Contracts & SalesVocabulary

1. Contract: A contract is a legally enforceable agreement.a. Express contract: An express contract is a contract that results from words (oral

or written).b. Implied contract: An implied contract is a contract that results from conduct.

i. Q: would a reasonable person in party’s position infer a promise on the part of the other party?

2. Quasi-Contract: A quasi contract is not really a contract, but an equitable remedy that may be granted if 3 elements met: (1) P conferred a benefit on D, (2) P reasonably expected to be paid, AND (3) D would be unjustly enriched if P not compensated.

a. Recovery may, as justice requires, be measured by either:i. The reasonable value of services rendered (i.e., what it would have cost

to obtain the services from someone else)ii. The extent to which the other party’s property has increased in value or

his other interests advanced.b. The contract price is NOT the measure of recovery (might be a ceiling on

recovery if P in default, or recovery on contract barred by SoF).c. A breaching party can recover in quasi-contract (but not on the contract itself) as

long as they did not willfully breach the contract for their own convenience or financial advantage.

3. Bilateral Contracts: A bilateral contract is formed from an offer that is open as to the method of acceptance.

a. Ex: I will pay you $1000 if you paint my house. Can accept by return promise or beginning performance.

b. Ex: I will pay you $1000 if you will ship me 100 widgets. Can accept by a promise, or shipping the goods.

4. Unilateral contracts: A unilateral contract is formed from an offer that requires performance as the method of acceptance.

a. Two kinds of unilateral contracts:i. O expressly requires performance

ii. An O of a reward, prize, or contestb. Ex: I will pay you $1000 if you don’t drink, smoke etc until you have reached 21.

Only way to accept is to refrain from doing those things.

UCC Applicability (Art. 2)1. R: Art. 2 of the UCC applies to sales of goods. 2. Two factors to determine whether Art. 2 applies:

a. Type of transaction: sale (passing of title from S to B for a price)b. Subject matter of transaction: Goods

i. Art. 2 does not apply to leases, real estate transactions, service contracts3. Statute of Frauds requires a writing if the transaction is $500 or more4. Gen R: If Art. 2 applies, it applies to the entire transaction.

a. If contract for goods and services (i.e., garage door installation), then 2 options:i. Predominant Purpose Test: What is the main purpose of the K? Mainly

goods or mainly services?1. 4 factors:

a. How much $ spent on goods, how much on servicesb. How much time spent on laborc. How sophisticated is the labor

1

d. Does the contract contain typical sales language?ii. Gravamen Test: Some courts bifurcate the claim and apply the UCC to

the goods part, but not the services part (use on essay only).

Contract Formation in General1. Offers

a. Defined: An offer is a manifestation of intention to contract.i. Test: Whether a reasonable person in the position of the offeree would

believe that his/her assent creates a contract.1. Uncommunicated intent is irrelevant. Objective contract theory.

b. Must be definite and certain in its terms.i. Test: Whether enough of the essential terms have been provided so that

a contract including them would be capable of being enforced.1. Generally essential terms of a contract (depends on type of

contract involved):a. Identity of the offeree and subject matterb. Price to be paidc. Time of payment, delivery, or performanced. Quantity involvede. Nature of the work involved

2. The more terms left open, the more likely communication is part of preliminary negotiations not amounting to an offer.

ii. Filling in the Gaps – R: Courts may supply missing terms to satisfy the definiteness requirement from prelim negotiations/communications, references to external sources (trade custom and other std. terms).

1. Missing Price Terma. Real estate contracts – R: Generally, an offer involving

real estate must ID the land and price to be paid.b. Sale of goods (UCC applies) – R: Under Art. 2, a price

is not required. An offer w/o price can be made if the parties so intend, and the court will presume they intended a reasonable price.

2. Vague/Ambiguous Material Termsa. Ex: S offers to sell B 10 pigs for fair price. No offer b/c

while there is an effort to express price, the parties intent is too vague/unclear. Court won’t imply, better to leave blank than use ambiguous term.

3. “Requirements” & “Output” Contractsa. UCC R: Generally w/ a contract for the sale of goods,

the quantity being offered must be certain (“a reasonable quantity” will not suffice). Quantity can be expressed in contract as buyers requirements or sellers output.

b. Cannot be unreasonably disproportionate – R: No quantity unreasonably disproportionate to any stated estimate (or if no stated estimate to normal/comparable prior output/requirements) may be tendered or demanded.

4. Advertisements – R: An advertisement is not an offer, it is merely an invitation for an offer.

a. Exceptions - An advertisement can be an offer if:

2

i. It is specific re: quantity AND indicates who can accept

ii. It is in the nature of a reward.5. Auctions

a. Offer = the bid (not the auctioneer asking for bids)b. Reserve – R: If an auction is being conducted W/o

reserve, the auctioneer is obligated to sell to the highest bidder.

i. Auction is presumed to be w/ reserve unless stated that it is w/o

Termination of Offers1. R: An offer cannot be accepted it if it has terminated. 2. 4 methods of termination:

a. Lapse of Time – R: If no time limit is specified, an offer lapses after a reasonable time under all the circumstances

b. Revocation – Termination of an offer b/c of words/conduct of offerori. Party making offer can revoke in following ways:

1. Statement by offeror to offeree indicating an unwillingness to contract (no need to say revoke), or

2. Conduct of offeror to offeree that is inconsistent w/ intention to make contract AND of which offereee is aware.

ii. Effective time of revocation – R: Revocation of an offer sent through the mail does not become effective until received (mailbox rule doesn’t apply to revocation)

1. R: An offer cannot be revoked after it has been accepted. But generally can be revoked at anytime prior to acceptance, subject to the following exceptions:

a. R: An offer cannot be revoked if (1) offeror has promised to keep offer open, AND (2) the promise is supported by consideration (aka an option contract).

i. Majority – nominal consideration is enough but needs to actually be paid

ii. Minority/trend – mere recitation of consideration is enough b/c other party entitled to it.

b. UCC R: An offer cannot be revoked if it is (1) a contract for the sale of goods, (2) there is a written promise to keep offer open, AND (3) promise is made by a merchant. (The “Firm Offer” Rule).

i. A merchant is a person who deals in goods of the kind, or otherwise holds himself out as having knowledge or skill particular to the practices/goods involved (or a person to whom such knowledge/skill can be imputed by employment of an agent who holds himself out as having the same knowledge/skill).

ii. Period of Irrevocability – R: In the absence of consideration, the period of irrevocability (time offer to stay open) cannot exceed 3 months.

c. Rejection – Termination of offer b/c of words/conduct of offeree

3

i. General info.1. Rejection by offeree terminates any right to accept2. Rejection send through the mail is effective when received

(mailbox R does not apply to rejection)3. A counteroffer also terminates any right to accept. Bargaining

(mere inquiry) doesn’t terminate the offer.a. If statement is in the form of a Q, more likely an inquiry

and not an offer. Statement, not a Q, then more likely a counteroffer.

b. A rejection/counteroffer doesn’t terminate the offer under an option contract

ii. Common law & UCC R: A conditional acceptance terminates the offer. 1. Ex: I accept but only if you agree to X. Offer + counteroffer =

termination.2. UCC R: If there is a dispute after the goods are paid for and

delivered, look to see what writings were agreed upon and those terms become part of the contract. The counteroffer does not control.

iii. Acceptance w/ Additional Terms1. Common Law R: Acceptance must be the mirror image of the

offer or it operates as a rejection.2. UCC R: Additional terms can become part of the contract if (1)

both parties are merchants, (2) the additional term does not materially alter the contract, AND (3) the offeror does not reject within a reasonable time.

a. Materially alter = oppressive, unexpected termi. MBE: Majority rule is that arbitration clauses

materially alter contract. Minority/trend is that is doesn’t materially alter

b. If the above requirements are not met, then the additional term is a mere proposal for addition to the contract which must be separately accepted by the other party.

c. Just b/c there is an additional term does not mean that it is a counteroffer (if it were a counteroffer would terminate offer).

iv. Acceptance w/ Different Terms1. Common Law R: Acceptance must be the mirror image of the

offer or it operates as a rejection b/c offer + counteroffer2. UCC R: Acceptance can contain different terms so long as there

is still a definite and seasonable expression of acceptance.a. Minority – conflicting terms become part of the contract.b. Majority – conflicting terms are dropped out, and UCC

used to fill gaps.d. Death of a Party Prior to Acceptance

i. Gen. R: Death of a party terminates an offer.ii. Exceptions – Death does not terminate the offer when:

1. There is an option contract2. There is part performance of offer to enter into unilateral

contract.

