Glossary of NY Bar Exam Review - Contracts Law
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- To what kinds of contracts does Article 2 apply?
- All contracts for the sale of goods, regardless of the price or who is selling.
- What are goods?
- Moveable, personal property.
- What law applies to all other contracts?
- Common law.
- What what type of law are loan agreements governed?
- Common law.
- When a contract is for a mixed sale of goods AND services, what law governs?
- The key is which element is more important - the goods or the services.
- What additional body of law does NY test on?
- Article 2A of the UCC for leases of goods.
- To what does Article 2A applie?
- Ks for the lease of goods, regardless or whether business or commercial lease (but NOT for lease of spaces)
- What is a contract?
- A legally enforceable agreement.
- What is an express contract?
- Created by the parties' words, oral or written.
- What is an implied contract?
- Created by the parties' conduct.
- What is quasi-contract?
- An equitable remedy that applies whenever the application of contract law yields an unfair or inequitable result. Quasi-contract is not limited by contract rules, but is giverned by equitable concepts.
- Against what does quasi-contract protect?
- Unjust enrichment.
- What can you recover in quasi-contract?
- The reasonable value of any benefit conferred, which is usually the K price. You don't recover the K price in quasi-contract.
- What is a bilateral contract?
- An offer that can be accepted in any reasonable way.
- What is a unilateral contract?
- An offer that can be accepted only by performance.
- What is the presumption with respect to whether K's are bilateral or unilateral?
- All K's are bilateral UNLESS the offer says it can be accepted only by performance.
- What is an offer?
- An offer is a manifestation of an intention to be bound, created by words or conduct. An offer creates a possibility for acceptance.
- What are the rules with respect to ads?
- General rule is that ads are NOT offers (because there is no quantity term). BUT, an ad that specifies the QUANTITY and WHO CAN ACCEPT is an offer.
- What is the effect of vague or ambiguous tems?
- Where such terms, like "reasonable" or "fair" are present, it is not an offer.
- What words generally indicate that you are dealing with an offer to enter into a requirements contract?
- Words like "All" "only" or "solely"
- What is the rule with respect to requirements contracts and increases in buyer's demands?
- Any increase in buyer's requirements/requests have to be in line with buyer's prior demands. Buyer can't take the seller by surprise. So, if there is a huge leap in buyer's demand from one year to next, probably not allowed.
- What is the rule where an offer contains an open price term, (where parties haven't provided for K price)?
- If the K is for the sale of real property, there's NO OFFER unless it both describes the property and STATES A PRICE.
If the K is for the sale of goods, Article 2 applies, and under it there is an offer IF THE PARTIES SO INTEND. So, a missing (but not vague) price term CAN BE an offer under Article 2.
- What is the effect of termination of an offer?
- An offer cannot be accepted if it has been terminated. (it is "dead")
- In what ways may an offer be terminated?
- 1) By lapse of time;
2) By offeror's revocation;
3) By offeree's rejection;
4) By death of either party before acceptance
- When will an offer be terminated by lapse of time if no deadline for acceptance is stated?
- Offers lapse after a "reasonable time."
- How may the offeror revoke his offer?
- Either by direct revocation or indirect revocation
- What is direct revocation?
- A statement by the offeror to the offeree indicating unambiguously that the offeror has changed her mind.
- Must the offeror use the words "revoke" or "revocation" to make a revocation effective?
- What is indirect revocation?
- Conduct by the offeror unambiguously indicating a change of mind that the offeree is aware of.
- When is revocation of an offer effective?
- Revocation of an offer is ONLY effective on receipt and ONLY if it is received before acceptance.
- Is a mailed revocation effective on the date of mailing or the date of receipt?
- Only effective on the date of receipt. The mailbox rule ONLY applies to an acceptance. The general rule is that most communications, including a revocation or rejection, are ONLY effective when they are received.
- What are the rules with respect to when an offeror may revoke?
- Generally, an offeror can revoke at any time before acceptance. BUT, there are four exceptions - situations where an offer cannot be revoked.
- In what situations may an offer NOT be revoked?
- 1) Option
2) Detrimental reliance that's reasonable and foreseeable;
3) Part performance of an offer to enter a unilateral contract;
4) Firm offer under Article 2
- What is an option?
- A promise to keep the offer open that is paid for (must have consideration for the option to prevent offeror from revoking)
- What is required for the part performance of a unilateral contract exception to apply?
- Must have part performance, and not mere preparation for performance (e.g., buying paint to start painting a house, but not actually starting painting yet is not sufficient). BUT, if you have preparation, you may still be able to get in under the "reasonable, foreseeable reliance" exception.
- What is a firm offer under Article 2?
- A signed, written promise by a merchant to keep an offer open.
- Who is a merchant?
- Any person in the business world; a business person.
- What limitations exist on a firm offer?
- A firm offer has a three month cap, so a purported firm offer for longer than that will be scaled back to three months.
- What if a firm offer does not specify a time period during which the offeror will not revoke?
- Offer will be firm for a reasonable time, not to exceed three months.
- What is the rule with respect to revocations in NY?
- In NY, a written promise not to revoke is enforceable, even without consideration. In NY, the writing takes the place of the consideration.
- How can an offeree reject?
- 1) A counteroffer operates as a rejection (but bargaining does not);
2) A conditional acceptance operates as a rejection and terminates an offer;
3) An acceptance containing additional or different terms operates as a rejection under the common law, but not under Article 2
- How can you tell if something is a counteroffer or mere bargaining?
