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PART I. APPLICABLE LAW AND DEFINITIONS
I. DETERMINING WHICH LAW APPLIES Whether UCC Art 2 Applies Goods Art 2 of the UCC applies to contracts for the sale of goods. ³Goods´ are defined as all things which are movable at the time of identification to the contract for sale, which includes: (1) new or used products, (2) food, whether consumed on or off the premises, (3) living or unborn animals, (4) growing crops or timber, regardless of whether the buyer or seller removes them from the land, (5) minerals (gravel, coal, sand), but only if it is removed from the land by the seller. Sub-Rule: UCC Does NOT apply to: 1. real property 2. personal service, employment, or agency contracts 3. gifts 4. bailment contracts: a transfer of possession without transfer of title 5. construction contracts 6. contracts for services rather than goods 7. sale of electricity Predominant Factor Test When a contract involves both goods and services, look to the essence of the transaction to determine whether it is governed by the UCC. If the contract is predominantly for the sale of goods and the services are merely incidental to the contract, then Art 2 applies to the entire contract. Whether UCC Art 2A Applies NY Distinction: UCC Article 2A applies to a lease or sublease of goods. Art 2A generally follows Art 2 by substituting the term ³lease´ for ³sale,´ but there are a few different rules. Be sure to distinguish between true leases and a lease that is a disguised sale of goods on credit. Whether Common Law Applies The Common Law with NY distinctions applies to all other contracts. II. DEFINITIONS Merchants Art 2 of the UCC defines ³merchants´ as persons who (1) regularly deal in goods of the kind involved in the transaction or (2) possesses or hires an intermediary with knowledge or skill in the goods involved in the transaction. The code frequently imposes higher standards on buyers/sellers of goods who are merchants.
Good Faith Art 2 of the UCC imposes an obligation of ³good faith´ on buyers and sellers, which it defines as honesty in fact in the conduct or transaction concerned. It implies that neither party will do anything that will impede the rights of the other party to receive all benefits of the contract Sub-Rule: Merchants For a merchant, acting in good faith also requires observance of reasonable commercial standards of fair dealing in the trade. Tender UCC Art 2 defines ³tender´ as the seller¶s act of placing and holding conforming goods and then giving the buyer any necessary notification of the seller¶s readiness to perform under the contract terms to enable the buyer to take delivery. The time, place, and manner of tender are determined by the parties¶ contract and the provisions of Art. 2.
PART 2. CONTRACT FORMATION
Analysis 1. look for an agreement -was there an offer? -was the offer terminated? -was there acceptance? -was there consideration? 2. look to see if it is legally enforceable/any defenses III. TYPES OF CONTRACTS Contract A valid contract is a voluntary agreement containing definite terms, mutually assented to by competent parties, supported by valid consideration. To be legally enforceable, a contract must contain the following: TACO (1) definite Terms, either expressed or implied, (2) Acceptance of a valid offer, (3) Consideration support the promise, and (4) a binding Offer inviting acceptance. Express Contract An express contract is created by the parties¶ words (oral or written) Implied Contract An implied contract is created by the parties¶ conduct Exam Tip: The same rules apply to express and implied contracts, but answer choices may ask to distinguish between them Contracts Under UCC Art 2 UCC Art 2 defines a contract as the total legal obligation created by a bargain. A contract may be made in any manner sufficient to show an agreement including conduct by both parties that recognizes the existence of the contract.
Sub-Rule: Sufficient Writing A contract is only required to state a quantity term. A writing is sufficient if it omits or incorrectly states an agreed term, however the contract is not enforceable beyond the quantity of goods shown in the writing. Quasi-Contract: Restitution Under the common law, a quasi-contract is not a contract ± it is a fiction imposed by law to avoid unjust enrichment or to compensate a performing party who detrimentally relied on the unenforceable contract. It is also known as the equitable remedy of Restitution. The party can recover the reasonable value of the benefit conferred, NOT the contract price. Exam Tip: look for an unfair result where there was no express or implied agreement between the parties or where the agreement is unenforceable due to illegality, Statute of Frauds, mutual mistake, impossibility, incapacity, duress, etc. Bilateral Contracts Under the Common Law, a bilateral contract arises where both parties make binding promises to perform (either express or implied) and one promise is consideration for the other promise. To constitute a binding bilateral contract, there must be an offer and acceptance (acceptance can be any reasonable way) of that offer and mutual assent to the agreement in which both parties become contractually bound to perform under the terms of the contract. Unilateral Contracts Under the Common Law, a unilateral contract arises where the offeror promises to pay for a completed performance. The offer can be accepted only by performance. The offeree has no contractual duty to perform, even if he begins performance and no notice of performance is required to be given unless the offeror would otherwise not know of the performance. Exam Tip: MBE fact patterns 1. offer that explicitly states it can only be accepted by performance 2. reward, contest, prize UCC Unilateral Contract Offers Under UCC Art 2 in a sale of goods contract, a unilateral contract offer where the offeree has begun to perform is treated as a bilateral contract, cutting off the offeror¶s power to revoke the offer and requiring the offeree to complete performance or be in breach. The offeree must give notice of acceptance within a reasonable time.
IV. THE OFFER Offer An offer is a party¶s manifestation of an immediate willingness to enter into a bargain, which justifies the other party in believing that his assent to that bargain is invited and that it will conclude in a binding contract. To be valid, the offer must: (1) be communicated to the offeree, (2) induce performance meaning the parties enter into a legal relationship, and (3) be sufficiently definite
Go through each communication looking for an offer and the acceptance. later you find out that there was an award but you did not know of it. if it is clear that the parties intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. or catalogues (unless it makes an offer limited in number ± ³200 notebook computers to the first 30 customers. Exam Tip: If there is a series of communications between the parties. or (3) the price is to be fixed by some agreed market set by a third person but where no price is set. of each statement.Sub-Rule: Standard for Determining Whether There Was an Offer The court interprets the objective manifestations of the parties together with the surrounding circumstances as what a reasonable person would construe them to be under similar circumstances. a contract for sale does not fail for indefiniteness even though the parties leave one or more terms open. pay attention to the legal significance. NOT Offers (1) Advertisements. Otherwise. if any. then you cannot sue for the reward. where the price term is lacking. UCC Contracts Price Term Under UCC Art 2. Most courts will NOT supply a missing price term. because neither has been accepted with knowledge of the other¶s existence Rewards Where you find something and return it to the owner. Terms in a UCC Contract The only essential contract term is quantity and a contract will fail for indefiniteness without it. (2) the price is left to be agreed upon but the parties fail to agree upon the price. . The parties¶ subjective thoughts or intent are immaterial in the interpretation of whether there was an offer. Sub-Rule: Real Estate Contracts The offer must contain the particularly identified land and price terms. A sale of goods contract is enforceable even if (1) nothing was said as to the price. form letters. first come first served) Exam Tip: Often tested exception (2) Statements of intention (3) Preliminary contract negations or requests for price quotations (4) A written offer which indicates it is made to several persons simultaneously ± this is an invitation to negotiation (5) Jokes (6) Identical offers to buy and sell which cross in the mail. the court may determine a ³reasonable´ price at time of delivery. Exception: Offers of reward by the government Definiteness of Terms Common Law An offer must be sufficiently definite to be enforceable meaning that it contains the ³essential material terms´ in unambiguous language.
UCC Requirements Contract Under UCC Art. meaning he cannot get out the contract by simply refusing to manufacture any further if he is not making a profit. then no quantity may be demanded that is unreasonably disproportionate to any normal or otherwise comparable prior output. if the offer does not set a time limit for acceptance. a contract lacking in a specific quantity is enforceable if buyer agrees to buy all the goods of a particular kind that the buyer may require in its business. then no quantity may be tendered that is unreasonably disproportionate to any normal or otherwise comparable prior requirement. Sub-Rule: Lapse of Oral Offers When the parties are dealing face to face or on the phone. However. a contract lacking in a specific quantity is enforceable if the seller agrees to sell his entire production to the buyer. 2. then the court will infer a reasonable time limit. Exam Tip: the unreasonable time period will be clearly long in the question . UCC Output Contract Under UCC Art. The buyer is obligated to use its best efforts to promote the sale or use of the seller¶s goods and to act in good faith. in light of the circumstances. then there is no contract if there was no agreed price. The seller must use his best efforts to supply the buyer and is required to act in good faith. the seller may cease production in good faith if further production would financially imperial his business. This is known as an Output Contract. If there is no stated requirement estimate in the contract. a buyer may in good faith reduce his orders to nothing if his business falls off. 2. the offer does not survive the conversation and must be renewed by the offeror. TERMINATION OF THE OFFER Pieper Pneumonic: Offers expire when they are TIIRED Time Incapacity Intervening illegality Revocation Express or implied rejection Destruction of the subject matter of the offer Lapse The offeror is the master of the offer and may arbitrarily fix the lifetime of the offer and the courts will not alter that time period.Sub-Rule: If the price is to be fixed by the buyer or the seller. Sub-Rule: If the parties did not intend to form a contract unless the price was first agreed upon. meaning he may not buy his goods from another seller at more cheaply if the market price for the goods drops. If there is no stated output estimate in the contract. However. However. This is known as a Requirements Contract. then it must be fixed in good faith. even if it is unreasonable. unless otherwise agreed by the parties. Exam Tip: MBE often tests output and requirements contracts with sudden increases in output or requirement ± cannot be out of line or unfair to the other party V.