4

Acceptance of an Offer1. Gen. Rules:

a. Only person to whom offer is made can accept.b. Power to accept cannot be assigned. Options can be assigned unless the option

provides otherwise.c. Person must be aware of the offer to accept.

2. Methods of Acceptancea. Offeree starts to perform

i. Acceptance of offers to enter into unilateral contracts – R: When you have a unilateral contract, once P starts performing, the offer becomes irrevocable.

ii. Acceptance of offer open as to method of acceptance – R: When you have a bilateral contract, P can accept by promise or performance.

b. Offeree promises to performi. Most offers must be accepted by a promise to perform, not many offers

can be accepted only by performance.c. Offeree mails acceptance

i. R: If it is reasonable for the offeree to accept by mail, acceptance is effective when posted.

ii. Mailbox R: If the offer arrives by mail, it generally is reasonable to accept by mail. The mailed acceptance will be effective when posted.

iii. Acceptance v. Rejection & The Mailbox Rule1. Acceptance effective when mailed, regardless of whether

actually received.2. Revocation is effective upon receipt, not when mailed.

iv. Exceptions:1. Rejection mailed 1st, then letter of acceptance. Rejection

received before acceptance. Result = letter of acceptance operates as a counteroffer which the offeror can choose to accept or reject.

2. Acceptance mailed 1st, then rejection sent. Rejection received 1st. If offeror relied on rejection before the acceptance was received, estoppel may apply (offeree may be estopped from arguing that the acceptance was valid when mailed under the mailbox rule).

3. Option deadlinesa. Gen. R: Cannot use the mailbox rule to meet an option

deadline. The response must be received by the deadline UNLESS offer says “postmarked by” or “mailed by”

d. Seller of goods sends the wrong goodsi. UCC Gen. R: Offer was accepted when goods shipped, and contract

breached when the wrong goods were sent.1. “Accommodation” Exception: Where seller sends the wrong

goods, but sends a letter to buyer (“in hope alt. goods meet B’s needs”) = counteroffer which B is free to accept or reject. Not an acceptance. B doesn’t have to accept the counteroffer, but cannot sue seller in breach.

e. The offeree is silent

5

i. Gen. R: The offeror cannot unilaterially turn offeree’s silence into acceptance. Generally mere silence is not enough for acceptance UNLESS there is a course of dealing that makes it reasonable for the party to presume silence = acceptance.

Consideration & Consideration Substitutes1. 3 elements of consideration:

a. Promisee must suffer a legal detrimentb. The detriment must induce the promise (i.e., promisor makes his promise to

induce the conduct of the promisee).c. The promise must induce the detriment (i.e., the promisee is induced to act by

the promise).2. 4 types of legal detriment:

a. Performance – doing something one is not legally obligated to do.b. Forebearance – not doing something one is legally entitled to doc. Promise to performd. Promise to forbear

3. 2 Main Q’s – Did the promise made by the promisor induce the conduct of the promisee? Did the conduct of the promisee induce the making of the promise by the promisor?

4. Issues re: Considerationa. Conditional Gift – R: If either of the parties intended to make a gift, she was not

bargaining for something, and there is no consideration.i. Ex: “If you come to my house, I will give you my old tv”

ii. Where meeting the condition benefits the promisor, the more likely to be a bargain.

b. “Legal Detriment” – R: Refraining from doing something you have a legal right to do, or promising to do something you do not have a legal obligation to do is “detriment” and sufficient consideration.

c. Past Considerationi. R: Past consideration is not consideration b/c offeree has already

performed.ii. Gen. R Moral obligation is not a substitute for consideration, BUT

(modern trend) (1) if acts have previously been performed, AND (2) promisee has an expectation of payment, modern trend is to enforce the new promise.

1. Material Benefit R: Despite the general rule, some courts will enforce promises made by a person who received a material benefit and promised to pay for it (ex: EE gets crushed saving boss’ life).

iii. Promissory estoppel may apply to allow party to enforce contract where there is detrimental reliance, even if no consideration.

d. Adequacy of Consideration – R: Courts do not inquire into the adequacy of consideration unless it is a sham.

i. A gross disparity between purchase price and FMV indicates a flaw in the bargaining process (fraud/duress etc), not really a consideration issue.

e. The “Pre-existing Duty Rule (arises where there is a modification adding duties to the contract)

i. Common Law 1. Gen. R: The performance of a pre-existing legal duty

(contractual or statutory), is not consideration b/c you are not

6

incurring a legal detriment if you are just doing what you are legally obligated to do.

2. Duty owed to 3rd person (not owed to person making the promise) – R: ??

3. Contract modification:a. Common Law R: An agreement to modify a contract

can be valid w/o additional consideration BUT (1) must be in writing, AND (2) signed by the party you are seeking to enforce it against.

b. Unforseen Difficulty Exception (Rstmt): A contract modification is enforceable as long as it is fair and equitable in view of the unanticipated circumstances. Doesn’t have to be 100% impossible to perform.

ii. UCC re: Modification1. R: Under Art. 2, no consideration necessary for a modification

to be enforceable, but it must be done in good faith.f. Part payment as consideration for promise to forgive balance of debt

i. R: If the debt is due and undisputed, then part payment is NOT consideration (logical extension of the preexisting duty rule).

1. Where paying early (not due) or paying to settle (disputed), then part payment of the debt is valid consideration for promise to forgive balance.

g. Settlement of a claim – R: A party can enforce a promise to settle as long as the party giving up the claim (usually P) believes in good faith that its valid consideration for the promise.

h. Promise to pay debt barred by SoL – R: A new written promise to pay a debt barred by the SoL is enforceable, doesn’t require consideration.

i. Only the new promise is enforceable, the barred debt is not.i. Illusory Promises (rarely the right answer b/c the court doesn’t inquire into the

adequacy of consideration absent a sham).i. Ex: S offers to sell B home for $100K. B responds she will buy if she

decides she wants it = illusory promise, no consideration b/c in B’s complete discretion.

ii. Ex: same facts as above, B accepts conditioned on obtaining satisfactory financing = valid contract, not illusory promise b/c not in B’s absolute discretion. B must make good faith effort to fulfill the promise.

Promissory Estoppel (always on exam)1. 3 elements:

a. Promiseb. Foreseeable and justifiable reliancec. Enforcement necessary to avoid injustice.

2. The remedy may be limited as justice requires…may not get expectation damages.

Defenses1. Lack of Capacity to Contract

a. People who lack capacity:i. Infants (i.e., minors under 18)

ii. Mental incompetents – defined as either:1. A person who is unable to understand in a reasonable manner

the nature and consequences of the transaction

7

2. A person who is unable to act in a reasonable manner re: the transaction, AND the other party has reason to know of the condition.

iii. Intoxicated persons – the other party has reason to know that, by reason of intoxication either:

1. He is unable to understand in a reasonable manner the nature and consequences of the transaction, OR

2. He is unable to act in a reasonable manner re: the transactionb. Consequences of Incapacity

i. Right to disaffirm contract1. Re: minors – irrelevant that other party didn’t know person was a

minor. 2. Only the person who lacks capacity can disaffirm

ii. Liability for necessaries1. R: Where minor (only?) contracts for necessaries of daily living,

then can be held liable on a quasi contractual theory (must pay value of benefit) but is not liable on the contract itself b/c right to disaffirm.