- If the offeree asks a question, that is considered mere bargaining and not a counteroffer.
- What words indicate a conditional acceptance?
- "On the condition that..."
"So long as..."
- When you have an acceptance that contains additional or different terms, what is the first question to ask?
- Is this a sale of goods or am I under the common law?
- What is the rule with respect to additional or different terms in an acceptance under the common law?
- Mirror Image Rule: Acceptance must mirror offer.
- What is the rule with respect to additional or different terms in an acceptance under Article 2?
- Under Article 2, acceptance need not mirror the offer (there is no mirror image rule). Additional terms do not prevent agreement.
- Will the offeree's additional terms be a part of the contract that is formed under Article 2?
- Usually not. The offeree's additional terms become a part off the contract ONLY IF:
1) Both parties are merchants;
2) The term is NOT a material change; AND
3) The offeror does not object within a reasonable time.
- Where both parties are merchants and the offeree adds a term disclaiming all warranties, will the term be included in the K?
- No. The disclaimer is a material change.
- What is a material change?
- One that is likely to cause hardship or surprise for the offeror.
- What about adding a "Saturday delivery" term?
- Between merchants, that term would be included b/c it is not material. BUT, if the offeror responds that Saturday delivery is not convenient, this would be an objection and the term would NOT be included.
- Must one party know of the other's death in order for the death to terminate the offer?
- No. It doesn't matter whether the other party knows. The death automatically terminates the offer.
- Does the death of a party terminate an option?
- No. The offeree can still accept after the death of the offeror as long as it is still within the period covered by the option.
- In what ways may an offer be accepted?
- 1) An offer can (but usually does not) control the manner of acceptance;
2) Start of performance may act as acceptance;
3) Improper performance may act as acceptance;
4) Silence generally may not act as acceptance.
- What is the general rule with respect to how offers can be accepted?
- Usually offers can be accepted by promising, by performing, or by starting performance. But, if the language of the offer states otherwise, it must be accepted in the manner indicated in the offer.
- When is starting performance an acceptance?
- In a bilateral K, but not in a unilateral K.
- May an offeree of a unilateral K who has begun performance stop performing?
- Yes. Becuase in a unilateral K, only full performance constitutes acceptance by the offeree; even after offeree has begun performance, therefore, he has not accepted the offer, and so is not bound. The offeror, by contrast, may not revoke the offer once the offeree has begun performance of a unilateral K.
- What is the rule with respect to improper performance?
- Improper performance is acceptance AS WELL AS breach of contract.
- What is the exception to the general rule about improper performance?
- Accommodation Exception - Under Article 2, if the seller lets the buyer know why it is sending the wrong goods, there is no acceptance, and thus no breach.
- What is the general rule with respect to silence as an acceptance?
- General rule is that silence or inaction is not an acceptance.
- When is an acceptance effective?
- Mailbox Rule: acceptance is effective when mailed.
- What is the result if an offeror never receives the offeree's acceptance letter?
- Doesn't matter whether the letter actually gets there becuase the burden of loss is on the offeror.
- What are the exceptions to the mailbox rule?
- 1) If the offer provides otherwise;
2) Irrevocable offer;
3) Acceptance, then rejection;
4) Rejection, then acceptance
- What is the rule with respect to irrevocable offers and acceptance?
- Where the offer is irrevocable within a given time period (such as with an option), the offeror must receive the acceptance within the time period. Mailbox rule doesn't apply to irrevocable offers.
- What rule applies where an offeree mails an acceptance letter first, and then changes mind and mails a rejection letter?
- The acceptance is effective under the mailbox rule UNLESS the rejection gets there first, AND the offeror relies on it.
- What rule applies where an offeree mails a rejection letter first, and then changes his mind and mails an acceptance letter?
- If rejction letter is sent first, the mailbox rule doesn't apply and so the acceptance is only effective when it is received. It's a race - whichever one gets there first is effective.
- What are defenses against formation?
- Arguments that there was some flaw in the agreement process that makes the agreement unenforceable.
- What are the defenses against formation?
- 1) D's lack of capacity to contract;
4) Mistake of Fact in Existence at Time of Agreement;
5) Lack of Consideration or a Substitute for it;
6) Illegality at Time of Agreement;
7) Public Policy;
- What categories of people lack capacity to contract?
- Under 18 (Infants)
- What is the result where a party to a contract is incapacitated?
- An incapacitated D has the right to disaffirm (avoid) the contract.
Note that Ps incapacity is irrelevant (an incapacitated party can enforce the K against a non-incapacitated party).
- What is the result if the P believed D to be over 18?
- Doesn't matter. The only relevant fact is whether she was 18 at the time of the agreement.
- What are the exceptions to the rule of incapacitated parties?
- 1) An incapacitated party can impliedly affirm a K by retaining the benefit of the K without complaint after she gains capacity.
2) An incapacitated party is liable for necessaries, but only on a quasi-contract basis, not for the price of the K, but only for the reasonable value of the benefit conferred.
- What facts must be present in order to qualify for the exception?
- 1) D lacked capacity at time of agreement;
2) D later gains capacity;
3) D retained the benefit of the K without complaint.
- What are considered necessaries?
- Food, shelter, clothing, or medical care
- What types of duress may render a contract unenforceable?
- 1) Physical duress;
2) Economic duress
- What facts must exist in order to have economic duress?
