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Contracts & Sales (MBE) - FINAL

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Terms

undefined, object
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Define "contract"
a legally enforceable agreement
What is quasi-contract?
an equitable remedy by which someone who could perhaps not recover in K law CAN recover in equity

rules of contract law do NOT apply to quasi-K.

Exam tip: Anytime the strict application of K law leads to an unfair result, add a pgph about equitable remedies/quasi-K recovery.
What are the ELEMENTS of a quasi-contract?
1. P has conferred a benefit on D AND

2. P reasonably expected to be paid AND

3. D realizes unjust enrichment if P is not compensated

(benefit, expectation, unjust enrichment)
What is the measure of recovery (remedy) for quasi-contract?
Focus on VALUE OF BENEFIT CONFERRED.

Contract price is NOT the measure of recovery.

K price is a ceiling if P is in default.
What is a bilateral contract?
A K that results from an offer that is open as to the method of acceptance.
What is a unilateral contract?
A K that results from an offer that expressly requires performance as the only possible method of acceptance.
For the MBE, do we assume that all Ks are bilateral or unilateral? What are the exceptions?
BILATERAL

Unless:
UNLESS:
1. It is a reward, prize, contest situation
OR
2. there is an offer that expressly requires performance for acceptance
What are the factors that determine whether Article 2 (UCC) applies to a contract?
Type of transaction = SALE

Subject matter of transaction = GOODS

Service contracts are governed bu COMMON LAW, NOT UCC!
What type of law governs service contracts?
Common law
What type of law governs the sale of real estate?
Common law
What kind of law applies to mixed deals (part sales/part service)? (Exception to the rule?)
An "all or nothing" approach applies -- ask: what’s the more important part of the K? Whichever part is more important, apply that kind of law to the entire deal.

Eg, if the most important part of the K is the exchange of the good, apply Article 2. If the most important part of the K is the service provided, apply common law.

EXCEPTION: If the K expressly divides the payment into a $ amount for the goods and a $ amount for the services, then apply the law separately to the different parts.
What is an Offer?
A manifestation of an intention to contract – words or conduct showing commitment.
What is the general test for whether an offer was made?
Whether a reasonable person in the position of the offeree would believe that her assent created a contract.
As a general rule, is an offer required to contain all material terms of the the agreement?
NO. The mere fact that the communication is not complete doesn’t matter.
If there is a missing price term in an "offer," is it actually an offer?
It depends:

- Price term is REQUIRED in sales contracts not governed by the UCC (eg, real estate sales contracts)

- Price term is NOT REQUIRED in Article 2 contracts. There is an offer without a price term if the parties so intend.
S "offers" to sell Blackacre to B. Nothing is said about sale price. Has there been an offer?
NO. Must have a price terms for sales of real estate.
S "offers" to sell her car to B. Nothing is said about sale price. Has there been an offer?
YES. This is governed by the UCC, so as long as the court concludes that the parties intended a contract, there is an offer.
S "offers" to sell her car to B "for a reasonable price". Has there been an offer?
NO, b/c of the vague or ambiguous material term rule.

Vague or ambiguous material terms are fatal to an “offer” under both common law and the UCC.

Three words to watch out for in first communications:
“fair,” “reasonable” and “appropriate”

If these words show up in a first communication, the communication is likely NOT an offer.
What is a requirements contract? (What can it also be called?) Are these valid?
A requirements K (aka an output K) IS a valid contract.

It is a contract for the sale of goods that states the quantity of goods to be delivered under the K in terms of the buyer’s requirements or the seller’s output, or in terms of exclusivity.
What are some of the words that flag that a K is a requirements contract?
“all”
“only”
“solely”

(eg, "B shall purchase all of its grits from S for the next 2 years")
Can the buyer in a requirements contract increase the requirements of the K?
Yes, subject to the "not unreasonably disproportionate" limitation on increases.

Rule: The buyer can increase its order/purchase requirements so long as the increase is in line with prior demands.

How to apply: run a basic comparison of the old requirements with the new.
Is an advertisement an offer?
NO, as a general rule.

EXCEPTIONS:
1. An advertisement in the nature of a reward CAN be an offer

2. b. Advertisement can be an offer if it is specific about how many of an item is available, and expressly indicates who can accept it
What are the 4 methods by which an offer can be terminated?
1. Lapse of time

2. Words or Conduct of Offeror (i.e., revocation of an offer)

3. Words or Conduct of the Offeree – Termination through rejection

4. Death of a Party Prior to Acceptance
If an offer has been terminated, can it be accepted?
NO. It is dead.
How can an offer terminate by lapse prior to acceptance?
1. end of a set period of time in which to accept

2. lapse of a reasonable time in which no acceptance occurred. (eg, offers last only for a reasonable time)

(if it's less than a month it's usually reasonable for bar exam purposes)
Who can revoke an offer?
ONLY the person who made the offer (offeror).
What is required for the offeror to revoke an offer?
Words or conduct:

1. An unambiguous statement by the offeror to the offeree of unwillingness or inability to contract

OR

2. Unambiguous conduct by the offeror indicating an unwillingness or inability to contract that the offeree is aware of.

Exam tip: Revocation of an offer is a two-player game. It’s not enough that the offeror has revoked – it’s ALSO necessary that the fact pattern shows offeree awareness of that revocation.
If an offeror makes one offer, and then later makes a similar offer to a second offerree, does that revoke the first offer?
No -

Rule: The mere fact that an offeror later makes a similar offer to someone else DOES NOT REVOKE the earlier offer.
If a revocation of an offer is sent through the mail, when is it effective?
When it is received.
Can an offer be revoked after it has been accepted?
NO.
4 situations in which an offer CANNOT be revoked:
1. Option