2. Statute of Fraudsa. 3 main issues:

i. Is the contract covered by the SoF?ii. If the contract is covered, is the SoF satisfied?

iii. If the SoF is not satisfied, what result?b. Contracts covered by the statute (need to be in writing if covered):

i. Promise in consideration of marriage – R: A promise to do something or refrain from doing something conditioned on marriage (not merely a promise to marry).

ii. Promise by executor/administrator to pay an obligation of the estate from his own funds – R: Where executor/administrator paying out of pocket, then covered by SoF. Where estate is paying then not covered.

iii. Promises to answer for debt of another 1. Where a 3rd party promises to pay a debt for the obligee if he

does not pay, then covered by SoF.2. Where 3rd party merely promises to pay, not covered by SoF.3. Primary Benefit Exception – Ex: A corp borrows $5K from

bank. H = sole shareholder of A corp, promises to pay if A corp doesn’t. Here, the promise is made for his own benefit and is not covered by the SoF.

iv. Contract that cannot be performed in a year of the date that the contract was entered into.

1. Doesn’t matter what actually happened, the key is what might have happened. R: If performance of the contract within a year is possible by its terms, then the contract is not within the SoF.

2. Examples:a. In June 2011, X contracts to cut all trees on Y’s land =

Not covered by the SoF b/c can possibly be performed in a year.

b. Above but X doesn’t finish until Dec. 2012 = doesn’t matter, still not covered by SoF b/c possible to be completed within a year when entered into.

8

c. A orally agrees to employ B for 3 years = covered by SoF b/c a 3 year employment contract can’t possibly be performed in a year.

d. Same as above, but agreement allows either party to terminate on 30 days notice:

i. Majority R (MBE): Still a 3 year contract that is covered by the SoF. Even though it could be terminated within a year, it cannot be performed in a year.

ii. Minority – Doesn’t have to satisfy SoF b/c could be performed within a year if either party terminated.

e. X agrees to employ Y for life – not covered by the SoF b/c if Y died within a year she would have worked for her lifetime…possible to be performed within a year.

v. Promise creating an interest in land1. Easements – R: if an easement is for more than 1 year, SoF

needs to be satisfied.2. Construction/service contract - Ex: B contracts w/ O to build apt.

complex on redacre. This is not an interest in land, but a construction contract that does not have to satisfy SoF b/c can be performed within a year.

3. Leases – R: Leases for 1 year or less don’t have to satisfy SoF.4. Equal Dignity R: Under the SoF, where a contract is required to

be in writing, a writing is needed to authorize someone to sign for you UNLESS it is signed in the principals presence.

vi. Sale of goods 1. UCC (MBE) R: Contracts for the sale of goods over $500 must

be in writing.2. MI R: Contracts for the sale of goods over $1000 must be in

writing. vii. Modifications

1. Gen R: If the contract w/ the modification is within the SoF, then the modification agreement must be in writing.

a. Look at the contract as modifiedb. Ex: T leases building from L for 3 years T and L want

to modify rent. Modification must be in writing b/c contract as modified cannot be performed within a year and is covered by the SoF.

c. Ex: T and L want to reduce duration of lease from 3 years to 11 months. Modification does not have to be in writing b/c contract is modified can be performed within a year (11 months) and isn’t covered by SoF.

2. Oral modifications to written contractsa. Common Law R: Oral modifications to written

contracts that can be performed within a year (writing not required under SoF) are enforceable even if contract requires modifications have to be in writing.

9

b. UCC R: Modifications to contracts for sale of goods over $500 (covered by SoF) are required to be in writing.

i. R: A clause that requires all modifications to be in writing is effective and enforceable unless waived (ex: modified contract 4 different times orally despite term, 5th time wants to enforce writing…court will not enforce writing requirement b/c waived).

c. Side notes:i. Common Law R: Where original agreement

came within SoF and was satisfied by a writing, the same writing can satisfy the SoF as to the modified agreement as long as no essential terms were modified.

ii. UCC R: So long as the quantity is not modified, the original writing can satisfy the SoF even if some other modification is agreed upon and no new writing is needed.

d. Effect of unenforceable modification agreement – R: if the modification agreement is unenforceable b/c the SoF is not satisfied, then original contract stands unmodified.

c. How to satisfy SoFi. Common Law R’s – Contracts other than sale of goods:

1. Writing – R: To satisfy the SoF, a writing must be signed by the party raising the SoF defense and contain 3 things: (1) ID of parties, (2) ID subject matter, AND (3) contain all essential terms.

2. Part performance of oral agreement to buy real estate – R: Part performance is satisfied by any 2 of the following: (1) full or part payment, (2) possession, and/or (3) improvements.

3. Performance of an oral agreement that cannot be performed within a year:

a. Part performance – R: If the contract cannot be performed within a year, part performance does not satisfy the SoF. If P has partially performed he can't recover under contract b/c doesn’t satisfy SoF but might be able to recover value of services in quasicontract.

b. Full performance – R: Majority allows P to recover on contract, even if it doesn’t satisfy SoF, where he has fully performed.

4. Estoppel to plead SoF (oral contract + reliance)a. Majority R: allows estoppel to be raised based on P’s

reliance (where P relied on oral agreement, D is estopped from raising SoF as defense)

b. Minority R: Estoppel cannot be raised as a defense where P has relied on an oral agreement that doesn’t satisfy SoF.

c. Gen. R: Where there is reliance on a promise to put an oral agreement in writing, all courts would allow estoppel to bar D from raising SoF as defense.

10

ii. UCC R’s – Contracts for the sale of goods (MBE - $500, MI - $1000)1. R: For a contract for the sale of goods (over $), the writing must

be signed by the party seeking to enforce, and contain:a. Quantity – can be specific, or “entire output” or “all

requirements”b. Basis – must indicate that a contract for sale has been

made between the parties…i.e., a basis for believing there is a K.

c. Signed by person seeking to enforce 2. If merchant A receives letter from merchant B asserting the

existence of a contract and A doesn’t believe a contract exists, A must respond within a reasonable time or the SoF defense is waived.

a. SoF defense waived if: (1) both parties are merchants, (2) the writing claims there is a contract, (3) writing signed and states quantity, (4) failure to object within 10 days of receipt.

3. Part performance of contract for sale of goods – R: Generally, part performance of a contract for the sale of goods satisfies the SoF to the extent of part performance.

a. Suit for part performed – Where B orally agrees to buy 2000 widgets @ $1 each, B has taken delivery of 600, and S sues B. B has no SoF defense as to the $600 (the part performed).

b. Suit for part not performed – Same as above but B sues S for failure to deliver remaining 1400 widgets. B/c the contract is only enforceable to the extent of the part performed, S can't be sued for failure to deliver remaining 1400.

4. Specially manufactured goods – R: Where there are specially manufactured goods that are not suitable for sale to others, the SoF is satisfied once a substantial beginning of their manufacture occurs and can be raised as a defense?

a. Ex: B orders $700 pair of custom made cowboy boots from S, no writing. S starts working on them, B changes his mind and cancels order. S sues for BoC. B has a SoF defense b/c substantial beginning of manufacture?

5. Judicial Admissions – R: The SoF defense is lost if a party admits at trial, or before trial in pleadings or during discovery, that an agreement was entered into.

d. Effect of Failure to Satisfy SoF – R: Where a promise is covered by the SoF and the statute is not satisfied, then the contract is simply unenforceable.

