceable if the past consideration can be proven. Pre-existing contractual or statutory duty rule: Under common law, need new consideration for modifications to agreements. 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. . Exceptions: 1) unforeseen difficulty so severe as to excuse performance (you've agreed to sing, but sound system is broken so I promise to pay you more if you will still sing); 2) third-party promise to pay additional amount for same performance. ----Under UCC, there is no pre-existing legal duty rule, so new consideration is not required to modify a sale of goods contract. Good faith is the test for changes to an existing sale of goods contract. ---Under NY General Obligations Law, a signed writing (by the party to be charged) modifying a contract is enforceable without consideration. Part payment as consideration for release (promise to forgive balance of debt): If debt is due and undisputed, then part payment is not new consideration for release. If not yet due or disputed, then part payment is new consideration. Example: D owes C $3K and it's due and undisputed. C and D agree that D will pay $2K in exchange for release. No new consideration, so not legally enforceable. ---However, if the part payment on the existing debt is in any way different (i.e. in stock instead of cash), that may be sufficient consideration. ---In NY a signed written agreement releasing a debt is legally enforceable even if the debt is due and undisputed. Consideration substitutes: A promise is legally enforceable even though there is no consideratoin if there is one of the following consideration substitutes: ---1) A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration. Example: D owes C $1,000. Legal action to collect this debt is barred by the statute of limitations. D writes C, “I know that I owe you $1,000. I will pay you $600.” No new consideration (not asking anything in return), but still legally enforceable. ---2) Promissory estoppel (detrimental reliance): Requires (i) Promise, (ii) reliance that is reasonable, detrimental and foreseeable, and (iii) enforcement is necessary to avoid injustice.
	Reason 2 to not enforce: Defendant promisor's lack of capacity	Who lacks capacity to contract? People under 18, mental incompetents, intoxicated persons if other party has reason to know --In NY, incompetence must be adjudicated Consequences of incapacity: ---Right to disaffirm by person without capacity, contract won't be enforceable against him if he violates and if other party violates he can enforce it. Example: 7 year old agrees to do college lectures for $100 a piece but then doesn't do them. Agreement not enforceable. ---Implied affirmation by retaining benefits after gaining capacity (ratification): if B enters agreement to buy car on credit at 17 and after turning 18 keeps the car, it's as if he made the agreement all over again this time as someone with capacity. ---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. A person without capacity never has contract liability, even for necessaries, but the other party to the agreement still may require the person without capacity to pay through equity law (quasi-contract).
	Reason 3 to not enforce: Statute of Frauds Defense- overview	Statute of frauds is a statute designed to prevent fraudulent claims of the existence of a contract. It makes it harder to make such a false or fraudulent claim by requiring the claimant to have OBJECTIVE PROOF- proof other than just testimony that a contract exists- before the claimant gets his day in court. If a contract is within the statute of frauds, claimant will not get a day in court unless he can provide objective proof, either through 1) performance; or 2) a writing signed by the defendant
	Reason 3 to not enforce: Statute of Frauds Defense- agreements that are within the statute of frauds	MY LEGS 1) Promise with marriage as consideration the contracts contemplated here are contracts such as, “If you marry my son, I will give you a gift of $10,000 upon your marriage.” 2) Service contract not "capable" of being performed within a year from the time of the contract. ---If specific time period of more than a year is specified in the contract ("three-year employment contract"), then it's within statute of frauds. Even if the contract could be terminated within a year, that doesn't matter, what we care about is whether it can be fully performed within a year. ---If contract specifies a date of performance over a year away (will sing at a concert a a year and a half from now), it's within statute of frauds. ---If it's a year-long employment contract "starting next month," it's within statute of frauds because can't be completed until 13 months from now. ---If the task seems like it couldn't practically be completed within a year, that doesn't matter. If it's theoretically possible to perform the contract within a year with unlimited resources, then it is not within statute of frauds. ---A lifetime contract (P will work "for life") could theoretically be performed within a year if P dies within a year, so it is not within statute of frauds. However, NY statute of frauds includes all lifetime contracts. 3) Transfers of interest in Land or real estate (with exception for leases of a year or less which are not within S/F). Transfers of interest in real estate include sale of a house, sale of an easement. 4) Contracts by an Executor or administrator to personally pay the debts of an estate out of his own funds 4) Sale of goods for $500 or more Exception: specially manufactured goods, if manufacturer has made a substantial beginning in their manufacture Exception: goods received and accepted 6) Promises to answer for the debts of another (suretyship): Courts have construed "answer for" in a way that substantially limits its applicability, it must be a promise to pay another person's debts only if that person does not herself pay (it's a guarantee). "I'll pay if he doesn't pay." ---Main purpose exception: if the main purpose of the obligation allegedly guaranteed was to benefit the guarantor, then not it's not within the statute of frauds. NY does NOT have this exception (where ALL promises to pay discharged debts are within statute of frauds) **NY Statute of Frauds also includes contracts to pay commission or finder's fees unless an attorney, auctioneer or licensed real estate broker is involved. [NY Statute of Frauds also includes an assignment of an insurance policy or a promise to name a beneficiary of such a policy]