2. Firm Offer Rule

3. When there has been detrimenal reliance by the offeree that was reaosnably foreseeable

4. the start of performance pursuant to an offer to enter into a UNILATERAL contract makes that offer irrevocable for a reasonable time to complete performance
What is an Option for purposes of revoking (or not revoking) an offer?
an offer cannot be revoked if the offeror has promised to keep the offer open AND this promise is supported by payment or other consideration ("option").
S Corp. offers to sell to B a house for $100K, and the written, signed offer promises that it can be accepted for the next 3 months. Can S. Corp revoke?
YES. The firm offer rule ONLY aplies to sales of GOODS ... not to real estate transactions or other kinds of contract.
If thre is a unilateral contract, and performance has begun, can the offer be revoked? What about preparation to perform?
NO. The start of performance, pursuant to an offer to enter into a unilateral contract, makes the offer irrevocable.

(Mere preparation to begin performance does NOT count -- an offer can STILL be revoked at that point.)

Exam tip: if there’s doubt as to whether it’s preparation or performance, assume it’s mere preparation

Also note that preparation may trigger #3 - detrimental reliance - esp if it involves a hard-to-find item
List three methods of indirect REJECTION of an offer by an offeree:
1. Counteroffer

2. Conditional acceptance

3. Additional terms (common law only)
What is the effect of a counteroffer on an original offer?
A counteroffer terminates or kills the offer, and becomes a NEW offer. It REPLACES the old offer.

Thus, where a counteroffer has been made, there is NO express contract, UNLESS the counteroffer has itself been accepted.

Exam tip: Distinguish counteroffers from bargaining. Bargaining does NOT terminate the offer!
How to distinguish between a counteroffer and bargaining?
If the response to an offer is a STATEMENT, it’s a counteroffer.

If the response to an offer is a QUESTION, it’s bargaining.
What is a conditional acceptance?
A response to an offer that conditions acceptance on the offerors acceptance of a certain stated condition.
What is the effect of a conditional acceptance on an offer?
It terminates the original offer and becomes a new offer.

(Saying, "I accept so long as X..." is the same as saying "No." It's just like a counteroffer in that sense.
What kinds of words/phrases generally indicate a conditional acceptance? (Key words)
“if”
“Provided”
“So long as”
“But”
“On condition that”
What happens if an offerree adds additional terms to their acceptance of an offer?
It depends on whether the offer involves a contract at common law or under Article 2.

- Under common law, an “acceptance” that adds new terms is treated like a counteroffer

- Under UCC2, additional terms are STILL ACCEPTANCE (2-207) (under the UCC, a response to an offer that adds new terms, but does not make the new terms a condition of acceptance, is generally treated as an acceptance – as a “seasonable expression of acceptance”)
What is the effect of addition of new terms to an offer for a K governed by the UCC?
See if both parties are merchants.

If at least one is NOT, the add’l term is merely a proposal that is to be separately accepted or rejected.

If both parties are merchants, the RULE is that he add’l term IS A PART OF THE K.

2 EXCEPTIONS:
(1) add’l term is NOT a part of the K if it materially changes the offer

(2) the add’l terms is NOT a part of the K btw the merchants if the offeror objects to the change.
What happens if a party to an offer dies prior to acceptance of the offer? (Exceptions?)
Death terminates the offer

2 exceptions:
1. Option
2. Part performance of an offer to enter into a unilateral K.
Who can officially ACCEPT an offer?
An offer can be accepted ONLY by:

(1) A person who know about the offer, and (2) who is the person to whom it was made
Can an offer be assigned?
NO.

Exception: options CAN be assigned unless the option otherwise provides.
Can an offer control the manner of acceptance?
No! (but on the bar exame, it usually does not)
What happens to an offer after full perfomance of it?
Rule: Full performance is ALWAYS acceptance!
If an offeree fully performs after receiving an offer, does that constitute acceptance? (Exceptions?)
YES- fully performances ALWAYS constitutes acceptance.

BUT the offeree's failure to notify the offeror about performance can result in the contractual duty being discharged.
In a hypo, if performance occurs in different location from where the offeror is, and the offeree performs, what issue is involved?
NOTICE of performance.

Although full performances ALWAYS constitutes acceptance, the offeree's failure to notify the offeror about performance can result in the contractual duty being discharged.
If an offeree has STARTED (but not completed) performance, does that constitute acceptances of the offer?
It depends on whether the K is bilateral or unilateral.

Start of performance = acceptance of an offer to enter into a bilateral K

Start of performance is NOT acceptance of an offer to enter a unilateral K.
Can an offer be accepted by a promise to perform?
Yes, as a general rule, most offers can be accepted by a promise to perform.

(But offers that expressly require performance for acceptance and reward offers require performance.)
Are communications effective when they are SENT or when they are RECEIVED?
Generally, a communication is effective when it is RECEIVED.

Exception: An ACCEPTANCE is effective when SENT, IF:
i. it is made in a manner and a means invited, AND
ii. the offeror has not already sent a rejection
What is the mailbox rule?
Generally, a communication is effective when it is RECEIVED.

BUT an acceptance and ONLY AN ACCEPTANCE is effective when SENT, IF:
i. it is made in a manner and a means invited, AND
ii. the offeror has not already sent a rejection
What is the general rule for what happens when a seller of goods sends the "wrong" good? (Exceptions?)
Acceptance and breach.