Flaws in the Bargaining Process1. Mutual Mistake

a. Ambiguity – R: There is no contract if 3 things are true: (1) the parties use a material term open to at least 2 reasonable interpretations, (2) each party attaches a different meaning, AND (3) neither party knows or has reason to know of the meaning attached by the other.

11

i. Where 1 party knows about the ambiguity and knows the other party does not, there is a valid contract based on the terms as understood by unknowing party.

b. Mistake of Material Fact – R: There is no contract if 4 things are true: (1) both parties are mistaken, (2) basic assumption of fact, (3) materially affects agreed exchange, AND (4) neither party bears the risk.

i. Key is whether the agreed upon subject matter exists.1. Nature of subject matter – Ex: S sells B painting for $50K, both

think it’s a genuine Picasso but its not. Result = no contract because mutual mistake as to the subject matter of the contract.

2. Value of the subject matter – Gen. R: no relief where mistake is to value and not subject matter. Ex: If painting worth $12K and not $50K like S and B thought.

2. Unilateral Mistake – Gen. R: Generally no relief for mistake that is not shared by the other party.

a. Exceptions:i. Obvious mistakes – R: If the other party to the contract knows or

should have known of the mistake, the court grants relief to the mistaken party.

ii. Avoidance before significant reliance by the other party – R: A bidder (construction subcontactor bids etc) may be able to get relief from a unilateral mistake in the calculation of its bid if avoidance is sought before any significant reliance by other party.

1. More likely to get relief where mistake was clerical error as opposed to an error in judgment and if enforcing would be very oppressive to mistaken party.

3. Duress – R: Duress exists where a party is left w/ no reasonable alternative but to enter the contract. Where there is duress in the bargaining process, the contract is voidable.

a. Can be personal or economic.4. Undue Influence – R: Undue influence may exist where a person uses a position of trust

and confidence, or dominance, to convince the other party to enter into a transaction that is not in the other party’s best interests. Where there is undue influence, the contract is voidable.

5. Fraud/Misrepresentation – 4 typesa. Fraud in the inducement – R: Where a party fraudulently induces another party

to enter into a transaction (persuasion by lying about what you are buying etc), then the contract is voidable.

b. Fraud in the factum (execution) – R: Where a party is actually deceived about the document they are signing (i.e., they don’t know it’s a contract). Unenforceable b/c no mutual assent.

c. Innocent misrepresentation – R: Where there is reasonable reliance on a material misrepresentation then the contract is voidable.

i. Where there is a misrepresentation, but it is not material, then contract is not voidable but other party can sue for damages.

d. Non-Disclosure – Gen. R: There is no duty to disclose facts that would tend to discourage the other party from entering into the contract.

i. Exceptions:1. Statutory disclosure rules2. Active concealment (treated as a misrepresentation)3. Where partial disclosure is misleading

12

4. Changed circumstances causes previously true assertion to no longer be true

5. Party becomes aware that other party is operating under a mistake re: material fact

6. There is a confidential or fiduciary relationship6. Unconscionability

a. Majority requires both procedural and substantive unconscionabilityi. Procedural – gross disparity of bargaining power, hidden terms.

ii. Substantive – grossly unfair terms.b. Judged at the time the contract is entered intoc. Decided by the judged. Based on unfair surprise and oppression

7. Illegal Contractsa. Contracts that are illegal as to their subject matter or purpose are unenforceable.b. If contract illegal b/c party doesn’t have a license required by statute,

enforceability depends on the reason for the license requirement.i. License required merely to raise revenue = enforceable

ii. License has regulatory purpose and is required to ensure that licensee meets certain requirements to protect public welfare = unenforceable by the person who violated the statute

c. Contracts against public policy are also considered illegal.

Contract Terms1. Sources:

a. Words usedb. Custom and usage – how things are usually done in particular place and trade.c. Past dealings between the parties – how the particular people have performed

contracts in the past.d. UCC – certain terms are implied unless specifically excluded

2. Parol Evidence Rule (can prevent terms from becoming part of the contract) – R: Where the parties have agreed to a written contract as the final expression of their agreement, a prior written or oral agreement or a contemporaneous oral agreement cannot be used to vary the terms of the agreement. A contemporaneous written agreement is part of the final written agreement.

a. Triggers:i. Integration – Written contract intended as final agreement (full or

partial integration)ii. Earlier or contemporaneous agreements – The PER does not apply to

oral or written agreements made after the final agreement.1. Modifications – The PER does not apply to modifications (b/c

made after final agreement)b. Issues (decided by judge)

i. Partial integration - Whether parties intended that the written agreement, even though not complete, is final as to the terms in the agreement?

ii. Complete integration – whether the parties indeed the written agreement to be final as to terms AND the complete agreement.

1. Merger clauses indicate complete integrationiii. Factors:

1. Merger clauses (particularly when businessmen and lawyers involved)

2. How complete the agreement looks

13

3. Length of negotiationsc. Exceptions to the PER – Earlier agreements can be used to:

i. Explain the final writing but may not be used to add or contradict the terms of the contract.

ii. Establish a defense (fraud, duress, mistake etc)iii. Show that the written contract ineffective until condition satisfiediv. Add to the final writing where the court finds that the agreement is only

partially integrated.1. Collateral agreements are not barred by the PER

a. Collateral agreement – defined: A collateral agreement is (1) agreed to for separate consideration, OR (2) is an agreement that under the circumstances would be naturally omitted from the writing (i.e., writing is partially integrated).

v. Oral or written agreements after the final writing3. Delivery Obligations of Seller of Goods (UCC)

a. Shipment Contract – R: Under a shipment contract, a seller completes its delivery obligation when the following 3 things have happened: (1) gets the goods to the carrier, (2) makes appropriate arrangements for shipment, AND (3) notifies buyer goods are coming and obtains/tenders documents to enable buyer to take possession.

b. Delivery Contract – R: Under a delivery contract, the sellers delivery obligations are not complete until the goods are tendered (i.e., made reasonably available)

c. Sources of Delivery Term:i. Course of dealing, usage, trade

ii. Parties words…watch for:1. FOB – free on board + city2. CIF – costs, insurance, freight + city3. C & F – cost and freight + city4. FAS – free along side + ship/port5. Ex-ship – from the carrying vessel

d. Destination contracts – Ex-ship or FOB + city other than where seller/goods are located (i.e., FOB + buyers place of business). All others are shipment contracts

i. Where contract language unclear, presumed to be a shipment contract.4. Risk of Loss – who has risk of loss when goods are lost/damaged? B or S? (UCC)

a. Risk of loss on buyer – UCC R: If the risk of loss is on the buyer, he has to pay the full contract price for the damaged goods.

b. Risk of loss on seller – UCC R: If the risk of loss is on the seller, no obligation on buyer and seller may be liable for nondelivery (may be excused by commercial impracticability).

c. Risk of loss issues arise where (1) goods are damaged/destroyed, (2) after contract was formed, but before buyer receives goods, AND (3) neither B or S is at fault.

d. Who has the risk of loss?i. Agreement of the parties controls (if there is one)

ii. Breach – where goods were nonconforming so that B has a right to reject or revoke, or B wrongfully repudiated.

iii. Risk of loss shifts from seller to buyer when the seller completes his delivery obligations.

1. Merchant sellers – R: Risk of loss shifts from a merchant-seller on the buyers receipt of the goods.

14

2. Nonmerchant Sellers – R: Risk of loss shifts from nonmerchant seller to buyer when seller tenders goods.

a. Goods are tendered when the seller is holding the goods for the buyer and lets the buyer know they are available.

b. Even where goods have been tendered and risk shifted to B, if they remain in S’ possession for a commercially reasonable time when clear that B won’t pick them up, S is not entitled to sue for the price of the goods (if goods lost/damaged), but can still sue for damages under the contract.

iv. Sale or return of goods – apply the normal shipment/destination contract risk of loss rules.