	Reason 3 to not enforce: Statute of Frauds Defense- How is the statute of frauds satisfied?	If an agreement is "within the statute of frauds," then the defendant can file a motion to dismiss or a motion for summary judgment based on the Statute of Frauds defense. BUT P can still get her day in court by providing objective evidence of the contract to satisfy the court's concern about fraud. If P provides this objective proof, the Statute of Frauds is "satisfied," there is no Statute of Frauds defense, but D can still assert any other defense. Can be satisfied with performance OR writing 1) Writing ---The Statute requires only one or more writings, signed by the party to becharged, that: (i) reasonably identify the subject matter of the contract, (ii) indicate that acontract has been made between the parties, and (iii) state with reasonable certainty the essentialterms. ---For all contracts other than Article 2: the writing satisfies Statute of Frauds if it describes WHO and WHAT (must name both parties, must be signed by defendant, and must describe what both parties are agreeing to). For a land sale contract, writing must contain the price, a description of the property - which need not be a "legal" description - and a designation of the parties. For an employment contract, the writing must specify the duration. ---For Article 2 contracts: the writing satisfies Statute of Frauds if it indicates that there is a contract for the sale of goods and contains the quantity term (how many, can be "all I need" or "X number" but can't be "all I want"). It must be signed by defendant, EXCEPT for transactions between merchants where there is a delay in responding (in that case, where recipient of writing D fails to respond, the writing will satisfy even without D's signature). Signature: It need not be handwritten; it can be printed or typed as long as the mark is included with an intent that it operate as a signature. Under the UCC, even a party’s initials or letterhead may be sufficient. The signature requirement may also be satisfied by an electronic signature. 2) Performance: Statute of Frauds can be satisfied by performance. Requirements depend on what kind of contract it is: ---Transfer of real estate contracts: Part performance satisfies. Requires ANY TWO of these three: (i) improvements to the land, (ii) payment(s) (in whole or in part), and (iii) possession. ---Service contracts: Full performance by EITHER party satisfies. Part performance does NOT satisfy, so a worker who works 13 months on a 3 year contract (part performance) cannot recover under contract law but CAN recover under quasi-contract law (equity). ---Sale of ordinary goods contracts: Seller's delivery of part of an order (part performance) satisfies with respect to the delivered goods (so seller can sue buyer for payment for the delivered goods), but if buyer tries to sue seller for failure to deliver the remaining goods then seller can raise Statute of Frauds defense (no objective proof that the undelivered goods were part of the agreement). If an item is indivisible and it is partially paid for, most courts hold that the part payment takes the whole contract out of the Statute of Frauds ---Sale of specially manufactured (custom) goods: As soon as seller makes a "substantial beginning" to perform, Statute of Frauds is satisfied. ---After performance, performer can sue for reasonable value of the services or part performance rendered, or the restitution of any other benefit that has been conferred. ---If the part performance rendered takes the contract out of the Statute of Frauds, the performing party has the option of suing on the contract for expectation damages rather than merely in restitution for the value of the benefit conferred. 4) Judicial admission: If the defendant asserting the Statute of Frauds defense admits in a pleading or testimony that he had entered into an agreement wtih P ("we agreed but we never put it in writing"), that satisfies Statute of Frauds, not going to be worried about fraud in that situation. 5) Estoppel: Some cases hold that P's reliance on D's oral promise to put the agreement in writing can estop D from asserting a Statute of Frauds defense.
	Other places we see statute of frauds on the exam	Written proof of authority to enter into contract for someone else: Rule is that the authorization must be in writing only if the contract to be signed (the underlying contract) is within Statute of Frauds. Treat authorization and the contract with "equal dignity." ---Example: P sues D for breach of contract to enter 2 year lease which third party signed, claiming that third party was authorized to enter into the agreement with P on D's behalf. D raises statute of frauds defense and argues that third party's authority to act must be demonstrated in writing. Result: underlying K is within statute of frauds and requires writing, so must present writing showing third party's authority to act as well. In NY, in a principal-agent relationship when dealing with an interest in land, the agent must be authorized in writing or the principal must ratify. Written proof of contract modification: If the deal with the alleged change would be within the Statute of Frauds, then the alleged modification agreement must be in writing. ---Example: T leases building from L for one year. L claims they later agreed to increase term to 3 years. Result: written evidence of the alleged modification is required because the agreement with the modification would be within the statute of frauds (3 year lease is within statute of frauds). ---Example: Same as above, except the alleged modification is a reduction of the lease from 3 years to 1 year. Written evidence of the alleged modification is not required because the agreement with the modification would not be within the statute of frauds (1 year lease not within statute of frauds). Contract provisions requiring written modification ---Under common law, contract provisions requiring that all modifications be in writing are not effective. Ignore contract language. Instead, determine whether the agreement with the modification would be within the statute of frauds. If so, require writing for proof of the modification. ---Under UCC, contract provisions requiring written modifications are effective unless waived.
	Reason 4 for not enforcing an agreement: Illegality	If the subject matter is illegal, the agreement is not enforceable. Example: contract where A pays B to injure C. If the purpose is illegal but the subject matter is legal, then the agreement is enforceable as long as P did not have reason to know of D's illegal purpose.
	Reason 5 for not enforcing an agreement: Public policy	Courts can refuse to enforce an agreement because of public policy Common examples: exculpatory agreements that exempt intentional or reckless conduct from liability, and covenants not to compete without a reasonable need or reasonable time and place limits.
	Reason 6 for not enforcing an agreement: Misrepresentation	Look for 1) a statement of fact before the contract, 2) by one of the contracting parties or her agent, 3) that is false, 4) that is fraudulent or material, and 5) induces the contract. Lack of wrongdoing/intent does NOT matter. Even if the party that makes the misrepresentation did so "honestly" or "innocently," the misrepresentation is grounds for non-enforcement. In NY, in addition to avoiding the contract, a party who is fraudulently induced into making a contract may bring an action for damages. Must show 1) false representation of material fact; 2) known by the utterer to be false; 3) made with the intention of inducing reliance and forbearance from further inquiry; 4) that is justifiably relied upon; and 5) results in damages
	Reason 7 for not enforcing an agreement: Nondisclosure	Generally, a person making a contract has no duty to disclose what she knows. Exceptions: Look for fiduciary-like relationship or concealment as exceptions to this general rule.