- 1) Someone threatens to breach an existing K, unless he gets a better deal;
2) The other guy only makes the new agreement b/c he desperately needs to get the first deal done;
3) There's no alternative source of supply.
- What is NOT economic duress?
- Taking advantage of fortuitous circumstances, like charging more for umbrellas in the rain.
- What is the rule with respect to misrepresentation?
- If a misrepresentation is material and induces the agreement, it renders the K unenforceable, even if it was an honest mistake. A misrepresentation doesn't have to be wrongful, fraudulent, or even negligent. An honest and innocent misrepresentation is a fatal flaw in teh agreement process.
- What are the rules with respect to mistake?
- 1) In order for mistake to render an agreement unenforceable, it must be a mutual mistake about what something IS or whether something EXISTS, but NOT about what something is WORTH.
2) Unilateral mistakes generally do NOT excuse performance. The mere fact that one party is laboring under a mistaken belief is not a fatal flaw in the agreement process, as long as the other party was not aware of hte mistake.
- What is the rule with respect to consideration in NY?
- In NY, the existence of a written agreement eliminates the need for consideration.
- What is the definition of consideration?
- Bargained for legal detriment/benfit.
- What types of things do count as consideration?
- One party's promise can be consideration for the other party's promise.
Forbearance is consideration for a promise.
- What is the rule with respect to past consideration?
- It is not consideration at all. You can't bargain for something that has already been done.
- What if an agreement involves past consideration of one party, but it is in writing.
- Still unenforceable on MBE, but is enforceable in NY b/c the writing takes the place of the consideration.
- What is the rule with respect to adequacy of consideration?
- Adequacy of consideration is irrelevant. Stupid bargains are still enforceable.
- What is the pre-existing duty rule?
- Means that you need consideration to modify a contract.
- Does the preexissting duty rule apply in NY?
- Yes, but a modification in writing will eliminate the need for additional consideration.
- When does the preexisting duty rule not apply?
- If the promise to pay the extra money comes from a third party, then the pre-existing duty rule does not apply. Only applies to parties to the original contract.
- Does the preexisting duty rule apply under Article 2?
- No. There is no preexisting duty rule under Article 2, so a contract may be modified without consideration if it is a K for the sale of goods as long as there is good faith.
- What is the rule with respect to partial payment as consideration for a promise to forgive the balance of a debt?
- Partial payment of a debt that is due and undisputed is NOT consideration for the other party's promise to forgive the balance of the debt.
- What if the agreement to forgive the debt for partial payment was in writing?
- Same result in MBE - no consideration.
BUT, in NY, that agreement would be enforceable b/c the writing serves as a substitute for consideration.
- What is the exception to the rule regarding partial payment as consideration for promise to forgive the balance of a debt?
- The general rule only applies where the debt is DUE AND UNDISPUTED. If the debt is in dispute, then partial payment constitutes consideration for a promise to forgive the balance and the release is enforceable. Debt must be in dispute.
- What is the rule with respect to the promise to pay a debt barred by the statute of limitations?
- This is the ONLY case (for the MBE) where a writing will serve as a substitute for consideration. A WRITTEN promise to pay a debt that is barred by the SOL is legally enforceable.
- What should you look for if there is no consideration to render a K enforceable?
- Look for promissory estoppel
- What does promissory estoppel require?
- A promise and foreseeable, detrimental reliance on the promise.
- What is the effect of promissory estoppel?
- Will serve as a substitute for consideration and render the promise enforceable.
- What must be distinguished with respect to illegality as a defense to formation?
- Must distinguish illegal subject matter from illegal purpose. It is illegal subject matter taht serves as a defense to formation.
- What types of contracts are potentially contrary to public policy?
- 1) Covenants not to compete and
2) Exculpatory clauses
- On what factors does the enforceability of a covenant not to compete depend?
- 1) Need for covenant (in employment K); and
2) Scope of covenant
Look at whether time and geographic limitations are reasonable. Balance of freedom of contract against restraint of trade
- What is the rule with respect to exculpatory clauses?
- You can contract away liability for negligence in appropriate circumstances, but you can't contract away liability for intentional torts or gross negligence.
- How do you determine unconscionability?
- Look for oppressive terms or unfair surprise AT THE TIME OF AGREEMENT (not that facts look harsh later on).
Can have substantive unconscionability (terms of K are unfair) or procedural unconscionability (usually involves fine print or legalese).
- What types of contracts are "within the Statute of Frauds"?
- 1) Transfer of an interest in real estate of more than one year's duration;
2) Service contract incapable of being fully performed within a year from the date of the agreement (ignoring what actually happens and looking only at what might have happened under the terms of the contract);
3) Sale of goods for $500 or more;
4) NY ONLY - lease of goods where lease payments total $1000 or more;
5) Promise to "answer for" the debt of another (limited to guarantees);
6) Promise by an estate representative to use HER OWN FUNDS to pay estate expenses;
7) Promise IN CONSIDERATION OF marriage;
8) NY ONLY - miscellaneous provisions of NY Statute of Frauds (assignment of insurance policy; promise to name beneficiary of insurance policy; agreement to pay commission or finder's fee)
- Do easements fall under the statute of frauds?
- Yes, if they are for more than one-year. All you need is a transfer of an interest in real estate and an easement is that - don't need to have lease or sale.
- When must a service K be in writing?