1. Mere fact that buyer has right to return/sell doesn’t shift the risk of loss.

v. Sale on approval – R: Risk of loss on seller in sale on approval until buyer accepts goods.

5. Warranties of Quality (UCC)a. Express Warranties – can be given by any seller and can be created by:

i. Words – promises, descriptions, affirmations of fact that form the basis of the bargain.

1. I.e., words that have the natural tendency to induce reliance.2. Mere puffing doesn’t create warranty3. Factors pointing to warranty:

a. In writingb. The more specific, the more likelyc. The type of industry involved

ii. Conduct – use of a sample/model, must be part of the basis of the bargain (aka nonverbal express warranties)

b. Implied Warranties:i. Implied Warranty of Merchantibility – R: When any person buys goods

from any merchant, it is implied (term automatically added by operation of law) that goods are fit for ordinary purposes for which such goods are used.

1. Can only be given by merchantsii. Implied Warranty of Fitness – R: When any person buys goods from any

seller (doesn’t have to be a merchant), it is implied that the goods are fit for a particular purpose.

1. Triggering facts – buyer has particular purpose, buyer is relying on seller to select suitable goods, seller has reason to know of purpose and reliance.

iii. Implied Warranty of Title – R: seller warrants that it has good title, and there are no undisclosed security interests, liens, other encumbrances.

c. Limitations on Warranty Liability – There are 2 main contractual limitations on warranty liability: (1) disclaimer, and (2) limitation of remedies.

i. Disclaimer – defined: A disclaimer is a contract clause that eliminates warranties.

1. Express warranties cannot be disclaimed2. Implied warranties of merchantability and fitness can be

disclaimed.a. Disclaimers must be:

15

i. Conspicuous – must be so written that a reasonable person would notice

ii. Language – Must mention merchantability, OR use general language which in common understanding calls buyers attention to exclusion of warranties and makes clear there is no implied warranty.

iii. Goods being sold “as is” or “w/ all faults, “all warranties disclaimed”

b. Can also be excluded/modified by course of dealing/performance, or trade usage.

c. Where seller demands that buyer inspect goods, there are no implied warranties re: defects which exam should have revealed.

3. Implied warranty of title – R: May be excluded/modified only by specific language OR circumstances which give buyer reason to know seller doesn’t claim title in himself or is purporting to sell an unknown or limited right.

ii. Limitation of Remedies – R: A limitation of remedies clause is a contract provision that limits or controls the recovery for any breach of warranty, but does not eliminate the warranty.

1. Remedy limitations are valid so long as not unconscionable AND limited remedy doesn’t fail it’s essential purpose.

a. Seller limits remedy to repair – R: Where the seller is unable or unwilling to make the necessary repairs, the remedy limitation is invalid because it has failed its essential purpose.

b. Limitations on consequential damages – R: Limitations on consequential damages are valid unless unconscionable.

i. Any attempt to limit consequential damages for personal injury re: consumer goods is unconscionable.

d. SoL re: Breach of Warranty – R: the SoL for breach of warranty is 4 years.i. Gen. R: Starts to run from tender of delivery even if buyer is unaware of

breach.1. Exception – R: Where the warranty explicitly extends to the

future performance of the goods, the statute starts to run when the breach is or should have been discovered.

Performance – Conditions 1. Vocab:

a. Condition – A condition is a promise modifier. It holds up the performance of one or both parties. True conditions are events that are outside parties control.

i. Ex: S agrees to clear P’s driveway for $50 if it snows. S excused if it doesn’t snow.

b. Condition Coupled w/ a Covenant – A condition coupled w/ a covenant is an event that affects duty to perform and is to some extent within the control of one of the parties and creates a legal obligation on the party to use reasonable good faith efforts to cause event to occur.

16

i. Ex: D agrees to buy P’s house if he can secure financing = condition coupled w/ a covenant. D has to use reasonable good faith efforts to secure financing or will be 100% liable to P.

c. Conditions Precedent, Concurrent, and Subsequenti. Condition precedent – R: A condition precedent must occur before an

absolute duty of immediate performance arises in the other party.ii. Conditions concurrent – R: A condition concurrent is one that is capable

of occurring together and the parties are bound to perform at the same time.

iii. Conditions subsequent – R: A condition subsequent is on the occurrence of which cuts off an already existing duty of performance.

iv. Burdens:1. P has to plead and prove condition precedent2. D has to plead and prove condition subsequent

d. Express Conditions – R: Express conditions are those that are expressed in the contract.

i. “if,” “subject to,” “in the event that,” “unless,” “on the condition that”e. Constructive/Implied by Law Conditions – R: Constructive conditions are those

that are read into the contract by the court and are created by operation of law.i. A party’s substantial performance of the contract is a constructive

condition of the other party’s obligation to perform.2. Excuse of Conditions

a. Failure to Cooperate – R: Where there is an express condition precedent, and buyer makes no reasonable/good faith effort to satisfy, the condition is excused and B is liable on the whole contract.

b. Estoppel/Waiveri. Estoppel – based on a statement/conduct by the person protected by the

condition before the conditioning event was to occur and requires a change of position based on reliance.

ii. Waiver – a similar statement/conduct made after the conditioning event was to occur and does not require a change in position.

3. Satisfaction of Conditionsa. Express Conditions – Gen. R: Strict compliance is required for satisfaction of an

express condition, substantial performance is not enough.i. If the subject matter of the contract involves personal taste, a subjective

good faith standard applies to determine compliance.ii. If subject matter does not involved personal taste, then courts will likely

apply an objective reasonable person standard.b. Constructive Conditions – R: Substantial performance is required for satisfaction

of a constructive condition.

Performance – Sale of Goods (UCC)1. Perfect Tender – R: Under Art. 2, and subject to limited exceptions, the seller is obligated

to delivery perfect goods.a. If the goods/tender of delivery fail to conform to the contract, buyer can: reject

whole, accept whole, or accept any commercially acceptable units and reject the rest (and recovery monetary damages).

2. Right to Cure a. Not every seller has right to cure, and buyer cannot compel seller to cure.b. Can be created where:

i. Contractual right to cure (limitation of remedies clause)

17

ii. Time for performance has not expired yet then right to cure under UCC.iii. If the time for performance has expired, seller might still have option of

curing.1. Test – Whether the seller has reasonable grounds for believing

that the improper tender would be acceptable?a. New and better modelsb. Functional equivalents

3. Rejection of Goodsa. Gen. R (UCC): A buyer that wishes to reject must notify the seller. The buyer

must take affirmative action to avoid acceptance.i. Notice must be timely b/c the goods depreciate over time

ii. If buyer fails to state reasons for rejection, cannot rely on unstated defect to justify rejection/establish breach IF (1) seller could have cured the defect if he had been told about it, OR (2) between merchants when seller has, after rejection, made a written request for a full and final statement of all defects on which buyer intends to rely.

b. When allowed:i. Goods Less than Perfect – R: If the goods are less than perfect, buyer has

option to reject unless it is installment sales contract.ii. Timing – R: Rejection must occur before acceptance.

1. Cannot reject after acceptance, but might still be able to revoke acceptance.

c. Installment Contract’si. Defined – An installment sales contract requires/authorizes delivery in

separate lots to be separately accepted.ii. Rejection of Goods under Installment Contract – R: A buyer under an

installment contract may only reject an installment where there is a substantial impairment in the goods that cannot be cured.

1. Breach in one installment allows buyer to reject entire contract (and not just defective installment) ONLY where the breach w/ respect to the installment substantially impairs the value of the entire contract.