although it is still only good for a reasonable time. the firm offer converts to an ordinary revocable offer. After 3 months. even if the merchant expressly stated it would be held open longer. 2. The mode used to revoke should be the same mode used to publish the offer. the offeror may directly or indirectly revoke the offer any time prior to acceptance. Options An option is an irrevocable offer where the offeror promises that the offer will remain open and not be revoked for a reasonable period of time in exchange for consideration. Using the word ³option´ in the contract gives the offeree assurances that the offer will be held open. AND (2) the offeree must have knowledge of the offeror¶s conduct Exam Tip: this is frequently tested Revocation Effective Upon Receipt The revocation is valid when the offeree receives it. an offer in a sale of goods is irrevocable where: (1) a merchant (2) in a signed writing (3) promises to hold an offer open. even if the offeror promises not to. Limitations on Offeror¶s Power to Revoke There are four exceptions to the offeror¶s power to revoke an offer: 1. an option need not be supported by consideration if (1) it states it is irrevocable in writing and (2) is signed. Termination of Options/Firm Offers An option or firm offer may be terminated by: DIE . but only for up to 3 months. 2. Once an offer is accepted it cannot be revoked. NY does not limit this gratuitous option to merchants or sale of goods contracts and is not limited in time to 3 months. The irrevocable offer it is enforceable even though it is not supported by consideration.Revocation Generally. Direct Revocation: the offeror must communicate revocation of the offer directly to the offeree Indirect Revocation: (1) the offeror engages in conduct that is inconsistent with the offer being valid. Sub-Rule: Oral Options An oral option is enforceable if it is supported by consideration and not otherwise barred by the Statute of Frauds. UCC Merchant Firm Offers Under UCC Art. Oral options not supported by consideration can become irrevocable when there is detrimental reliance on the offer by the offeree NY Distinction: Options Under NY GOL §5-1109.
Rejection by the Offeree Express Rejection The offeree¶s statement that he does not intend to accept the offer irretrievably terminates it. Foreseeable Detrimental Reliance Before Acceptance Where the offeror could reasonably expect that the offeree would rely to their detriment on the offer. Starting to Perform in a Unilateral Contract Where the offeree either tenders performance or begins performance. Exam Tip: Remember that a counteroffer is both a rejection and a new offer. the unilateral contract becomes an option that the offeror may not revoke for a reasonable period of time. 2. reversing the roles of the parties. Rejection The power to accept terminates when the offeror receives a rejection. Sub-Rule: Offers Irrevocable if Offeror¶s Cooperation Necessary Where the offeree¶s performance requires some cooperation by the offeror in order for the performance to take place and the offeree withholds that cooperation. Destruction: An offer terminates by operation of law where the subject matter of the offer is destroyed even if the offeree did not receive notice of the destruction. . but has no claim for breach of contract. the offeree has a claim for restitution (in equity) to prevent unjust enrichment. which is an acceptance containing any additional or different terms.1. the offer will be held irrevocable as an option contract for a reasonable length of time. which render the subject matter of the offer illegal. 4. If the offeror revokes. Illegality: The offer terminates by operation of law due to intervening events. Expiration of the stated option time 3. and the offeree does so rely. NY Distinction: Unilateral Contract Offers Revocable Until Full Performance In NY. the offeror can revoke the offer at anytime up until full performance. However. the offeree¶s performance makes the unilateral contract offer irrevocable. the offeree can sue for breach of contract and restitution. 3. because the offeree was not contractually bound to complete performance. not contained in the offer. Exam Tip: This is a very rare exception and the only situation where it regularly occurs is where a general contractor relies on a subcontractor¶s bid in submitting its final bid to the client. Acceptance must mirror the offer. even if trivial. Mere preparation does not affect the offeror¶s right to revoke the offer. Counteroffer: Common Law Mirror Image Rule Under the common law. the offeree impliedly rejects the offer where he makes a counter-offer. Compare: UCC Battle of the Forms (See Acceptance) Conditional ³Acceptance´ An offeree¶s response to an offer containing conditions to the acceptance is not acceptance. The subcontractor¶s offer becomes an option.
if a seller intentionally ships non-conforming goods to the buyer. the offer DOES terminate under the doctrine of impossibility of performance. The offeree must know of the offer in order to accept it. the offeree¶s response will be treated as a counter-offer. Beginning performance carries with it an implied promise to complete performance. Mode of Acceptance Acceptance must be by a reasonable mode. unless the offer expressly demands an exclusive mode of acceptance. UCC Improper Performance as Acceptance Under the UCC. Sub-Rule: Bilateral Contracts A bilateral contract offer may be accepted by a promise to perform or by beginning performance. The buyer is not obligated to accept the non-conforming goods. to all the terms and conditions of the offer and in the manner invited or required by the offer. the offeror or offeree dies or has been adjudicated mentally incompetent prior to acceptance Exception: if the offeror has a non-delegable duty perform and offeree has accepted the offer but the contract has not yet been performed. Sub-Rule: Exclusive Mode of Acceptance The offeror has the right to demand an exclusive mode of acceptance from an offeree and no other mode will be effective acceptance. usually in the same mode the offer was made. . if a party improperly performs in response to an offer. the seller will NOT be liable for breach of contract. The offeror may dictate the mode of acceptance however they see fit. there are intervening events. this constitutes an acceptance AND simultaneously gives rise to a buyer¶s cause of action for breach of contract. If the offeree does not utilize the exclusive mode of acceptance. Common Law Improper Performance as Acceptance Under the common law. this constitutes acceptance AND a breach of the contract UNLESS the seller seasonably notifies the buyer that the nonconforming shipment is offered as an accommodation.Termination by Operation of Law An offer terminates by operation of law where: 1. the subject matter of the offer is destroyed even if the offeree did not receive notice of the destruction. The offeror¶s intention that the mode of acceptance is exclusive must be clearly expressed in the offer itself. ACCEPTANCE OF THE OFFER Definition: Acceptance Acceptance of an offer is an unconditional manifestation of assent by the one to whom the offer was made (class or individual). 2. which render the subject matter of the offer illegal VI. the offer is accepted by completing performance. but if he does. Sub-Rule: Unilateral Contracts In a unilateral contract. 3. even if unreasonable or difficult (but not unconscionable).
meaning when it is put out of the offeree¶s possession (mailed.When Acceptance is Effective: Mailbox Rule Acceptance is effective upon dispatch. or (3) accept certain terms in the offer. (2) expressly reject it. This is referred to as the last shot doctrine because the terms of the last document controlled the terms of the contract once the delivered goods were accepted by the buyer creating a binding contract. Common Law Last Shot Doctrine Under common law contract rules. if the offeree sends an acceptance and then a rejection. to the terms and conditions of the contract. NY Distinction: If someone sends unsolicited merchandise in the mail it is considered a gift. the acceptance must be absolute and unequivocal of each and every term of the offer. It must be an affirmative response and silence cannot be construed as acceptance. The offeror may override ± Ex: the offer states that acceptance is not effective until received 2. and offeree (usually the seller) could do three things with the buyer¶s offer: (1) accept it. faxed. even if the dispatch is never received or was subsequently withdrawn the offeree. then acceptance is not effective until received by the offeror. OR . Such an acceptance was a mere counter-offer (implied rejection) which could be impliedly accepted by a buyer if the buyer accepted those goods when were shipped. thus acceptance of a buyer¶s offer occurs: (1) by a return promise accepting the offer. UCC Acceptance Under UCC Art 2. the acceptance is effective UNLESS: (1) the rejection arrived first. An acceptance is not required to mirror the offer. Exceptions to the Mailbox Rule 1. This unfairly gave the sender of the last form the power to rewrite the contract. A unilateral or bilateral contract can be accepted by either a promise or by performance. the party receiving the goods does not assent to a contract by keeping the goods. if the offeree sends a rejection and then sends an acceptance. whichever arrives first is effective. but with additional or different terms to the acceptance. Exam Tip: commonly tested Silence Acceptance must be an affirmative response. so if the offeree utilizes a slower mode of acceptance than the offer was made. The mode of acceptance must be reasonable. acceptance is the assent of the offeree. emailed or instant messaged). Common Law Mirror Image Rule Under the common law. meaning the one to whom the offer was made. an irrevocable offer is involved so acceptance is effective upon receipt 3. Silence cannot be construed as acceptance. AND (2) the offeror relied on it 4.