But: there is an "Accommodation Exception," which means there has ben a counteroffer and No Breach (i.e., the “explanation exception”)

Thus: where the wrong goods are sent with nothing more, there is a K and a breach. BUT if the wrong goods are sent w. an explanation, that’s the accommodation exception. In that case, there is merely a COUNTEROFFER. Note that NO contract is formed in that situation!
What is the accompdatoin exception for when a seller receives an offer and sends the wrong goods?
Accommodation Exception: Counteroffer & No Breach

RULE: where the wrong goods are sent with nothing more, there is a K and a breach. BUT if the wrong goods are sent w/ an explanation, there is merely a COUNTEROFFER, and no K, no breach
What is consideration?
A bargained-for legal detriment.
List four forms of consideration.
Performance

Forbearance

Promise to perform

Promisee to forbear
Can one promise be consideration for another promise? (Exceptions?)
YES.

Exception: Illusory promises. The promise has to be a genuine one (eg, not "I promise to give you X, unless I change my mind.") or else it does not constitute consideration.
Is there a minimum amount of consideration required to make a promise or K valid?
NO.
Does past consideration constitute consideration? (Exception?)
NO. Things that happened before a promise was made can’t be consideration.

EXCEPTION: if the past considetration was EXPRESSLY requested AND there is an EXPECTATION of payment.
What is the pre-existing contractual or statutory duty rule? (Exceptions?)
Rule: Doing what you are already legally obligated to do is not consideration for a promise to pay you more to do merely that. Applies at COMMON LAW ONLY!

Why: under common law, need new consideration for K modification.

EXCEPTION #1: any addition to or change in performance.

EXCEPTION #2: Unforeseen difficulty so severe as to excuse performance - but for more $, performance is done anyway

EXCEPTION #3: third party promise to pay more
Is there a pre-existing duty rule for Article 2 Ks?
NO! For Article 2, there is NO PRE-EXISTING DUTY RULE

GOOD FAITH is the test for changes in existing sale of goods contract.

Why: You don’t need consideration to modify a sale of goods K!
Is part-payment consideration for release of a debt? (i.e., a promise to forgive the balance of a debt)
It depends.

The key is whether debt is DUE AND UNDISPUTED or not.

If debt is due and undisputed, then part payment is NOT consideration for release. The creditor can STILL COLLECT THE REST oF THE DEBT!

If a debt is not yet due (or if it is disputed), then part payment CAN be consideration for release.
What is there is a promise to satisfy an obligation for which there is a legal defense? Is it enforceable? Any requirements?
A WRITTEN promise to satisfy an obligation for which there is a legal defense is ENGORCEABLE WITHOUT CONSIDERATION

The written promise must refer to an obligation that already existed that is no longer enforceable b/c of some kind of legal defense.
Is a seal a consideration substitute?
NO.
What is promissory estoppel?
A promise, followed by
reliance that is reasonable, detrimental, and foreseeable, in such a way that enforcement is necessary to avoid injustice. (3 elements)

(basically, it's detrimental reliance. This is the most important consideration substitute.)
Who lacks the capacity to contract?
i. infant (under 18)
ii. mental incompetents (lacks ability to understand the agreement)
iii. intoxicated persons (if other party has reason to know)
If a P does not have the capacity to contract, does that prevent them from suing a D to enforce a K?
NO. Capacity is about the DEFENDANT’S AGE only. P’s age does not matter.
What happens if an agreement is made when someone lacks capacity to K, but the person now has capacity, and is retaining the subject matter of the K?
Implied affirmation.

3 parts to these fact patterns:
a. Agreement made BEFORE capacity;
b. person now has capacity;
c. person is keeping the subject matter of the K without complaint

court treats this situation as implied affirmation.
What kind of liablity, if any, does a person without capacity to K have to necessities?
Liability for Necessaries Doctrine -

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-K law, NOT K law!
What is a statute of frauds, and what is its purpose?
A statute(s) designed to prevent fraudulent claims – specifically, to make it harder to claim falsely that there is a contract.

S of F statutes make it harder to make such a false or fraudulent claim by requiring “special” proof that a K exists.
If have an S of F question, what are the 3 key questions to ask?
1. Is the K within the statute of frauds?

2. If so, has the S of F been satisfied? (S of F requirement of “special” proof that the alleged agreement is made is usually satisfied by performance or a writing.)

3. Is there an S of F defense? (S of F is a defense to enforcement of the agreement that is w/in the statute if the statute is not satisfied)
List the kinds of K that are WITHIN the S of F (5 common law; 1 UCC)
1. Promise in Consideration of Marriage (a promise to do something or refrain from doing something if we marry - e.g., pre- and post-nups are w/in S of F)

2. Promise by Executor or Administrator to Answer for Debt of Decedent (look for a claim of guarantee!)

3. Other Promises to Creditors to Answer for the Debts of Another (Not merely a promise to pay, but rather a promise to pay if someone else does not; look for a guarantee)

4. Services Ks Not Capable of Being Performed w/in a Year from the Time of the K (i.e., more than one year)

5. Transfers of Interest in Real Estate of a Term of More than a Year

6. Sale of Goods for $500 or More
What is the Main Purpose Exception for S of F purposes?
It relates to the notion that Other Promises to Creditors to Answer for the Debts of Another (eg, secondary liability) are within the S of F.