	Reason 8 for not enforcing an agreement: Duress or undue influence	Physical duress (pretty obvious) Economic duress: there needs to be 1) an improper threat, which is usually a threat to breach existing contract; and 2) a vulnerable person with no reasonable alternative ----Common example: D refuses to deliver on contract for 1,000 pounds of kosher grits unless P pays D an extra $500 beyond the agreed price. P has no other source of kosher grits, so agrees in writing to pay the additional amount. Result: P can get out of the agreement because he agreed under duress. Undue influence: Look for 1) a special relationship between the parties; and 2) improper persuasion of the weaker by the stronger.
	Reason 9 for not enforcing an agreement: Unconscionability	A court is empowered to refuse to enforce all or part of an agreement under this doctrine. Test: 1) unfair bargaining/surprise (procedural) and oppressive terms (substantive) are, 2) tested as of the time the agreement was made, 3) and the determination is made by the judge NY requires BOTH procedural and substantive unconscionability. [This is likely but not always the case in general as well]
	Reason 9 for not enforcing an agreement: Ambiguity in the words of the agreement	There will be no contract if 1) parties use a material term that is open to at least two reasonable interpretations; 2) each party attaches different meaning to the term; AND 3) neither party knows or has reason to know the term is open to at least two reasonable interpretations. If one but not both parties knows or has reason to know that the term is open to at least two reasonable interpretations, then the can enforce the contract as understood by the party who was not aware of the multiple interpretations.
	Reason 10 for not enforcing an agreement: Mistake of fact existing at the time of contract	Mutual, material mistake of existing fact: Relief for mutual mistake only if 1) both parties are indeed mistaken (not just uncertain) 2) about an existing fact (not about something that might or might not happen in the future) 3) that is material (important) and 4) the person seeking relief does not bear the risk of mistake (could've discovered the mistake ---Mutual mistake entitles the non-breaching party to rescission Unilateral mistake of material fact: There will be relief for situations in which the other party had reason to know of the mistake (palpable mistake). ---Example: Barbri gets bids from 10 vendors, nine of which were for over $100K, but X's bid was for $30K due to a clerical error by X. Barbri accepts that offer. X can rescind because it's a unilateral mistake that is palpable (Barbri had reason to know of X's mistake).
	Terms of the Contract	Words in the written contract Words of the parties NOT in the written contract (Parol evidence rule) Conduct UCC for terms in sales of goods contracts ("default" terms)
	Words of the parties NOT in the written contract (Parol evidence rule)	Triggering facts: there's a final written contract and one of the parties asserts that earlier words of one or both parties should be included in the agreement. Policy: the underlying premise is that the final written version o fa deal replaces earlier agreements, negotiations and conversations. Parol evidence rule governs whether earlier words of the parties CAN BE CONSIDERED. "Parol evidence" means the words of a party or both parties before integration (before agreement was put into written form). Parol evidence can be written or oral. Whether parol evidence can be considered depends on the purpose for which it is being introduced: 1) Changing/Contradicting terms in the written deal: Evidence of earlier agreements CANNOT be considered for the purpose of contradicting the terms in the written contract. 2) Adding to the written deal: Evidence of earlier agreements CANNOT be considered as a source of consistent, additional terms UNLESS the court finds (i) that the written agreement was only a partial integration (written and final but not complete) OR (ii) that the additional terms would ordinarily be in a separate agreement. ---NOTE: the words "partial" or "complete" integration are relevant only in this situation. ---NOTE: the words "partial" or "complete" integration are relevant only in this situation. 3) Mistake in integration/clerical mistake: A court CAN consider evidence of earlier agreements for the limited purpose of determining whether there was a mistake in integration (a mistake in reducing the agreement to writing). 4) Defenses/getting out of a written deal: A court CAN consider evidence of earlier agreements for the limited purpose of determining whether there is a defense to the enforcement of the agreement, like misrepresentation, fraud or duress. 5) Explaining ambiguous term(s) in the written deal: A court CAN consider evidence of earlier agreements to resolve ambiguities in the written contract (to determine what words in the written agreement were intended to mean) 6) Evidence of conditional terms : If there is a written contract and prior to that written contract the parties orally agreed that performance was conditional, then courts generally will consider evidence of such an oral agreement ---Evidence of a condition precedent to effectiveness (whether the contract will go into effect) CAN be considered, but evidence of a condition precedent to performance (parties not obligated to perform until the condition has occurred) CANNOT be considered.
	Conduct	Conduct can be a source of contract terms Courts look to these forms of conduct IN ORDER: 1) Course of performance: Same people, same contract. Example: S contracts to sell 1200 chickens a month to B for 12 months, first three shipments are hens but B does not complain. 2) Course of dealing: Same people, different but similar contract. Example: S contracts to sell 1200 chickens a month to B for 12 months, but under prior chicken contracts, S sent B hens and B complained. 3) Custom and usage: Different but similar people, different but similar contract. Example: S contracts to sell 1200 chickens a month to B for 12 months. It is customary in the chicken industry to use the word "chicken" when the deal covers chickens up to six pounds, including hens.
	UCC for terms in sales of goods contracts ("default" terms): Delivery obligations of seller of goods if delivery by common carrier	Delivery obligations of seller of goods if delivery by common carrier: If there is an agreement as to place of delivery by a common carrier, then the question is, what does the seller have to do to complete its delivery obligation? ---Shipment contracts: seller completes its delivery obligation when it 1) gets the goods to a common carrier; AND 2) notifies the buyer. So the delivery obligation is complete before delivery is completed. ---Destination contracts: The seller does not complete its delivery obligation until the goods arrive at the destination. How to distinguish shipment and destination contracts: If it says "FOB (free on board)" followed by the city where the seller or the goods are located, then it's a shipment contract. If it doesn't have "FOB" then it's a shipment contract. If it says FOB followed by some other city, then it's a destination contract.