risk of loss. or Quality Under UCC Article 2. but the offeree¶s different/additional term does not make it into the contract Different Terms Note: A different term corresponds to a term in the other form but it does not say the exact same thing Under UCC Article 2. a definite and seasonable acceptance containing different terms creates a contract consisting of those terms on which the two forms agree. additional terms in an acceptance are merely considered proposals for addition to the contract and do not become part of the parties¶ agreement. provided that buyers is given notice of acceptance within a reasonable time. common law offer and acceptance rules apply NY Distinction: UCC 2A has no battle of the forms section for leases Subsequent Conduct Recognizing the Existence of a Contract Conduct by both parties that recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. To become binding. or warranties) for those terms on which the parties disagree. but any conflicting provisions cancel each other out and the court may use the UCC as a gap-filler to replace the conflicting provisions. and the offer has not expired. there is no definite and seasonable expression of acceptance where a term regarding price. The expression is definite where it reflects the parties¶ intent to be bound.(2) by the seller¶s act of shipping conforming or nonconforming goods or by beginning this performance. it is seasonable where it is timely. Exam Tip: usually unread purchase forms Note: UCC 2-207 does not apply where no pre-printed forms where used and a disputed term was subject to protracted negotiations ± here. an enforceable contract exists even though the acceptance states terms that are additional or different from those in the offer if the offeree makes a ³definite and seasonable´ expression of acceptance or a written confirmation that is sent within a reasonable time. Delivery. Exam Tip: The contract is usually formed. unless acceptance is expressly made conditional on assent to the additional or different terms. any . Using the Knock-Out Rule. UCC ³Battle of the Forms´ Provision Under UCC Art 2. Sub-Rule: Price. delivery or quantity/quality terms and the buyer subsequently physically accepts the goods. or quantity/quality in the acceptance conflicts with the offer. delivery. delivery. Such an acceptance is considered a counter-offer and neither party is liable for non-performance if the dispute arises before either party partially or fully performs Additional Terms Note: A term is additional where there is not a corresponding term in the other form at all Under the UCC. the resulting contract consists of those terms on which the writings agree together with the provisions in Art 2 (as to price. Ex: such as where the seller accepts the offer but the acceptance includes additional or different price. Quantity.
additional terms must be expressly accepted in writing by the offeror. fixing a seller¶s standard credit terms if within the practice in the trade provided they do not alter any bargained for credit terms 4. a term that is customary in the industry (commonly tested) 2. CONSIDERATION Definition Courts will only enforce an agreement as a contract if it is supported by consideration. charging interest on over-due invoices 5. a commercial impracticability clause VII. AND (3) the past consideration can be proven .´ meaning both made the promise to receive the return promise. (2) the offer expressly conditions the agreement exclusively to those terms contained in the offer. However. fixing a reasonable time for complaints 3. Exam Tip: The following are the most frequently tested issues involving consideration: ³Past´ Consideration A promise given in exchange for something already done does not constitute consideration because the promise was not ³bargained for.´ NY Distinction ³past consideration´ is binding if: (1) the promise and consideration are expressly stated (2) in a writing signed by the promisor. altering the UCC rules for Risk of loss 5. OR (3) the additional terms materially alter the offer. restricting the buyers right to reject defective goods falling within trade tolerances 6. Sub-Rule: Common Materially Altering Terms *this is not an exclusive list* J STRAW 1. adding an Arbitration clause. meaning it would result in surprise or hardship if incorporated without express awareness by the other party. limiting Tort liability 4. unless arbitration is the customary practice in that trade 6. clause negating express or implied Warranties such as those of merchantability or fitness Common Alterations that are NOT Material 1. additional terms in a definite and seasonable acceptance become part of the agreement between two merchants UNLESS: (1) the offeror objects to additional terms within a reasonable time. Consideration exists where both parties make promises involving a legally valuable benefit or detriment and those promises are ³bargained for. shortening the Statute of limitations 3. clause bestowing Jurisdiction on a particular court or requiring offeror to consent to jurisdiction in a particular court 2.
the collection of which is barred by the statute of limitations. NY Distinction: Partial Payment If the agreement is in writing. if you promise to sell me all the coal I want to purchase´ (the word ³want´ is subjective) Contract Modification Common Law: Contract Modification To modify a contract. A promise is enforceable if necessary to prevent injustice where: (1) a promisor made a unilateral promise to a promisee . meaning the party actually wants what is bargained for. provided there is a good faith reason for the modification. Partial Payment of a Debt Where the debt is not in dispute. it is enforceable. because it does not commit the promisor to anything. Promissory Estoppel as a Substitute for Consideration Consideration is not necessary where the facts indicate that the promisor should be estopped from not performing. Promise to Pay a Time-Barred Debt Where a debtor makes a written promise to pay a debt. There is no legal detriment because there is not an actual promise despite using promissory language. unless I decide not to´ or ³I promise to buy all the coal I want from you. I promise to pay you $300. is enforceable even without consideration because the signed writing is a substitute for consideration. UCC Art 2: Contract Modification Additional consideration is unnecessary to modify a contract. Ex: ³I promise to sell you my car. the court does NOT inquire into the adequacy or fairness of consideration as long as there is a bargain. a creditor¶s promise to forgive the balance of a debt in exchange for the debtor¶s partial payment is not enforceable due to lack of consideration because there is no legal detriment to the debtor. the parties must both offer new or additional consideration. /signed/ Paula´ Adequacy of Consideration Generally. NY Distinction: Contract Modification Additional consideration is unnecessary to modify a contract if the modification is in a signed writing. Exception: Nominal Consideration This is actually a gift disguised as a bargain Illusory Promise An illusory promise is statement that may sound like a promise but the words used make performance entirely optional.Ex: ³As thanks for helping me move. Simply performing a pre-existing duty is not sufficient.
Lack of Consideration . if one party knows or has reason to know of the misunderstanding. depending on the jurisdiction. meaning the information asserted would induce a person to agree. Misunderstanding Misunderstanding is a defense to contract formation where both parties believed they understood each other correctly. the contract is voidable by the innocent party if they justifiably relied on it. and the innocent party justifiably relied on it. and (4) there was harm done to the promisee by relying on the promise Damages The promisee may receive expectation damages (value of the contract) or reliance damages (what was spent in reliance on the promise). it is not a defense and a contract is formed based on the innocent party¶s understanding of the meaning of the contract. DEFENSES Absence of Mutual Assent Mutual Mistake Where both parties to a contract make a mistake of fact relating to the agreement. the contract is voidable by the adversely affected party if: (1) the mistake goes to a basic assumption of the contract (2) the mistake has a material effect on the agreed-upon exchange. However. but made a mistake in drafting the terms of the contract or both parties were aware of the ambiguity. VIII. Non-fraudulent Misrepresentation or Non-Disclosure An innocent and honest misrepresentation can be a defense to contract formation where it is regarding a material element of the contract.(2) the promisee actually detrimentally relied on that promise (3) it was reasonable for the promisee to rely on the promise. the mistake will not be a defense to formation UNLESS the other party knew or had reason to know of the mistake. AND (3) the party seeking to void the contract did not assume the risk of mistake party in a position to better know the risks than the other party or party knew their assumption was doubtful Sub-Rule: Value A mistake as to value is generally not considered material so it is not a defense Unilateral Mistake Where only one party made a mistake of fact relating to the agreement. Fraudulent Misrepresentation or Non-Disclosure of a Material Fact Where a party induces another to enter into a contract using a fraudulent misrepresentation or non-disclosure of a fact.
shelter. not for the entire contract price NY Distinction: Mental Incapacity . but NOT for gross negligence or intentional torts. Sub-Rule: Affirmation A minor may affirm the contract upon reaching majority and be bound by it. minors cannot void contracts in the following situations: 1. all contracts by 18 year olds 4. the necessity of the covenant based on the uniqueness of the employee¶s services. or medical care on a quasi-contract basis. The contract remains enforceable against the adult. Exception: A minor is liable for the reasonable value necessaries such as food. and the ability of the party seeking to bar enforcement to find employment elsewhere. not for the entire contract price NY Distinction: Contracts of Minors By statute. shelter. contracts involving artistic or athletic services Mental Incapacity A contract is voidable by a person whose mental capacity is so deficient that he is incapable of understanding the nature and significance of a contract. Public Policy Illegality If the subject matter of a contract is illegal.Consideration is an element of a contract and the lack of consideration can be put forward as a defense to the contract. Exception: An incapacitated person is liable for the reasonable value necessaries such as food. educational loans by those 16 years old and older 3. Exculpatory Clauses An exculpatory clause can eliminate liability for negligence. In determining whether the covenant is legally-enforceable. clothing. or medical care on a quasi-contract basis. realty contracts related to the marital home. and 5. A minor will be found to have impliedly affirmed the contract if they continued to retain the benefit of the contract after gaining or regaining capacity. Lack of Capacity Minors A minor (under 18) may disaffirm a contract any time before or shortly after reach the age of majority and must return anything received under the contract that still remains. the contract is void. life insurance contracts by those 14 ½ years or older 2. Covenants Not-To-Compete The court will invalidate or narrow the scope of a covenant not to compete that operates as an unreasonable restraint of trade. the court will consider the duration and geographic scope of the covenant. clothing.