The EXCEPTION to this general rule is the Main Purpose EXCEPTION: If the main purpose of the deal is to benefit the guarantor, then it is NOT within the S of F, even if there is a guarantee.
As a rule, services Ks Not Capable of Being Performed w/in a Year from the Time of the K (i.e., more than one year) fall within the S of F. What are the 4 ways this rule is tested?
1 – if a K requires performance for a specific time period of more than a year, the S of F applies

2 – if a K requires performance over a specific time, more than a year from the date of the K, then the S/F applies

3 – if there is a task, and NOTHING is said about time, the S of F does NOT apply

4 - lifetime deals are NEVER a S of F problem
For purposes of the S of F, a service K falls within the S of F if the K is not "capable" of being performed within a year. What does "capable" mean in this context?
“Capable” of being performed within a year in essence means theoretically possible with unlimited resources

ignore what ACTUALLY happens; the key is what MIGHT have happened w/ unlimited resources!
If there is a lease for property of exactly one year, does it fall within the S of F?
NO -- must be a transfer of interst in real property of MORE THAN one year. Exactly a year does NOT fall w/in the S of F.
If there is an agreement to sell a car to someone for $500, is this w/in the S of F?
YES! $500 on the nose is fine - the rule is that Ks for the sale of goods worth $500 or more are w/in the S of F.
What does it mean to say that that S of F has been "satisfied"?
It means that there is no S of F defense
If there is a services K, can performance satisfy the S of F? If so, how/when?
Yes: FULL performance by EITHER PARTY satisfies the S of F.

PART performance of a services K does NOT SATISFY the S of F!

(Exam tip: always check first to make sure that it's a K that falls within the S of F to begin with; THEN look for full performance by either party to see if S of F has been satisfied.)
P agrees to work for D for three years. P works for 13 months and then D fires her w/o cause. Is the S of F satisfied? Does D have an S of F defense? Can P recover under K law for the 13 months of work?
S of F not satisfied. D does have an S of F defenses. P canont recover under K law, but may be able to under quasi-K law/equity.
Can performance satisfy the S of F for a K for the sale of goods?
RULE: PART performance of a K for the sale of goods satisfies the S of F, but ONLY to the extent of the part performance.

- depends on whether the goods are delivered or undelivered. There IS an S of F defense with regard to the underlivered portion of goods, but NOT w/ regard to the delivered portion of goods.
Can performance satisfy the S of F for a K for the sale of specially manufactued goods?
If K is for sale of goods to be specially manufactured, S of F is satisfied as soon as the seller makes a “substantial beginning”

“substantial beginning” = seller has done enough work that it’s clear that she is working on smthg specially mfctrd

(key words: "custom made," "made to order")
Can performance satisfy the S of F for a K for transfers of interest in real eestate?
Yes -- PART performance by a BUYER of RE can satisfy the S of F.

Part performance is generally any 2 of the following 3:
i. full or part payment
ii. possession and/or
iii. improvements
("PPI")

(Exam tip: remember that even FULL PAYMENT, BY ITSELF, does NOT satisfy the S of F)
S and B agree that S will sell Blackacre to B for $10,000. B pays S $10,000. Has the S of F been satisfied?
NO. Full payment by buyer, by itself, is NOT adequate to satisfy the S of F in a contract for RE. Need at least 2 out of 3 things: (part) payment, possession, improvements.
For written Ks that do not fall under the UCC, what are the two things to look at to determine if the S of F has been satisfied?
(i) the contents of the writing or writings – all material terms test - and

(ii) who signed the writing
What is the all material terms test?
The "who and what" subject of the K must be included in the writing in order for it to satisfy the S of F.
Does a writing have to be signed by both parties to satisfy the S of F (for a K that does not fall under the UCC)?
NO. ONLY the party TO BE CHARGED must sign.

Exan Tip: If Q doesn’t specifically say both parties signed, then DO NOT assume both parties signed!
For a writing to satisfiy the S of F, does it all need to be written in one writing?
NO. The writing involved does not have to be a full-fledged K, and does not need to be on one piece of paper. Several pieces of correspondence may be sufficient.
For Ks that fall under the UCC, what does a writing have to contain in order to satisfy the S of F?
1. Look for who signed.

2. The writing must contain a quantity term! (how many)

The writing does not need to mention the names of the parties involve, and does not need to mention price. As long as it answers the Q “how many,” it satisfies the S of F.
If a writing is not signed by the person to be charged (the defendant), and the K falls under the UCC, is the S of F satisfied?
Yes, under the exception to the rule for UCC contracts.

IF the writing is for a K between TWO MERCHANTS, and the person who receives a signed writing w/ a quantity term that claims there is a K fails to respond w/in 10 days of receipt, a K is assumed.

(Why: we assume any reasonably biz person who believed there was NOT a K would have responded.)
What is the judicial admission rule?
If there is an admission by the defednant that there was, indeed, an agreement (eg, “we had an agreement, but we never put it in writing”), and the statement is made in testimony, pleadings, or discovery, a judge will find that the K is within the S of F.
If you want to sign a K for someone else, does the authorization to do so have to be in writing?
Only if the K itself has to be in writing.

EQUAL DIGINITIES DOCTRINE = If the underlying K by law is required to be in writing, then the authorization must be in writing, as well.

(Therefore, written proof of authority to act for s/o else is NOT ALWAYS required by rule of law)
When do RULES OF LAW REQUIRE written evidence of modification of a written K?
Look at the deal with the alleged change(s). Then determine whether the deal with the alleged change(s) would be w/in the S of F.

If SO, then, as a matter of law, the alleged modification agreement must be in WRITING.
When do we require written evidence of modification of a written K?
Sometime there’s no LEGAL requirement of written evidence of an alleged modification of a written K.

Look at the deal with the alleged change. Then determineh whether the deal with the alleged change would be w/in the S of F. If yes, then the alleged modification agreement must be in WRITING.
If an agreement is in writing, and has a clause stating that all modifications must be in writing, is the clause valid.
Depends on whether it is a UCC or common law K.

Under common law, K provisions requiring that all modifications be in writing are NOT EFFECTIVE

Under the UCC, the K provision to have modifications in writing IS EFFECTIVE unless waived.
What happens if the subject matter of a K is illegal?
The K is void/invalid.
What happens if the subject matter of a K is legal, but the purpose of it is illegal?
The agreement is enforceable only by a person who did not know of the illegal purpose.
What is misrepresentation in K law?
A false assertion of fact, or a concealment of facts, that induces a K.
Does fraud have to be shown in an action to RESCIND a K b/c of a misrepresentation?
No.