	UCC for terms in sales of goods contracts ("default" terms): Risk of loss	Risk of Loss: Risk of loss issues arise where 1) after the contract has been formed, but before the buyer receives the goods, 2) the goods are damaged or destroyed, and 3) neither the buyer nor the seller is to blame. ---If risk of loss is on the buyer, he has to pay the full contract price for the lost or damaged goods. ---If the risk of loss is on the seller, no obligation on buyer and possible liability on the seller for nondelivery. ---If NEITHER is to blame, then apply these four rules (if the first doesn't apply, move to the next): 1) The agreement of the parties controls; 2) Breaching party is liable for any uninsured loss even though the breach is unrelated to the problem; 3) Risk of loss shifts from seller to buyer at the time the seller completes its delivery obligations; 4) if seller is a merchant, risk of loss shifts to buyer on the buyer's "receipt" (possession) of the goods, but if seller is not a merchant, risk of loss shifts to the buyer when seller "tenders" (makes available) the goods to the buyer.
	UCC for terms in sales of goods contracts ("default" terms): Warranties of quality	Warranty of title (this is not a warranty of quality) is included in every contract for the sale of goods. Warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting. Express warranties of quality: Look for words that promise, describe or state facts. A sample or sales model also counts. General sales talk and providing opinions do not count. ---Buyer can recover for breach of express warranty if the fact that is stated about the good turns out to be false. Implied warranty of merchantability: When any person buys any goods from any merchant (someone who deals in those kinds of gods), a term is automatically added to the contract by operation of law, namely that the goods are fit for the ordinary purpose for which such goods are used. ---Buyer can recover for breach of implied warranty of merchantability if the goods are NOT fit for the ORDINARY PURPOSE for which those goods are used. Implied warranty of fitness for a particular purpose: When a buyer 1) has a particular purpose, 2) is relying on seller to select suitable goods, and 3) seller has reason to know of purpose and reliance. ---Buyer can recover for reach of implied warranty of fitness for a particular purpose if the goods are not fit for his particular purpose. Limitations on warranty liability: 1. Statute of Limitations: four-year statute of limitations which generally starts running when the tender of delivery is made. 2. Privity: If P did not buy the goods from D, there is a possible lack of privity issue. In NY, no privity requirement for natural persons suing for breach of UCC warranty. 3. Buyer's examination of the goods: No implied warranties as to defects which would be obvious on examination. 4. Disclaimer ("there are no warranties"): Express warranties generally cannot be disclaimed. Implied warranties can be disclaimed either through (i) conspicuous language of disclaimer mentioning merchantability OR (ii) "as is" or "with all faults" 5. Limitation of remedies: Seller can limit remedies for breach of warranty (both express and implied). The test for validity of these limitations is unconscionability. It' s prima facie unconscionable if breach of warranty on consumer goods causes personal injury.
	Performance of Article 2 Contracts: six issues	Perfect tender Rejection of the goods Cure Installment contracts Acceptance of the goods Revocation of acceptance of the goods
	Performance of Article 2 Contracts Issue 1: Perfect tender	Perfect tender: the rule only applies to sales of goods. Perfect tender means that the GOODS AND DELIVERY must completely comply with the contract terms.
	Performance of Article 2 Contracts Issue 2: Rejection of the goods	A less than perfect tender generally gives the buyer the option to reject the goods so long as the buyer acts in good faith (if the reason for rejection is just change of market price of the item purchased, that's not in good faith). The buyer must take reasonable care of the goods and cannot continue to use the goods. Once he rejects, he can't continue to use the goods. Continued use overturns the rejection. The option of rejection because of a less than perfect tender is limited by the concepts of cure, installment contracts and acceptance.
	Performance of Article 2 Contracts Issue 3: Cure	In some instances, a seller who fails to make a perfect tender will be given a second chance, an option of curing. A seller does not always have the opportunity to cure Buyer cannot compel seller to cure When does seller have opportunity to cure? Time for performance has not yet expired: If there's an express deadline and seller delivers the wrong stuff early, seller has opportunity to cure before the deadline. Seller has reasonable ground to believe tender would be acceptable, perhaps with a money allowance: Look for words like "past," "previous," and "prior." If previously the buyer was okay with the wrong stuff being delivered, it may be reasonable for seller to believe the tender would be acceptable.
	Performance of Article 2 Contracts Issue 4: Installment Contracts	An installment contract REQUIRES or AUTHORIZES (i) delivery of the goods in separate lots (ii) to be separately accepted. Buyer has the right to reject an installment only where there is a SUBSTANTIAL IMPAIRMENT in that installment that can't be cured. To cancel the entire installment CONTRACT due to breach, the buyer must show that the nonconformity of the installment substantially impairs the value of the ENTIRE CONTRACT and cannot be cured.
	Performance of Article 2 Contracts Issue 5: Acceptance of the goods	If buyer accepts the goods, it cannot later reject them Payment without opportunity for inspection is NOT acceptance Failing to reject in a timely manner (after buyer had reasonable time to reject) IS ACCEPTANCE Retention of the goods without objection IS ACCEPTANCE (by implication). Look for facts taht state when buyer first received the goods and when buyer first complained to seller.