- Only where, under the terms of the K, full performance within one year is IMPOSSIBLE. If it is possible that it will be completed within one year, regardless of whether or not it is, it does not need to be in writing.
- When is there NOT a statute of frauds problem w/ a service K?
- Whenever you're given a specific task becuase theoretically, any task is capable of being performed within one year.
- Are lifetime employment contracts within the statute of frauds?
- No, because the EE could die within the first year, and then it would have been fully performed within one year.
- Are lifetime employment contracts wihtin the statute of frauds in NY?
- Yes, NY considers this type of K within the statute of frauds becuase the EE might live more than one year.
- When is a services K always within the statute of frauds?
- Any time you have an employment agreement for a specific period of time of more than one year.
- When does the clock begin to run on such employment agreements?
- Clock starts running at the time the agreement was made, not when performance is supposed to begin.
- Is the sale of goods for exactly $500 within Article 2's statute of frauds?
- Yes. $500 or more.
- Is a lease of goods for 2 months at $500/month within NY's Article 2A statute of frauds?
- Yes. Whenever the TOTAL lease price equals or exceeds $1000.
- Where one party orally agrees to pay the debt of another, is the agreement wihtin the statute of frauds?
- No. This is not a guarantee.
- What is necessary for it to be a guarantee and thus fall within the statute of frauds?
- Scondary liability of guarantor. Language indicating that guarantor agrees to pay "if Debtor does not pay."
- What is the exception to the rule regarding guarantor agreements and the statute of frauds?
- The main purpose exception: If you're told that hte purpose of the guarantee is to benefit the guarantor, then it's not within the staute of frauds
- Is a promise to marry someone within the statute of fauds?
- No. A mere promise to marry is not within the statute of frauds. It is not a promsie given in consideration of marriage. A pre-nuptial or post-nuptial agreement does fall within the statute of frauds.
- How can you determine whether a contract modification falls within the statute of frauds?
- The key is whehter the contract AS MODIFIED falls within the statute of frauds.
- Is a clause requiring that all modifications be in writing enforceable?
- Under the common law, it is not.
Under Article 2, it is.
- What must a writing contain in order to satisfy the statute of frauds where a sale of goods is concerned?
- In an agreement for the sale of goods, the writing must contain:
1) A quantity term; and
2) Be signed by the party asserting a statute of frauds defense (the D)
*Note: a price term is NOT necessary to satisfy Article 2's statute of frauds.
- What is the exception to the rule with respect to a written agreement for the sale of goods?
- Where three requirements are met, a writing signed by the P (instead of the D) will satisfy the statute of frauds:
1) Both parties must be merchants under Article 2's broad definition;
2) The writing must CONFIRM a prior agreement and must contain a quantity term;
3) There must be NO response.
- What is required in order for a written agreement for the lease of goods to satisfy the statute of frauds?
- Where a lease of goods is involved, the writing must state:
1) That it is a lease;
2) The number of items being leased;
3) The length of the lease;
4) The rental payments; and
5) Must be signed by the D
- What must written agreements for all other types of contracts (besides sale/lease of goods) include in order to satisfy the statute of frauds?
- For all other prongs of the statute of frauds, the writing must contain:
1) All material terms (who and what); and
2) Be signed by the party asserting a statute of frauds defense (the D).
- Under what circumstances may the statute of frauds be satisfied without a writing?
- 1) Full performance of a service contract;
2) Part performance in contracts for the transfer of an interest in real estate;
3) Part performance in the sale of goods (goods delivered by seller or paid for by buyer)
- Will part performance ever satisfy the statute of frauds in a service contract?
- No. Only full performance will. But, the person who has performed some services may still recover in quasi-contract for the reasonable value of the services he's rendered.
- What is required for part performance in a real estate contract to satisfy the statute of frauds?
- Part performance in real estate contracts requires two out of three things:
1) Partial payment; or
2) The buyer's improvement of the real estate; or
3) The buyer's possession of the real estate
- What is the rule with respect to part performance satisfying the statute of frauds for sale of goods?
- Only applies to the part of the order that seller has delivered and not paid for or that buyer has paid for and seller has not delivered. Does NOT apply to the portion that has neither been delivered nor paid for.
- What else will satisfy the statute of frauds in the absence of a writing where the agreement concerns the sale of goods?
- Judicial admission in a pleading, in testimony, or in response to discovery.
- What is the equal dignities rule?
- Where the underlying agreement falls within the statute of frauds, than you need written evidence of an agent's authority to enter into the agreement on behalf of a principle. If the underlying agreement does NOT fall within the statute of frauds, the agent's authority does not have to be in writing either. The agent's authority must be treated with "equal dignity" to the underyling transaction.
- What is the parol evidence rule?
- The parol evidence rule keeps out evidence of what the parties said and wrote BEFORE they reduced the terms of their agreement to writing. It looks BACKWARDS and is designed to give primacy to a later writing.
- What are the exceptions to the parol evidence rule?
- 1) To correct a clerical error;
2) To establish a defense to the enforceability of an agreement;
3) To explain the written contract (to show what a term means);
4) To supplement a "partially-integrated" writing;
- What is a partially integrated writing?
- A partially integrated writing is a final statement of the terms included, but not a complete statement of all terms agreed to.
- So, when can a written agreement be supplemented with prior oral evidence?
- When the agreement doesn't appear to be complete on its face.
- What is a merger clause?