Even HONEST misrepresentations (eg, you honestly didn’t know that what you said was incorrect) can lead to rescinding of K
Does fraud have to be shown in an action to REFORM a K b/c of a misrepresentation?
Usually.
What are the elements of economic duress?
Elements of economic duress:
1. There is a “bad guy” – an improper threat

2. There's a “vulnerable guy” – who has no reasonable alternative
What are the 2 tests for unconscionability?
- unfair surprise
- oppressive terms

(look at it at the time the agreement was made)
What is the basic test for whether a K will be void because of misunderstanding (eg, embiguity in words of agreement)?
There will be no K if:

i. the parties use a material term that is open to at least two reasonable interpretations AND

2. each party has a different meaning in mind AND

3. neither party has any reason to know that there are 2 reasonable interpretations.
What happens if there is a term that has more than one possible interpretation, but only one party knows that?
There is a K under the terms as understood by the party who did NOT know there was more than one possible interpretation.
What is the different between misrepresentation and misunderstanding in K law?
misunderstanding focuses on words in K

misrepresentation focuses on words before K.
When will there be no K because of a mutual mistake of material fact?
There will be no K if:

Both parties are mistaken, there is a basic assumption of fact, that materially affects the agreed upon exchange, and it is not a risk that either party bears.
If there is a mutual mistake as to the actual subject matter of the K (i.e., what something IS), is there still a K?
No. This falls under the mutual mistake of material fact rule.
If there is a mutual mistake as to the value of the subjct matter of the K, is there still a K?
Yes. Mistakes as to value do not fall under the mutual mistake of material fact rule.
Will a court void a K for a mistake made by only one party? (Exceptions?)
Nope. Unilateral Mistake of Material Fact is not a reason to invalidate a K.

EXCEPTIONS:
1. Palpable mistakes (if other party to the K knows or should have known of the mistake)

OR

2. Mistakes discovered before significant reliance by the other party
Can a court consider parol evidence if purpose is to change the terms of the written deal? (Exceptions?)
Never -- UNLESS:

1. there was a "mistake in integration" (= an error or typo made when the agreement was reduced to writing)

2. parol evidence rule does not prevent a court from considering earlier words of the parties for the limited purpose of determining whether there is a DEFENSE to the enforcement of the agreement, such as misrepresentation, fraud, or duress
If there were oral or written statements made after a K was signed, can those be considered by a court in construing a K?
YES. Not a parol evidence problem - the parol evidence rule ONLY looks BACK in time – things said or written before the K was signed
Can earlier agreements be considered to resolve ambiguities in a written K?
YES, notwithstanding hte parol evidence rule. (aka, the “explanation exception")
The words of a K aren't the only source of K terms. What three other things do courts sometimes look at, and in what order?
1. Course of Performance (what has already been done under this K – eg, prior shipments under this K) = same people, same K

2. Course of Dealing = same people, different but similar K

3. Custom and Usage = different but similar people, different but similar K (least persuasive of the 3)
What are the delivery obligations of a seller of goods if no place of delivery has been agreed upon?
Absent an agreement as to place of delivery, then the place of delivery is the seller’s place of business, unless both parties know that the goods are someplace else, in which case that place is the place of delivery.
What is a "shipment contract"?
The seller completes its delivery obligation when it:
1. gets the goods to a common carrier,
2. makes reasonable arrangements for delivery, and
3. notifies the buyer.
What is a "destination contract"?
The seller does not complete its delivery obligations until the goods actually arrive where the buyer is.
In any Q, should we presume that a shipping K is a shipment K or a destinatoin K?
Assume it's a shipment K, unless there are facts to the contrary.
What kind of facts will show up in the Q to let you know a shipping K is a destination K and not a shipment K?
"FOB" => Look at the name of the city that comes after the FOB. If it's the city where the seller is or where the goods are, it is a shipment contract. Any other city, and it's a destination K.
What factors must exists in order for there to be a risk of loss issue?
1. after the K 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
for the loss
What is an Implied Warranty of Merchantability?
When any person buys any goods form any merchant, a term is automatically added to the K by operation of law – that the goods are fit for the ordinary purpose for which such goods are used.
What is the key triggering fact for the implied warranty of merchantability to apply to a transaction?
Seller is a MERCHANT, which here means IT DEALS IN GOODS OF THAT KIND!
What are the triggering facts for the implied Warranty of Fitness for a Particular Purpose?
buyer has a particular purpose, and is relying on seller to select suitable goods. The seller must have reason to know of the purpose and the reliance.
Can a contract disclaimer effectively disclaim all warranties, both express and implied? If yes, what is required to do so?
A disclaimer (eg, "as is") can disclaim impled warranties, but not express warranties.

For implied warranties, requires CONSPICUOUS language of disclaimer, mentioning merchantability
What is an express warranty of quality?
A guarantee as to the facts of a good's conditoin.