	Performance of Article 2 Contracts Issue 6: Revocation of acceptance of the goods	Effect of revocation of acceptance: same as rejection. Buyer returns the goods and seller returns payments made. ---Remember that if a buyer accepts the goods, he cannot later reject them. In limited circumstances though, a buyer can effect a cancellation of the contract by REVOKING its acceptance of the gods. Requirements for revocation of acceptance: 1) nonconformity substantially impairs the value of the goods; 2) excusable ignorance of grounds for revocation or reasonable reliance on seller's assurance of satisfaction; AND 3) revocation within a reasonable time after discovery of nonconformity
	Third-Party Problems	Three kinds of third-party problems: A person trying to enforce a contract she did not make: third-party beneficiary A person trying to enforce a contract she did not make: assignment of rights Disputes arising from a person's performing a contract she did not make: delegation of duties A third-party can enforce a contract only if his rights have vested, which occurs when he learns of the contract AND (i) manifests assent to a promise in the manner requested by the parties; (ii) brings a suit to enforce the promise; or (iii) materially changes position in justifiable reliance on the promise. Prior to third-partybeneficiary's rights VESTING, other parties can do whatever they want to thecontract.
	Third-Party Problem 1: A person trying to enforce a contract she did not make: third-party beneficiary	Identifying a third-party beneficiary problem: look for 2 parties contracting with the common intent of benefit to a third party. Third-party beneficiary: not a party to the contract, able to enforce contract others made for her benefit. Only INTENDED beneficiaries have contract law rights. Can be a creditor or a donee. Promisor: Person who is making the promise that benefits the third party. Promisee: Person who obtains the promise that benefits the third party. Dealing with efforts to cancel or modify: Test is whether the third party knows of the contract intended to benefit her and has relied on or 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? 1) Beneficiary can recover from promisor 2) Promisee can recover from promisor 3) Beneficiary cannot recover from promisee, EXCEPT a creditor beneficiary can recover from promisee but only on pre-existing debt (OR he could recover on the original contract, has a choice) Defenses: If the third-party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the promisee.
	Third-Party Problem 2: A person trying to enforce a contract she did not make: assignment of rights	What is an assignment? An assignment is a transfer of rights under a contract. Involves two steps: 1) contract between only two parties; and 2) one of the parties later transfers rights under that contract to a third party. ---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 Limitations on assignment: 1) If there is a contract provision regarding assignment: if the fact pattern includes language of contract regarding assignability, determine whether the contract a) prohibits assignments OR b) invalidates assignments. ---Prohibition: language of prohibition takes away the right to assign, but NOT the POWER TO ASSIGN, which means that the assignor is liable for breach of contract, but an assignee who does not know of the prohibition can still enforce the assignment (collect money owed for completing the thing he was assigned). Example: "Rights hereunder are not assignable." ---Invalidation: Language of invalidation 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. Example: "All assignments of rights under this contract are void." ---If any doubt as to whether it's prohibited or invalidated, then it's probably prohibited. 2) If there's nothing in fact pattern about contract language regarding assignability: Common law bars an assignment that substantially changes the duties of the obligor. [Also barred: assignment of future rights to arise from future contracts, assignments prohibited by law] ---Assignment of right to payment is never a substantial change to duties of obligor. Example: B is supposed to be paid by G under their contract but instead assigns his right to payment to R, so now G has to pay same amount to R instead of B, not a substantial change to obligor's duties. ---Assignment of right to contract performance other than right to payment is usually a substantial change to duties of obligor. Example: Contract between B and G provides B is supposed to provide security services to G, but G assigns its rights to M, so now B has to defend M instead of G. This is a substantial change to obligor's duties. ---Assignment of a requirements contract is a substantial change, but under UCC can assign requirements contracts as long as assignor acts in good faith not to alter the terms of the contract. Requirements for assignment For an assignment to be effective, there must be an adequate description of the right being assigned. In addition, there is a requirement that the assignment is expressed in present words of assignment. General rule is that consideration is NOT required, but gratuitous assignments, and only gratuitous assignments, can be revoked (unless there is reliance). If assignor assigns his right to payment to assignee but changes his mind before obligor pays assignee, assignor can revoke the assignment and take obligor's payment himself In NY, a gratuitous assignment is irrevocable if it is in writing and signed by the assignor Who can sue whom? Assignee can recover from obligor Assignor who makes assignment for consideration CANNOT recover from obligor Obligor has same defenses against assignee as it would have against assignor. Payment by obligor to assignor is effective until obligor knows of assignment (assignee can't sue until obligor knows of assignment). Similarly, modification agreements between obligor and assignor are effective if the obligor did not know of the assignment (assignee can't sue). Implied warranties of assignor in an assignment for consideration: In an assignment for consideration, the assignor warrants 1) the right assigned actually exists; 2) the right assigned is not subject to any then existing defenses by the obligor; 3) the assignor will do nothing after the assignment to impair the value of the assignment. Does not warrant what the obligor will do after the assignment ---Assignee can recover from assignor for breaches of these warranties Multiple assignments All gratuitous assignments (no consideration for any of them): general rule is that the last assignee wins Multiple assignments for consideration: General rule is that the first assignee for consideration wins. Exception: a subsequent assignee takes priority over an earlier assignee for consideration only if he both (i) does not know of the earlier assignment; and (ii) is the first to obtain either a) payment, b) a judgment, 3) a novation, or 4) indicia of ownership [note that first to notify is not relevant here] In NY, an assignment of a construction contract or money due thereunder is not valid until filed. A subsequent assignee in good faith, who filed first, prevails over the party who failed to file.