- A merger clause is treated as proof that the writing is complete on its face and therefore cannot be supplemented. Ex: "This contract is limited to the terms set forth herein."
- What effect does the parol evidence rule have where the agreement is allegedly changed AFTER it has been reduced to writing?
- It does not apply because it only looks BACKWARDS from the time of the written contract. Modification rules would apply to a change after the writing, such that there would have to be consideration for the modification to be valid under the common law's preexisting duty rule; if the K as modified is within the statute of frauds, it would require a writing, etc. So, although subsequent modifications may involve preexisting duty or statute of frauds issues, they will NOT involve a parole evidence issue.
- What is the hierarchy of things to reference for clarification of the terms of an agreement?
- From most important to least important:
1) Course of performance (what the parties have done under THIS contract);
2) Course of dealing (what the parties have done under their earlier contracts);
3) Usage of trade (what others in the trade do under similar contracts)
- What types of warranties are involved in a sale of goods under Article 2?
- 1) Express warranties;
2) Implied warranty of merchantability;
3) Implied warranty of fitness for a particular purpose.
- How is an express warranty created?
- Where seller makes a statement of FACT, promise, or description, to the buyer. The mere expression of an OPINION does NOT give rise to an express warranty.
- What effect does the seller's use of a sample or model have on the existence of warranties?
- It creates an express warranty. Seller's use of a sample or model permits buyer to reasonably expect that the item he will get will be exactly like the sample or model he was shown.
- What is the implied warranty of merchantability?
- Goods are fit for their ordinary purpose.
- When does the implied warranty of merchantability apply?
- Seller must be a MERCHANT, who deals in GOODS OF THE KIND sold in the transaction.
- What is the implied warranty of fitness for a particular purpose?
- The goods are fit for the buyer's special purpose.
- What is required in order for the implied warranty of fitness for a particular purpose to apply.
- 1) Buyer must have a SPECIAL PURPOSE;
2) Buyer must be RELYING ON S; and
3) S must KNOW IT
*If B tells S why he needs something, it will almost certainly have to do with the implied warranty of fitness for a particular purpose.
- What warranties apply in a lease of goods under Article 2A (in NY only)?
- The same implied warranties exist in a lease of goods as in a sale of goods.
- What is the exception to the implied warranties in leases of goods under Artilce 2A in NY?
- There is no implied warranty of merchantiability made by the bank in a finance lease. There is only an implied warranty made by the company that made the product. This is a bank protection measure.
- Can you disclaim an express warranty?
- No. If a sale or lease of goods contains both an express warranty and a disclaimer of warranties, the express warranty survives.
- Can you disclaim implied warranties and how?
- Yes. But using the words "as is" or "with all faults" or by having a disclaimer that is conspicuous (likely to draw the attention of a reasonable person). (more likely to just see the words as is or with all faults.
- What are the rules with respect to limitation of remedies under warranties?
- 1) You cannot limit the buyer's remedies for BOTH express AND implied warranties;
2) The test for the validity of any limitation of remedies is whether it's unconscionable - whether it shocks the conscience of the court;
3) Unconscionability is measured AT THE TIME OF CONTRACT, not at the time of the mishap.
*Note: It is PRESUMED to be unconscionable to limit recovery for personal injury in a transaction involving consumer goods. Where only liability for property damage is limited, it is up to the court to decide whether it is unconscionable or not.
- In a sale or lease of goods involving a common carrier, what are seller's delivery obligations?
- 1) Under a SHIPMENT CONTRACT, seller must get the goods to a common carrier; make reasonable delivery arrangements and notify buyer;
2) In a DESTINATION CONTRACT, seller must get the goods to where buyer is located.
- What type of delivery obligation do most contracts contain?
- Most contracts are shipment contracts, meaning the seller only has a duty to get the goods to a common carrier, make reasonable delivery arrangements and notify buyer.
- How will you know if a contract is a destination contract?
- If you see the letters FOB (free on board), followed by the name of any city OTHER THAN the city where the SELLER is located, then you have a destination contract and the seller must get the goods to where the buyer is located.
- What if a contract says "FOB [city where seller is located]"?
- That is a shipment contract.
- What are the consequences if seller bears the risk of loss and goods are damaged before the buyer gets the goods?
- If seller bears the risk of loss, the seller must provide new goods to the buyer for no additional cost, or is liable for breach of contract.
- What are the consequences if the buyer bears the risk of loss and goods are damaged before the buyer gets the goods?
- If the buyer bears the risk, the buyer must still pay the full contract price.
- What determines who bears the risk of loss where neither the buyer nor the seller is to blame for damage to goods before delivery?
- The following hierarchy determines who bears the risk of loss:
1) Agreement of parties controls;
2) Breach: The breaching party is liable for any uninsured loss;
3) If delivery by a common carrier is involved, the risk shifts to the buyer once the seller has completed its delivery obligations;
4) If there is no common carrier (e.g. where buyer is to pick up or seller is to deliver), the answer depends on whether the seller is a merchant:
a) If the seller is a merchant, the seller bears the risk of loss until the buyer takes physical possession of the goods;
b) If the seller is a non-merchant, the seller bears the risk of loss until the seller "tenders" the goods (i.e. makes the goods available).
- Who bears the risk of loss in a lease of goods under Article 2A?
- The lessor bears the risk of loss even though the goods are in possession of the lessee.
- What is the exception to the rule with respect to who bears the risk of loss in a lease of goods under Article 2A?