Look for words that promise, describe, or state facts. Distinguish from sales talk (more general, an opinion - puffing)

Look for use of sample or model. If a seller shows a buyer a sample, this is an EXPRESS warranty
What is a limitation of remedies in a sale of goods K?
A clause that does not eliminate warranties, but rather that limits or sets the amount of recovery that can be obtained for any breach of warranty.
Is it possible to limit remedies for express warranties? For implied warranties?
Yes, for both.
What is the general test for whether a K's limitation of remedies is enforceable?
Unconscionability. Such a limitatoin clause is prima facie unconscionable if a breach of warranty on consumer good causes personal injury - can't limit remedies for that in a K.
WHat is the perfect tender rule?
Subject to limited exceptions, the seller is obligated to deliver perfect goods (applies to UCC contracts only)
What options does a buyer have if less than perfect tender is delivered?
a. Accept and sue for damages
b. Reject the goods and sue for damages
c. Keep some, reject some, and sue for damages
general rule for WHEN a buyer can reject goods (eg, for less than perfect tender)? (Limitations on the ability to reject?)
Rejection MUST OCCUR BEFORE ACCEPTANCE OF THE GOODS

Once a buyer has accepted goods, shecannot object

Limitations on ability to reject a less than perfect tender – cure, installment K, or acceptance.
What is "cure" for purposes of sales of goods Ks?
In some instances, a seller who fails to make perfect tender will be given a second chance -

(1) if they can deliver the PROPER goods by the original deadline, that cures the imperfect tender AND

(2) a seller has reasonable ground to believe the goods would be OK even though not perfect.

Exam tip- Fact pattern: you are given info about prior deals with such an allowance
What is an installment sales K?
An installment sales K REQUIRES or AUTHORIZES delivery in separate lots to be separately accepted.
Can a buyer reject the delivery of an installment when there is an installment sales K?
Only where there is a substantial impairment in that installment that can’t be cured.
If a buyer pays for goods, does that always constitute acceptance? Explain.
No. If buyer accepts, she can’t later reject them. BUT - Payment for goods w/o the oppty for inspection is not acceptance.
When is there implied acceptance of delivered goods?
When there is retention after an oppty for inspection – LOOK FOR THE BUYER KEEPING THE GOODS W/O OBJECTION.
Can a buyer ever revoke their acceptance of goods?
Yes, in very limited circumstances. 3 requirements:

a. There is a nonconformity that substantially impairs the value of the goods,

b. There is excusable ignorance of grounds for revocation or reasonable reliance on seller’s assurance of satisfaction, AND

c. There is revocation within a reasonable time after the discovery of the nonconformity by the buyer.
What are the liability consequences of rejection of goods, or of revocation of acceptance of goods?
The goods are returned to the seller, and there is no obligation on the part of the buyer to pay for the goods.
Can a seller of goods demand a cash payment?
Yes. But has to give buyer extra time.
Under what kinds of contracts can a party get specific performance against a breaching party?
1. Contracts for sale of Real Estate (in rem)

2. Contracts for sale of goods if the goods involved are UNIQUE (eg, antiques, art, custom-made).

NB: can NEVER get specific performance on a K for services (possible injunctive relief, in discretion of court)
Under what kind of K is it most often possible to get an injunction against a breaching party?
Services contracts. (No specific performance allowed, but court can order injunction)
What is reclamation?
The right of an unpaid seller to get its goods back.
What are the requirements that exist in order for reclamation to occur?
Key facts are that:

1. the buyer must have been insolvent at the time that it received the goods, and

2. the seller must demand return of the goods w/in 10 days of receipt (this 10 day rule becomes a “reasonable time rule” if, before delivery, there had been an express representation of solvency by the buyer), AND

3. the buyer still has the goods at the time of demand.
If an owner leaves her goods with a person who sells goods of that kinds, and that person wrongfully sells the goods to a 3rd party, what remedy does the original owner have? What is this called?
May have an action against the merchant, but not against the 3rd party purchaser, if the 3rd party is a bona fide purchaser. This is called ENTRUSTMENT.
What is the goal of money damages for breach of contract? (Eg, compensation, punishment, or both?)
Compensation ONLY. The purpose is NEVER to punisher the defendant.
What do courts usually base the amount of damages for breach on? (General approach)
protection of the plaintiff’s EXPECTATION INTEREST.

* Goal: put the plaintiff in the same economic position as if the contract had been performed.
What is the protection of reliance interest approach to damages for breach of K?
(use this approach only if the exam specifically says to)

Goal: put PLAINTIFF in the same economic position as if the contract had never happened.
What is the protection of restitution interest approach to damages for breach of K?
(use this appraoch only if the exam specifically says to)

goal: Put DEFENDANT in the same economic position as if the contract had never happened.
What happens in terms of damages if the seller breaches and the buyer keeps the goods?
Damages = FAIR market value if perfect - fair market value as delivered
What happens in terms of damages if the seller breaches and the seller keeps the goods?
Damages = Market price at time of discovery of the breach - contract price

OR

damages = replacement price – contract price
What happens in terms of damages if the buyer breaches and the buyer keeps the goods?
Damages are the CONTRACT PRICE
What happens in terms of damages if the buyer breaches and the seller has the goods?
Damages = contract price – market price at time/place of delivery

OR

Damages = Contract price – resale price.

In some situations, damages may be provable lost profits - this happens when INVENTORY is involved, so the seller actually lost TWO sales as a result of buyer's breach. Profit margin on the goods involved in the breach = lost profits.
Can incidental damages be included when calculating damages for breach?
Yes, always. (incidental damages = costs incurred in dealing with breach)
Can consequential damages be included when determining damages for breach of K?
Sometimes. (consequential damages = special damages = damages arising from P’s special circumstances).

These are recoverable ONLY if D had reason to know about the P's special circumstances at the time of the contract.
Can the P recover for damages from breach that could have been avoided? Who has the burden of proving avoidable damages?
Nope. These are subtracted from the damages awarded.

Rule: No recovery for damages that could have been avoided without undue burden on the plaintiff.

The burdens of pleading and proof are on the defendant
What is the certainty limitation on damages recovery for breach of K?
Damages have to be shown with requisite certainty (Reasonable certainty test)
A re K provisions that fix the amount of damages that can be awarded enforceable/ valid?
It depends. If the provision provides for too high a damages amount, it's considered a penalty not compensation, and is thus invalid.