except for contracts with an attorney. then it is deemed to be waived. clothing. unfair price alone is not sufficient Procedural Unconscionability The process by which the parties reach an agreement is unfair ± significant power imbalance. Unconscionability The court may refuse to enforce a provision or an entire contract to avoid unfairness that shocks the conscience of the court. shelter. check whether the contract is within the Statute of Frauds Generally. MY LEGS Marriage contract Year contract Land contract (real property sale or lease) Executor contract Goods Sale contract Suretyship contract (guarantee the debt of another) NY Distinction: The following contracts are also within the Statute of Frauds 1. Intoxication A contract is voidable by a person who was so intoxicated that he did not understand the nature and significance of the agreement IF the other party had reason to know of the intoxication. The unconscionability may be substantive or procedural. promise to pay a discharged debt 2. however. if not. A party can sue for the reasonable value of services or part performance rendered. not for the entire contract price Economic Duress It is rarely a successful defense against formation accept where the other party is threatening to break an existing contract and the victimized party has no reasonable alternative available for obtaining needed goods or services. Contracts by those who are not adjudicated incompetent are NOT voidable unless the incompetent person can restore the other party to their previous position. or licensed real estate broker Sub-Rule: Signature Requirement . or restitution of any other benefit conferred. inconspicuous risk-shifting provisions (small print). an assignment of an insurance policy or promise to name a beneficiary of such a policy 3. Substantive Unconscionability The terms of the contract are grossly unfair. The Statute of Frauds must be asserted as an affirmative defense in the Answer. adhesion contracts Statute of Frauds Exam Tip: if the word oral appears in the question. Exception: An intoxicated person is liable for the reasonable value necessaries such as food. auctioneer. or medical care on a quasi-contract basis. the contracts below must be in a writing signed by the party to be charged or his lawful agent reflecting the material terms of the agreement in order to be enforced.Contracts by those adjudicated incompetent are void. contracts to pay a commission or finder¶s fee. oral contracts are valid. However.
Sub-Rule: Contract Modification A contract modification must also be in writing if the contract. Lifetime contracts are NOT within the statute of frauds (because a person could die at any time). Sufficient Writing A memorandum for the sale of land is sufficient if it contains the price. All other contracts must contain a statement of the parties to the contract. NY Distinction: Lifetime contract ARE within the statute of frauds. so don¶t be tricked by tasks that appear they will take a long time. not when performance begins. Exceptions: 1.³Signature´ is broadly construed ± it can be printed or typed. must be evidenced by a writing signed by the party to be charged . which does not need to be a ³legal´ description. or mortgages. Year Contract Contracts where performance absolutely cannot be completed within a year must be evidenced by a writing. Specific tasks can theoretically be accomplished within a year. Marriage Contract A promise the consideration for which is marriage must be evidenced by a writing. a writing is not necessary. 3. Exam Tip: it does not matter if performance actually takes more or less than a year. a description of the party. is within the Statute of Frauds. include the quantity. Land Contract Any contracts for the sale or lease of real property or express easements for more than one year. the subject matter of the contract. A lease of goods contract under UCC Art 2A must state that it is a lease. If performance within a year is theoretically possible. or letterhead. as modified. Exceptions: 1. the agent must be authorized in writing concerning the real property or the principal must ratify. Full Performance ± Where the party has already fully performed the contract for over 1 year. 2. A sale of goods contract under UCC Art 2 must contain a quantity term and be signed by the party to be charged 2. and be signed by the party to be charged. and a designation of the parties Sub-Rule: Equal Dignities Rule Where an agent is acting on behalf of a principal when dealing with an interest in land. leases for one year or less . The clock begins to run when the agreement was made. initials. no writing is required. duration. Exam Tip: Remember to be sure that the party being sued is the one who signed the writing Sub-Rule: Satisfactory Writing 1. and rental payments and be signed by the party to be charged.
. 4. or (3) his testimony at trial. or an irrevocable letter of credit 2. AND (3) the goods are not suitable for re-sale to others in the ordinary course of the seller¶s business. (2) the seller has made a substantial beginning of their manufacture or has made a commitment for their procurement before the seller receives notice of the buyer¶s repudiation.2. Sale of Goods Contract Under UCC Art 2. an oral contract between two merchants is enforceable when either merchant (1) confirms the oral contract in a signed. part performance: A real property contract does NOT have to be in writing where the buyer (1) is in possession of the property. it must state the quantity and any additional terms which materially alter the oral agreement will not be part of the contract. 3. (2) has made some payment. or (3) made improvements to the property ± 2 out of 3 required! Executor Contract A promise by an executor or administrator to pay the estate¶s debts out of his own funds must be evidence by a writing signed by the party to be charged. Merchant Memo Rule Under UCC Art 2. and (4) does not object within 10 from its receipt. invoice. however. an oral contract is enforceable for only the quantity of goods for which (1) payment as been made and accepted. Memorandum may be a purchase order. Specially manufactured Goods Under UCC Art 2. a written contract. Part Performance Under UCC Art 2. acknowledgment of an order. an oral contract is enforceable for the quantity of goods that the party against whom enforcement is sought admits he orally contracted for in his (1) pleadings. a lease must be in writing if total of payments under the lease will be $1. The memo need not refer to the prior oral agreement. Admission Under UCC Art 2. (2) pre-trial testimony during Discovery. NY Distinction: Under UCC Art 2A. Suretyship Contract A promise to ³answer for´ the debt of another must be evidence by a writing signed by the party to be charged.000 or more Exceptions to Statute of Frauds for Sale of Goods Contracts There are four exceptions where oral contracts are enforceable without a writing: MAPS 1. (3) had reason to know of its contents. a contract for the sale of goods for $500 or more is unenforceable unless in writing sufficient to indicate that a contract has been made and signed by the party to be charged or his authorized agent or broker. written confirmation and (2) the other merchant receives it within a reasonable time after the oral contract is made. the entire oral contract is enforceable if: (1) circumstances indicate that the goods where specially made for the buyer. OR (2) delivery has been made and accepted.
DETERMINING CONTRACT TERMS IX. ONLY a merger clause will exclude extrinsic evidence. outside evidence is admissible 4. WORDS AND CONDUCT OF THE PARTIES Parole Evidence Rule Where the parties have created an integration. usage of trade: what others in the trade do in similar contracts UCC Battle of the Forms (See Acceptance) UCC ³Gap-Filler´ Terms . then the contract is not within the statute of frauds NY Distinction: there is NO main purpose exception PART 4. course of performance: what the parties did under this contract 2. to establish a defense against formation such as a formation defect or the existence of a condition precedent 3. whether or not the writing appears to be ambiguous: (descending order of importance) 1. Conduct A written contract¶s terms may be explained or supplemented by the following. to supplement a partially-integrated writing UCC Parole Evidence Under UCC Art 2. In determining whether the writing is an integration. the court considers the specific circumstances. meaning a writing intended to be the full and final expression of the bargain. Subsequent Developments Remember that the parole evidence rule has nothing to do with what happens after the agreement is reduced to writing. any evidence of a prior or contemporaneous agreement (either oral or written) that contradicts a later writing is inadmissible. course of dealing: what the parties did under prior contracts with each other 3. the identity of the parties. Evidence Outside the Scope of the Parole Evidence Rule The following extrinsic evidence is admissible because it does not seek to contradict an integration: 1. and the existence of a merger clause. to correct a clerical error or reform a mistake 2.Exception: Main Purpose If a surety¶s main purpose in making a promise is to benefit himself. to interpret a vague or ambiguous term if the meaning of the agreement is not plain.
Inspection The buyer may inspect goods prior to acceptance unless the contract expressly provides otherwise or the goods are shipped with a negotiable bill of lading. Ex: Risk of loss will be on the buyer if the buyer repudiates the contract. However. Delivery The seller¶s tender of the goods is at the seller¶s place of business unless both parties know that the goods are located elsewhere. then risk of loss stays with the seller. where the circumstances impliedly give a party the right to make or demand delivery in lots then the price may be apportioned for each lot. Exchange Performances must be exchanged concurrently. then the breaching seller will suffer the risk of loss. Ex: If the seller ships nonconforming goods and they are destroyed in transit. Breach If one party breaches and the goods are damaged. CIDER 1. the risk of loss is on the party who is in the best position to bear that risk because that party is the one who is most likely to have taken precautions to protect the goods from loss. UCC will imply certain terms with its ³gapfiller´ provisions to fill in the missing terms. they do not constitute a counter-offer as they are always implied in a contract. 4.If certain terms are missing from the agreement. and the non-breaching party had the risk of loss and had insurance on the goods. giving the buyer the right to reject the shipment. Risk of Loss in Sales of Goods Generally The risk of loss for damage to the goods is controlled by the parties¶ agreement. Ex: If the seller ships non-conforming goods. (ex. Unless otherwise agreed. Credit The buyer must tender payment when the goods are tendered unless the buyer has negotiated for credit. If these terms are included in an acceptance. The seller is not obligated to ship the goods. The seller must tender the goods or show tender was excused because the buyer repudiated the contract in order to claim the buyer defaulted. the breaching party will suffer the loss. the breaching party bears the risk of loss. 3. 2. Sub-Rule: Lot Delivery The code defines a ³lot´ as a parcel that is the subject matter of the sale or delivery. even though the risk of loss would otherwise be on the seller Sub-Rule: Insurance If the contract was breached and the goods involved are damaged or destroyed in transit. The buyer must tender the purchase price in order to claim the seller defaulted. installment contract) all goods called for in a contract must be tendered in a single lot delivery and payment is due only on such tender. then to the extent the buyer¶s insurance on the goods is insufficient or non-existent. then to the extent that the insurance was insufficient. The seller is not obligated to extend credit. regardless of who otherwise bore the risk and of whether the loss is unrelated to the breach. absent an express delivery term in the contract. . 5. Otherwise.