- Finance leases. In finance leases, the lessee bears the risk of loss. (NY favors banks)
- What is the perfect tender rule?
- The standard by which a seller's performance is measured. Under the perfect tender rule, a seller must deliver perfect goods in the right place at the right time.
- What remedy is available to the buyer if the seller does not deliver perfect goods in the right place at the right time?
- The buyer has the right to reject the non-conforming goods and not pay the contract price.
- When will a seller who fails to make perfect tender have an option to cure?
- If the time for seller's performance has not yet expired at the time of the delivery of the non-conforming goods. In that case, the seller has the option to take back the non-conforming goods and deliver conforming goods within the time period remaining on the contract.
- What is the exception to the perfect tender rule?
- If the seller had reason to believe that the wrong goods would be acceptable to the buyer (because, for instance, the buyer had accepted similarly non-conforming goods in the past), then seller will have a right to cure within a reasonable time period even though the contract deadline has passed.
- How can you tell if a K is an installment sales contract?
- Look for K language that requires or authorizes the seller to deliver the goods in separate installments. Note: Doesn't matter what hte seller actually does, what matters is whether the contract itself authorizes the seller to deliver the goods in separate installments.
- Does the perfect tender rule apply to installment sales contracts?
- No. The rationale is that we assume that seller will cure in the course of ongoing performance.
- If there is not perfect tender under an installment sales contract, what are the buyer's rights?
- Buyer cannot reject either the installment or the entire contract so long as there was not SUBSTANTIAL IMPAIRMENT. There must be substantial impairment for the buyer to be able to reject in an installment sales contract.
- What is required for the buyer to have accepted goods?
- Merely paying for the goods is not enough. The buyer must have an OPOPORTUNITY to inspect the goods before he can accept. He does not actually have to inspect, but must have an opportunity. If the buyer retains the goods without objection, after having a reasonable opportunity to inspect them, then the buyer has IMPLIEDLY accepted the goods.
- What is the effect of acceptance of goods?
- 1) Once a buyer accepts goods, it is too late for the buyer to reject;
2) A buyer who accepts non-conforming goods can still get damages.
- What are the rules with respect to revocation of an acceptance of goods by a buyer?
- The general rule is that once a buyer accepts, the buyer cannot revoke acceptance.
The exception is that a buyer CAN revoke acceptance of the goods ONLY if the non-conformity SUBSTANTIALLY IMPAIRS their value AND was DIFFICULT TO DISCOVER.
- When can rejection occur?
- Before acceptance?
- What is the standard for rejection?
- Perfect tender.
- What is the effect of rejection?
- Buyer can return the goods and need not pay.
- When can revocation of acceptance occur?
- After acceptance.
- What is the standard for revocation of acceptance?
- Substantial impairment and difficult to discover.
- What is the effect of revocation of acceptance?
- Buyer can return goods and need not pay.
- What are the rules with respect to payment by check in a sale of goods?
- 1) Checks are OK;
2) Seller doesn't ave to take a check and can insist on cash;
3) If the seller does insist on cash, the buyer will have an additional, reasonable period of time to get it.
- What is the standard for performance under common law contracts?
- Substantial performance is the standard.
- What does substantial performance mean?
- Means that there is no material breach.
- Where a breach is not material, can you still sue for breach of contract and recover damages?
- Yes. ANY breach of K whatsoever gives rise to a cause of action for damages.
- Where a breach is not material, can you refuse to pay the contract price?
- No. Under the common law, only a material breach will excuse the other party from performing his or her part of the bargain. So, where there's a breach, but it is not material, you have to pay the K price, and then sue for damages.
- What are a party's rights under a contract where a material breach has occurred?
- 1) Non-breaching party can sue for damages; and
2) Non-breaching party does not have to perform his obligations under the contract.
- What is a divisible contract?
- Where payment is divided up on a per unit basis.
- What is the effect of a divisible contract?
- Substantial performance is measured on a unit-by-unit basis.
- What types of excuses to performance based on later events are available?
- 1) Excuse based on the other party's breach;
2) Excuse based on the other party's repudiation by words or conduct;
3) Excuse based on a later agreement;
4) Excuse based on a later unforeseen occurrence that makes performance impossible or frustrates the purpsoe of performance;
5) Excuse based on the failure of an express condition;
- What is required to establish an escuse of performance based on the other party's breach?
- 1) Under Article 2, ANY breach (failure to make perfect tender) will allow the buyer to reject ALL of the goods (non just non-conforming ones) and excuse the buyer's failure to pay;
2) Under the common law, you must have a material breach to excuse the non-breaching party's obligation to perform.
- What is anticipatory repudiation?
- If I contract with you to decorate my house and after you start performing, I tell you I am not going to pay you for your work, that is anticipatory repudiation and it excuses your failure to continue to perform under the K.
- What is the effect of an anticipatory repudiation?
- It operates just like a material breach. So, the other party is excused from performance AND can sue for damages.
- Can a party retract an anticiipatory repudiation?
- Yes, as long as the non-repudiating party has not relied on it, for example by taking another job.
- Are words necessary for an anticipatory repudiation?
- No. Conduct, as well as words, can operate as a repudiation of the K that will excuse the other party from her contractual obligations.
- What are the various types of excuse based on a later agreement?
- 1) Modification (substituted agreement);
2) Accord and satisfaction;
3) Recission (cancellation);
- What is an accord?