2 tests:
1. damages were difficult to forecast at the time the K was made
2. provision is a reasonable forecast of potential damages

General rules:
If the amount is flexible (eg, amount owed depends on magnitude of the breach), it is usually valid

If there’s a K provision that sets out a specific single dollar $ as liquidated damages, regardless of type or size of breach (single figure to cover all situations), then it is not valid.
What is the material breach rule? What kind of Ks does it apply to?
If the breach is a material breach, the aggrived party is EXCUSED FROM PERFORMING.

If the breach is minor, damages can always be recovered, but performance is not excused.

The material breach rule applies to common law Ks.

(in other words: there is no K law recovery for work that has been done if there is a material breach - but there may be quasi-K recovery)
If a series of identical performances are contracted for (eg, painting 10 apartments), and there is breach after doing significantly less than half of the series, what result? (Exception?)
P is excused from paying for the few already-painted apartments, since this would constitute a material breach.

Exception: Divisible Contract Exception. If payment on a per-unit basis is listed in the K, that makes it a divisible K, and thus need to do the material breach rule by each divisible part
Define: performance condition
a mutually agreed upon promise modifier. Language in a K – not merely language in response to an offer – that does not create a new obligation, but merely limits obligations created by other language in the contract
What is the generla rule regarding compliance with performance conditions in a K?
i. Where there is a performance condition, the general rule is that performance conditions MUST BE STRICTLY COMPLIED WITH
What is anticipatory repudiation?
An unambiguous statement by a person who made a K:
1. that the repudiating party will not perform
2. Made prior to the time that performance was due
What is the effect of anticipatory repudiation by one party to a K?
It excuses the other party’s duty to perform
Does nticipatory repudiation gives rise to an immediate claim for damages for breach?
Yes, UNLESS the claimant has already finished performance.
Can anticipatory repudiation be reversed? Retracted?
Yes, so long as there has not been a material change in position by the other party.

If the repudiation has been timely retracted, the duty to perform is reimposed, but performance can be delayed until adequate assurance is provided.
What is accord and satisfaction?
An agreement by the parties to an already existing obligation to accept a DIFFERENT performance in satisfaction of the existing obligation.
What is the legal effect of a valid accord and satisfaction?
If the new agreement (the accord) is performed (the satisfaction), then performance of the original obligation is excused.
If there is an attempted accord and satisfaction, but there there no performance, what can the non-breaching party sue for?
if the accord/satisfaction is not performed, the other party can sue on EITHER the original obligation OR the accord – but not both. P must choose one.
What words tend to flag accord and satisfaction?
First, look for 2 agreements. Then look for cases where the later agreement uses the word “if” and the word “then
What is contract modification? (cf accord & satisfaction)
An agreement by parties to an existing obligation to accept a different AGREEMENT in satisfaction of the existing obligation.
If there is breach of a modified contract, what can the P recover?
the non-breacher can only recover on the NEW modified agreement – not on the original one, b/c that one no longer exists.
What is novation (in K law terms)?
an agreement btw BOTH parties to an existing K to the substitution of a new party (i.e., same performance, different party)
Who is liable after there is a novation on a K?
novation excuses the contracted-for performance of the party who is substituted or replaced. Thus, the party who is now contracted to perform (the new party) is liable.
What is the difference btw delegation and novation?
Novation requires agreement of BOTH PARTIES to the original K.

Delegation does not require agreement of both parties to the origianl K, AND does not excuse the original party from liability. b
List three situations in which a contractual duty (other than the duty to pay money) can be excused.
impossibility

impracticability

frustration of purpose
What factors must exist in order for performance on a K to be excused as a result of impossibility, impracticability, or frustration of purpose?
1. Something that happens after K formation but before the completion of K performance AND

2. That was unforeseen AND

3. That makes performance impossible or commercially impracticable or frustrates the purpose of the performance
List 3 examples of times when the performance of a K has become impossible, impracticable, or when its purpose is frustrated.
1. damage or destruction of the subject matter of the K AFTER the K was formed

2. Death AFTER K was formed

3. A subsenquent law or regulation has that effect on the K.
If the subject matter of a K is destroyed before performance, is the buyer liable to the seller? Is the seller liable to the buyer?
It depends on who had the risk of loss at the time that the subject matter of the K was destroyed.

Destruction of subject matter of K has no effect where buyer has the risk of loss. S can recover against B.

BUT it DOES have effect when the seller still has the risk of loss. B cannot recover against S.
What is the general rule about what happens if a party to a K dies after making a K? (Exceptions?)
Death does not make a person's contractual obligations disappear.

Exception for special persons: If fact pattern indicates special qualities of person who dies (eg, they’re famous), such that what was contemplated by K was that K has to be done by that specific person, then death excuses.
What happens if a later law makes performance of a K illegal?
Performance is excused by impossibility
What happens if a later law makes a mutually understood purpose of a K illegal?
Performance is excused by frustration of purpose.
Can 3rd parties recover from parties to a K?
Yes, if they are 3rd party beneficiaries. (Eg, if the K was formed with the intent to benefit the 3rd party)

Rule: a 3rd party beneficiary can sue a party to the K to enforce her rights. As long as the K was intended to benefit the 3rd party, the 3rd party can sue the party who was supposed to deliver that benefit to them
Define promissor
person who is MAKING the promise
Define promisee
person who OBTAINS the promise (person to whom something is promised)
If there is an effort to cancel or modify a K that has a 3rd party beneficiary, is that 3rd party's consent required?
Yes, IF the 3rd party knows of & has relied on the K or has assented as requested. If so, her rights have vested and the K cannot be canceled or modified w/o her consent UNLESS the K otherwise provides.
If there is a K that has a 3rd party beneficiary, who can sue whom, among the promisee, promissor, and the 3rd party benef.?
1. Beneficiary can sue promisor.