4. Acceptance of Goodsa. Gen. R (UCC): A buyer accepts when:

i. After a reasonable opportunity to inspect, indicates to the seller that the goods conform to the requirements OR that she will keep them even though they fail to conform.

ii. She fails to make an effective rejectioniii. She does any act inconsistent w/ sellers ownership (i.e., buyer continued

to use after notice of rejection).b. Effect of acceptance – R: If the buyer accepts the goods, she can't later reject

them, but in limited circumstances can revoke acceptance.5. Revocation of Acceptance of Goods

a. Requirements for revocation:i. Nonconformity substantially impairs the value of the goods to buyer

(whether it would be substantial impairment to reasonable person in buyers position), AND

ii. Excusable ignorance on grounds for revocation OR reasonable reliance on sellers assurance of satisfaction, AND

18

iii. Revocation within a reasonable time after discovery of nonconformity and before any substantial change in condition of goods not caused by their own defect.

b. A buyer who rejects must hold the goods for the seller using reasonable care. A merchant buyer must follow any reasonable instructions from seller if seller has no agent or place of business at the market of rejection/revocation.

6. Buyer’s Payment Obligation – Gen. R: UOA for credit, a buyer must pay cash. Buyer can pay by check, seller can reject check but if seller demands cash, buyer must be given reasonable time to get it.

7. Effect of Breach on Risk of Lossa. Defective goods/buyer right to reject - R: If goods are so defective that buyer has

a right to reject them, the risk of loss remains on the seller until the defects are cured or buyer accepts in the goods in spite of their defects.

b. Defective goods/buyer rightfully revokes acceptance – R: If the goods are defective and buyer rightfully revokes acceptance, risk of loss is on seller to the extent of any deficiency in buyers insurance coverage.

c. Conforming goods/buyer repudiates or breaches before risk has shifted – R: Where the seller has identified goods conforming to the contract, and buyer repudiates or otherwise breaches contract before the risk has passer to her, risk of loss falls on buyer to the extent of any deficiency in sellers insurance coverage.

Excuse of Nonperformance1. Excuse by Reason of Failure of Express Condition – R: If a party’s duty to perform is

expressly conditional, failure of the condition excuses the duty to perform.2. Excuse by Reason of Other Party’s Nonperformance:

a. UCC R: Seller has duty to make a perfect tender. If tender is less than perfect, buyer can reject goods and withhold payment (buyer is excused from paying and can sue for damages).

b. Common Law R: If one party to the contract substantially performs, the other party is required to perform. A minor breach by one party won't excuse performance by the other party. A party’s substantial performance is a constructive condition of other party’s obligation to perform.

i. Only a material breach excuses the other party from performing.ii. If breaching party offers to cure, he must be given opportunity to do so

(duty to mitigate damages).3. Divisible Contracts – R: Where there is a divisible contract (consideration can be broken

down into separate parts for separate jobs) then party can recover for the part he performed.

4. Express Conditions – R: If the contract contains an express condition, then strict compliance w/ the condition is required, substantial performance is not enough to excuse performance UNLESS disproportionate forfeiture would result if condition not excused.

a. Even if party fails to satisfy express condition and can’t recover on the contract, still might be able to recover in quasi contract to prevent unjust enrichment.

5. Excuse by Reason of Other Party’s Pre-Performance Indication of Unwillingness/Inability to Perform (“Anticipatory Repudiation”):

a. A repudiation is an unequivocal manifestation by one party to the other before performance is due, that repudiating party cannot/will not perform its obligations under the contract.

i. Mere expression of doubt as to willingness/ability to perform doesn’t constitute a repudiation (but party may be entitled to demand adequate assurances of performance)

19

b. Effect of anticipatory repudiation – R: Anticipatory repudiation by one party excuses the duty of the other party to perform and generally dives an immediate claim for damages for breach unless claimant (repudiating party) has already finished performance.

i. Repudiating party has duty to mitigate damages and cannot recover for damages that occur after repudiation (stop using the goods!).

c. An erroneous belief that a party materially breached will not excuse performance where P has already substantially performed.

d. Repudiations may be retracted as long as the other party has not relied.e. If P has fully performed then she must wait 30 days to sue and can’t sue

immediately (unlike anticipatory repudiation that gives rise to immediate cause of action).

6. Excuse by Reason of Agreement of the Parties – 4 main types: modification, accord & satisfaction, rescission, novation.

a. Modification:i. Definition - A modification is an agreement that changes the duties

under the contract. ii. Effect – The original duty is discharged as soon as new agreement is

entered into.1. Make sure modification satisfies SoF and there is valid

considerationb. Accord & Satisfaction

i. Definition – An accord and satisfaction agreement is an agreement to accept substituted performance in future satisfaction of a contractual duty.

1. Accord – the accord is the new agreement to accept a different performance in order to discharge an existing contractual duty.

2. Satisfaction – the satisfaction is performance of the new agreement.

ii. Effect – The original duty is not discharged until performance of the new agreement.

c. Rescissioni. Definition – Rescission is cancellation of duties under the contract.

1. If either party (or both) has fully performed, then no valid rescission. Must be performance remaining on original contract.

ii. Oral rescission of written contract:1. Common Law R: Generally oral rescissions are okay even if

original contract covered by SoF. BUT where original contract covered by SoF and not in writing, oral rescission is not effective?

2. UCC R: Generally oral rescissions are okay unless contract specifies that they have to be in writing.

d. Novationi. Defined – A novation agreement substitutes a party to the contract.

1. Requires agreement of both parties to original contract and new party.

ii. Effect – removed party is immediately excused from duties under the contract.

7. Excuse by Reason of Impossibility/Impracticabilitya. Triggered by a post-contract occurrence, that was not reasonably foreseeable at

the time of the contract that was not a risk assumed by either party, that renders

20

performance impossible (commercially impracticable) w/o fault of the party seeking to be excused.

i. Doesn’t require literal 100% impossibility, but significant hardship or severe difficulty beyond that contemplated when contract was entered into

ii. Side note – a builders duty to construct a building generally is not discharged by destruction of the work in progress.

b. UCC Rulesi. Destruction of subject matter excuses performance

ii. Destruction of goods in sale of goods situation – 3 issues:1. Were the goods destroyed the subject matter of the contract?2. Did the buyer have risk of loss at the time of destruction?3. How to handle destruction of some, but not all goods that are

the subject matter of the contract?iii. Subject Matter

1. Unique goods - Where risk of loss is on seller (has not passed to buyer – shifts on receipt of goods) and goods that are subject matter of contract are destroyed, seller is excused and buyer cannot sue for breach.

a. Ex: B contacts to buy antique chair from S for $8K. After contract but before delivery chair is destroyed in fire. Risk of loss is on seller b/c doesn’t shift to buyer until receipt. S excused b/c subject matter destroyed.

2. Generally available goods – Where risk of loss is on seller (has not yet passed to buyer) and the goods are destroyed, seller is not excused.

a. Ex: B contracts to buy 10,000 bushels of wheat from Farmer S for $5 each, delivery no later than Dec. 7. Flash flood in November destroys the crops. Risk if loss is on S b/c no receipt or tender of goods. S not excused from performing unless the contract clearly called for the specific wheat grown on specific farmers land.

iv. Partial Impossibility1. Where, after contract but before delivery, something happens

making it possible for seller to fill some but not all outstanding contracts (i.e., fire in warehouse diminishes supply), seller is required to allocate the remaining goods among all its customers in a fair and reasonable manner.

2. Buyers are not required to take partial deliveries, but cannot sue seller for breach of contract.

v. Risk of Loss1. Nonmerchant – when goods are made reasonably available to

buyer but are destroyed after contract and before buyer picks up goods, risk of loss has shifted to buyer and seller is excused?