	Third-Party Problem 3: Disputes arising from a person's performing a contract she did not make: delegation of duties	Delegation: Party to a contract transferring work under that contract to a third party. It is just a transfer of duties or burdens from a party to a contract to a third party (who was not part of the contract). ---Example: P has agreement with O that P will paint O's house in exchange for money. "P and X agree that X will paint O's house" is a delegation. "P and X agree that X will collect money from O" is an assignment. ---Note: If P delegates the responsibility of painting O's house to X, but does not assign his contract rights to X, and X paints O's house, X has no right to recover money for the paint job but P still can recover money from O. Which duties are delegable? Contractual duties are delegable unless either 1) contract prohibits delegations or prohibits assignments OR 2) it's a personal services contract that calls for very special skills (soTom Brady can't delegate his contractual rights to some dingus). What if, after delegation, the delegate does not perform? Delegating party ALWAYS remains liable to the obligor Delegate liable to obligee ONLY IF the delegate expressly or impliedly promises the delegator he will perform the duty delegated and this promise is supported by consideration or its equivalent. This makes the obligor a third-party beneficiary of a contract between delegator and delegate.
	Remedies for an unexcused nonperformance	Nonmonetary remedies (in rem) Money damages for breach of contract
	Remedies for an unexcused nonperformance 1: Nonmonetary remedies (in rem)	Specific performance/injunction: Generally only granted if money damages are inadequate (remedy at law inadequate). Generally granted as remedy for breached contract for sale of real estate. May be granted for contract for sale of unique goods, antiques, art, custom-made stuff. Contracts for services: no specific performance, possible injunctive relief (within court's discretion) Won't be granted if there are unclean hands Won't be granted if doing so would deprive other innocent parties of their rights. ---Example: S contracts to sell real estate to B. S breaches and sells to X instead, and X is a bona fide purchaser. B can't get specific performance because ordering this remedy would violate the rights of X. NY disfavors noncompete clauses in employment contracts and will enforce with specific performance only to the extent reasonable and necessary to protect valid business interests. Seller's reclamation from an insolvent buyer of goods: Right of an unpaid seller to get its goods back. For seller to get its goods back from a buyer who never paid for them, (i) the buyer must have been insolvent at the time that it received the goods; and (ii) the seller demands return of goods within 10 days of receipt (or a "reasonable time" if before delivery there had been an express representation of solvency by the buyer); and (iii) the buyer still has goods at time of demand. Entrustment 1) Owner voluntarily leaves goods with someone else 2) who is supposed to provide some service with respect to the goods (like repair) 3) who is also in the business of selling goods of those kind, 4) and wrongfully sells the goods he's supposed to be taking care of to a bona fide purchaser (must sell them in the ordinary course of business). Result: the bona fide purchaser gets to keep the goods and the owner is limited in cause of action against the seller. Can't get specific performance because it would deprive bona fide purchaser of his rights.
	Remedies for an unexcused nonperformance 2: Money damages for breach of contract (general approach to expectation damages)	On essays you must start with these three sentences: 1) "The many NY rules with respect to contract law damages are all based on compensating the plaintiff" 2) "This compensation is based on protecting the expectation interest of the plaintiff" 3) "And we protect this expectation interest by putting plaintiff in the same dollar position as if there had been no breach" Expectation damages, general approach: 1) look to facts for dollar value of performance without breach, 2) look to facts for dollar value of performance with breach, 3) compare the two and determine the amount of damages. ---What would P's dollar position have been had there not been a breach? What do we need to give P in order to get him to that dollar position? If the BREACHING PARTY is suing, they are entitled to the reasonable value of their services minus the non-breaching party's damages In NY, prevailing on a promissory estoppel claim entitles the party to reliance damages rather than expectation damages.
	Remedies for an unexcused nonperformance 2: Money damages for breach of contract: Damages rules for sales of goods	Article 2 aims to put the innocent party where it would have been had the contract been performed (expectation damages). Damages for seller's breach: Seller breaches, buyer keeps the goods: [FMV if perfect - FMV as delivered] OR [cost of repair] Seller breaches, seller has the goods: [FMV at time of discovery of the breach - contract price] OR [reasonable replacement price - contract price] whichever is greater Damages for buyer's breach: Buyer breaches, buyer keeps the goods: [Contract price] Buyer breaches, seller has the goods:[Contract price - resale unless seller cannot resell in which case the seller can recover the contract price and in some situations provable lost profits] Lost Profits for lost volume seller: Look for the term "INVENTORY." If we know seller has multiple items that are the same, then if buyer breaches and seller sells to someone else the item he was supposed to sell to that buyer, seller has made only one sale when he would've otherwise made two. Don't need to specify the damages, just say "provable lost profit." ---A lost volume seller is one who can obtain all the goods he can sell. Unlimited supply. If buyer is insolvent, seller can refuse to deliver except for cash payment.
	Remedies for an unexcused nonperformance 2: Money damages for breach of contract: Additions and limitations	Add in these additional damages: Incidental damages are always recoverable: Costs incurred in dealing with the breach such as costs of storing rejected goods in a sale of goods or finding a replacement in a services contract Foreseeable CONSEQUENTIAL DAMAGES (special damages): These are losses that are special to the particular plaintiff. They are limited to damages arising from P's special circumstances and recovery of these damages is limited to situations in which D had reason to know of these special circumstances at the time of the contract, the damages could not have been avoided through reasonable efforts, and the damages can be proved with reasonable certainty. ---In contracts for the sale of goods, ONLY A BUYER can recover consequential damages Turning down other comparable opportunities: If P offers and accepts a contract with D to work for $100K but D breaches before the end of that contract such that P misses out on an opportunity to work for someone else for $99K in the same city at a comparable employer, P can recover $1K (the difference between the two salaries Subtract avoidable damages: No recovery for damages that could have been avoided without undue burden on P. Burdens of pleading and proof are on D. ---If P continues to perform after D breaches, the costs incurred in the continued performance post-breach are deducted from P's recovery because they could've been avoided. Subtract damages that cannot be established with reasonable certainty: Look for fact pattern involving a services contract and plaintiff engaged in new business or a new business activity. Consider reliance recovery as an alternative to expectation. ---P is trying his hand for the first time at concert promotion and contracts with D performer to do a performance but D breaches before the concert. P can't recover expectation damages because they are too uncertain. But P can recover the money he spent in reliance on the agreement. Liquidated damages: A contract provision fixing the amount of damages is invalid if it is too high. Test that must be satisfied for validity is 1) damages were difficult to forecast at time contract was made and 2) provision is a reasonable forecast. ---Anytime liquidated damages are set at a specific number, it's suspect. Example: contract fixes damages for delay in building a store at $10,000. This would mean that a delay of one day or one year would both require same amount of damages remedy, that's not fair so it's invalid.