Delivery Terms and Risk of Loss If the contract is silent as to risk of loss. the party bearing the loss depends upon how the goods are delivered. . Delivery by Common Carrier Where delivery is made by a common carrier. ii. and the use of a sample or model. the risk of loss is always on the lessor. Shipment Contract (FOB seller¶s location) Where the contract authorizes or requires the seller to ship the goods by carrier but does not specify a destination (FOB seller¶s location). which is the basis of the bargain. but the buyer cannot assert a claim for expectation damages for the lost bargain. ii. When Goods are Destroyed through No Fault of Either Party When the goods are totally destroyed through no fault of either party before the risk of loss passes to the buyer. When Goods Held by a Bailee If the goods are held by a bailee (warehouse) and the goods are to be delivered to the buyer without being moved or shipped then risk of loss passes to the buyer upon: (1) the buyer¶s receipt of a bill of lading (contract and receipt issued by a carrier) or (2) the bailee notifies the buyer of his right to take possession of the goods. the risk of loss is on the lessee. Exception: If the lessor is a bank. the risk of loss passes to the buyer when the seller delivers the goods to the carrier. Express Warranties A seller is liable for breach of any express warranty. which depends upon the type of delivery contract. Seller is a Merchant The risk of loss passes to the buyer when he takes possession of the goods. Destination Contract (FOB buyer¶s location) Where the contract requires the seller to deliver the goods to a particular destination. i. the UCC rescinds the contract allowing the buyer to assert a claim for restitution damages to recover any deposit paid. UCC Warranties Contracts for the sale of goods may include certain implied and express warranties. which includes statements of fact. Seller is NOT a merchant The risk of loss passes to the buyer upon the seller¶s tender of the goods. the risk of loss shifts to the buyer when the seller completes his delivery obligations. descriptions of the goods. the risk of loss passes to the buyer when the goods are tendered to the buyer at the destination. Where a Carrier is NOT Involved Where the parties make no provision for goods to be delivered by a carrier Ex: buyer is to pick up the goods or seller is to deliver the goods directly to buyer i. NY Distinction: Risk of Loss for Lease of Goods Under UCC Art 2A Generally. promises.
PERFORMANCE OF CONTRACTS FOR SALE OF GOODS (UCC) Buyer¶s Payment Obligation Under Art 2 Tender of payment by check is sufficient unless the seller demands cash and gives the buyer reasonable time within which to get cash. but not express warranties. PERFORMANCE AND EXCUSE FROM PERFORMANCE X. PART 5. meaning a seller with specialized knowledge about the particular goods. Exam Tip: If the question gives a reason why the buyer wants the goods. General Disclaimers Expressions such as ³as is. . or otherwise set off. font. Limiting a buyer¶s remedies for personal injury is presumed to be unconscionable. Implied Warranty for a Particular Purpose A warranty for a particular purpose will be implied in a contract for the sale of goods where: (1) the seller has reason to know that the buyer has a particular purpose for which the goods are to be used.´ or ³with all faults´ Limitation of Buyer¶s Remedies A seller may limit a buyer¶s remedies for breach of an express or implied warranty if the limitation is not unconscionable at the time of contract. Implied warranties can be disclaimed by either: Specific Disclaimers A warranty can be specifically disclaimed only by conspicuous language. The seller has an absolute liability. (2) the buyer is relying on the seller¶s skill and judgment to select suitable goods. Disclaimer of Warranties A seller can disclaim implied. meaning larger or contrasting type. it is likely testing this warranty NY Distinction: Lessor¶s Warranties in a Lease of Goods Under UCC Art 2A The same warranties exist under Art 2A as under Art 2 Exception: Finance Leases Banks cannot be held liable for any warranties on leases. Statements of opinion or vague commendation do not form express warranties.meaning the buyer could have relied on it at the time of contract. (3) and the buyer in fact relies on it. Does not matter if the buyer actually relied Implied Warranty of Merchantability Implied in every contract for sale by a merchant who deals in goods of the kind that are the subject of the contract. is a warranty of merchantability warranting that the goods are fit for their ordinary purposes. color.
Time Has Expired: Seller has no option to cure unless if. A buyer is not prevented from suing the seller to recover damages due to the non-conformity of installment. If the buyer does not give the seller this additional. Exceptions to Perfect Tender Rule However. After the . the buyer signifies to the seller that the goods are conforming or that the buyer will take them despite their non-conformity. or timeliness. then (3) the buyer must give the seller additional. quality. accepted. snowstorms. even beyond the date fixed in the contract for performance. The perfect tender rule permits the buyer to reject goods that fail to conform to the contract in any respect. 4. Commercially impracticability Where the delivery was late. and paid for. Breach or defective performance of one part/installment does not necessarily breach the entire contract. and (2) when notified of the non-conformity the seller indicates to the buyer its intention to cure the breach. 2. Prior to performance rejection If the buyer rejects nonconforming good prior to the date for performance fixed in the contract. then it is the buyer who has wrongfully breached the contract. The court will treat the contract as a series of separate and independent contracts within the whole and each part/installment as separately enforced regardless of the performance of another part.The Perfect Tender Rule UCC Art 2 requires the seller to exactly perform all contract obligations. then the seller has the option to cure the tender before the performance date expires. reasonable time to tender conforming goods. Objective and reasonable belief If a seller in good faith (1) sends nonconforming goods objectively and reasonably believing that such goods ARE conforming. including quantity. UNLESS (1) the breach of the part/installment evinces an intent to repudiate the whole contract. but the original delivery date was made commercially impracticable by an event that was not considered by the parties when the K was executed (floods. UCC Art 2 does NOT apply the perfect tender rule to the following contracts: ICOP 1. or (2) the breach of the part/installment impairs the value of the whole contract. the buyer has shown flexibility in accepting non-conforming goods Installment Contracts An installment contract under the UCC is one where separate lots are to be separately delivered. Buyer¶s Acceptance of the Goods Acceptance After a reasonable opportunity to inspect the goods. civil unrest) 3. Installment contracts A buyer in an installment contract is precluded from rejecting an installment UNLESS the non-conformity ³substantially impairs´ the value of the whole contract and the nonconformity cannot be cured. but instead invokes the perfect tender rule and repudiates the contract based on seller¶s breach. based on the parties¶ prior performance and dealings. reasonable time to cure.
when nonconforming goods are tendered. generally a buyer cannot revoke acceptance of goods. after rejecting nonconforming goods or revoking acceptance of nonconforming goods. Consequences of Rejection/Revocation of Acceptance If the buyer rejects the goods or revokes his acceptances. and (3) sue for damages for breach of contract. . The rejection must be within a reasonable amount of time after delivery. he cannot reject them. Sub-Rule: Implied Acceptance 1. the buyer keeps the goods without objection after having a reasonable opportunity to inspect them and reject them if nonconforming. the buyer may reject the entire nonconforming shipment or accept any reasonable commercial unit and reject the rest. (2) obtain a refund of any money the buyer has paid for the nonconforming goods. or 2. If the nonconforming goods are perishable or threaten to rapidly decline in value and the merchant-buyer has not received instructions from the seller.buyer accepts the goods. If the buyer is a merchant and the seller is not from the buyer¶s geographic area. the division of which would materially impair its character or value (ex: a furniture set or a quantity like a bale or gross) Note: risk of loss stays with seller because seller breached Revocation of Acceptance Under UCC Art 2. he may (1) return the goods to the seller at the seller¶s expense. The buyer accepted the goods with knowledge of the nonconformity. The buyer may revoke his acceptance of nonconforming goods within a reasonable time after he discovers or should have discovered a latent defect that is a substantial impairment of the worth of the goods to the buyer. OR 2. the goods are left in the buyer¶s possession. questions will ask you to distinguish between rejection and revocation in the answer choices (look for implied acceptance) Sub-Rule: Buyer¶s Responsibilities for Goods after Rejection/Revocation 1. If. Exceptions: 1. Instructions are not reasonable if expenses for undertaking those instructions are not promptly assumed by the seller. Definition: Commercial Unit a commercial unit is a single whole for the purposes of sale. then he must make a reasonable effort to sell the goods on the seller¶s behalf. the merchant-buyer has a duty to follow any reasonable instructions received from the seller. the buyer continues to retain and use the goods after a rejection or revocation of acceptance Rejection of Non-Conforming Goods Under UCC Art 2. then the buyer must hold the goods for a reasonable time and with reasonable care 2. but the seller gave assurances that the defect would be cured and it was not. 3. Exam Tip: Although the consequences are the same. but he may revoke the acceptance under certain conditions.