2. Merchant – b/c risk of loss re: a merchant seller shifts on receipt of goods by buyer, where goods are destroyed after contract but before receipt, seller is not excused but can argue commercial impracticability.

c. Incapacity of a Person Necessary to Perform

21

i. Person not necessary to perform – Ex: A contracts w/ B to cut a tract of standing timber. A dies, A’s estate refuses to complete performance. Result = estate required to perform b/c A was not necessary to perform.

ii. Person necessary for performance – R: Where a person necessary for performance becomes incapacitated, that person is excused from his obligations under the contract.

d. Gov’t Regulation/Order – R: Where the purpose of a contract is made illegal by government regulation or order, the parties are excused from performance.

e. Increased Costs of Performance – R: Generally increased cost alone is treated as an assumed risk and does not excuse performance.

i. Where the reason for the increased cost was unforeseeable, then parties might be excused.

f. Temporary Impossibility – R: Temporary impossibility (bad weather etc) suspends contractual duties but does not discharge them. When performance becomes possible, the duty comes back into existence.

i. Where the burden on either party to the contract would be substantially increased or different from that originally contemplated, the suspended duty does not come back into existence.

8. Excuse by Reason of Frustration of Purposea. Trigger facts – Post-contract occurrence that was not reasonably foreseeable at

the time the contract was entered into, that totally/nearly totally destroys purpose/value of contract, and the purpose was known by both parties at the time of the contract.

i. Where the subject matter of the contract is available, but the purpose was frustrated, the parties should generally be returned to the status quo (i.e., get deposits back etc).

Breach – Remedies for Unexcused Non-Performance1. Liquidated Damages – R: A contract can stipulate damages or method of fixing damages,

but cannot provide for a penalty.a. 2 general tests – valid liquidated damages clause or penalty?

i. Whether, at the time of the contract, the damages were difficult to estimate?

ii. Whether, at the time of the contract, the provision was a reasonable forecast of possible damages.

1. Actual damages resulting from breach are irrelevant. As long as the clause was reasonable when the contract was entered into, it is valid.

2. Punitive Damages – Not recoverable for BoC3. Common Law Damage R’s:

a. Breach of ordinary contract – R: The injured party is entitled to recover expectation damages which is an amount that would put him in as good of a position as if the contract had been performed.

b. Breach of contract for sale of land:i. Buyer can recover FMV – contract price

ii. Seller can recover contract price – FMVc. Breach of construction contract:

i. Contract + repudiation after construction started: Injured party can recover Cost incurred to date + Profit he would have made had he completed performance.

22

ii. Contract + repudiation prior to beginning construction: Injured party can recover cost to have someone else build + contract price

iii. Contract + breach after beginning construction and incurring costs + paying someone else to do it:

1. Owner can recover contract price – amount spent getting someone else to do it

2. Builder can recover?d. Breach of employment contract

i. EE breaches + ER has to hire replacement: ER can recover extra cost to replace + incidental damages

ii. ER breaches: EE can recover full contract price – avoidable damages (duty to mitigate).

4. Limitations and Additions (re: damages for breach)a. (Incidental + foreseeable consequential) – avoidable damages – speculative

damages = recoveryb. Incidental damages include costs incurred in a reasonable effort to avoid loss

resulting from the breach.c. Foreseeable consequential damages include injury to person/property + lost

profits resulting from breach.d. Avoidable damages – An injured party can't recover damages that could

reasonably have been avoided.i. R: An injured party must make reasonable efforts to mitigate damages

but is not expected to take steps that involve undue burden, risk or humiliation.

e. Speculative damages – R: Damages must be established to a reasonable certainty but does not require mathematical accuracy. Where P’s expectation damages are too speculative to measure (i.e., don’t know what profit P would have made had the contract been performed), P might be able to recover reliance damages for expenditures in preparation of performance.

5. UCC Damage R’s:a. Two big issues that determine amount of recovery: (1) who breached? (2) who

has the goods?b. 4 basic sets of facts/rules:

i. Seller breaches, buyer keeps goods: buyer can recover FMV if perfect – FMV as delivered. “Diminution in Value” Rule.

ii. Seller breaches, seller keeps goods: buyer can recover FMV at time breach discovered – contract price. (Put another way replacement price – contract price)

1. “Cover damages” are recoverable where party has to pay someone else for the goods. R: To recover “cover damages” the injured party must make a replacement purchase in good faith and without unreasonable relay.

a. Cover price – contract price = damagesiii. Buyer breaches, buyer has goods: seller’s recovery is limited to contract

price.iv. Buyer breaches, seller has goods: seller can recover contract price –

FMV at time and place of tender (put another way, contract price – resale price)

1. Resale must be made in good faith and in a commercially reasonable manner.

23

2. The “Lost Volume Seller” – arises re: regular inventory/off the rack products. Seller is an LVS where supply exceeds demand and supply is readily available. Even if the goods are sold to another person for the same price as in contract, the LVS can recover lost profits from the lost sale w/ original buyer.

a. No recovery b/c no damages = wrong answer6. Quasi-Contract Recovery – R: A breaching party (or other party who can’t recover on the

contract itself) may be able to recover value of services under quasi-contractual theory if they substantially performed.

7. Non-monetary Remediesa. Equitable Remedies - General Info:

i. Equitable remedies are only available if there is no adequate remedy at law (i.e., money damages cannot compensate)

ii. Equitable defenses can bar relief:1. Unclean hands – P is guilty of improper conduct re: the same

transaction involved in litigation2. Impossibility and hardship – Equity will not order something

that is not within the capacity of the person ordered to do it. No equitable relief where burden on D is disproportionate to gain to P.

3. Laches – P has delayed bringing suit and delay has substantially increased the cost or difficulty of performance by D, or had made it much more difficult for D to defend suit.

b. Available Equitable Remediesi. Specific Performance

1. Contract for sale of land – Specific performance is usually available re: a contract for the sale of and b/c the land is unique.

2. Contract for sale of goods (UCC) – Specific performance is available where the item is unique b/c injured party can’t be adequately compensated by money damages, or in other proper circumstance (generally means cover is not available).

3. Service contracts – No specific performance allowed but injured party can seek an injunction against breaching party that prevents him from providing services elsewhere (“negative specific performance”).

ii. Equitable Rescission – Available where performance of a duty is excused b/c of impossibility, impracticability, or frustration of purpose, OR contract is voidable (mutual mistake etc).

iii. Reformation – Available where the agreement was incorrectly recorded. Parol evidence admissible to explain. Usually need strong corroborating evidence to reform a contract.

c. UCC Remedies:i. Adequate Assurance of Performance – R: Where either party to contract

for sale of goods has reasonable grounds for insecurity about the other party’s performance, it may demand, in writing, an adequate assurance of performance, and may suspend performance until it receives such assurance if commercially reasonable.

1. If an assurance is not received within a reasonable time (30 day max) then it can be treated as a repudiation.

24

2. Seller has a right to ask for cash payment, but is only entitled to an adequate assurance of payment and would be in breach if he failed to deliver goods b/c buyer didn’t pay in cash.

ii. Seller’s Right of Reclamation – R: Generally an unpaid seller has no special rights in goods it has delivered to buyer even though it has not been paid for them. Seller can gain rights in goods by obtaining an Art. 9 security interest or meeting Art. 2 requirements for right to reclaim goods.

1. R: An unpaid seller has a right to reclaim its goods under Art. 2 if it is a credit sale, the buyer is insolvent when it receives the goods, demand for return within 10 days of receipt OR within a reasonable time if buyer made false representations of solvency.