2. Promisee can sue promissor. (NB: there cannot be recovery from the promisor by BOTH the promisee and the 3rd party beneficiary!!)

3. Donee beneficiary CANNOT sue promisee, BUT creditor beneficiary can sue the promisee on pre-existing debt.
What is the difference between an assignment and a 3rd party beneficiary?
If the 3rd party is mentioned in the original K, they are a 3rd party beneficiary, and it is NOT an assignment

If the 3rd party is NOT mentioned in the original K, is it an assignment, and there is no 3rd party beneficiary issue.
Define assignor
A party to a K who later transfers rights under the K to another
Define assignee
not a party to the original K. Able to enforce the K because of the assignment.
Define obligor
the other party to the K who is not the assignee or assignor. (usually the party who is responsible for paying the assignee)
What is an assignment?
a transfer of rights under a K in 2 separate steps:
i. K btw only 2 parties
ii. one of the parties later transfers their rights under that K to a 3rd party
Can a contract expressly limit assignment? How?
yes, by prohibition or invalidation.
What is the effect of a K term that states, "Rights hereunder at not assignable"?
This is a prohibition on assignment.

The language of prohibition takes away the right to assign BUT NOT the power to assign

An assignment can occur, but the assignor is still liable for breach of K.

Additionally, an assignee who does not know of the prohibition can still enforce the agreement.
What is the effect of a K term that states, “all assignments of rights under this contract are void.”
This is an invalidation of assignment.

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

Key words include “Null," “Void,” “No force and effect” “Disregarded” – language that speaks to CONSEQUENCE and doesn’t merely say that you can’t do it.
If there is no language in a K limiting assignment, are there any situations in which an assignment under a contract at common law will be barred?
YES - common law bars an assignment that substantially changes the duties of the obligor.

Assignment of right to payment does not generally substantially change the duties of the obligor.

Assignments of rights to K performance other than right to payment often do substantially change the duties of the obligor.
Is consideration required for an assignment to be valid?
NO.
Can existing, but conditional, rights can be assigned? Given an example of such a right.
Yes.

(eg, future royalties for an already-published book)
Can future rights can be assigned? Given an example of such a right.
NO.

(eg, future royalties on a book that hasn’t been written yet)
Can an assignee sue the obligor on an assignment?
yes.
X contracts to perform plumbing work for Metropolis for $100K, and X assigns her rights under the contract to Y. X then fails to do the plumbing work. Can Y still collect from Metropolis? Why or why not?
NO. An obligor has the same defenses against assignee as it would have against assignor (in this case, material breach)
X rents furniture from ABC Rentals. In March, ABC assigns X's rental contract to MNO Rentals. X doesn't know of the assignment, and makes her next 2 rental payments to ABC Rental. MNO then sues X for the payments. Can it collect? Why or why not?
NO - not if X did not know about the assignment.

Rule: Payment by an obligor to an assignor is effective until the obligor knows of an assignment.

Similarly, modification agreements btw obligor and assignor are effective if the obligor did not know of the assignment.
in assignment for consideration, the assignor warrants what?
that she will do nothing to impair the value of the assignment.

NOTE: the assignor only warrants what he has done or will do; does NOT warrant what the obligor will do.

(Eg, Only things the assignor might later do are included – not things the obligor might later do.)
If there are multiple gift assignees on a single contract, who wins? (Exceptions?)
Last in time rule: the LAST assignee in time wins -eg, the last person to whom the assignor made the assignment. (Why: gift assignments are freely revocable.)

Exception: a gratuitous assignment is not revocable if it is the subject matter of a writing delivered to the assignee, if the assignee has received some indicia of ownership, or if the assignee has relied on the assignment in a way that is reasonable, foreseeable, and detrimental. In these cases, the assignment will take priority over later assignments.
If there are multiple assignees for consideration of the rights under a single contract, who wins? (Exceptions?)
First in time rule -- the FIRST assignee for consideration wins.

EXCEPTION: a subsequent assignee takes priority ONLY if she both does not know of the earlier assignment AND is the first to obtain:
payment, a judgment, a novation, or indicia of ownership.
What is the difference btw an assignment and a delegation?
Assignment is the transfer by a party to a K of his RIGHTS OR BENEFITS under the K to a 3rd party who was not a party to the K.

Delegation is the transfer by a party to a K of his DUTIES OR BURDENS under the K to a 3rd party who was not a party to the K.
What are the 3 limitations on delegation of duties under a K?
1. if the K prohibits delegations or prohibits assignments OR

2. if the K calls for very special skills OR

3. if the person to perform the K has a very special reputation.
Can a delegatee sue an obligee for payment if there is breach of the K between the delegating party and the obligee?
NO!!
If a K says assignments are prohibited, what else is also implicitly prohibited?
Delegations.
Who is liable if a 3rd party does not perform the duties delegated to it?
The delegating party always remains liable

The delagatee is liable only if she receives consideration from the delegating party.
P contracts to paint O's house for $1000. P and X then agree that X will do the work and P will pay X $900. X then does not do the work. Can O sue P?
YES
P contracts to paint O's house for $1000. P and X then agree that X will do the work and P will pay X $900. X then does not do the work. Can P sue X?
YES
P contracts to paint O's house for $1000. P and X then agree that X will do the work and P will pay X $900. X then does not do the work. Can O sue X? Explain.
YES. The agreement to paint is an agreement to paint O’s house, so O is an intended 3rd party beneficiary.

A delegation for consideration CREATES a 3rd party beneficiary obligation.
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