and (3) the presence or absence of good faith. Likelihood or ease of full performance being achieved by the nonbreaching party (high/easy) XII. only a material breach by the other party excuses the nonbreaching party from further performance or their duty to pay. Substantial Performance Factors The court considers the following factors in determining whether there was substantial performance and the breach was immaterial: HAIL 1. Regardless of what the buyer chooses to do with the goods. PERFORMANCE OF COMMON LAW CONTRACTS Substantial Performance Definition A party¶s basic duty at common law is to substantially perform the contract. usually arises in the context of construction contracts Timing of Performance Generally. reject the entire shipment. (2) the parties¶ intent.´ What is a ³reasonable´ period depends on the circumstances and in determining reasonableness the court will consider: (1) the hardship to the party if the contract is not performed by the stated date. depending upon the nature of the contract. Sale of Goods (Art 2) If the seller does not perfectly perform all contract obligations. . accept the entire shipment. Common Law Contracts Under the common law. failure to perform by the time stated in the contract is not a material breach if performance is rendered within a reasonable period. then the breach is considered immaterial. EXCUSE FROM PERFORMANCE DUE TO SUBSEQUENT EVENTS Other Party¶s Breach The other party¶s breach may provide an excuse for non-performance. OR 3. accept the conforming goods and reject the non-conforming goods. he may sue the seller for breach of contract for damages. Innocent breach and not willful (not in bad faith) 4. The doctrine of substantial performance is an equitable rule designed to prevent an injustice where a contract breach inadvertently caused a minor or nonessential deficiency which can be inexpensively remedied. including non-conforming goods. Amount of benefit bestowed on the nonbreaching party (substantial) 3. including conforming goods. UNLESS the contract expressly states that ³time is of the essence. the buyer may: 1.XI. 2. If the breaching party substantially performed. Hardship on the breaching party is high if a total material breach is declared 2.
Anticipatory Repudiation Definition Anticipatory repudiation of a bilateral contract arises before the date for full performance where one party clearly and unequivocally announces an unwillingness or inability to perform the contract. Failure to Give Adequate Assurances Demanding Assurances of Performance If ³reasonable grounds´ exist for a party¶s insecurity about the other party¶s ability to perform the contract then. If the other party does not give adequate assurances within 30 days of the requester¶s demand. willing. effectively communicated to the breaching party an intent to treat the repudiation as final and the contract as breached. if commercially reasonable. the nonbreaching party must await the future payment dates to sue for breach of contract. OR 3. immediately sue and claim damages for a total breach or rescission of the contract 2. anticipatory repudiation of contract NY Distinction: This remedy also applies to non-sale of goods contracts . The nonbreaching party may: 1. Retraction of Repudiation After a party anticipatorily repudiates the contract. the party can suspend further performance and in writing demand adequate assurances of their future performance. the party cannot demand a particular type of assurances or use this as an opportunity to rewrite the contract. the nonbreaching party is not required to perform the contract further but must be able to establish that they were ready. good faith rumors of buyer¶s unwillingness/inability to pay. relied on the repudiation and materially changed his position (ex. An Acceleration Clause avoids this problem and accelerates all future payment installments in the event that one payment installment is breached. Here. he may retract his repudiation any time UNTIL the aggrieved party has: 1. Nonbreaching Party¶s Remedies In the event of an anticipatory breach. or a statement that the party might not be able to perform is not anticipatory breach When Remedies for Anticipatory Breach Are Not Available Remedies for anticipatory breach are not available where the nonbreaching party has fully performed and the breaching party¶s only obligation is to pay money in future installments. refusal to perform an honestly disputed or ambiguous contract. a request to renegotiate. Ex. entered a new contract to cover). OR 3. wait until the day that performance is due to sue for damages. wait and urge the breaching party to reconsider performance ± this is not considered an election of remedies and the party may sue any time thereafter. However. and able to perform the contract but for the other party¶s repudiation. then they can treat this as a repudiation of the contract by the other party. commenced a suit on the breach 2.
This is essentially a promise for a future accord and satisfaction. for example: 1. Accord and Satisfaction A duty under a contract may be discharged by an accord and satisfaction. Exam Tip: The MBE frequently asks you to distinguish between a novation and a delegation. but not the entire contract. Discharge by Impossibility At common law. The novation is only valid if all parties to the original contract and the new party agree to the substitution. It does not matter if the new. a sureity ± promise by a person that they will pay the debts of another 2. or by his agent. a later unforeseen event (after the contract has been entered into) making performance objectively impossible may discharge contractual duties if: (1) the nonoccurrence of the event was a basic assumption of the parties in making the contract.Adequate assurances include: The reasonableness of the assurances will depend on the surrounding facts and circumstances. . discharging the original contract and the accord. and (2) neither party has assumed the risk of the event occurring. bank line of credit 4. An accord is an agreement in which one party agrees to accept some other. The parties may only rescind the contract where both have performance remaining on the contract for there to be adequate consideration for the rescission agreement. Modification If a contract is subsequently modified by the parties by mutual agreement. a bond 3. an audit or financial report that clearly shows buyer¶s solvency 5. Novation A novation is an agreement to substitute a new party for an existing one. The party must tender proof that he can and will perform through. Bilateral Executory Accord A bilateral executor accord is an agreement that an existing claim be discharged in the future by the rendition of a substituted performance. Satisfaction is the performance of the accord agreement. different performance is less than what was previously due. credit report prepared by the buyer¶s bank Later Agreement Mutual Rescission A mutual rescission is an agreement to cancel the contract. different performance as satisfaction of a duty under the existing contract. this will serve to discharge those terms of the original contract that are the subject of the modification. NY Distinction: Partial Discharge by Modification of Contract No consideration is need if the modification is in writing and signed by the party to be charged. excusing both parties from performance.
a mere increase in costs. Supervening Governmental Regulation or Illegality Supervening governmental regulations or illegality may serve to discharge a contract. . if the services the person was to provide are unique. Sub-Rule: Identification to the Contract The seller is excused only if the damaged or destroyed goods have been identified to the particular contract. even a doubling in costs. Ex: set aside for the buyer. tagged with buyer¶s name Sub-Rule: Risk of Loss A seller who bore the risk of loss when the goods were damaged or destroyed is excused from performance. AND (3) the seller knew the buyer¶s purpose for entering at the contract. This does NOT apply to contracts to build something where the work in progress is destroyed because the contractor can rebuild. contractual duties will be discharged. Discharge by Impracticality Under UCC Art 2. Increase in the Cost of Seller¶s Performance Generally. NY Distinction: Price Increase NY courts look at the absolute amount of the increase and the percentage of increase Discharge by Frustration of Purpose A buyer¶s performance under a contract may be discharged for frustration of purpose if: (1) there is a supervening event or act which renders the buyer¶s primary purpose for entering the contract nearly or completely valueless. Death or Incapacity of an Essential Person Death or physical incapacity of a person necessary to effectuate the contract serves to discharge it. but a buyer bore the risk of loss when the goods were damaged or destroyed is NOT excused. (2) at the time of contract. is insufficient to discharge performance unless they change the nature of the contract because the seller assumes the risk of price increase by entering into a fixed price contract. payment of money can always be delegated. then the person can delegate them to another. AND (2) the nonoccurrence of the event was a basic assumption of the contract. the parties did not reasonably foresee the act or event occurring. In contracts for services. If the services the person was to provide are not unique. then performance is excused. a later unforeseen event (after the contract has been entered into) making performance impracticable may discharge the seller¶s contractual duties to the extent of the impracticability if: (1) the seller has encountered extreme and unreasonable difficulty and/or expense.Destruction of Contract¶s Subject Matter If the contract¶s subject matter is destroyed or the designated means for performing the contract are destroyed. so the performance is NOT excused.
other than the passage of time. the occurrence or non-occurrence of which will create. Satisfaction Clauses satisfaction is measured by a reasonable person standard unless the contract deals with matters of art or personal test which are judged by a subjective standard Ex: agreement to pay $7.Ex: a person rented a venue for a specific purpose known to the owner and there a subsequent event that was not reasonably foreseeable that renders the purpose for renting the place moot Exam Tip: frequently tested Failure of an Express Condition Definition A contract may provide. minus the cost to correct any defects and reach complete performance. The failure of a condition or legal excuse relieves a party of the obligation to perform. the protected party may not retract the waiver BREACH Common Law Remedies for Substantial Performance The breaching party who substantially performed can recover the contract price. waiver: the party receiving the benefit may indicate by words or conduct that they will not insist on the condition¶s being met. The party protected by the condition can excuse the other party¶s performance by 1. Condition Subsequent one the occurrence of which cuts off an already existing absolute duty of performance Ex: agreement to buy Blackacre unless zoning is changed 4. anticipatory repudiation 3. or extinguish the other contracting party¶s duty to perform. that a party who is bound does not come under a duty to perform unless or until some specified condition occurs. The nonbreaching party¶s remedy is the . A condition is an event. Condition Precedent one that must occur before an absolute duty of immediate performance arises in the other party Ex: agreement to pay $10. limit. Conditions Concurrent ones that are capable of occurring together and that the parties are bound to perform at the same time Ex: Tiger lets Jeter use is golf clubs as long as Jeter is a Yankee 3.000 if my house is sold by April 1 2. material breach. Classification of Express Conditions 1. this does not require consideration Sub-Rule: Estoppel Waiver If the protected party indicates they are waiving the condition beforehand and the other party detrimentally relies on this. failing to cooperate 2. either impliedly or explicitly.500 for a portrait if satisfied with the work Excuse of a Condition Occurrence of a condition may be excused by the later action or inaction of the person who is protected by the condition.