- A new agreement b/t people who are already subject to a contract. The new agreement is to do something different.
- What is satisfaction?
- Performance of the accord.
- What is the difference b/t a modification and an accord?
- A modification agreement takes effect immediately and if there is a breach, the non-breaching party's only recourse is to sue under the modified agreement.
An accord doesn't wipe out an existing obligation unless and until it is satisfied, so a non-breaching party can sue EITHER on the accord OR on the original agreement.
- What is required in order for a recission agreement to be effective?
- For a recission agreement to be effective, each party must have some performance remaining.
- What is a novation?
- A novation is a substitution. It's where one party to a contract is excused from his contractual obligations and another party is substituted in his stead.
- What is required for a novation to be effective?
- Both parties to the original agreement must agree to the substitution.
- If only one party to the original agreement agrees to have someone else perform his duties under the contract, is that a novation?
- No. That is a mere delegation of duties and it will not relieve the delegating party from liability under the original K.
- What later unforeseen occurrences will excuse performance?
- 1) Destruction of the thing necessary for performance;
2) Death or incapacity of a person essential for performance;
3) Supervening government regulation or order;
4) Frustration of purpose (buyer's remedy)
- Where a builder contracts to build a house and after builder is almost done, the house is destroyed by fire, is builder excused from performing?
- No. Becuase the fire doesn't make the builder's performance impossible; it is still possible for the builder to construct a home. The mere fact taht it is going to cost the builder a lot more money doesn't provide the builder with an excuse.
- What is the rule with respect to destruction of the goods in a contract under Article 2?
- 1) In a sale of goods contract, where seller has the risk of loss, seller's performance is excused if goods that have been identified to the K are unexpectedly destroyed;
2) In a sale of goods case, where the buyer has the risk of loss, a later unforeseen event does NOT excuse the buyer's obligation to pay;
3) In contracts for the sale of a FUNGIBLE ITEM, where there is nothing special about the particualar good, destruction of the seller's quantity of that item DOES NOT EXCUSE the seller's delivery obligation.
- What is necessary for a party's death to excuse performance?
- A party hired for his special skills is an essential person and his death will excuse performance.
If ANYONE could fulfill the party's obligation under the contract, the estate is not excused from performing.
- What is necessary in order for performance to be excused by frustration of buyer's purpose?
- 1) At the time of the contract, both parties understtod what the buyer's purpose was; and
2) later on, an unforeseen event frustrates that purpose.
*Note: an event that makes a party's behvior less profitable will not constitute a frustration of puropse that excuses performance.
- What is an express condition?
- Contract language that does not create an obligation, but limits obligations created by other contract language (words like "if", "so long as," "provided," "on condition that," "unless" and "when." Strict compliance is required.
- What are the rules with respect to satisfaction clauses?
- General rule is that satisfaction means reasonable satisfaction (apply an objective standard).
The exception is that if the K deals with art or matters of personal taste, we apply a subjective standard, and all that matters is whether the party IS satisfied.
- What is a condition precedent?
- A condition that must be fulfilled before an obligation matures.
- What is a condition concurrent?
- A condition that runs alongside the obligation.
- What is a condition subsequent?
- A condition that cuts off performance.
- How may a condition be eliminated?
- By later action or inaction of a person who is protected by the condition:
1) Failure to cooperate
2) Estoppel (later statement by protected party and reliance by the other party)
- What types of remedies are available for breach of contract under Artcle 2?
- 1) Under UCC, when seller breaches, buyer has the right to recover any deposit he gave to the seller, whether or not the buyer cancels the contract.
2) Buyer has right to cover and recoer difference b/t cover price and contract price;
3) Alternatively to cover, buyer may recover damages measured by difference b/t contract price and market price at time buyer learned of seller's breach + onsequential damages (lost profits) and incidental damages;
4) Specific performance;
- When will specific performance be available?
- In a K for the sale of real property, SP will b e available because real property is assumed to be unique.
In a sale of goods under Article 2, SP will be available only if the goods are unique - if they are: 1) antiques; 2) works of art; or 30 custom made goods.
SP will NOT be available in the case of a sale of services, but negative SP, or a negative injunction may be granted.
- What is the rule with respect to reclamation?
- 1) General rule is that the seller has absolutely no right to get the goods back frm a buyer who has not paid for them;
2) The narrow exception: The only time the seller has a right to reclaim from the buyer is where the buyer was INSOLVENT on the date it RECEIVED the goods, but the only time the seller may assert that right is a ten day peroid starting on the date of receipt of goods by the buyer. (Ten day rule)
- What is the seller's right of reclamation with respect to third parties?
- The seller has NO right to reclaim the goods from a third party. The right of reclamation exists ONLY against the other party to the K.
- What is the rule with respect to entrustment?
- An entrusting owner has no right to get her stuff back from a later BFP. But, she will have a cause of action agaisnt the party who sold her goods for conversion.
- Are punitive damages allowed in K?
- No. The purpose of K damages is to compensate the injured party, and not to punish the breaching party.
- Are liquidated damages permissible in K?
- They are permissible if the damages were DIFFFICULT TO ESTIMATE and the clause is a REASONABLE FORECAST of probable damages.
- What is the general rule with respect to when a liquidated damages clause is reasonable?
- Flexible, graduated amounts are generally reasonable, but any time you see a fixed figure (shotgun clause) on the bar, the clause will not be valid.
- What are expectation damages?