	Excuse of performance of contract (no liability for nonperformance) because of something that happened (or did not happen) after the contract was made	Tip: look for info in fact pattern about 1) nonperformance of contract; and 2) something happening (or not happening) after contract. There are 8 kinds of excuse situations: Excuse of performance because of the other guy's nonperformance
	Excuse of performance 1: Excuse of performance because of the other guy's nonperformance	These are obvious: P contracts to pain O's house on Saturday for $1K. P does not paint hte house. O does not have to pay P, O is excused from performing because of P's nonperformance
	Excuse of performance 2: Excuse of performance because of the other guy's saying it is not going to perform (anticipatory repudiation)	Anticipatory repudiation is an UNAMBIGUOUS statement or conduct (i) that the repudiating party will not perform (ii) made prior to the time that performance was due If a minor breach is coupled with an anticipatory repudiation, the nonbreaching party may treat it as a material breach. Example: "I'm not doing the work unless you pay me more" Effect of anticipatory repudiation Anticipatory repudiation by one party EXCUSES the other party's duty to perform. So P can stop performing. It also gives rise to an immediate claim for damages for breach (immediate payment) UNLESS the claimant has already finished her performance at the time of the anticipatory repudiation. Retraction of anticipatory repudiation Anticipatory repudiation can be withdrawn (retracted) so long as there has not been a material change in position by the other party (like if house painter left all his stuff on the premises and didn't pack up and leave yet). If the repudiation is timely retracted, the duty to perform is reimposed but performance can be delayed until adequate assurance is provided.
	Excuse of performance 3 Excuse because of insecurity about whether the other guy is going to perform	If the words or conduct of one party give "reasonable grounds for insecurity," then the other party can, in writing, demand adequate assurance, and if it is "commercially reasonable," can suspend performance until it gets adequate assurance. Example: "I'm not sure I'm going to be able to start on time." Generally, the adequate assurance concept is limited to sales of goods. There is NY case law recognizing a right to adequate assurance in complex long term commercial contracts between corporate entities.
	Excuse of performance 4 Excuse because of improper performance	Article 2's perfect tender rule: goods and delivery must perfectly comply with the terms of the contract Common law material breach rule: 1) damages can be recovered for any breach; 2) only a material breach by one guy excuses the other guy from performing a contract governed by common law; 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. Material breach because of the quality of performance ---Painting house purple when you're supposed to paint it white is a material breach, excuses performance by nonbreaching party. Painting one closet of a house the wrong shade of white is a breach but not a material breach, so performance by nonbreaching party is not excused. Material breach because of the quantity (amount) of performance ---P contracts to paint ten identical apartments for O for $10,000. P breaches after painting two apartments. It's a material breach because she painted LESS THAN HALF the number she was supposed to paint. So non-breaching party is excused from performance (doesn't have to pay P even for the two she painted). BUT, P can still have remedy in quasi-contract law (equity) Divisible contract corollary: in a divisible contract (one that specifies P will be paid $1K per apartment she paints, on a per performance rather than lump sum 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. Note that a non-material breach can still lead to recovery but only material breaches EXCUSE performance.
	Excuse of performance 5 Excuse because of nonoccurrence of an express condition	What is an express condition and how can express conditions be identified? Language in a contract, that limits obligations created by other contract language Triggering words to look for in contract: if, only if, provided that, so long as, subject to, in the event that, unless, when, until, and on condition that Remember that the condition must be part of the contract. "I accept only if" is an indirect rejection of an offer, not a contract. How do we know if an express condition has occurred or is "satisfied"? General rule is there must be strict compliance with the language of the express condition. ---Forfeiture exception: Some courts refuse to require strict compliance with express conditions in situations where enforcing the condition (excusing performance) would cause excessive harm ---Where the condition is one party's satisfaction with the work that is done, court looks to whether a reasonable person would be satisfied. So doesn't really require "strict compliance" with the condition. Result if the express condition does not occur (condition not satisfied): EXCUSES PERFORMANCE, not a breach How can an express condition be eliminated so that its nonoccurrence does not affect performance obligations? Focus on the person protected by the condition. Some conditions benefit or protect only one of the two parties to the contract. If so, that person can WAIVE the condition. If a party indicates that she is waiving a condition before it happens, and the person affected detrimentally relies on it, a court will hold this to be a binding estoppel waiver. The promise to waive the condition may be retracted at any time before the other party has detrimentally changed his position. Conditions Precedent vs. Conditions Subsequent Conditions precedent: conditions that excuse performance UNTIL AND UNLESS they occur. These are more common. Conditions subsequent: the conditions occur subsequent to the start of performance and excuse performance when they occur. Effect of occurrence of condition is that the duty to perform is excused. Example: I'll sell you Knicks tickets until the Knicks are in first place. Constructive condition ("implied conditions," NOT express, so non-occurrence of a constructive condition does NOT excuse performance)-- it's is a condition that is implied by a court even though it is not explicitly stated in the contract. Common examples of constructive conditions are the conditions of cooperation and notice.