without legal excuse. Incidental and Consequential Damages 3. Then the measure of damages is the difference in the value of the substantial performance and the value of what would have been tendered if there had been full performance. (3) one party repudiates the contract. fails to timely deliver. or (4) there is an anticipatory breach. Damages for Lost Bargain or for the Price Paid 4. The party bears the risk of loss due to any adverse changes in market price during the delay. The aggrieved party is entitled to all remedies for breach of the entire contract. Acceptance Revoked 7.cost of completion or correction. A breach may occur where (1) one party fails to give the promised performance or there was full performance. Reject Non-Conforming Goods . NY and Majority Rule: The materially breaching party cannot assert a claim for unjust enrichment and cannot recover anything for benefits bestowed on the nonbreaching party by services rendered. (2) one party prevents the other party¶s performance. or where the delivered goods fail to conform to the contract (quantity or quality). the buyer has the following remedies: CID¶S WAAR 1. REMEDIES Buyer¶s Remedy ± List When a seller breaches the contract. but it was deficient. meaning it is trivial or minor. either because the seller repudiates. Demand Adequate Assurances 8. to perform any promise that forms the whole or part of the contract. Common Law Breach Definition A breach of contract is the total or partial failure. A breach by one party entitles the other party to damages. Material Breach A breach is material where the nonbreaching party does not receive the substantial benefit of the bargain. Immaterial Breach Where the breach is immaterial. unless that cost is grossly out of proportion with any benefit to be achieved. Breach of Warranty 6. PART 6. the nonbreaching party is not relieved of the duty of performance or of paying for the performance rendered. Damages/ Statute of Limitations Damages will be assessed and the statute of limitations will begin to run from the date the nonbreaching party learned of the anticipatory breach. or the element breached is merely incidental to the contract. Specific Performance of Unique Goods 5. Cover 2.
a buyer may request that the court exercise its equitable power to decree specific performance: (1) where the goods are unique (heirloom or priceless). even if they are rare or unique. the seller has the following remedies against the breaching buyer: SPARKLE 1. Demanding Assurances of performance 4.Seller¶s Remedy ± List of possible remedies available to seller Under UCC Art 2. such as where damages would be uncertain or difficult to ascertain or where the buyer cannot readily buy the goods in the market. The court orders the breaching party to perform or face contempt of court charges. wrongfully rejects conforming goods. Real Property Specific performance is always available and is the usual remedy for real property contracts because real property is considered unique. injunctive relief may be available. Cancellation If a buyer rightfully rejects goods because they do not conform to the contract. Sue for Lost profit 7. one of their options is to simply cancel the contract. Resell the goods to another buyer 5. Other Non-Monetary Remedies Under UCC Art 2 Buyer¶s Non-Monetary Remedies 1. Service Contracts Specific performance is never available for breach of contracts to provide services. Stopping Goods in Transit or Refuse Delivery . or fails to pay the contract price for delivered goods. NON-MONETARY REMEDIES Specific Performance Specific performance is an equitable remedy available only if monetary damages are inadequate to compensate the injured party. Seller¶s Non-Monetary Remedies 1. Exercise right to reclaim goods delivered to insolvent buyer XIII. Keeping part of the buyer¶s deposit 6. Stopping goods in Transit 2. where the buyer wrongfully repudiates the contract. However. Availability of specific performance depends on the nature of the contract. (2) in other proper circumstances. Sale of Goods Contracts Under UCC Art 2. Sue for the entire contract Price 3. because the court will not force a party to work against their will.
OR (2) reclaim the goods from the buyer by making a demand for the goods within 10 days after delivery. the seller has priority to reclaim the goods over the buyer¶s other judgment or lien creditors but the seller¶s right to reclaim is defeated by a good-faith purchaser of those goods who purchased the goods in the ordinary course of business. Sub-Rule: Seller has Priority Over Other Creditors Under UCC Art 2. provided the buyer was insolvent at the time the goods were delivered on credit or paid for the goods with a check that bounced. an unpaid seller does not have the right to reclaim goods from the buyer. or as defined under federal bankruptcy law. when it cannot pay its debts as they become due. If the seller successfully reclaims the goods. the must show: (1) the loss was caused by the breach. Exercise Right to Reclaim Goods Delivered to Insolvent Buyer Generally. However. Note: This remedy is lost once the carrier has effected delivery and acknowledges buyer¶s right to the goods. however the judgment will have little value. but only if the shipment is a large quantity or in bulk. then the seller may: (1) commence an action for the entire contract price. Consequential Damages Consequential damages are additional losses particular to that a reasonable person would have foreseen. Exception (that will not remember): The seller may reclaim the goods at any time if the buyer misrepresented its solvency in writing within three months before deliver. if the seller has delivered goods on credit and discovered that the buyer was insolvent at the time of delivery. he is precluded from exercising any other remedies. To recover consequential damages. However if the breaching party is insolvent then any goods in transit can be stopped regardless of the size of the shipment. 2. (3) reasonable certainty as to the amount of damages. MONETARY REMEDIES ± DAMAGES Types of Damages Expectation Damages Expectation damages are the standard measure and the goal is to put an injured party in as good a position as full performance would have. when a buyer wrongfully repudiates the contract (Anticipatory Breach) or fails to make a timely required payment. a seller refuse delivery or can stop goods in transit. Sub-Rule: Definition of Insolvency Under UCC Art 1. Demand Assurances (See above) XIV. (2) that the ¶s particular needs were known to the at time of contract. only the buyer may recover consequential damages Incidental Damages (Under UCC) . a party is in solvent where it ceases to pay its debts in the ordinary course of business. 2 of UCC.Under Art. and (4) that the damages could not have been mitigated Note: Under the UCC.
Nominal Damages Nominal or token damages may be awarded when there was a breach but no actual loss. and reselling the goods Punitive Damages Punitive damages are NOT awarded for breach of contract. and (2) the amount agreed upon is a reasonable forecast of probable damages ± they cannot operate as a penalty Even if the liquidated damages clause is struck down. Lost Bargain [value promised ± value accepted + consequential/incidental] . incidental damages are any commercially reasonable expenses incurred incident to the other party¶s breach. where the seller fails to tender the goods or the buyer properly rejects/revokes acceptance of non-conforming goods. the buyer is entitled to damages. receipt. transportation. The buyer¶s measure of damages is the difference between higher cost to cover and the original contract price. Market Damages [market price ± contract + incidental. even if the nonbreaching party did not suffer any pecuniary damages. consequential ± savings] Under UCC Art 2. 2. and custody of goods rightfully rejected seller can recover: expenses incurred in storing. Liquidated Damages The parties to a contract may stipulate what damages are to paid in the event of a breach. returning. care.Under UCC Art 2. or the seller anticipatorily repudiates the contract. 3. plus consequential damages for lost profits and incidental damages and minus any savings as a result of the breach. the buyer properly rejects/revokes acceptance of non-conforming goods. consequential ± savings] Under UCC Art 2. A liquidated damages clause in a contract will be upheld if: (1) damages would be difficult to estimate. Under the UCC. a buyer may effect cover by purchasing or contracting to purchase similar goods from another seller in substitution for those due from the seller. effecting cover is a condition for recovering consequential damages. The purchase must be made in good faith and without unreasonable delay. shipping. where the seller fails to tender the goods. Expectation Damages ± UCC Sale of Goods Buyer¶s Damages 1. Where the buyer does NOT cover or does not cover in good faith. the nonbreaching party is still entitled to actual damages Expectation Damages ± Common Law Damages are based on an expectation measure or the benefit of the bargain. plus consequential damages for lost profits and incidental damages and minus any savings as a result of the breach. buyer can recover: expenses reasonably incurred in inspection. the buyer¶s measure of damages is the difference between the higher market price at the time he learned of the breach and the lower contract price. Cover Damages [cover price ± contract price + incidental.