- Put the P in as good a position as full performance. Also known as "benefit of the bargain" damages.
- What are expectation damages called in NY?
- "Expectation interest."
- What is the general rule of cover?
- Non breaching party cannot take advantage of breach to benefit itself at the breaching party's expense. The nonbreaching party who covers must use good faith in order to get the difference.
- May a buyer who keeps nonconforming goods still sue the seller for breach of K?
- Yes. Damages would be the difference b/t the value of what buyer would have had if fseller had fully performed and what he has now.
- What are incidental damages?
- Incidental damages involve either:
1) The cost associated with entering a replacement deal; or
2) Expenses the buyer incurs in taking care of non-conforming goods.
- When are incidental damages recoverable?
- Incidental damages are ALWAYS recoverable. Injured parties can get expectation damages + incidentals.
- How will you know when a hypo involves a lost volume seller?
- The goods will have been sold out of the seller's "regular inventory."
- What are the damages in a lost volume seller problem?
- Lost profit.
- What are consequential damages?
- Special damages that are reasonably foreseeable to the breaching party at the time the parties entered the contract.
- What is the rule of mitigation (avoidability)?
- You cannot recover for damages that you could have avoided with reasonable effort.
- What does "comparable employment" mean?
- That P could have gotten the same kind of work in the same city.
- Who has the burden of showing that some or all of the damages could have been avoided with reasonable care?
- The breaching party.
- What are the types of third party problems?
- 1) Delegation of duties (transfer of burdens under a contract);
2) Assignment of rights (transfer of benefits under a contract); and
3) Third Party Beneficiary Law
- What is the general rule with respect to delegation of duties?
- The general rule is that contractual duties may be delegated without the obligee's consent.
- What are the exceptions to the general rule of delegation of duties?
- 1) Contract language controls;
2) Special skills or special reputation.
- What type of language in the K will prohibit delegation of duties?
- Where the K explicitly prohibits delegation OR where it prohibits ASSIGNMENT.
- What are the consequences if the delegate does not perform?
- The delegating party remains liable.
If the delegate gets consideration for performing the duties, the delegate will also be liable to the obligee - she can sue either.
- What is an assignment of rights?
- Two people make a contract; later, one person transfers his rights under the contract to a third party. *Must be a two-step process.
- Who is the assignor?
- The person who later transfers rights under a contract.
- Who is the assignee?
- The person to whom rights are transferred.
- Who is the obligor?
- The person who owes performance under the contract.
- What are the requirements for making an assignment?
- You don't need consideration for a valid assignment. Gratuitious or gift assignments are valid. But, if the amount being assigned is more than $5000, the assignment must be in writing.
- Is a promise to assign enforceable?
- No. You must have language of PRESENT ASSIGNMENT. The assignor must say, "I assign," or "I hereby assign," NOT "I will assign," or "I promise to assign." A promise to assign is not good enough.
- What is the result if a contract prohibits assignments and one of the party's assigns anyway?
- The assignment itself is still valid, but the party who assigned may be liable to the other party for breach of K.
- What is the result if a contract states that "all assignments of rights under this contract are void"?
- In that case, the assignment is invalidated.
- What is the court-imposed (common law) limitation on assignments?
- An assignment cannot substantially change the duties of the obligor.
- What right is always assignable?
- The right to receive payment.
- Are requirements contracts assignable?
- Today, the rule is that requirements contracts ARE assignable, so long as the assignee's requirements are not out of line with the assignors.
- What are the rights of an assignee?
- 1) An assignee can sue the obligor if the obligation is not performed as promised;
2) BUT obligor has the same defenses against assignee as it would against assignor. (Assignee steps into the assignor's shoes, and has only the rights that the assignor would have had).
- What is the rule when the obligor pays the assignor instead of the assignee?
- Payment by the obligor to the assignor is effective UNLESS the obligor is aware of the assignment.
- What is the rule with respect to order of priority where an assignor makes assignmetns to multiple assignees?
- 1) As between gratuitous assignments, the last gratuitous assignee in time wins b/c a later gift assignmetn revokes an earlier one;
2) As between assignments for consideration, the first assignee for consideration wins b/c assignments for consideration are much more durable in nature.
- If an earlier gratuitous assignment is in writing, does that change the result?
- Not on the MBE, but in NY, the writing would serve as a substitute for consideration and thus the earlier assignment would prevail.
- Does it matter how much consideration is paid for an assignment.
- No. The amount of consideration is irrelevant. The rule states that the first assignee for consideration wins even over future assignees for consideration, regardless of the respective amounts of consideration.
- Is there any way that a second assignee for consideration may prevail over a first assignee for consideration?
- If the second assignee BOTH is the first to notify the obligor AND is teh first to obtain payment from or a judgment against the obligor., then he will prevail.
- What are a losing second assignee for consideration's rights against the assignor?
- He can sue the assignor for breach of the warranty of assignment, which comes along with the consideration.
- How can you distinguish b/t an assigment of benefits ypo and a third party beneficiary hypo?
- With a TPB situation, all three parties are present from the bery beginning. With an assignment of benefits, the third party comes in later - assignment is a two step process: first, two parties enter into a K and later on, rights are assigned to a third party.
- Who is a third party beneficiary?
- A person who did not make a contract, but still has rights under it, because the contract was intended to benefit him.
- Who is the promisor?
- A person who promises to do something for the third party.
- Who is the promisee?
- The other contracting party.
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