	Excuse of performance 6 Excuse by reason of a later contract	Rescission (cancellation) If performance is still remaining from each of the contract parties, then the parties CAN RESCIND An agreement to rescind is itself a binding contract supported by consideration. The consideration is the giving up by each party of her right to counterperformance from the other. Accord and satisfaction Accord: An agreement by parties to an already existing obligation to accept a different performance in satisfaction of the existing obligation. Satisfaction: if the new agreement (the accord) is performed, then the accord is satisfied. --- An accord and satisfaction generally may be accomplished by tender and acceptance of a check marked "payment in full" where there is a bona fide dispute as to the amount owed. Effect of accord and satisfaction: performance of the original obligation is excused. Can't recover on original obligation. If accord is NOT satisfied, then the other party can recover on EITHER the original obligation or the accord (but not both) Look for "IF...THEN" Modification (substituted agreement) Modification is an agreement by parties to an existing obligation to accept a different agreement in satisfaction of the existing obligation. Effect: The mere making of the new agreement excuses performance of the original agreement, so can't recover under original agreement. Performance of original agreement is excused even if the new agreement is not performed because it's the making of the new agreement (the modification) that excuses performance of the original. Look for "INSTEAD." Remember that "if...then" is accord not modification. Novation A novation is an agreement between BOTH parties to an existing contract to the substitution of a new party (same performance, different party) Effect: The party who is replaced or substituted for is excused from performance. Remember this is distinct from delegation, which does not require agreement of both parties and does not excuse.
	Excuse of performance 7 Excuse of performance by reason of a later, unanticipated event	Damage or destruction of subject matter of the contract Common law: If the contract requires P to paint O's house, and O's house burns down, P is excused from performing because he is UNABLE to perform. If contract requires P to build O a house and after beginning work the house burns down, P is not excused from performing because he is still ABLE to perform. Article 2: If it's a sale of goods, do the risk of loss analysis first: ---Risk of loss on buyer, then the buyer pays (seller can recover from buyer) ---Risk of loss is on the seller, then the buyer does not have to pay. Whether the buyer can recover damages from seller depends on the facts. If it's a specific, identified good that is destroyed, then can't recover. If it's a generic good ("grits") then buyer can recover. Subsequent Law (after agreement but before performance) Subsequent law that makes performance of contract illegal excuses performance Subsequent law that makes mutually understood purpose of the contract illegal excuses performance ---Example: P and D entered an agreement where D will perform plastic surgery on P. It's understood that the purpose is so that P can do nude dancing. Subsequent to the agreement but before performance (of the surgery) a new law outlaws nude dancing. Performance is excused by reason of frustration of purpose. Frustration of purpose by supervening event the parties did not reasonably foresee that destroyed the purpose of the agreement: If parties agree on renting of a venue for a specific event and the event is canceled. Death AFTER contract Death does NOT make a person's contract obligations disappear. ---D and C enter contract where D promises to repay C $10K. D dies. C can recover from D's estate. EXCEPTION: Death of a party to a contract who is a "special person" (the only person who could perform that contract) excuses performance ---Example: Specific actor is cast to play specific historical figure that he bears a close physical resemblance to in a movie. Actor dies. Performance is excused.
	Restitution	Restitution is a remedy that may be available in the following situations: breach of contract, contract unenforceable, quasi-contract (no contractual relationship), and excused performance Restitution is based on preventing UNJUST ENRICHMENT when one has conferred a benefit on another without gratuitous intent. Breach of contract situations: Where the goods/services you are providing are worth more than the contract price, and you haven't fully performed yet, you may choose to cancel the contract and sue for restitution Contract unenforceable situation: celebrity hired to sign autographs is paid but dies before he performs, the other party has a restitution action to recover the payment. No contractual relationship situations: P has conferred a benefit on D with reasonable expectation of being compensated, D knew or had reason to know of P's expectation, and D would be unjustly enriched if he were allowed to retain the benefit without compensating P. Excused performance situations (like frustration of purpose after P has put in work): P contracts to do plumbing work on D's house, and after doing 50% of the work, the house is destroyed in a fire. P is excused from performance, and has a right to recover in quasi-contract at the contract rate, or for the reasonable value of his performance if that mode of valuation is more convenient. While that value is usually based on the benefit received by the defendant (unjust enrichment), it also may be measured by the detriment suffered by the plaintiff (the reasonable value of the work performed).
	Damages for sale of land contracts (NY)	If the vendor cannot deliver good title because of a defect of which he was unaware, then damages equal the down payment plus reasonable expenses. If the vendor acts in bad faith, the MS rule applies. A purchaser who defaults on a real estate contract without lawful excuse cannot recover the down payment either at law or in equity. This rule applies regardless of the seller’s actual damages. Except in cases where there is a real risk of overreaching, the courts will not relieve the parties of the consequences of their contract. (The parties can, of course, change the rule by their agreement.) If the contract provides that time is of the essence, failure to close on the specified date when the seller is ready, willing, and able to perform is default entitling the seller to retain the down payment. If the contract does not provide that time is of the essence, to retain the down payment for default, the seller must provide notice requiring performance at a particular time. Proper notice making a date for closing of the essence must: (i) give unequivocal notice that time is of the essence, (ii) give the other party a reasonable time in which to act, and (iii) inform the other party that if it does not perform by the designated date, it will be considered in default.

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