the measure of the buyer¶s damages is the difference between the value of the goods promised in the contract and the value of the goods accepted plus consequential damages for lost profits and incidental damages. Contract Price Under Art 2 of UCC. 5. plus any damages caused by the buyer¶s breach. the seller¶s measure of damages is his lost profit. the buyer is entitled to restitution in the amount of the deposit. cease production and sell the goods for scrap. then the seller in good faith may: 1. conforming goods were destroyed after risk of loss passed to the buyer. does not resell in good faith. The resale must be performed in a commercially reasonable manner (good faith) at a public or private sale and it should be with notice to the breaching buyer. 3.Under UCC Art 2. then the seller can recover only the difference between the higher price in the sales contract and the fair market price at the time and place of delivery (which is not necessarily the resale price) plus any incidental damages and minus any expenses saved. OR 3. Market Damages [contract price ± market price + incidental damages-expenses saved] If the seller does resell the goods. 2. Seller¶s Damages 1. OR 3. the seller delivers conforming goods on credit but the buyer fails to pay for those goods. Resale Damages [contract price ± resale price + incidental damages-expenses saved] Under UCC Art 2. Keeping Part of the Buyer¶s Deposit If a breaching buyer paid a deposit on the contract. 4. when a buyer wrongfully repudiates the contract or refuses to accept conforming goods. complete the goods and re-sell them. 2. The damages are the difference between the higher price in the sales contract and the lower resale price. . Lost Profit: Volume Dealers [contract price ± cost of goods + incidental damages ± expenses saved] The difference between the breached contract price and the resale price is an inadequate remedy for the volume seller who has an unlimited supply of goods because he is able to immediately resell the goods for the same price to another buyer. or fails to give notice to the breaching buyer. the seller may promptly re-sell those goods and sue the buyer for the resulting damages. Here. Sub-Rule: When the Goods are Unfinished at Time of Breach When a buyer repudiates the contract and the seller has not completed production of those goods. to proceed in any other reasonable manner 2. the buyer¶s right to restitution is limited and the seller can keep 20% of the total purchase price or $500. which is the contract price minus the cost of the goods to the seller plus any incidental damages and minus any expenses saved. where the buyer accepts nonconforming goods and gave the seller notice of the nonconformity within a reasonable time after its discovery. the seller may sue the buyer for the entire contract where: 1. However. the buyer wrongfully fails to accept conforming goods and the seller cannot re-sell them because they are obsolete or not usable by anyone except the buyer. whichever is less. plus any incidental damages suffered by the seller and minus any expenses saved.
Sub-Rule: Real Estate Contracts In a real estate contract. is identified to the contract 2. The amount of the deposit must be a reasonable forecast of the seller¶s damages in the event of breach to be valid. the employee has a duty to use reasonable care in finding a position of the same. (contract price minus cost of completion) Duty to Mitigate The nonbreaching party has a duty to mitigate their damages and cannot recover damages they could have avoided with reasonable effort. The duty to mitigate is built into UCC remedies. and grade in the same city. rank. Sub-Rule: Employment Contracts If the employer breaches. Promisee The party who secures the promise. or 3. Building Contracts Where an owner breaches a construction contract after construction has been started but before construction is completed. If the employee is not required to take a job. Intended Beneficiary The intended third-party beneficiary is the person who is not a party to a contract but has contractual rights because the parties intended the contract to benefit him. but they will only be able to recover the difference between the contract salary and the comparable job salary. the seller is entitled to keep the buyer¶s deposit if the buyer breaches as liquidated damages. THIRD PARTIES TO A CONTRACT XVI. receives performance directly from the promisor. has some relationship with the promisee to indicate intent to benefit . Promisor The party who promises to perform for the third-party beneficiary. kind. In determining whether the beneficiary was intended. RESTITUTION PART 7. consider whether the beneficiary: 1. XV. THIRD-PARTY BENEFICIARIES Definitions Third Party Beneficiary A third party beneficiary arises where two parties enter into a contract that will render some performance or benefit to a third party. the building is entitled to recover any profits he would have derived from the contract plus any costs he has incurred up to the date of breach.
DELEGATION OF DUTIES AND ASSIGNMENT OF RIGHTS Delegation of Duties A party to a contract. Promisee to Creditor Beneficiary A creditor beneficiary can sue the promisee on the existing obligation between them. Exception Contrary language in the contract controls. Rescission and Modification of Third-Party Beneficiary Contracts Vesting of Beneficiary Rights A third party can only enforce a contract if his rights have vested. XVII. may delegate his contractual duties. Creditor Beneficiary A creditor beneficiary is an intended third-party beneficiary to whom the promisee intends the contract to pay off a debt. donee beneficiaries cannot. brings a suit to enforce the promise. materially changes position in justifiable reliance on the promise. or 3.Donee Beneficiary A donee beneficiary is an intended third-party beneficiary whom the promisee intends to benefit gratuitously. The person to whom the duties are delegated is known as the delegate. manifests assent to a promise in the manner requested by the parties Modification and Rescission The promisor and promisee cannot rescind or modify the contract after the third party¶s rights have vested without the third party¶s consent. known here as the delegator. known as the obligee. This occurs when he: 1. without the consent of the person to whom performance is owed. The delegator must manifest a present intention to make a delegation. Rights and Liabilities Promisor to Intended Third Party Beneficiary An intended third party beneficiary may sue a breaching promisor to the contract to enforce their rights and the promisor may raise any defense that the promisor has against the promisee. 2. they are merely an incidental beneficiary with no contractual rights. Incidental Beneficiary If the third party was not an intended beneficiary. . either orally or in writing. Promisor to Promisee A promisee may sue the promisor at law and in equity for specific performance if the promisor does not perform for the third party (creditor or donee).
transfers his rights to the other party¶s performance to a third party. rights may not be assigned where: 1. completely releases the original party. delegation would change the obligee¶s expectancy Ex: requirements or output contract 4. Sub-Rule: Requiring the Delegate to Perform The obligee may only require the delegate to perform if the delegate assumes the duties of the contract by promising to perform in exchange for consideration. and requires assent of all parties Assignment of Rights An assignment of rights is where two parties create a contract and one party. *a contract clause providing that attempts to assign are void Sub-Rule: Contract Language ³Assignment of the contract is prohibited´ ± only bars delegation ³Assignment of contractual rights is prohibited´ ± assignment valid but obligor can sue the assignor for breach ³Assignment is void´ ± only this bars assignment 2. *the assignment would substantially change the duties or risk of the obligor Ex: personal service contracts changes. The party who owes the duty to perform is the obligor. skill. so the obligee may sue the delegator for nonperformance of the delegate OR the delegate. third party beneficiary: all three people are present from the beginning Exceptions Generally. However. the assignee. the following duties may not be delegated: 1. right to payment does not 3.Exam Tip: The MBE uses the terms assignment and delegation loosely ± the question may say ³assigned rights´ but the facts may show that there was also a delegation of duties Exceptions Generally. Exam Tip: Distinguish from a contract with a third party beneficiary ± assignment: two parties contract and then another person is brought in. it is an assignment of future rights 4. Gratuitous assignments are permissible as consideration is not required. The assignor must manifest an intent to immediately and completely transfer rights. However. or reputation 3. *duties involving the party¶s particular judgment. the assignor. The effect of an assignment is to establish privity of contract between the obligor and the assignee. *there is a contractual restriction on delegation or assignment 2. all duties may be delegated. the assignment is prohibited by law . a special trust was reposed in the delegator by the other party to the contract Rights and Obligations of the Parties The delegator remains liable to the obligee on the contract. extinguishing it between obligor and assignor. Exam Tip: Distinguish from novation ± substitutes a new party for an original party to the contract. all contractual rights may be assigned.
the assignee can show detrimental reliance on the gratuitous assignment NY Distinction: A gratuitous assignment is irrevocable if in writing and signed by the assignor. Exceptions: A later assignee for consideration who took the assignment without notice of the prior assignment will prevail if the subsequent assignee is the first to get payment or a judgment against the obligor. meaning no consideration was given for them. the fact pattern is always the same ± an owner takes jewelry or a car in to be repaired by a merchant who also sells that particular kind of good and the merchant accidentally sells the item to someone else. are revocable by: 1. meaning they bought it in the ordinary course of business without knowledge that the sale is in violation of the ownership rights of another. Irrevocable Assignments An assignment for consideration is irrevocable. subsequent assignment of the same right to another 4. . gratuitous assignments. The first assignee for consideration prevails over all subsequent assignees and all prior gratuitous assignees. Exam Tip: If you encounter multiple assignments in a question. death/bankruptcy of assignor Exceptions: However. the obligor has already performed 2. you should analyze each assignment in the order it was made to see if that particular assignment was valid. Revocable Assignments Generally. a gratuitous assignment is not revocable if: 1. notice of revocation 2. assignor taking performance directly from the obligor 3. The assignee can sue the assignor for wrongfully revoking an irrevocable assignment. Rights and Obligations of the Parties Assignee can sue the obligor because the assignee is the party entitled to performance. Successive Assignments of the Same Rights The last gratuitous assignee in time prevails over earlier gratuitous assignees because a later gratuitous assignment revokes an earlier one. Entrustment An owner who entrusts goods to a merchant who deals in goods of the kind has no rights against a bona fide purchaser. The obligor can raise any defense inherent in the contract.Assignment of the Entire Contract An assignment of an entire contract transfers both rights and obligations. Exam Tip: On the bar exam.