2. A buyer is insolvent when its liabilities exceed its assets, not paying debts as they generally come due (will be spelled out in facts)

3rd Party Beneficiaries1. Vocab:

a. 3rd party beneficiary is the person who is benefitting from the contract.b. Promisor is the person who is supposed to render the performance that benefits

the beneficiaryc. Promisee is the person bargaining w/ the promisor for the promisor’s

performance that benefits the beneficiary.d. Intended/incidental beneficiary – R: Only intended beneficiaries have legal rights

under a contract, incidental beneficiaries have no rights.i. Turns on promisee’s intention – was promisee’s intention to benefit

herself or a 3rd party?ii. Intent factors:

1. Whether 3rd party beneficiary expressly designated in the contract?

2. Whether performance by promisor is made directly to 3rd party?3. Whether 3rd party has any rights under the contract?4. Whether 3rd party had relationship w/ promisee from which one

could infer that promisee wanted to make an agreement for 3rd party’s benefit?

iii. Ex: Big Bank promises to loan X to pay his creditors. Big Bank breaches. Creditors have no rights against bank b/c they were only incidental beneficiaries.

e. Creditor/donee – R: A 3rd party is a donee unless it is already a creditor of the promisee when the contract was entered into between promisor and promisee.

2. Vesting Rights of 3rd Party Beneficiaries – R: A promisor/promisee can’t modify or terminate the rights of a 3rd party beneficiary after they have vested.

a. 3rd party beneficiary rights can vest in 3 situations:i. When 3rd party brings suit to enforce the promise

ii. When 3rd party materially changes his position in justifiable reliance. iii. When 3rd party manifests assent to promise in manner invited/requested

by partiesb. Exception – contrary contract provisions control.

i. Ex: insured (promisee) can terminate 3rd party beneficiaries rights, even where they know about them, if insurance contract provides insured can change beneficiaries.

25

3. Who can Sue Whom (for failure to perform)?a. Beneficiary can sue promisor

i. R: A promisor can only raise defenses that arise out of the contract w/ the promisee.

1. Promisor can’t assert beneficiaries breach to promisee as defense.

ii. R: A promisor can assert a promises breach of promise to promisor as a defense in suit brought by beneficiary (beneficiary v. promisor).

b. Promisee can sue the promisor if promisor doesn’t perform.c. Creditor beneficiary can sue promisee on existing promise between them

(beneficiary who is not creditor cannot sue promisee?).

Delegation of Duties1. Ex: X contracts w/ Y to perform janitorial services. Y delegates contractual duty to

perform services to Z.2. Vocab:

a. Delegating party is the one that is delegating the duties (Y above)b. Delegate is the one tho whom the duties are delegated (Z above)c. Obligee is the one to whom the duties are owed (X above)

3. Is the Duty Delegable?a. Gen. R: Contract provisions control. If contract prohibits delegation and/or

assignment, duties cannot be assigned.b. Common Law: Where not prohibited by contract, delegation is possible unless

special skills or reputation involved.i. Delegating party remains liable until duty is discharged, even after

delegation.4. Requirements for Delegation?

a. No consent of obligee requiredb. No consideration required, the delegate is not liable if he screws up

5. Consequences of Delegationa. Delegating party remains liableb. Delegate liable to obligee only if he receives consideration from delegating

party.

Assignment of Rights1. Ex: A contracts w/ B, B later assigns rights under contract to C.2. 3rd Party Beneficiary v. Assignment

a. When you have a 3rdPB, you are simply adding another person w/ rights. An assignment substitutes one persons rights for those of another.

3. Vocab:a. Assignor – the one assigning the rights (B above)b. Assignee – recipient of the assignment (C above)c. Obligor – has to pay (A)

4. Limitations on Assignmentsa. Common Law R: An assignment cannot substantially change the duties of the

obligor.i. Payment of $ - R: Assigning a right to payment is generally valid b/c

there is no substantial change in the duties of the obligor, just who is receiving payment.

ii. Performance of service – R: Obligor cannot assign rights to assignor’s services to another obligor.

26

iii. Output/Requirement Contracts – R: Assignable as long as the requirements are not disproportionate to original requirements (“good faith requirements”).

b. Contract Clauses – can prohibit and/or invalidate assignments.i. If contract prohibits, and an assignment is made anyways, the obligor can

sue the assignor for breach of contract.ii. Prohibition on Assignments – R: If a contract provision prohibits

assignments, and there is an assignment in violation and obligee did not know of the prohibition, the obligee can still enforce the assignment b/c the prohibition takes away the right, but not the power to assign.

iii. Assignments Invalid – R: If contract provision invalidates assignments, then no right to assign and no power to assign so obligee can’t enforce the assignment even if he didn’t know about it.

5. Requirements for Assignmenta. Language of the present assignment must include accepted words of transfer.

i. “I assign” is sufficientii. “I promise to assign,” “I will assign,” or “I intend to give you an

assignment” are not enough.b. Absent a statute to the contrary, a writing is not required to have an effective

assignment.i. Exceptions – the following assignments must be in writing:

1. Wage assignments2. Assignments of an interest in land3. Assignments of choses? In action worth more than $50004. Assignments intended as security interests under Art. 9

c. Generally, consideration is not required.i. Gratuitous assignment (no consideration) – revocable

ii. If consideration given then irrevocable6. Assignor v. Obligor Issues

a. Suit – R: Assignee can sue the obligor as long as the assignment is valid.b. Defenses – R: any defenses obligor has against assignor can be raised against

assignee.c. Modification by obligor and assignor – R: An assignment contract can be

modified until the obligor has notice of the assignment. Once the obligor has notice, any attempt at modification has no effect on obligee’s rights?

d. Payment to Assignor – R: Once obligor has notice of assignment, then must pay assignee to discharge debt. Before notice, can continue to pay assignor.

7. Assignee v. Assignee Issuesa. Gratuitous Assignments

i. Gen. R: Gratuitous assignments (no consideration) are valid, and can be freely revoked.

1. Methods of revocation:a. Directly – notice of revocation communicated by the

assignor to either the assignee or obligor.b. Indirectly – assignors death/bankruptcy, assignor

taking performance directly from obligor, making a subsequent assignment of same right by assignor to another person.

i. Subsequent gratuitous assignments revoke earlier assignments. Gen. R: When resolving

27

claims between assignees who did not provide consideration, the last in time wins.

2. Exceptions – A gratuitous assignment is not revocable if:a. R: the assignment is either in writing OR signed under

seal delivered to assignor, OR assignment + delivery of writing of a type customarily accepted as a symbol/evidence of the right assigned.

b. R: before the assignee’s right is terminated, the obligor has already performed (i.e., payment in satisfaction of obligation), OR assignee entered into new contract w/ obligor by novation, OR assignee relied in a way that is reasonable, foreseeable, and detrimental.

i. If the gift assignment is not revocable, then it generally will not be revoked by a later assignment and will take priority over that later assignment.

b. Assignments for Considerationi. Gen. R: The first assignee for consideration has priority over all

subsequent assignees and over all creditors of assignor. First in time.ii. Exception – subsequent assignee for value can take priority over all

earlier assignee’s if it is w/o notice of prior assignment, AND any of the following:

1. It is the first to obtain judgment against creditor2. It is the first to obtain payment from obligor3. It enters into a new contract w/ obligor by novation that

supersedes the obligation (if obligor had no knowledge of prior assignment at the time of the novation)

4. It gets the first delivery of a tangible token/writing when surrender is required by the obligor’s contract (i.e., a symbolic writing), OR

5. It can set up an estoppel against first assignee (arises where 1st assignee allows assignor to retain a document that would indicate to reasonable person that assignor was sole owner of right)

8. Assignee v. Assignor Issuesa. Implied Warranties – R: Where there is an assignment for value, the assignor

impliedly warrants that the rights assigned actually exist and that he won’t do anything to impair value of assignment.

i. The assignor won’t be liable to assignee just b/c obligor is incapable of performing. The assignor does not warrant what the obligor will do.

Entrusting Goods1. R: When someone entrusts goods to a merchant who deals in goods of the kind, that

merchant can transfer all rights of entruster to buyer in the ordinary course of business.

28